Revenue improves but profit falls as expected at QinetiQ

QinetiQ Group reported positive strategic progress in its interim results on Thursday, with revenue growing to £420.3m in the six months ended 30 September, from £392.5m in the same period last year.

The FTSE 250 firm said its operating profit for the period was down to £47.3m for the period, however, from £67.5m a year ago, with profit after tax also slipping to £50.1m from £64.1m.

Earnings per share slipped to 8.9p from 11.3p, with the board declaring an interim dividend of 2.1p per share, in line with that paid at the halfway point of the 2018 financial year.

Net cash flow from operations was up to £50.9m from £35.7m, with net cash improving to £249.1m at period end, from £194.7m 12 months earlier.

On the operational front, QinetiQ said it delivered organic growth in orders and revenue during the period, and claimed operating profit was in line with its expectations.

It reported a 9% organic increase in orders, and an 8% organic increase in revenue, which was said to have been driven by growth in both EMEA Services and Global Products.

The board described underlying operating profit as “stable”, noting that the prior period included £6.5m of non-recurring trading items, and the current period margin as being impacted by Global Products' phasing.

Cash performance was said to be “strong”, with an underlying cash conversion of 100% pre-capital expenditure.

QinetiQ said it was driving growth through its “competitive” campaign wins, noting that it had won the title of ‘Engineering Delivery Partner’ for all engineering services for the Ministry of Defence’s procurement agency.

It also won a battlefield communications programme worth up to £95m, which it said was its largest competitive win, as well as its first US robotics programme of record worth up to $44m for route clearance systems.

The company had acquired EIS Aircraft Operations and 85% of Inzpire, which the board said enhanced its operational training offer, and had improved its international share of revenue from 26% to 31% over the last year.

Looking ahead, QinetiQ said its priorities for the rest of the year were to conclude long term partnering agreement (LTPA) negotiations with the UK Ministry of Defence, as well as to win further campaigns and continue investment to drive sustainable profitable growth.

The board said 90% of 2019 financial year revenue was already under contract, maintaining expectations for group performance.

“Significant competitive campaign wins, strong organic revenue growth and appropriate deployment of capital demonstrate that our strategy is now really delivering,” said group chief executive Steve Wadey.

“Our good first half means that we are well placed to meet our expectations for full year performance.”

Wadey said the company was now positioned for sustainable and profitable growth, reinforcing its “market-leading role” in the UK and using that to expand internationally.

“We continue to take steps to mitigate the effects of changes in the UK single source profit rate and expect this headwind to moderate in the 2020 financial year and beyond, enabling growing revenue to deliver increased profitability.”