A long-time recognised world leader in test and evaluation, QinetiQ is a multinational defence technology company headquartered in Farnborough, Hampshire operating primarily in Defence (Air, Maritime and Land nationally and internationally) security, space and critical technologies.
Announcing a trading update this morning QinetiQ has confirmed that due to disciplined execution of strategy strong operational performance witnessed in the final Q4 period of the year to 31st March 2023 means that the company now anticipates FY23 results to be ahead of previous guidance and in the upper range of consensus expectations.
The company said in a statement to shareholders this morning that:
Following an impressive fourth quarter, full year order intake is up by 40% at a record-high of more than £1.7bn, demonstrating the continued high demand for our distinctive offerings. Subject to audit, we expect to deliver high-teens percentage total revenue growth at stable margins, with underlying operating profit of at least £175m, including the benefit of the Avantus and Air Affairs acquisitions.
In addition to the robust orders, revenue and profit performance, cash flow management continues to remain consistently strong and we have successfully reduced leverage to below 1x, ahead of our original guidance by 12 months. Global Products performance has been good, in particular our US business has delivered well, with high order intake of $280m and impressive revenue growth of 25%, prior to the benefit of Avantus. We have won a number of key contracts in the US that will support the delivery of our ambitious growth targets. These include a $93m 4-year sole source Indefinite Delivery Indefinite Quantity (IDIQ) Digital Night Vision Technology contract and c.$20m of orders to support the ongoing US Army Robotic Combat Vehicle Light (RCV-L) experimentation. Since completion of the acquisition of Avantus at the end of November 2022, the business has continued to perform well, including two successful re-competes and selection for a new $80m multi-year contract with a national intelligence customer.
In the first four months of our ownership, whilst new business awards were lower than assumed, we achieved good performance across our contracts delivering $100m revenue at our expected margin of 10.8%. Integration is progressing ahead of plan and we are actively pursuing revenue synergies by leveraging and cross selling our offerings to our existing and new customer base. The combination of capabilities across QinetiQ and Avantus has created a disruptive defence and intelligence business in the US and we remain on-track to deliver on the strategic and financial returns outlined previously. In EMEA Services, we have achieved a number of strategic wins with continued good growth in the UK and Australia.
In the UK we have won a £259m 10-year renewal of the Maritime Strategic Capability Agreement (MSCA) with the Submarine Delivery Agency to deliver critical sovereign capabilities in the assurance of the Royal Navy’s surface and subsurface fleet, including the UK’s continuous at sea deterrent. In addition, we won an £80m 10-year mission data contract, known as SOCIETAS, with the UK MOD to provide expertise, training and support to accelerate and transform mission data production enabling the military to be better protected in a rapidly changing threat landscape and enhance the performance of advanced military systems. In Australia we have won a A$13m 3-year contract to develop and manufacture a high energy defensive laser weapon system prototype, to establish a sovereign incountry High Energy Laser manufacturing capability for Australia, demonstrating our global leverage of advanced technology from the UK into Australia. Integration of Air Affairs is progressing to plan and performance remains in-line with expectations.
QinetiQ Group CEO Steve Wadey said:
“Our better than expected Group performance and strong order book is testament to our employees and their clear focus on the disciplined execution of our strategy. The integrations of Avantus and Air Affairs, two strategically significant acquisitions in the US and Australia, are progressing well and create a strong global platform. These achievements, coupled with effective use of our balance sheet, provide positive momentum for us to deliver sustainable performance in the years ahead and we remain on-track to reach our strategic growth ambition. Our distinctive offerings remain in high demand, demonstrating we are well placed to respond to our customers’ long-term needs driven by world events and the importance of a technologically advanced defence industry to the national security interests of our 3 home countries.”
QinetiQ is a fascinating and very fast-growing specialist organisation. It is one in which I hold in very high respect for what is does, for what it has already and continues to achieve, its well-designed global strategy and superb management.
I last wrote QinetiQ only ten days ago following the announcement that it had been awarded a £259 million renewal of the Maritime Strategic Capability Arrangement (MSCA) and ahead of full year results which are due to be announced on May 23rd it may be useful to remind of not only some of the many activities in which QinetiQ as a leading science and engineering company operating primarily in defence and security markets does:
Operating in the UK and internationally, QinetiQ is a world-centre of excellence in research and development, acting as a catalyst for fast-track innovation, offering outstanding experimentation facilities, technical, engineering and scientific expertise. The land, sea and air ranges that the company operates in respect of test and evaluation services are some of the most advanced in the world. The company also provides mission-critical solutions in robotics and autonomous systems, sensing, protection systems, and next-generation autonomous vehicles.
Primarily operating in defence, aviation and aerospace, energy, maritime, space and telecoms, QinetiQ engages in evaluation, integration and securing of platforms, systems, information and assets on which missions depend. The company provides agile and realistic testing and training experiences that are reliable, cost-effective and an accurate representation of the threats and challenging scenarios they face.
The company has a large and growing presence in the USA and other important countries such as Australia. QinetiQ US is a leading defense and security company in the United States providing mission-led innovation at pace and is a provider of technologically advanced services and products to the US Department of Defense and national security agencies. QinetiQ’s engineering services span the DoD and Intel community providing subject matter expertise in the areas of communications, sensor integration and research and development, survivability and unmanned ground combat systems.
I will finish by suggesting that the increase in full year guidance expectation for the year just ended clearly bodes well for the current year. QinetiQ has made some particularly interesting and, in my view, excellent international acquisitions in the USA and Australia over the past couple of years and the full benefit of these is yet to fully show through.With a strong balance sheet (net cash at half year end in September was £264m and statutory net cash flow from operations was £99m making 106% cash conversion pre-capex) and order backlog that I would estimate to be in excess of £3bn, this is a highly specialist company moving forward fast in the right direction fast. The forward strategy is built around delivering strategic growth ambitions and driving sustainable growth within what the company believes to be in excess of a £20bn addressable revenue market. QinetiQ is in my view delivering and it is well worth following.
CHW (London – 17th April 2023)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785