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QinetiQ – Interim Results Point Way to Future Growth. By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.



Having already delivered two years of revenue and profit growth QinetiQ continued a much welcomed consistency of performance last week when it provided investors with results for the half year ended 30th September 2018 showing a 9% organic increase in orders, 8% organic increase in revenue – this driven by growth in both EMEA Services and Global Products – stable underlying operating profits together with strong cash performance that included 100% pre-capex underlying cash conversion. Of additional interest was the decision to change dividend payment policy meaning an interim pay-out amounting to one third the level  of last year’s full year dividend paid.

2018 has clearly been a good year for QinetiQ so far and through what I have previously described as being a deliverable and sustainable future growth strategy it is interesting to note that during the first half of the year the company has been successful in a number of contract wins. These have included being awarded Engineering Delivery Partner, this covering all engineering services for the UK’s MOD procurement agency, the battlefield communications programme worth up to £95m and which is the company’s largest competitive win and the first US robotics Program of Record which is worth up to $44m for route clearance systems.

In addition QinetiQ has completed the acquisition of EIS Aircraft Operations and also announced an 85% shareholding in Lincoln based Inzpire in order to significantly enhance its operational training offer.

With 90% of FY19 revenue already under contract QinetiQ has maintained expectations for group performance. Importantly, the company has also managed to grow the international share of its revenue from 26% last year to 31% in 2018.

Looking to the rest of this year QinetiQ told investors that the priority for the rest of this year was to conclude the Long Term Partnering Agreement (LTPA) negotiations with UK MOD and to win additional campaigns in which the company is involved and to continue investing in order to drive further sustainable profitable growth.

With the core values of QinetiQ being integrity, collaboration and performance, it is really good to see QinetiQ delivering on its promise of growth and improved performance. The ‘feel’ of innovation within this company is very evident. Following a visit that I made earlier this year I subsequently described QinetiQ as a company that thrives on innovation, one that has research and development, training, disruptive technology, test and evaluation plus other important specialisms writ large in its DNA.

Focussing on targeted markets in the primary sectors of Defence, Security and Critical Infrastructure and within existing home countries such as the UK, USA and Australia together already identified additional countries in Europe, Middle East and Asia-Pacific, the growth strategy that CEO Steve Wadey has laid out looks very deliverable.

The primary vision behind the growth strategy is to expand into deliverable markets, focus on core offerings that, for instance, include Research & Development and Test and Evaluation plus Training – Integrated Capability Generation & Assurance, Services and Products and Disruptive Technology and deliver to a vast range of addressable markets that the company believes are worth potentially in excess of £8 billion per annum.

In seeking to be the chosen partner around the world for mission critical solutions QinetiQ has set itself harsh objectives such as improving customer focus and competitiveness, modernising and reinvigorating the Long Term Partnering Agreement (LTPA) for the MOD, building of agile, competitive Test and Evaluation services for industry, grow Cyber, Information and Training businesses, accelerate growth in the US and Australian businesses, establish key partnerships in the Middle East in countries such as for instance, Saudi Arabia, Qatar, UAE and Oman, win new export sales whilst at the same time improve business winning approach through campaigns.

In the UK QinetiQ has modernised the hugely important Defence Test and Evaluation enterprise with which it works in partnership with government and prime contractors. Internationally the company intends to build a much larger footprint in chosen areas of expertise where it considers that it can deliver additional value to customers and in doing so, expanding the number of ‘home countries’ that it operates in. It is by investing in innovation that the company believes that it will win new business and be able to apply the many inherent strengths that it has for customer advantage within the defence, security and critical infrastructure markets.

While QinetiQ has made two important acquisitions over the past year, in terms of future capital allocation a large part of the forward strategy will be to invest in organic capabilities and to complement through bolt-on acquisitions where these may be considered to be a strong strategic fit. With a balance that contains net cash and, rarely in this day and age, being a company that has a pension surplus, QinetiQ looks to me to be very well placed to achieve the strategy and growth objectives that it has set for itself.

Importantly as well from an investment perspective is that management of QinetiQ know that while having a precise and well-thought out strategy is key to delivery of performance enhancement and sustainable growth objectives that the need to have strong communication both within the company and across the customer and investment community is vital.

As I mentioned earlier in the year when I visited the Empire Test Pilot School (ETPS) at Boscombe Down where QinetiQ is responsible for a wide range of military and civil, fixed wing and rotary, fast jet and multi engine, real and simulated training, the combination of investment, innovation and changes made throughout this particular organisation leave it very well placed to be far more competitive than hitherto in order to win new business. In partnership with other test centres and organisations around the world also allows ETPS students access to a wider range of training platforms than in the past. The investment in aircraft and simulation equipment at ETPS together with plans to increase numbers of foreign pilots trained here in the UK ensures a very interesting future.

To list all that QinetiQ is involved in would take far too long but to whet the appetite I would include agile experimentation, threat representation, live synthetics, evidence based analysis, providing of advice, intelligence, information, systems, protection, unmanned systems, developing Space systems and communication, engagement in Disruptive Technology creation, advanced materials, sensing, communications, autonomy, analytics and directed energy, test and evaluation, training and rehearsals, all forms of test and evaluation, Cyber Security/Attack and asset protection.

CHW (London – 16th November 2018)

Howard Wheeldon FRAeS

Wheeldon Strategic Advisory Ltd,

M: +44 7710 779785

Skype: chwheeldon




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