28 Nov 07. QinetiQ Group plc Interim Results Announcement six months ended 30
September 2007. Financial highlights.
Revenue increased 18.5% to £638.8m (2006: £539.2m), with organic growth of 8.4%
Underlying operating profit up 34.5% to £46.0m (£2006: £34.2m), with organic growth of 21.6%.
Underlying operating cash conversion of 159% (2006: 51%)
Profit before tax up 9.3% to £25.9m (2006: £23.7m)
Underlying earnings per share increased 29.3% to 4.6p (2006: 3.6p per share)
Basic earnings per share increased 8.4% to 3.4p (2006:3.1p per share)
Interim dividend increased 10.8% to 1.33p (2006:1.2p)
Orders won in period grew 12.9% to £592.2m (2006: £524.6m)
Contracted and funded backlog (excluding LTPA) increased 8.4% to £922.5m (31 March 2007: £850.9m).
Backlog is £5.6bn including LTPA contract (31 March 2007: £5.7bn).
QinetiQ North America revenue increased 54.8% to £256.6m (2006: £165.8m), with organic growth of 24% and a strong book to bill ratio of 1.2:1. Strategic review of EMEA has identified opportunities to drive efficiencies – at least £10m per annum operating profit improvement. Cost of £30m to £35m in the second half of the year. Group operating margin target increased to 11%.
Confirmation of progress on DTR Package 1 opportunity. Package 2 remains under evaluation.
Commenting on the results, Graham Love, Chief Executive Officer, said: “The Group produced a strong performance in the six months to 30 September 2007 confirming continued delivery against our strategy. The North American defence and security market continues to provide the greatest opportunity for expansion within the Group and in the period this sector has driven strong order and turnover growth. With the establishment of the EMEA sector this year we are planning to continue to focus on growth opportunities in the UK, supplemented by replicating selected service offerings from our core UK market into appropriate other defence markets globally. As a result of the strong trading performance and forward order visibility in QNA, together with a lower tax cost, the Board anticipates that underlying performance for the Group for the year as a whole will be at the upper end of previous expectations.”
Comment: Despite increased profits and new orders, the QinetiQ share price remains stubbornly below the 185p offer price having rallied briefly above this in January this year at 210p. Reuters report that analysts see a mean price of 202.5p with a high of 265p and a low of 180p. The price rose 179.25p today +7p on the day on these Results which do not give much comfort to shareholders. With most of the growth coming from North America, the rest of the Group’s growth remains slow, thus reflecting the stubborn share price. With dynamic new companies such as Nick Prest’s dynamic and growing Cohort plc. nipping at QinetiQ’s long-held research arm and a slowdown in the US where we report today the Defense News story of USAF Battlelabs closing the best hope for QinetiQ looks like renewed takeover speculation. L-3 were the original suggestion to buy QinetiQ but that company looks more of a takeover target than an acquirer. With UK defence spending virtually frozen and Europe still static it is difficult to see where a buyer may come from – perhaps the Middle East?
Notes: QinetiQ’s total turnover under UK GAAP increased from £774.9m in FY 2003 to £795.4m in FY 2004 and £872.4m in FY 2005 (31 March year end). QinetiQ’s total operating profit under UK GAAP before exceptional items, goodwill amortisation and impairment has increased from £35.7m in FY 2003 to £54.1m in FY 2004 and £69.3m in FY 2005.
2006 £ 2005
Turnover 1,051.7m 855.9m
Underlying operating profit 90.7m 82.3m
Underlying operating profit 90.7m 65.2m
(excluding profit on
disposal of interest