With an excellent set of full year results to 31st March 2023 delivered this morning – these characterised by a strong increase in revenue, profits, order intake and dividend – QinetiQ is, through its many distinctive offerings combined with excellent reputation and the huge importance placed on customer satisfaction, showing a new determination to grow in its three primary home markets – UK, USA and Australia.
With an established track record of success, excellent financial performance and with a fast-growing addressable market – the company has now increased this to c£30bn annually – QinetiQ is very well-placed as it enters FY24 – in the right place and at the right time. The future for this very well-run company remains, as far as I am concerned, nothing short of very exciting.
In respect of FY23 financial performance and excluding the impact of the FY22 write down, organic based revenue and profits are up 11% and 12% respectively. Orders increased by a whopping 41% to £1.7bn and the order backlog is now an increased £3.1bn. Cash performance was strong with a conversion rate of 106% and the company ended the year with a strong balance sheet with net debt standing at £206.9 million. Underlying EPS rose to 26.5p and the full year dividend was raised 5% to 7.7p.
QinetiQ describes itself as an integrated global defence and security company focused on mission-led innovation. But it is far more than that and as the company expands internationally the vital importance of what is does and achieves the message that this is a company that isn’t prepared to stand still is reaching a wider audience of potential investors.
Based in Farnborough, Hampshire, QinetiQ employs more than 8,000 highly-skilled people across the world. Ambitious in a still fast growing global market, always looking forward and making opportunities happen, QinetiQ remains 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.
In respect of people, process and strategy, QinetiQ CEO, Steve Wadey has transformed this fascinating and important primarily defence-based company over the past few years and in the process, he has also made some important acquisitions, particularly in the USA with Avantus and in Australia with Air Affairs. These will undoubtedly prove to be very beneficial additions to the company in the years to come.
In his review of the FY23 results CEO Steve Wadey pointed to the following:
“We delivered excellent operational performance throughout the year, reflecting continued disciplined execution of our strategy. We grew orders by 41% at a record-high of more than £1.7bn, demonstrating the continued high demand for our distinctive offerings. We achieved 20% revenue growth, 11% on an organic constant currency basis excluding the impact of the write-down in the prior year, with underlying operating profit margin at 11.3%. In addition to the robust orders, revenue and profit performance, cash flow management continues to remain strong with 106% underlying cash conversion.
We have successfully reduced leverage to 0.8x net debt to EBITDA, a year ahead of our original guidance. EMEA Services continues to perform well, delivering 10% organic revenue growth and margins of 11.6%, with ongoing investment in our people supporting long-term growth. Global Products performance has been strong with revenue growth of 20% organically and profit margin of 10.4%. In particular our US business has performed well, with high order intake of $280m and impressive revenue growth of 25%, prior to the benefit of the Avantus acquisition.
We have won a number of key contracts in the US that will support the delivery of our ambitious growth targets. The performance throughout the year in the US demonstrates greater stability and resilience, providing a strong platform for continued growth.
Today we are announcing an increase in our global ambition for the company. We are targeting high single digit organic revenue growth at stable 11-12% margins, supplemented by strategically aligned acquisitions to build a business with revenues of c.£3bn by FY27.
As we pursue our strategy the geographic mix of the company will change. Whilst the UK will scale by 50%, we will more than double the scale of our businesses in Australia and the US. This evolving mix across our home countries will result in delivering higher revenue growth at 11-12% margins, representing upper quartile performance. The result of this upgrade in our long-term guidance will deliver an increase of approximately 20% profit by FY27, compared to our previous guidance
Significant Orders Achieved
During the year QinetiQ renewed its Maritime Strategic Capability (MSCA) Agreement with the Submarine Delivery Agency and which I previously wrote on. The MSCA contract which is worth £260m spread over ten years will continue to deliver critical capabilities in hydromechanics, Stealth, Signatures, Structures and Maritime Life Support for the Royal Navy. In addition, the QinetiQ led Team Pegasus was awarded an £80m ten year Transforming Mission Data contract by the MOD and in the US the company was awarded a £93 million four-year contract to support the US Army with its development, testing, training and deployment of Digital Night Vision Technology.
FY24 expectations are unchanged but the company has entered the year with confidence, a healthy order-book and positive momentum with 61% revenue under contract. Consistent with our upgraded long-term guidance, we expect to deliver high single digit revenue growth compared to the FY23 pro-forma revenue (full year effect of FY23 M&A activity); this equates to high teens total revenue growth versus the FY23 reported revenue. Operating profit margin will be at the lower end of the 11-12% range. Capital expenditure is expected to remain within the £90m to £120m range.
QinetiQ is about delivering what the customer is seeking and about achieving success in all of its fields. A purpose-driven company, QinetiQ strategy is about building one integrated global defence and security company in three home countries – UK, USA and Australia – with six distinctive offerings. Not surprisingly, QinetiQ has strong ambitions in respect of the AUKUS agreement between the UK, US and Australia and not without good reason!
QinetiQ is also about ‘Growing Market Opportunities’ wherever it can and the hugely successful acquisitions of Avantus and Air Affairs proves that in abundance. The plan is that the evolving mix of activities within the three home markets and the company is confident enough to raise guidance toward a 20% increase in profits by FY27.
The bottom line initially targets high single digit organic revenue growth supplemented by strategically aligned acquisitions and intent to build QinetiQ to a £3bn company by 2027. Having radically changed operation, senior people, attitudes, strategy and thinking and having energised the company with a can do/will do approach and motivation to succeed, I am in no doubt that Steve Wadey and his excellent management team will achieve all the objectives they have set and a lot more besides. Watch this space.
CHW (London – 25th May 2023)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785