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RNS Number : 3411Z
QinetiQ Group plc
26 May 2016
QinetiQ Group plc
Creating the conditions for growth
QinetiQ, a leading science and engineering company operating
primarily in the defence, security and aerospace markets, today
publishes its full year results for the year to 31 March 2016.
2016 2015
Business Performance - continuing
operations(+)
Orders GBP659.8m GBP613.6m
Revenue GBP755.7m GBP763.8m
Underlying operating profit* GBP108.9m GBP111.3m
Underlying operating margin* 14.4% 14.6%
Underlying profit before GBP108.7m GBP107.8m
tax*
Underlying earnings per
share* 16.3p 15.2p
Underlying net cash flow GBP103.6m GBP114.9m
from operations (post capex)*
Underlying cash conversion
ratio* 96% 103%
Net cash GBP274.5m GBP195.5m
Full year dividend per share 5.7p 5.4p
Statutory Reporting
Operating profit from continuing GBP75.3m GBP109.5m
operations
Profit attributable to shareholders GBP106.1m GBP104.7m
Total earnings per share 18.1p 16.6p
(+) The Group completed the sale of US Services on 23 May 2014.
Total Group performance in 2015 included approximately two months
contribution from US Services. 2015 continuing operations (above)
comprise EMEA Services and Global Products but exclude US Services.
The statutory reporting summary above includes the effect of
specific adjusting items and discontinued operations as defined in
note 1 and as outlined in note 3.
Headlines
-- Solid operating performance in FY16
o 8% increase in orders due to a multi-year contract
renewal
o Stable revenue and profitability with continued
high cash conversion
o Disposal of non-core Cyveillance business for
net disposal proceeds of GBP22m
o 6% increase in the full year dividend; GBP47m
remaining of share buyback programme
-- Focus on delivery of FY17
o Markets continue to be challenging with some
de-scoping and delay to orders
o 74% of FY17 revenue under contract, broadly consistent
with previous year (77%)
o Board expectations for Group performance in FY17
remain unchanged
-- Creating the conditions for growth
o Set out vision and strategy
o Reorganised the company
o Launched a transformation programme to improve
customer focus and competitiveness
Steve Wadey, Chief Executive Officer said: "Last year we
delivered a solid operating performance in challenging markets. The
expertise of our scientists and engineers is well matched to
emerging themes in global markets. We are capable of more. I have
set out our vision and strategy, reorganised the company and
launched a transformation programme. These changes are creating the
conditions for growth."
S
Other information
There will be a presentation of the preliminary annual results
to analysts at 0900 hours UK time on 26 May 2016 in the Milton
Suite, The Grange Hotel - St Pauls, 10 Godliman Street, London EC4V
5AJ. Registration for the webcast is available at:
www.QinetiQ.com/investors where the presentation will also be
available. An audiocast of the event will be available on +44 (0)20
3059 8125 (confirmation: QinetiQ).
About QinetiQ:
Listed on the London Stock Exchange (LSE: QQ.L), QinetiQ is a
leading science and engineering company operating primarily in the
defence, security and aerospace markets. Our customers are
predominantly government organisations, including defence
departments, as well as international customers in other targeted
sectors. See www.QinetiQ.com | www.QinetiQ-blogs.com |
@QinetiQ.
For further information please contact:
Investor relations: David Bishop, QinetiQ +44 (0) 7920 108675
Media relations: QinetiQ press office +44 (0) 1252 393500
Chris Barrie, Citigate
Dewe Rogerson +44 (0) 7968 727289
Disclaimer
This document contains certain forward-looking statements
relating to the business, strategy, financial performance and
results of the Company and/or the industry in which it operates.
Actual results, levels of activity, performance, achievements and
events are most likely to vary materially from those implied by the
forward-looking statements. The forward-looking statements concern
future circumstances and results and other statements that are not
historical facts, sometimes identified by the words 'believes','
expects', 'predicts', 'intends', 'projects', 'plans', 'estimates',
'aims', 'foresees', 'anticipates', 'targets', 'goals', 'due',
'could', 'may', 'should', 'potential', 'likely' and similar
expressions, although these words are not the exclusive means of
doing so. These forward-looking statements include, without
limitation, statements regarding the Company's future financial
position, income growth, impairment charges, business strategy,
projected levels of growth in the relevant markets, projected
costs, estimates of capital expenditures, and plans and objectives
for future operations. Forward-looking statements contained in this
announcement regarding past trends or activities should not be
taken as a representation that such trends or activities will
continue in the future. Nothing in this document should be regarded
as a profit forecast.
The forward-looking statements, including assumptions, opinions
and views of the Company or cited from third party sources,
contained in this announcement are solely opinions and forecasts
which are uncertain and subject to risks. Although the Company
believes that the expectations reflected in these forward-looking
statements are reasonable, it can give no assurance that these
expectations will prove to be correct. Actual results may differ
materially from those expressed or implied by these forward-looking
statements. A number of factors could cause actual events to differ
significantly and these are set out in the principal risks and
uncertainties section of this document.
Most of these factors are difficult to predict accurately and
are generally beyond the control of the Company. Any
forward-looking statements made by, or on behalf of, the Company
speak only as of the date they are made. Save as required by law,
the Company will not publicly release the results of any revisions
to any forward-looking statements in this document that may occur
due to any change in the Directors' expectations or to reflect
events or circumstances after the date of this document.
Group overview
Orders grew 8% to GBP659.8m (2015: GBP613.6m), due to the award
of a GBP153m five-year renewal from the UK Ministry of Defence
(MOD) for aircraft engineering support, partially offset by some
de-scoping and delays to orders in a challenging market
environment. At the beginning of the new financial year, 74% of the
Group's FY17 revenue was under contract, compared with 77% a year
ago.
Revenue was GBP755.7m (2015: GBP763.8m), down 1% on an organic
basis after adjusting for foreign exchange movements and the
divestment of the non-core Cyveillance business in December 2015
for net disposal proceeds of GBP22m.
Underlying operating profit* was GBP108.9m (2015: GBP111.3m).
Growth in EMEA Services, which benefited from a credit of
approximately GBP3m due to the resolution of a historical overseas
exposure, was offset by a reduction in Global Products, impacted by
a reduction in income from the oil and gas sector and the
completion of certain programmes in the prior year.
Underlying profit before tax* increased 1% to GBP108.7m (2015:
GBP107.8m) with underlying net finance costs* falling to GBP0.2m
(2015: GBP3.5m) as a result of the early repayment of the private
placement debt in the prior year. Underlying earnings per share*
for the continuing Group increased 7% to 16.3p (2015: 15.2p),
benefiting from the higher underlying profit before tax* and
reduced share count as a result of the Group buying back shares.
Basic earnings per share for the total Group (including
approximately two months of US Services in 2015) were 18.1p (2015:
16.6p per share).
Specific adjusting items, shown in the 'middle column', at the
profit after tax level amounted to a total credit of GBP10.2m (FY15
credit: GBP8.0m). They included a profit of GBP16.2m recognised on
the disposal of Cyveillance, a GBP7.5m gain following the closure
of certain US Services warranty issues and a GBP31.9m impairment of
US goodwill. There was also a net tax credit of GBP21.2m which
includes the impact of the statutory change to the research and
development tax credits regime offset by the associated surrender
of previously capitalised tax losses and other non-recurring
deferred tax movements. The prior year statutory operating profit
included a profit of GBP15.9m recognised on the disposal of US
Services, a GBP25.2m credit in respect of the capitalisation of a
proportion of the Group's unused tax losses and a one-off
accelerated interest cost of GBP28.8m associated with the early
repayment of the private placement debt.
Underlying operating cash conversion* remained strong at 96%
(2015: 103%), delivering an underlying cash flow from continuing
operations* of GBP103.6m (2015: GBP114.9m). At 31 March 2016, the
Group had GBP274.5m net cash, compared to GBP195.5m net cash at 31
March 2015 and GBP181.5m at 30 September 2015. The increase was
primarily due to the Cyveillance disposal proceeds and net tax
receipts of GBP27.9m (2015: GBP8.8m).
Priorities for capital allocation are:
1. Organic investment complemented by bolt-on acquisitions where
there is a strong strategic fit,
2. The maintenance of balance sheet strength,
3. A progressive dividend, and
4. The return of excess cash to shareholders.
A GBP150m share buyback was initiated on 28 May 2014 following
the US Services disposal and completed by 30 September 2015 with
72.5m shares purchased in total. An additional GBP50m share
repurchase was announced in November 2015 to be executed over 12
months, of which GBP47m remains to be completed.
The Board proposes a final dividend of 3.8p (2015: 3.6p) making
the full year dividend 5.7p (2015: 5.4p). Subject to approval at
the Annual General Meeting, the final dividend will be paid on 2
September 2016 to shareholders on the register at 5 August 2016.
The full year dividend represents an increase of 6% reflecting the
Group's progressive dividend policy.
Trading environment
QinetiQ is a leading science and engineering company operating
primarily in the defence, security and aerospace markets.
UK
Alignment with UK defence customers
In the financial year to 31 March 2016, 67% (2015: 67%) of
QinetiQ Group revenue was generated from the MOD in addition to 3%
(2015: 3%) from other UK Government Departments. We are the UK's
leading provider of test and evaluation (T&E) services across
all military domains and the majority of equipment programmes. We
generate more than GBP300m per year from T&E, underpinned by
the Long Term Partnering Agreement (LTPA) which has delivered an
improved service and significant savings for the MOD over the last
13 years. We estimate the UK T&E market is double this size and
the addressable market worldwide is much greater. Leading the UK
T&E enterprise by working in partnership with Government and
prime contractors is a strategic priority for QinetiQ. In addition,
we remain a market leader in research and advice in specialist
areas such as C4ISR (Command, Control, Communications, Computers,
Intelligence, Surveillance and Reconnaissance), weapons and
energetics, cyber security and procurement advisory services.
Within the MOD, the main customers for our services are the
MOD's procurement function DE&S (Defence Equipment and
Support), the Defence Science and Technology Laboratory (Dstl) and
the Front Line Commands (Navy, Army, Air and Joint Forces), whose
influence on future capabilities has increased in recent years. Our
businesses are aligned closely to these Commands and are well
placed to help them with their growing procurement
responsibilities. In particular, Joint Forces Command, with its own
procurement arm and multi-billion pound budget, provides a focused
channel for our Cyber, Information & Training business.
The UK Government's Strategic Defence and Security Review (SDSR)
was published on 23 November 2015. Its publication has helped to
clarify the UK's capability priorities, but it will take time
before its impact on the associated allocation of the UK defence
budget is clear.
Delivering more for less
As part of the SDSR, the MOD has declared plans to address
important capability gaps such as maritime surveillance (through
the purchase of nine new aircraft) and combat air numbers (by
extending the life of Typhoon aircraft that have been in service
for some time). These plans will require immediate savings to be
made elsewhere in the 'defence enterprise' to fund them, with the
UK Government looking to achieve a 30% reduction in MOD civilian
staff and in 'built' estate and to deliver GBP11bn of savings from
defence and security budgets over the next four years.
The introduction of new capabilities, and in particular
extending the life of existing capabilities, provides QinetiQ with
opportunities to deliver engineering, test and evaluation services.
The savings programmes could also provide further opportunities for
outsourcing, along with increased MOD presence on our sites. There
is likely to be increasing competition, but QinetiQ is well
positioned due to its strong record in delivering improved services
combined with significant savings (ie more for less) for
customers.
MOD spending on science and technology will continue to be
protected at 1.2% of the defence budget with an increased emphasis
on disruptive technologies and innovation, and a move away from
some more traditional research programmes. Space, cyber security
and cryptography are among the priorities, areas in which QinetiQ
has recognised expertise.
The Single Source Regulations Office (SSRO) is now fully
established as the independent regulator for single-source defence
contracts driving greater transparency that will help demonstrate
the value for money the Government derives from Qualifying Defence
Contracts (QDCs). The SSRO has confirmed the baseline profit rate
for new single source defence contracts is 8.95% for FY17 (10.6% in
FY16) and that over the course of FY17 it will consult again and
develop the methodology for calculating the baseline profit rate in
future years, potentially introducing multiple profit rates. This
baseline rate acts as the starting point for agreeing the profit
rates of new and renewed contracts, and suppliers can both under
and over-perform the contracted rate depending on, for example,
risk, capital servicing and project execution. Further updates and
clarifications are expected to be published by the SSRO on other
topics affecting QDCs, eg allowable costs.
Our combination of capabilities is unique in the UK and,
consequently, approximately 70% of total EMEA Services revenue is
derived from single source contracts, including the non-tasking
element of the Long Term Partnering Agreement (LTPA). As we have
said before, we anticipate that the majority of our single source
revenue will fall under the regulations within approximately three
years.
Global Markets
Our Global Products division has a significant US footprint,
providing a route to the world's largest defence market and, in the
financial year to 31 March 2016, 6% (2015: 6%) of QinetiQ Group
revenue was generated from the US Department of Defense (DoD).
US defence market: a greater focus on innovation
In the US, the defence downturn is reaching the bottom of the
cycle, with the President requesting continued increases to the
defence budget and the budget for overseas contingency operations.
A renewed commitment by US military customers to unmanned systems
products is reflected in plans to award new competitive Programs of
Record over the next two years to enhance and sustain the US
unmanned systems capability as a funded capability in the DoD
budget.
The President has requested an increased research and
development (R&D) budget for defence which includes the Defense
Innovation Initiative, also known as the Third Offset Strategy, "an
ambitious effort to identify and invest in innovative ways to
sustain and advance America's military dominance for the 21st
Century." This initiative is expected to put new resources behind
innovation and, in particular, R&D in technology to support and
optimise the interaction between humans and machines. These
initiatives align with a number of areas in which QinetiQ has
distinctive strengths including sensor fusion, man-machine
interfaces, autonomy, and unmanned vehicles.
Supporting defence modernisation in Australia
QinetiQ's third home market is Australia. The Australian
Government is responding to the need to modernise its defence
equipment and now plans to replace the majority of its platforms
over the next 15 years, supported by an increase in defence
expenditure to 2% of GDP. In line with the recommendations of its
First Principles Review, in which our Australian business played a
role, the Government is also pursuing a defence transformation
programme similar to that which has been underway in the UK since
the beginning of the decade.
Global investment in defence
Many of our unique capabilities are attractive to customers
beyond the UK, US and Australia, and we have made it a strategic
priority to develop new home markets through partnerships, and grow
sales by exporting our products and services. For example, as the
Canadian Government pursues similar defence transformation
programmes to the UK, it values the advice, test and evaluation
that we can provide in support of better procurement.
In Sweden, where QinetiQ operates the Flight Physiological Test
Centre for the Swedish defence department, the defence environment
is similar, with budget pressures evident against a background of
heightened security threats. Such pressures, on Sweden and other
Northern European nations, can drive greater cooperation on
specific programme opportunities and greater interdependency
between allies in capability provision.
Further afield, in Turkey and the Middle East, budgets remain
more robust, offering increased export opportunities for defence
products and services, albeit these and other nations are
determined to develop indigenous capability for both economic and
sovereignty motives. This can provide seams of growth potential for
QinetiQ's most distinctive capabilities but accessing these markets
will require thoughtful partnering approaches and alignment with UK
Government export initiatives.
Emerging themes in our markets
Increasing threats; reducing budgets
Looking across our home and overseas markets we see a number of
key themes. Governments are having to respond to increasing
security threats with reducing budgets. They need to deliver more
with less. So not only are government customers seeking greater
value for money from their suppliers, they are also looking for
assistance in meeting their own 'efficiency' challenges. Companies
like QinetiQ, with a track record of delivering improved
productivity and innovation in products and services, are strongly
positioned to help.
Innovation in equipment processes and approach
Most governments recognise that being efficient is not enough
and they also need to innovate to respond to these fast evolving
threats. They are seeking new approaches to innovation in both
equipment and processes so that they can rapidly integrate new
technologies into existing capabilities. Investing and applying our
core competence for customer advantage in defence and commercial
markets is a strategic priority for QinetiQ. Many customers are
keen to capture the innovation that comes from universities and
small and medium sized enterprises (SMEs) and are looking for
assistance from organisations that can help them connect their
supply chains. Similarly governments are promoting multilateral
approaches to developing new capabilities, encouraging suppliers to
cooperate internationally.
QinetiQ already delivers an 'innovation integrator' role,
building networks of suppliers to bring together Government,
industry, SMEs and academia in collaborating teams and thereby
facilitating innovation at every stage of the procurement process.
Our Cyber Information & Training (CIT) business, for example,
is the MOD's leading supplier of C4ISR research, managing framework
contracts for the MOD that involve more than 100 UK SMEs.
CEO appointment
Steve Wadey joined QinetiQ as Chief Executive Officer (CEO) on
27 April 2015. He was previously the Managing Director of MBDA UK
and Technical Director for the MBDA Group. During the year he set
out a vision and strategy for QinetiQ and launched a transformation
programme for immediate implementation.
Vision and strategy
Responding decisively to the changing market environment
The world around us is changing. Customers are looking to
achieve more with less and demanding better value for money. This
requires greater efficiency, innovation and collaboration both
domestically and with international partners. We recognise that
staying the same will not be good enough in a changing world.
As a company we have a solid foundation to build on because our
core competencies are well matched to emerging themes in our
markets. We have considerable breadth and depth of knowledge and
capability that we deliver for our customers, particularly in test
and evaluation, and science and technology. Not only are our people
critical to sovereign capability, we are also experienced in
delivering more for less and responding to new challenges through
innovation in services, products and business models. Last year our
customer satisfaction scores remained strong at more than eight out
of ten. Customers have requirements we can meet if we remain
sufficiently agile and responsive to connect their requirements
with the strength and depth of our core technical and engineering
competencies.
Our vision and strategic priorities
We have established an ambitious vision that defines where we
want to be in five to ten years' time, building on our strengths.
Our vision is to be: "The chosen partner around the world for
mission-critical solutions, innovating for our customers'
advantage."
To realise our vision, we are implementing strategic priorities
designed to grow the company by focusing on our primary UK
customer, on international customers and on innovation.
UK - We will be a leader in defence test and evaluation by
working in partnership with our UK customer and prime contractors.
We intend to modernise the approach to test and evaluation in the
UK, focused on introducing a more agile capability. By working in
partnership with Government and other companies, we will help our
customers save money. As threats change we need to ensure that our
test and evaluation capabilities continue to enable our customers
to develop next generation military equipment. For example, in
October 2016, we will host a world-first Royal Navy trial which
will demonstrate how autonomous systems can operate together as
part of a naval fleet.
International - We will build an international company that
delivers additional value to our customers by developing our home
markets, creating new home markets and exporting. QinetiQ will
become an international company, operating around the world. We
will maintain a focus on our home markets (the US and Australia in
addition to the UK) where we already have a presence and market
share, develop new home markets through partnerships, and grow
sales by exporting our products and services. For example, to win
in an export market, rather than compete independently we have
chosen to partner with BAE Systems, with the backing of the UK
Government, for a competition in Chile to upgrade their Type 23
frigates. A 'Team UK' approach.
Innovation - We will invest in and apply our core competence for
customer advantage in defence and commercial markets. QinetiQ will
continue to innovate, focusing on markets where customers have a
clear need for our skills, applying and carefully investing in our
competencies to meet their needs. For example, as part of our new
Internal Research and Development (IRAD) programme, we are funding
projects to develop next generation approaches to test and
evaluation services, robotics and OptaSense applications in the
rail industry.
Transforming our way of working
We are embedding a new way of working to align the company with
our strategy and ensure we are agile and responsive in meeting
customer needs. We have also launched a transformation programme to
deliver the key changes that we need to put in place as a company
to achieve growth.
Delivering benefits to our key stakeholders
Although market headwinds are strong, by working together and
encouraging our peoples' entrepreneurial spirit, we are creating a
customer-focused, collaborative and competitive environment in
order to deliver growth. Our customers will benefit through better
products and services, increased responsiveness and improved value
for money. Our employees will benefit through greater opportunities
to work in integrated teams, utilising their expertise across
multiple domains throughout QinetiQ. Over the medium term, we
expect our shareholders to benefit through growth in quality
earnings as we realise our vision and deliver our full
potential.
Our transformation programme
We have launched a transformation programme to enhance customer
focus, improve competitiveness and drive investment in sustainable
growth.
Leadership and organisation
To respond to a changing market environment we have reorganised
the company, establishing new businesses responsible for our
customer relationships, contract delivery and securing orders
jointly with Business Development. Enabling functions provide
support, in particular the dynamic resourcing of people and assets
from across QinetiQ. Our scientists, engineers and operations
community will be transferred to the new structure during the year,
supported by an effective sales and operational planning process,
enabling us to resource as one company. By improving productivity
there is the potential to deliver efficiencies that will provide
better value for money for customers and headroom for careful
investment.
The leadership team has been strengthened with the appointment
of new Group Directors of Business Development and Human Resources,
and a new CEO for OptaSense, all from outside QinetiQ. In addition,
a new Managing Director International will join this summer.
Operational excellence
Our future success will be built on operational excellence -
doing what we say we are going to do, and underpinned by continued
operational and financial discipline. In addition to driving
efficiency and productivity, we have established a technical
excellence function to improve project delivery.
We are positioning QinetiQ for the future through an integrated
business planning process, the output of which will be a robust
plan. This is supported by a new approach to performance management
which will ensure every employee across the company has clear
objectives aligned to our strategy that support the effective
delivery of our plan. We have also established a Leadership
Community at QinetiQ for the first time, bringing together the top
100 leaders every month to ensure we are focused on our business
performance.
Business winning
Customer requirements are not only changing, they are also
getting more demanding. There is a need to improve our business
winning skills in order to thrive in an increasingly challenging
market, so we have instigated a programme to develop the skills of
our sales teams, bringing in experienced hires where required. We
also need to improve our knowledge of home and international
markets; for example in August we appointed a new CEO for OptaSense
who brings more than 20 years' experience of working in the oil and
gas sector. We have launched a new process for bidding and winning
strategically important corporate campaigns, making best use of the
skills that are available across the company.
As part of the reorganisation of the company, we have created an
International business to deliver our products and services in
international markets. It incorporates businesses with a
significant international footprint and/or those with international
growth potential. Customers outside our home markets are unlikely
to know QinetiQ, so we are also improving the visibility of our
brand through targeted, cost effective marketing - particularly in
European countries such as Belgium and Sweden where we already have
a presence.
Investing in our future
We are driving savings through improved efficiencies and greater
agility which will ensure we remain one step ahead of the
competition and also create the headroom so that we can invest in
our future. This will allow us to invest carefully in R&D,
improve skills and processes, take and manage risk more effectively
on our customers' behalf, and pursue campaigns to grow the
company.
The key enabler to the themes across our markets is innovation,
not just novel technologies but also innovation in products,
services and business models. By working in partnership with our
customers we can propose innovative solutions to meet their
emerging needs. For example, the GBP153m contract renewal for
aircraft engineering services represents a new way of doing
business with MOD, under which we are measured and paid on results
and outputs rather than inputs. Last summer, we launched a new
Internal Research and Development (IRAD) programme for QinetiQ led
by our Chief Technology Officer and guided by an Innovation
Steering Board to ensure that projects are customer-driven and
properly controlled. This programme will develop future products
and services using investment funded through cost savings across
the company. Current projects include OptaSense applications in the
rail industry, next-generation robotics and test and evaluation
services.
QinetiQ has considerable breadth and depth of technical
expertise; we are working to integrate these core competencies and
connect them with customer needs to win market share. The strength
of our balance sheet and the cash generative nature of our
portfolio enables us to invest in our core competencies such as
T&E, with capital expenditure likely to increase further as we
continue to invest in the LTPA and other long-term contracts.
Capital allocation
A key part of building for the future will be capital
discipline. We intend to maintain our priorities for capital
allocation with a focus on investment in creating the conditions
for growth:
1. Invest in our organic capabilities, complemented
by bolt-on acquisitions where there is a strong
strategic fit;
2. Maintain the necessary balance sheet strength;
3. Provide a progressive dividend to shareholders;
4. Return excess cash to shareholders.
FY17 outlook
The UK Government's Strategic Defence and Security Review has
brought clarity to key defence programmes but will require further
savings to be delivered from ongoing defence transformation. This
will provide future opportunities for EMEA Services to build on its
strong record of delivering more for less, whilst recognising that
in the short term there will continue to be uncertainty and the
potential for interruptions to order flow. Although revenue under
contract for FY17 is slightly below that of a year ago, the
division's performance as a whole is expected to remain steady this
year.
The Group's Global Products division has shorter order cycles
than EMEA Services. At the beginning of the financial year, FY17
revenue under contract was slightly above that of a year ago, but
the performance of Global Products remains dependent on the timing
and shipment of key orders.
Overall, the Board's expectations for Group performance this
financial year remain unchanged.
Operating review
EMEA Services
2016 2015
GBPm GBPm
---------------------- ----- -----
Orders(1) 495.4 461.6
Revenue 616.4 625.6
Underlying operating
profit* 93.8 93.0
Underlying operating
margin* 15.2% 14.9%
Book to bill ratio(1) 1.2x 1.1x
Funded backlog(1) 719.1 678.6
---------------------- ----- -----
(1) Excludes the GBP998m third-term of the LTPA contract.
B2B ratio is orders won divided by revenue recognised, excluding
the LTPA contract.
Overview
EMEA Services combines world-leading expertise with unique
facilities to provide technical assurance, test and evaluation and
training services, underpinned by long-term contracts. The most
significant of these is the Long Term Partnering Agreement (LTPA)
for test, evaluation and training services which has delivered an
improved service and significant savings for the MOD over the last
13 years. EMEA Services is also a market leader in research and
advice in specialist areas such as C4ISR, weapons and energetics,
cyber security and procurement advisory services.
Financial performance
Each of the core Air & Space, Maritime, Land & Weapons
and Cyber, Information & Training businesses delivered a solid
performance in 2016 despite the uncertainty resulting principally
from the UK Strategic Defence and Security Review (SDSR) published
in November 2015 and budgetary pressures.
Orders grew 7% to GBP495.4m (2015: GBP461.6m) driven by the
timing of multi-year contract awards (including the GBP153m
five-year UK MOD renewal for aircraft engineering services) with
some continued de-scoping and delay to other orders in a
challenging market environment.
Revenue was flat on an organic basis at constant exchange rates,
after adjusting for the divestment of Cyveillance Inc, which was
sold in December 2015 for net disposal proceeds of GBP22m.
Cyveillance, which had revenues of $18m in FY15, is a former
business unit of the US Services division, sold in May 2014, and
more recently has been reported in EMEA Services. At the beginning
of the new financial year, 77% of EMEA Services' FY17 revenue was
under contract, compared with 80% at the beginning of the prior
year.
Underlying operating profit* increased 1% to GBP93.8m (2015:
GBP93.0m) assisted by a credit of approximately GBP3m due to the
resolution of a historical overseas exposure.
Year in review
Air & Space
With technology developments increasingly blurring boundaries
between air and space systems, our Air & Space businesses were
combined on 1 April 2016 to increase collaboration in our
engineering capabilities to de-risk complex aerospace
programmes.
The business is working in partnership with the MOD and the
supply chain to implement a new model to transform the provision of
aircraft test and evaluation. During the year, it was awarded two
single source contract renewals under this new model, worth a
combined GBP153m over five years, to deliver technical services to
fast jets and heavy lift aircraft. This represents a new way of
working under which we are measured and paid on results and
outputs, not inputs, improving long-term planning, providing better
visibility, and delivering considerable savings to the MOD. This
award complements a GBP13m contract to assist the MOD in bringing
the Delta Test variant of the A400M Atlas into UK service, and a
GBP5m contract to evaluate flight control system upgrades to
Boeing's Chinook helicopter.
In international markets, the Air & Space business was
awarded a five-year extension to the contract under which it
manages and assists in the delivery of training at the Swedish
Flight Physiological Centre. It is also developing the gridded ion
engine electric propulsion systems for the flight module to be used
on the European Space Agency's BepiColombo mission to Mercury.
Significant resources are being deployed by all parties to ensure
the mission meets the planned launch date which has been deferred
to 2018. The business delivers turnkey services for customers using
Remotely Piloted Air Systems (RPAS) to meet growing demand
particularly from international organisations such as the United
Nations. Following the opening of the Snowdonia Aerospace Centre at
Llanbedr in Wales, it successfully demonstrated the use of RPAS in
tackling environmental issues in a project for the Welsh
Government.
Maritime, Land & Weapons
The Maritime, Land & Weapons business was created on 1 April
2016 combining businesses with a strong focus on test and
evaluation at a time when customers are increasingly undertaking
more complex, multi-domain trials. The new business will deliver
operational advantage to customers by providing independent
research, evaluation and training services.
In the weapons domain, the business is a leading provider of
independent research on weapons and energetics, coordinating the
MOD's conventional weapons research programme through its
leadership of the Weapons Science and Technology Centre. During the
year it was also awarded a new research framework contract for
trials, testing and analysis in cyber and electronic warfare, a
five-year contract to provide advice to the MOD on military
batteries and a four-year contract to provide advice to NATO,
contracts which all demonstrate confidence in QinetiQ as a
long-term partner. In addition to research and advice, core
capabilities include test and evaluation, delivered mainly under
the LTPA, and targets services. In October 2015, the business led a
team from across QinetiQ to deliver an international at sea
demonstration at the Hebrides range, the largest in Europe. The
exercise attracted nine ships from eight nations, culminating in
the first ever launch of a ballistic rocket into space from the UK
and its subsequent engagement by an SM3 missile launched by a US
guided missile destroyer. As a result, the business is now pursuing
opportunities for further combat scenario training and
inter-operability testing involving customers from many nations. It
also undertook testing of the latest helicopter-borne Infra-Red
Threat Warning System in live rocket and gunfire scenarios.
Sustaining and growing its core technical advice and design
support services to the UK Royal Navy is a strategic priority for
the Maritime Land & Weapons business, and during the year it
was awarded a new contract to deliver acceptance trials for the
four new MARS class tankers. The business also resolved urgent
operational issues to enable ships to deploy and be effective in
theatre including improving the hydrodynamic efficiency of Type 23
frigates by optimising the design of the propeller and hull,
enabling the Royal Navy to realise potential fuel savings across
its fleet. It also delivered a container-based combat system for
close-in defence against Fast Inshore Attack Craft offering a new,
flexible solution for the self-protection of support ships. The
business is pursuing selected growth campaigns with a focus on
emerging technologies such as autonomous systems. During the year,
it won a number of autonomy-related contracts, including support to
the Royal Navy to deliver the Unmanned Warrior exercise in October
2016 which will demonstrate the use of autonomous systems in a
wide-range of scenarios. QinetiQ's role also includes the delivery
of a containerised command system to control multiple unmanned
systems.
Cyber, Information & Training (CIT)
The CIT business helps government and commercial customers
respond to ever-evolving threats based on its expertise in
training, secure communication networks and devices, intelligence
gathering and surveillance sensors, and cyber security.
Although competition is fierce, the SDSR and the focus on
counter-terrorism are likely to drive increases in budgets for
C4ISR and cyber security. The CIT business is the MOD's leading
supplier of C4ISR research, maintaining its research revenues
during the year and winning new work to improve information systems
for deployed headquarters. The business manages a network of more
than 100 UK SMEs through these research framework contracts,
fulfilling an 'innovation integrator' role that is becoming more
and more important in defence and other sectors. Large framework
contracts are being used increasingly for the delivery of
technology services and during the year the business was awarded a
position with Northrop Grumman on a seven year framework contract
to deliver cyber security support to the UK Government. It also won
a contract with Motorola Solutions to provide monitoring,
assessment and assurance services in support of the delivery of the
UK Emergency Services Network.
Outside its traditional markets, CIT is providing advice to
regional and local government customers on innovation initiatives
to support local business growth, and is delivering training and
simulation services to customers in North America, Europe and the
Middle East. Finally, the business is providing secure receiver
processing for the encrypted Public Regulated Service (PRS) on the
Galileo constellation of satellites - the European Union version of
GPS which goes live in 2017. During the year it launched a new
receiver that will utilise the PRS service for use by governments,
the military and emergency services across Europe.
International
On 1 April 2016, a new International business was established
incorporating businesses with a significant international footprint
and those with international potential, as well as to manage other
opportunities via our international offices. The business includes
QinetiQ Australia as well as Advisory Services (previously known as
Procurement Advisory Services).
The Australian business provides impartial advice and services
predominately to government customers. This year, the business
successfully agreed with the Australian Department of Defence, the
renewal for up to 15 years of the Aircraft Structural Integrity
(ASI) services contract for a minimum contract value of A$21m,
which supports the airworthiness of military aircraft. This is one
of two underpinning contracts for the Australian business, which
position it well for 'strategic partner' style contracts that the
Australian Government is using increasingly as it implements its
recapitalisation and defence acquisition reform programmes.
Advisory Services helps customers deliver complex programmes by
providing analytical services and the evidence required to make
complex decisions. Building on its strong record in the UK, the
business won a major contract to provide early stage advice and
business case support to a Middle Eastern client for a complex
engineering project.
Global Products
2016 2015
GBPm GBPm
--------------------- ----- -----
Orders 164.4 152.0
Revenue 139.3 138.2
Underlying operating
profit* 15.1 18.3
Underlying operating
margin* 10.8% 13.2%
Book to bill ratio 1.2x 1.1x
Funded backlog 139.1 116.7
--------------------- ----- -----
Overview
Global Products delivers innovative solutions to meet customer
requirements and undertakes contract-funded research and
development, developing intellectual property in partnership with
key customers and through internal funding with potential for new
revenue streams.
Financial performance
Orders grew 8% to GBP164.4m (2015: GBP152.0m) as a result of a
new pipeline contract for OptaSense and due to improved order flow
in QinetiQ North America. As a result, the Global Products division
had 64% of its FY17 revenue already under contract at the beginning
of the new financial year compared with 61% at the same time last
year.
Revenue was up slightly to GBP139.3m (2015: GBP138.2m) as a
result of currency movements, but underlying operating profit* fell
to GBP15.1m (2015: GBP18.3m), impacted by a reduction in income
from the oil and gas sector and the completion of certain
programmes in the prior year. The underlying operating profit
margin* was 10.8% (2015: 13.2%).
Year in review
QinetiQ North America
QinetiQ North America develops and produces innovative military
protection products, specialising in unmanned systems,
survivability and maritime systems, along with products in related
commercial markets. The performance of this business improved in
year as it continued to adapt to a defence funding environment that
has shifted markedly from the overseas contingency operations
associated with Iraq and Afghanistan. QinetiQ North America is the
world's leading provider of military robots with employees centred
in Massachusetts, Pennsylvania and Virginia. Activity in year
focused on the reset and recapitalisation of robots previously used
on operations and the upgrade of systems with new capabilities such
as the detection of CBRNE (chemical, biological, radiological,
nuclear and explosives). At the same time, the business is
preparing for multi-year Programs of Record which will be funded
out of the Department of Defense's base budget.
During the year the business announced a contract win valued at
$16m from General Atomics in San Diego, California to deliver
control hardware and software for the Electromagnetic Aircraft
Launch System (EMALS) and the Advanced Arresting Gear (AAG) to be
installed on the Navy's next aircraft carrier, the future John F.
Kennedy (CVN 79). It was also awarded orders for survivability
products for both US and international customers, with demand for
air and ground armour increasing in year. In addition to product
sales, QinetiQ North America is building on its base of
contract-funded R&D projects to drive technology development,
explore new customer problems and expand its competitive
offerings.
OptaSense
OptaSense is a Distributed Acoustic Sensing (DAS) business
operating in multiple vertical markets. During the year, Jamie
Pollard was appointed to be its CEO after more than 20 years
running large global businesses within the oilfield services
company Schlumberger. An OptaSense advisory board has also been
established, comprising senior industry specialists to provide
domain expertise in key target markets including Hansjorg Hess, a
former Executive Director of Deutsche Bahn Netze. Although growth
in the upstream oil and gas market has been constrained by the low
oil price, the product development agreement with Shell continues
to deliver significant technical progress and a fourth generation
OptaSense system was launched in year. The business also signed a
strategic marketing agreement with Weatherford, an oil and gas
service company with a presence in every major oil and gas region
of the world. The partnership will deliver enhanced data
acquisition and monitoring of seismic activity, well construction,
completion and fracture operations, and production flow.
OptaSense continues to make progress in infrastructure security,
winning a contract with a partner to deliver the world's largest
distributed fibre sensing project for the Trans-Anatolian Natural
Gas Pipeline (TANAP) that runs from Azerbaijan, through Georgia and
Turkey, to Europe. The total contract value is more than $30m, of
which approximately half has been contracted with OptaSense, and
will cover the protection of over 1,850km of pipeline. The business
also won a contract to monitor a further 500km of gas pipeline in
India. At the end of September, OptaSense successfully completed an
18-month development project with Deustche Bahn, which concluded
that DAS technology has the potential to significantly reduce the
cost of sensing in the rail industry. It also won a contract with a
Class 1 US railroad operator to deliver a software platform in
preparation for a wider rollout of DAS technology.
Space Products
QinetiQ's Space Products business, which provides satellites,
payload instruments, sub-systems and ground station services,
delivered several innovative projects during the year. In March,
the European Space Agency's (ESA's) ExoMars mission was launched,
containing QinetiQ's UHF transceiver which will transmit data from
the lander on the planet's surface back to Earth via a satellite
orbiting Mars. The project will pave the way for a second mission,
recently rescheduled to 2020, in which a rover will spend six
months analysing Mars's environment for signs of life. The business
is currently developing the computer and avionics for ESA's Proba 3
satellites, to be launched in 2019 to study the Sun.
EMEA Products
EMEA Products provides research services and bespoke
technological solutions developed from intellectual property spun
out from EMEA Services. QinetiQ makes an important contribution to
sovereign UK capability in advanced materials technology, and
during the year it renewed a five-year, GBP10m contract to provide
materials research and advice to the UK MOD. This capability
underpins ongoing commercial relationships with EDF Energy for the
development of stealth wind turbines. QinetiQ also became the first
company accredited and authorised by the French Government to
assess proposed wind farm impact on meteorological radars, in order
to speed up planning applications. Other orders received in year
included a contract with the US Defense Advanced Research Projects
Agency (DARPA) to develop an electric hub-drive that will improve
survivability and mobility of future military ground vehicles. The
contract, worth $2m with an option for a further $3m, is part of
DARPA's Ground X-Vehicle Technologies (GXV-T) programme.
Subsidiaries Boldon James and Commerce Decisions are reported in
EMEA Products. Boldon James, which provides data classification
solutions to large military and commercial organisations, had a
strong year and should see further opportunities following changes
to European Union regulations that introduce significant penalties
for data classification leaks. Commerce Decisions renewed its
agreement with the MOD for the provision of tender assessment and
procurement support software. It also won the first contract
through its Australian arm and was selected to deliver bid
evaluation criteria for the Canadian Surface Combatant programme
which will be used to assess warship designers and combat system
integrators.
Financial items
Net finance costs
Net finance costs were GBP1.3m (2015: GBP4.1m) benefiting from
the repayment of private placement debt in the prior year. The
underlying net finance costs* were GBP0.2m (2015: GBP3.5m), with an
additional GBP1.1m (2015: GBP0.6m) in respect of the pension net
finance expense reported within specific adjusting items*.
Taxation
The effective tax rate of 11.8% (2015: 10.9%) continues to be
below the UK statutory rate, primarily as a result of the benefit
of research and development tax relief in the UK. The effective tax
rate is expected to remain below the UK statutory rate in the
medium term, subject to the impact of any tax legislation changes,
the geographic mix of profits and the assumption that the benefit
of net R&D tax relief retained by the Group remains in the tax
line.
UK Group companies have now elected to obtain tax benefits in
respect of allowable R&D expenditure through the R&D
Expenditure Credit (RDEC) process rather than through the previous
treatment as a super-deduction in the tax computations. This
election was made retrospectively back to 1 April 2013 and the
incremental impact on the tax expense for the years ending 31 March
2014 and 31 March 2015 has been reported in the current year as a
specific adjusting item. The change of regime results in the
utilisation of previously capitalised UK trading losses and the
associated deferred tax asset has been charged to the income
statement with other non-recurring deferred tax movements (see note
8) also as specific adjusting items. Deferred tax has been
calculated using the enacted future statutory tax rates.
At 31 March 2016 the Group had unused tax losses of GBP154.8m
(2015: GBP291.6m) which are potentially available for offset
against future profits. GBP26.1m of these losses are time limited
of which GBP6.3m will expire in 2034 and GBP19.8m will expire in
2035. Certain UK tax losses had been recognised on the balance
sheet as at 31 March 2015 as a deferred tax asset of GBP25.2m. As
noted above, those tax losses have now been utilised following the
election into the RDEC regime. No deferred tax asset is recognised
in respect of the remaining tax losses due to uncertainty over the
timing and extent of their utilisation.
The current tax liability is GBP39.9m as at 31 March 2016 (31
March 2015: GBP15.3m). The increase in the liability is primarily
due to a potential tax liability crystallising in the US following
a court decision in respect of taxes payable in respect of the
Group's acquisition of Dominion Technology Resources, Inc. in 2008.
An insurance policy was taken out by the Group at the point of
acquisition and if, subject to an appeal, the court's decision is
final then the funds required to settle this dispute will be
provided by the insurers and an escrow account funded by the
vendors. Hence, an offsetting receivable is reported on the balance
sheet as at 31 March 2016 (included within trade and other
receivables).
Earnings per share
Underlying basic earnings per share* for the continuing Group
were 16.3p (2015: 15.2p) benefiting from the higher profit before
tax and the reduced share count, as a result of the Group buying
back shares. Basic earnings per share for the total Group were
18.1p (2015: 16.6p per share). The average number of shares in
issue during the year, as used in the basic earnings per share
calculations, was 587.0m (2015: 630.9m) net of Treasury shares, and
there were 586.7m shares in issue at the year end.
Dividend
The Board proposes a final dividend of 3.8p (2015: 3.6p) making
the full year dividend 5.7p (2015: 5.4p). Subject to approval at
the Annual General Meeting, the final dividend will be paid on 2
September 2016 to shareholders on the register at 5 August 2016.
The full year dividend represents an increase of 6% reflecting the
Group's progressive dividend policy.
Cash flow, net cash and liquidity
The Group's cash flow from operations before cash flows in
respect of specific adjusting items but after capital expenditure
was GBP103.6m (2015: GBP114.9m). Underlying operating cash
conversion* remained strong at 96% (2015: 103%).
At 31 March 2016 net cash was GBP274.5m (2015: GBP195.5m),
reflecting continued strong operating cash performance, GBP22m
Cyveillance disposal proceeds and non-recurring net tax receipts
totalling GBP28m relating to the impact of the regime change to
R&D tax credits and the associated surrender of UK trading
losses. Total committed facilities available to the Group at year
end, consisting solely of a revolving credit facility which is
currently undrawn, amounted to GBP235.6m (2015: GBP233.3m).
A GBP150m share buyback was initiated on 28 May 2014 following
the US Services disposal and completed by 30 September 2015 with
72.5m shares purchased in total. An additional GBP50m share
repurchase was announced in November 2015 to be executed over 12
months, of which GBP47m remains to be completed.
Foreign exchange
The Group's income and expenditure is largely settled in the
functional currency of the relevant Group entity, mainly Sterling
or US Dollar. The Group has a policy in place to hedge all material
transaction exposure at the point of commitment to the underlying
transaction. Uncommitted future transactions are not routinely
hedged. The Group continues its practice of not hedging income
statement translation exposure.
The principal exchange rates affecting the Group were the
Sterling to US Dollar exchange rate and the Sterling to Australian
Dollar rate.
12 months to 12 months
31 March 2016 to
31 March
2015
------------------- --------------- ----------
GBP/US$ - opening 1.49 1.67
GBP/US$ - average 1.50 1.63
GBP/US$ - closing 1.44 1.49
GBP/A$ - opening 1.95 1.80
GBP/A$ - average 2.05 1.85
GBP/A$ - closing 1.87 1.95
------------------- --------------- ----------
Pensions
The net pension liability under IAS 19, before adjusting for
deferred tax, was GBP37.7m (31 March 2015: GBP39.4m; 30 September
2015: GBP20.4m). The market value of the assets at 31 March 2016
was GBP1,410.4m (2015: GBP1,454.6m) and the present value of scheme
liabilities was GBP1,448.1m (2015: GBP1,494.0m). The decrease in
the net pension deficit is primarily driven by cash contributions
into the Scheme, partially offset by a net actuarial loss arising
from changes to financial assumptions.
The key assumptions used in the IAS 19 valuation of the scheme
were:
31 March
Assumption 31 March 2016 2015
-------------------------- -------------- ---------
Discount rate 3.4% 3.2%
CPI Inflation 2.1% 2.1%
Life expectancy - male
(currently aged 40) 91 91
Life expectancy - female
(currently aged 40) 93 93
-------------------------- -------------- ---------
Each assumption is selected by the Group in consultation with
the Company actuary and takes account of industry practice amongst
comparator listed companies. The sensitivity of each of the key
assumptions is shown in the table below.
Indicative effect
on scheme liabilities
(before deferred
Assumption Change in assumption tax)
---------------- --------------------- -----------------------
Discount rate Increase / decrease Decrease / increase
by 0.1% by GBP27.0m
Inflation Increase / decrease Increase / decrease
by 0.1% by GBP25.0m
Life expectancy Increase by 1 year Increase by GBP36.0m
---------------- --------------------- -----------------------
The latest triennial valuation of the scheme, on a funding
basis, was a net surplus of GBP31.0m as at 30 June 2014, although
if a funding valuation was carried out today the valuation could be
a net deficit and may differ materially from the IAS19 accounting
valuation of deficit due to the inherent methodology differences.
There has been no change to the cash contributions required under
the recovery plan, which continues to require GBP13m of company
contributions per annum until 31 March 2018.
Principal risks and uncertainties
The Group continues to be exposed to a number of risks and
uncertainties which management continue to assess, manage and
mitigate to minimise their potential impact on the reported
performance of the Group. An explanation of these risks, together
with details of risk management and mitigation, can be found in the
annual report which is available for download at
https://www.qinetiq.com/investors/Pages/default.aspx. A summary of
the significant risks and uncertainties is set out below:
-- Reduction in government defence and security spending;
-- Complex market characteristics including a changing
regulatory environment for single source contracts;
-- A material element of the Group's revenue and
operating profit is derived from one customer
(the UK MOD), governed by complex pricing requirements;
-- A high proportion of the Group's revenue is derived
from fixed price contracts that would be adversely
impacted by increases in costs;
-- Change in the timing of orders receipts;
-- Policies or attitudes may change towards Organisational
Conflicts of Interest (OCI);
-- A material element of the Group's revenue and
operating profit is derived from one contract;
-- Losing key capability and competencies through
failure to recruit and retain employees;
-- Failure of information technology systems and
breaches of data security;
-- Inherent risks from trading in a global marketplace;
-- Failure to comply with laws and regulations, particularly
trading restrictions and export controls;
-- Tax liabilities may change as a result of changes
in tax legislation;
-- Financial position of the defined benefit pension
scheme.
Consolidated income statement
for the year ended 31 March
2016 2015
Specific Specific
all figures in adjusting adjusting
GBP million Note Underlying items(*) Total Underlying items(*) Total
--------------------------- ---- ---------- ---------- ------- ---------- ---------- -------
Revenue 2 755.7 - 755.7 763.8 - 763.8
Operating costs
excluding depreciation,
amortisation and
impairment (630.5) 0.3 (630.2) (636.9) 1.0 (635.9)
Other income 9.5 - 9.5 7.6 - 7.6
--------------------------- ---- ---------- ---------- ------- ---------- ---------- -------
EBITDA (earnings
before interest,
tax, depreciation
and amortisation) 134.7 0.3 135.0 134.5 1.0 135.5
Depreciation and
impairment
of property,
plant and equipment 3 (23.0) - (23.0) (21.7) - (21.7)
Impairment of
goodwill - (31.9) (31.9) - - -
Amortisation and
impairment of
intangible assets (2.8) (2.0) (4.8) (1.5) (2.8) (4.3)
--------------------------- ---- ---------- ---------- ------- ---------- ---------- -------
Operating profit/(loss) 108.9 (33.6) 75.3 111.3 (1.8) 109.5
Gain on business
divestments 6 - 16.2 16.2 - - -
Finance income 7 1.0 - 1.0 1.3 - 1.3
Finance expense 7 (1.2) (1.1) (2.3) (4.8) (0.6) (5.4)
--------------------------- ---- ---------- ---------- ------- ---------- ---------- -------
Profit/(loss)
before tax 3 108.7 (18.5) 90.2 107.8 (2.4) 105.4
Taxation (expense)/income 8 (12.8) 21.2 8.4 (11.8) 23.8 12.0
--------------------------- ---- ---------- ---------- ------- ---------- ---------- -------
Profit for the
year from continuing
operations 95.9 2.7 98.6 96.0 21.4 117.4
--------------------------- ---- ---------- ---------- ------- ---------- ---------- -------
Discontinued operations
Profit/(loss)
before tax - discontinued
operations - 7.5 7.5 1.2 (13.7) (12.5)
Tax in respect
of discontinued
operations - - - (0.5) 0.3 (0.2)
--------------------------- ---- ---------- ---------- ------- ---------- ---------- -------
Profit/(loss)
for the year from
discontinued operations - 7.5 7.5 0.7 (13.4) (12.7)
--------------------------- ---- ---------- ---------- ------- ---------- ---------- -------
Profit for the
year attributable
to equity shareholders 95.9 10.2 106.1 96.7 8.0 104.7
--------------------------- ---- ---------- ---------- ------- ---------- ---------- -------
Earnings per share
Basic - continuing
operations 10 16.3p 16.8p 15.2p 18.6p
Basic - total
Group 10 16.3p 18.1p 15.3p 16.6p
Diluted - continuing
operations 10 16.2p 16.7p 15.1p 18.5p
Diluted - total
Group 10 16.2p 18.0p 15.2p 16.5p
--------------------------- ---- ---------- ---------- ------- ---------- ---------- -------
* For details of 'specific adjusting items' refer to note 3.
Consolidated statement of comprehensive income
for the year ended 31 March
all figures in GBP million 2016 2015
------------------------------------------------- ------ ------
Profit for the year 106.1 104.7
Items that will not be reclassified
to profit or loss:
Actuarial loss recognised in defined
benefit pension schemes (10.6) (24.5)
Tax on items that will not be reclassified
to profit and loss 2.1 5.1
------------------------------------------------- ------ ------
Total items that will not be reclassified
to profit or loss (8.5) (19.4)
Items that may be reclassified to
profit or loss:
Foreign currency translation differences
for foreign operations 3.2 11.0
Recycling of currency translation
differences to the income statement
on disposal of foreign subsidiary 1.7 (40.9)
Decrease in fair value of hedging
derivatives (0.1) (0.1)
Reclassification of hedging derivatives
to the income statement - 0.1
Fair value (losses)/gains on available-for-sale
investments (0.6) 0.2
Total items that may be reclassified
to profit or loss 4.2 (29.7)
------------------------------------------------- ------ ------
Other comprehensive expense for
the year, net of tax (4.3) (49.1)
------------------------------------------------- ------ ------
Total comprehensive income for the
year 101.8 55.6
------------------------------------------------- ------ ------
Consolidated statement of changes in equity
for the year ended 31 March
Issued Capital
all figures share redemption Share Hedge Translation Retained Non-controlling Total
in GBP million capital reserve premium reserve reserve earnings Total interest equity
---------------- -------- ----------- -------- -------- ----------- --------- ------- --------------- -------
At 1 April 2015 6.1 40.4 147.6 0.1 (6.8) 110.6 298.0 0.1 298.1
Profit for the
year - - - - - 106.1 106.1 0.1 106.2
Other
comprehensive
income/
(expense)
for the year,
net of tax - - - (0.1) 4.9 (9.1) (4.3) - (4.3)
Purchase of
own shares - - - - - (0.7) (0.7) - (0.7)
Purchase and
cancellation
of shares (0.2) 0.2 - - - (46.9) (46.9) - (46.9)
Share-based
payments - - - - - 4.7 4.7 - 4.7
Dividends - - - - - (32.3) (32.3) - (32.3)
---------------- -------- ----------- -------- -------- ----------- --------- ------- --------------- -------
At 31 March
2016 5.9 40.6 147.6 - (1.9) 132.4 324.6 0.2 324.8
---------------- -------- ----------- -------- -------- ----------- --------- ------- --------------- -------
At 1 April 2014 6.6 39.9 147.6 0.1 23.1 160.7 378.0 0.1 378.1
Profit for the
year - - - - - 104.7 104.7 - 104.7
Other
comprehensive
expense for
the year, net
of tax - - - - (29.9) (19.2) (49.1) - (49.1)
Purchase of
own shares - - - - - (0.6) (0.6) - (0.6)
Share-based
payments
settlement - - - - - 0.6 0.6 - 0.6
Purchase and
cancellation
of shares (0.5) 0.5 - - - (107.1) (107.1) - (107.1)
Share-based
payments - - - - - 3.2 3.2 - 3.2
Dividends - - - - - (31.7) (31.7) - (31.7)
---------------- -------- ----------- -------- -------- ----------- --------- ------- --------------- -------
At 31 March
2015 6.1 40.4 147.6 0.1 (6.8) 110.6 298.0 0.1 298.1
---------------- -------- ----------- -------- -------- ----------- --------- ------- --------------- -------
Consolidated balance sheet
as at 31 March
all figures in GBP million Note 2016 2015
--------------------------------------- ---- ------- -------
Non-current assets
Goodwill 11 73.1 107.2
Intangible assets 8.3 15.3
Property, plant and equipment 233.4 229.6
Other financial assets 0.6 0.9
Investments 0.9 0.4
Deferred tax 4.1 12.9
--------------------------------------- ---- ------- -------
320.4 366.3
--------------------------------------- ---- ------- -------
Current assets
Inventories 19.0 18.5
Other financial assets 10.8 12.3
Trade and other receivables 156.2 159.2
Investments 1.7 2.3
Cash and cash equivalents 263.5 184.3
--------------------------------------- ---- ------- -------
451.2 376.6
--------------------------------------- ---- ------- -------
Total assets 771.6 742.9
--------------------------------------- ---- ------- -------
Current liabilities
Trade and other payables (338.7) (352.3)
Current tax (39.9) (15.3)
Provisions (5.3) (3.0)
Other financial liabilities (0.2) (1.9)
--------------------------------------- ---- ------- -------
(384.1) (372.5)
--------------------------------------- ---- ------- -------
Non-current liabilities
Retirement benefit obligation 13 (37.7) (39.4)
Provisions (13.8) (22.4)
Other financial liabilities (0.2) (0.1)
Other payables (11.0) (10.4)
--------------------------------------- ---- ------- -------
(62.7) (72.3)
--------------------------------------- ---- ------- -------
Total liabilities (446.8) (444.8)
--------------------------------------- ---- ------- -------
Net assets 324.8 298.1
--------------------------------------- ---- ------- -------
Capital and reserves
Ordinary shares 5.9 6.1
Capital redemption reserve 40.6 40.4
Share premium account 147.6 147.6
Hedging and translation reserve (1.9) (6.7)
Retained earnings 132.4 110.6
--------------------------------------- ---- ------- -------
Capital and reserves attributable
to shareholders of the parent company 324.6 298.0
--------------------------------------- ---- ------- -------
Non-controlling interest 0.2 0.1
--------------------------------------- ---- ------- -------
Total shareholders' funds 324.8 298.1
--------------------------------------- ---- ------- -------
Consolidated cash flow statement
for the year ended 31 March
all figures in GBP million Note 2016 2015
------------------------------------------- ---- ------ -------
Net cash inflow from continuing
operations before cash flows in
respect of specific adjusting items 133.4 143.9
Net cash outflow relating to restructuring - (0.6)
Disposal-related pension contribution - (6.0)
Cash generated from discontinued
operations - 1.8
Cash inflow from operations 133.4 139.1
Tax received 27.9 8.8
Interest received 0.9 1.0
Interest paid (0.6) (36.4)
------------------------------------------- ---- ------ -------
Net cash inflow from operating activities 161.6 112.5
------------------------------------------- ---- ------ -------
Purchases of intangible assets (1.6) (4.2)
Purchases of property, plant and
equipment (28.6) (24.8)
Proceeds from sale of property,
plant and equipment 0.4 -
Investment in available for sale
investments - (10.0)
Acquisition of business (0.6) (3.7)
Sale of investment in subsidiary 28.0 79.6
------------------------------------------- ---- ------ -------
Net cash (outflow)/inflow from investing
activities (2.4) 36.9
------------------------------------------- ---- ------ -------
Repayment of bank borrowings - (147.1)
Payment of bank loan arrangement
fee - (1.3)
Purchase of own shares (48.6) (106.8)
Dividends paid to shareholders (32.3) (31.7)
Capital element of finance lease
rental payments (1.4) (2.8)
Capital element of finance lease
rental receipts 1.5 3.0
------------------------------------------- ---- ------ -------
Net cash outflow from financing
activities (80.8) (286.7)
------------------------------------------- ---- ------ -------
Increase/(decrease) in cash and
cash equivalents 78.4 (137.3)
Effect of foreign exchange changes
on cash and cash equivalents 0.8 0.4
Cash and cash equivalents at beginning
of year 184.3 322.2
Cash and cash equivalents disposed - (1.0)
------------------------------------------- ---- ------ -------
Cash and cash equivalents at end
of year 12 263.5 184.3
------------------------------------------- ---- ------ -------
Reconciliation of movement in net cash
for the year ended 31 March
all figures in GBP million Note 2016 2015
------------------------------------------------------------- ---- ----- -------
Increase/(decrease) in cash and cash equivalents in the
year 78.4 (137.3)
Add back net cash flows not impacting net cash - repayment
of bank loans and fees - 148.4
Add back net cash flows not impacting net cash - investments - 10.0
Add back net cash flows not impacting net cash - other (0.1) (0.2)
------------------------------------------------------------- ---- ----- -------
Change in net cash resulting from cash flows 78.3 20.9
------------------------------------------------------------- ---- ----- -------
Cash and cash equivalents disposed - (1.0)
Other movements including foreign exchange 0.7 5.1
------------------------------------------------------------- ---- ----- -------
Movement in net cash in the year 79.0 25.0
Net cash at beginning of year 195.5 170.5
------------------------------------------------------------- ---- ----- -------
Net cash at end of year 12 274.5 195.5
------------------------------------------------------------- ---- ----- -------
1. Significant accounting policies
Accounting policies
The following accounting policies have been applied consistently
to all periods presented in dealing with items that are considered
material in relation to the Group's financial statements. In the
income statement, the Group presents specific adjusting items
separately. In the judgement of the Directors, for the reader to
obtain a proper understanding of the financial information,
specific adjusting items need to be disclosed separately because of
their size and nature.
Specific adjusting items include:
-- amortisation of intangible assets arising from
acquisitions;
-- pension net finance expense;
-- gains/losses on business divestments and disposal
of property and investments;
-- impairment of goodwill and other intangible
assets;
-- one-off recovery of research and development
tax credits and associated write-off of deferred
tax asset in respect of tax losses; and
-- significant non-recurring deferred tax movements.
Basis of preparation
The financial information in this preliminary announcement has
been extracted from the Group's consolidated financial statements
for the year ended 31 March 2016. The Group's financial statements
have been prepared on a going concern basis and in accordance with
International Financial Reporting Standards as adopted by the EU
('IFRS') and the Companies Act 2006 applicable to companies
reporting under IFRS.
The financial information included within the preliminary
announcement has been prepared using accounting policies consistent
with International Financial Reporting Standards (IFRSs) as
endorsed by the European Union. The accounting policies followed
are the same as those published by the Group within its Annual
Report for the year ended 31 March 2016 which is available on the
Group's website, www.QinetiQ.com subject to the changes noted
below. The preliminary announcement was approved by the Board of
Directors on 26 May 2016. The financial information in this
preliminary announcement does not constitute the statutory accounts
of QinetiQ Group plc ('the Company') within the meaning of section
435 of the Act.
The statutory accounts for 2016 were approved by the Board of
Directors on 26 May 2016 and will be delivered to the Registrar of
Companies following the Company's Annual General Meeting on 20 July
2016. The financial information for 2015 is derived from the
statutory accounts for 2015 which have been delivered to the
Registrar of Companies. The auditors have reported on the 2016 and
2015 accounts. The reports were (i) unqualified; (ii) did not
include a reference to any matters to which the auditors drew
attention by way of emphasis without qualifying their report; and
(iii) did not contain a statement under section 498 (2) or (3) of
the Companies Act 2006.
Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Company and its subsidiary undertakings to 31
March 2016. The purchase method of accounting has been adopted.
Those subsidiary undertakings acquired or disposed of in the period
are included in the consolidated income statement from the date
control is obtained to the date that control is lost (usually on
acquisition and disposal respectively). An investor controls an
investee when it is exposed, or has rights, to variable returns
from its involvement with the investee and has the ability to
affect those returns through its power over the investee. This is
the IFRS 10 definition of "control".
The Group comprises certain entities that are operated under the
management of a Proxy Board. Details of the Proxy Board
arrangements and the powers of the proxy holders and QinetiQ
management are set out in the Corporate Governance section of the
Annual Report. IFRS 10 is the accounting standard now applicable in
respect of consolidation of entities. This does not specifically
deal with proxy situations. However, having considered the terms of
the proxy agreement, the Directors consider that the Group meets
the requirements of IFRS 10 in respect of control over such
affected entities and, therefore, consolidates these entities in
the consolidated accounts.
An associate is an undertaking over which the Group exercises
significant influence, usually from 20%-50% of the equity voting
rights, in respect of financial and operating policy. A joint
venture is an undertaking over which the Group exercises joint
control. Associates and joint ventures are accounted for using the
equity method from the date of acquisition to the date of disposal.
The Group's investments in associates and joint ventures are held
at cost including goodwill on acquisition and any post-acquisition
changes in the Group's share of the net assets of the associate
less any impairment to the recoverable amount. Where an associate
or joint venture has net liabilities, full provision is made for
the Group's share of liabilities where there is a constructive or
legal obligation to provide additional funding to the associate or
joint venture.
The financial statements of subsidiaries, joint ventures and
associates are adjusted where necessary to ensure compliance with
Group accounting policies.
On consolidation, all intra-Group income, expenses and balances
are eliminated.
Recent accounting developments
Developments adopted by the Group in 2016
The following UK GAAP and EU-endorsed Standards and amendments,
improvements and interpretations of published standards are
effective for accounting periods beginning on or after 1 January
2015 and have been adopted with no material impact on the Group's
financial statements:
FRS 100, 101 and 102
FRS 100, 101 and 102 all fall under the new UK GAAP regime. FRS
100 sets out the application of financial reporting requirements in
the UK and Republic of Ireland and FRS 101, known as 'IFRS with
reduced disclosures' outlines the reduced disclosure framework
available for use by qualifying entities choosing to follow the
principles of IFRS but under the umbrella of UK GAAP. FRS 102 is
applicable in the UK and Republic of Ireland and is known as the
'new UK GAAP'. FRS 102 follows more closely the principles of
existing UK GAAP with some exceptions. The mandatory effective date
for the new framework of reporting is for accounting periods
beginning on or after 1 January 2015. QinetiQ had the choice
between applying either full IFRS, or a choice of either FRS 101,
or FRS 102 to its subsidiary entities. The two latter options both
fall under UK GAAP and either may therefore be applied to
subsidiary entities on an entity by entity basis. The Group has
adopted the UK GAAP option as of 1 April 2015.
IAS 19 Employee Benefits - amendment to clarify requirement that
relate to how contributions from employees or third parties that
are linked to service should be attributed to periods of
service.
Annual improvement 2010-2012 cycle:
IFRS 2 Share-based Payment - amendment to the definitions of
'vesting condition' and 'market condition' and adds definitions for
'performance condition' and 'service condition'.
IFRS 3 Business Combinations - amendment to clarify that
contingent consideration that is classified as an asset or
liability shall be measured at fair value at each reporting
date.
IFRS 8 Operating Segments - two amendments relating to
disclosure requirements on application of aggregation criteria and
reconciliation of assets.
IFRS 13 Fair Value Measurement - amendment related to short-term
receivables and payables with no stated interest rate.
IAS 16 Property, Plant and Equipment and IAS 38 Intangible
Assets - amendment clarifying that under the revaluation method,
accumulated depreciation should be restated on a proportionate
basis.
IFRS 24 Related Party Disclosures - clarification that an entity
providing key management personnel services to the reporting entity
or to the parent of the reporting entity is a related party of
reporting entity.
Annual improvement 2011-2013 cycle:
IFRS 1 First-time Adoption of IFRS - amendment relating to
first-time application of IFRS.
IFRS 3 Business Combinations - amendment clarifying that IFRS 3
excludes from its scope the accounting for the formation of a joint
arrangement in the financial statements of the joint arrangement
itself.
IAS 40 Investment Property - amendment clarifying the
interrelationship of IFRS 3 and IAS 40 when classifying property as
investment property or owner-occupied property.
Developments expected in future periods of which the impact is
being assessed
IFRS 15 Revenue from Contracts with Customers: The final
Standard was published in May 2014 and the IASB has taken the
decision to defer the effective date of IFRS 15 to 1 January 2018
i.e. FY19 for QinetiQ. The new Standard introduces a five-step
model to the principle of revenue recognition. Briefly, the
framework includes identifying the contract with the customer,
identifying the performance obligations in the contract,
determining the transaction price, allocating the transaction price
to the performance obligations in the contract and recognising
revenue when (or as) the entity satisfies a performance obligation.
QinetiQ is currently undertaking an assessment of the impact of the
new standard. Typical issues to be analysed on a
contract-by-contract basis include whether the current methodology
for recognising revenue over time remains appropriate, the
treatment of contract modifications, variable consideration,
determination and distinction of performance obligations,
collectability and licences (list not exhaustive). QinetiQ is also
undertaking an analysis of the transitional guidance which allows
for two different approaches; the retrospective method (with
optional practical expedients) or the cumulative effect method.
Under the retrospective method, QinetiQ would need to restate prior
year comparatives and recognise the cumulative effect of applying
the new standard in equity at the start of the earliest presented
comparative period. Under the cumulative method, QinetiQ would
apply the new standard as of the date of initial application, with
no restatement of comparative period amounts. It would record the
cumulative effect of initially applying the new standard - which
would affect revenue and costs - as an adjustment to the opening
balance of equity at the date of initial application. Under the
cumulative effect method, the provisions of the new standard apply
only to contracts that are open (i.e. not complete) under previous
GAAP at the date of initial application.
IFRS 16 Leases: The final Standard was published in January
2016. Under the new Standard, companies will recognise new assets
and liabilities, bringing added transparency to the balance sheet.
IFRS 16 eliminates the current dual accounting model for lessees,
which distinguishes between on-balance sheet finance leases and
off-balance sheet operating leases. Instead, there is a single,
on-balance sheet accounting model that is similar to current
finance lease accounting. Lessor accounting remains similar to
current practice - i.e. lessors continue to classify leases as
finance and operating leases. The Standard will be effective from 1
January 2019 i.e. FY20 for QinetiQ subject to EU endorsement.
IFRS 9 Financial Instruments: This new Standard on accounting
for financial instruments will replace IAS 39 Financial
Instruments: Recognition and Measurement. This Standard has not yet
been endorsed by the EU. It is expected to come into effect for
accounting periods beginning on or after 1 January 2018.
Developments expected in future periods with no material impact
on the Group's financial statements
The Directors anticipate that the adoption of the following new,
revised, amended and improved published standards and
interpretations, which were in issue at the date of authorisation
of these financial statements, will have no material impact on the
financial statements of the Group when they become applicable in
future periods:
- IFRS 14 'Regulatory Deferral
Accounts';
- Amendments to IFRS 9, 10
and 11; and
- Amendments to IAS 1, 7,
9, 12, 15, 27, 36 and 38.
2. Segmental analysis
Operating segments
For the year ended 31 March
all figures in GBP million Note 2016 2015
-------------------------------------------- ---- ------------------ ------------------
Operating Operating
Revenue profit Revenue profit
-------------------------------------------- ---- ------- --------- ------- ---------
EMEA Services 616.4 93.8 625.6 93.0
Global Products 139.3 15.1 138.2 18.3
-------------------------------------------- ---- ------- --------- ------- ---------
Total operating segments 755.7 108.9 763.8 111.3
Operating profit before specific adjusting
items(1) - underlying operating profit 108.9 111.3
Specific adjusting items:
Restructuring - 1.0
Profit on disposal of property 0.3 -
Impairment of goodwill (31.9) -
Amortisation of intangible assets arising
from acquisitions (2.0) (2.8)
-------------------------------------------- ---- ------- --------- ------- ---------
Operating profit 75.3 109.5
Gain on business divestments 6 16.2 -
Net finance expense 7 (1.3) (4.1)
-------------------------------------------- ---- ------- --------- ------- ---------
Profit before tax 90.2 105.4
Taxation income 8 8.4 12.0
-------------------------------------------- ---- ------- --------- ------- ---------
Profit for the year from continuing
operations 98.6 117.4
-------------------------------------------- ---- ------- --------- ------- ---------
Discontinued operations
Profit/(loss) from discontinued operations,
net of tax 4 7.5 (12.7)
-------------------------------------------- ---- ------- --------- ------- ---------
Profit for the period attributable to
equity shareholders 106.1 104.7
-------------------------------------------- ---- ------- --------- ------- ---------
(1) The measure of profit presented to the chief operating
decision maker is underlying operating profit (as defined in
glossary).
3. Profit before tax
The following items have been charged in arriving at profit
before tax for continuing operations:
all figures in GBP million 2016 2015
----------------------------------------------- ------- -------
Depreciation of property, plant and equipment:
Owned assets: depreciation (23.4) (20.7)
Owned assets: impairment reversal/(charge) 0.4 (1.0)
Foreign exchange gain/(loss) 0.2 (0.3)
Research and development expenditure -
customer funded contracts (277.6) (285.8)
Research and development expenditure -
Group funded (23.2) (20.8)
----------------------------------------------- ------- -------
Specific adjusting items
In the income statement, the Group presents specific adjusting
items separately. In the judgement of the Directors, for the reader
to obtain a proper understanding of the financial information,
specific adjusting items need to be disclosed separately because of
their size and nature. Underlying measures of performance exclude
specific adjusting items. The following specific adjusting items
have been (charged)/credited in arriving at profit before tax:
all figures in GBP million 2016 2015
--------------------------------------------- ------ ------
Profit on disposal of property 0.3 -
Reversal of unutilised restructuring
provisions - 1.0
Specific adjusting items before
amortisation, depreciation and impairment 0.3 1.0
Impairment of goodwill (31.9) -
Amortisation of intangible assets
arising from acquisition (2.0) (2.8)
--------------------------------------------- ------ ------
Specific adjusting items operating
loss (33.6) (1.8)
Gain on business divestments 6 16.2 -
Defined benefit pension scheme net
finance expense (1.1) (0.6)
--------------------------------------------- ------ ------
Specific adjusting items loss before
tax - continuing operations (18.5) (2.4)
--------------------------------------------- ------ ------
Profit on disposal of subsidiary
- before accelerated interest expense 4 7.5 15.9
Loss on disposal of subsidiary -
accelerated interest expense 4 - (28.8)
--------------------------------------------- ------ ------
Profit/(loss) on disposal of subsidiary 4 7.5 (12.9)
Amortisation of intangible assets
arising from acquisition - (0.8)
Specific adjusting items profit/(loss)
before tax - discontinued operations 7.5 (13.7)
--------------------------------------------- ------ ------
Total specific adjusting items loss
before tax (11.0) (16.1)
Specific adjusting items - tax (continuing
operations) 8 21.2 23.8
Specific adjusting items - tax (discontinued
operations) - 0.3
--------------------------------------------- ------ ------
Total specific adjusting items profit
after tax 10.2 8.0
--------------------------------------------- ------ ------
Reconciliation of underlying profit
for the year to total profit for
the year
all figures in GBP million 2016 2015
--------------------------------------------- ------ ------
Underlying profit after tax - total
Group 95.9 96.7
Total specific adjusting items profit
after tax (see above) 10.2 8.0
--------------------------------------------- ------ ------
Total profit for the year attributable
to equity shareholders 106.1 104.7
--------------------------------------------- ------ ------
4. Discontinued operations
In the prior year, on 23 May 2014, the Group completed its sale
of the US Services division, comprising QinetiQ North America Inc.
and its subsidiaries. The Circular seeking shareholder approval for
the sale of the US Services division specified that the proceeds
would be applied in settling the remaining private placement ('PP')
debt of $248m which was put in place to finance the acquisitions of
the US Services business. Accordingly, the penalty of GBP28.8m
incurred on the early redemption of the PP is considered to be
inextricably linked to the sale of that business and was,
therefore, disclosed as an adjustment to the loss on its sale
rather than as a finance expense.
Net cash inflow in respect of this transaction was GBP78.6m in
the year to 31 March 2015, with a further GBP28.8m outflow in
respect of the associated PP early redemption expense. Additional
deferred consideration, the earn-out, was payable on a sliding
scale between zero and $50m based on gross profit generated by the
disposed business in the financial year to 31 March 2015. Actual
gross profit delivered by the disposed business resulted in
deferred consideration of GBP6.2m (in line with expectations and
matching the prior year book value of deferred consideration
receivable) becoming due, which was paid in full in the year to 31
March 2016.
In the current year an income statement impact of this
transaction occurred from the release of opening warranty and
indemnity liabilities following expiry of the contractual warranty
clauses and an assessed remote possibility of claims under the
extant indemnity clauses of the sale agreement.
a) Results of discontinued operations
all figures in GBP million 2016 2015
--------------------------------------------------------------- ---- ------
Revenue - 55.7
Operating costs excluding depreciation, amortisation and
impairment - (54.2)
---------------------------------------------------------------- ---- ------
EBITDA (earnings before interest, tax, depreciation and
amortisation) - 1.5
Depreciation, amortisation and impairment of assets - (0.3)
---------------------------------------------------------------- ---- ------
Underlying operating profit - 1.2
Amortisation of intangible assets arising from acquisitions - (0.8)
Operating profit - 0.4
Finance expense - -
--------------------------------------------------------------- ---- ------
Profit before tax - 0.4
Taxation expense - (0.2)
---------------------------------------------------------------- ---- ------
Results from operating activities, net of tax - 0.2
Profit on sale of discontinued operations - before accelerated
interest costs 7.5 15.9
Loss on sale of discontinued operations - accelerated
interest costs - (28.8)
---------------------------------------------------------------- ---- ------
Profit/(loss) for the period 7.5 (12.7)
---------------------------------------------------------------- ---- ------
Basic gain/(loss) per share 1.3p (2.0)p
Diluted gain/(loss) per share 1.3p (2.0)p
---------------------------------------------------------------- ---- ------
b) Cash flows from discontinued operations
all figures in GBP million 2016 2015
-------------------------------------------------------- ---- ------
Net cash from operating activities - 1.8
Net cash inflow for the year from the disposed entity - 1.8
Cash outflow in respect of accelerated interest expense
- included within 'Interest paid' - (28.8)
--------------------------------------------------------- ---- ------
Net cash outflow related to discontinued operations - (27.0)
--------------------------------------------------------- ---- ------
c) Effect of disposal on the financial position of the Group
all figures in GBP million 2016 2015
------------------------------------------------------------- ---- -----
Consideration received (net of transaction costs), satisfied
in cash 6.2 79.6
Cash and cash equivalents disposed - (1.0)
-------------------------------------------------------------- ---- -----
Net cash inflow in the year 6.2 78.6
-------------------------------------------------------------- ---- -----
5. Business combinations
The Group made two acquisitions in the prior year to 31 March
2015: SR2020 and Redfern Integrated Optics Inc. Consideration (of
GBP0.4m) for the acquisition of SR2020 was paid in full in the
prior year and no further payments, or adjustments to the assets
acquired, were made in the year to 31 March 2016. The total
consideration for the acquisition of Redfern Integrated Optics Inc.
was GBP3.9m, of which GBP3.3m was paid in the prior year. The
remaining consideration of GBP0.6m was paid in the current
year.
6. Gain on business divestments - continuing operations
For the year ended 31 March
all figures in GBP million 2016 2015
----------------------------- ---- ----
Gain on business divestments 16.2 -
----------------------------- ---- ----
The gain on business divestments relates to the sale of the
Cyveillance business on 11 December 2015 for consideration before
costs of $34.1m and a gain on disposal of GBP16.2m. There is no
deferred consideration receivable.
7. Finance income and expense - continuing operations
For the year ended 31 March
all figures in GBP million 2016 2015
----------------------------------------------- ----- -----
Receivable on bank deposits 1.0 1.1
Finance lease income - 0.2
----------------------------------------------- ----- -----
Finance income 1.0 1.3
----------------------------------------------- ----- -----
Amortisation of recapitalisation fee (0.3) (0.7)
Payable on bank loans and overdrafts (0.6) (0.9)
Payable on US Dollar private placement
debt - (2.6)
Finance lease expense - (0.2)
Unwinding of discount on financial liabilities (0.3) (0.4)
----------------------------------------------- ----- -----
Finance expense before specific adjusting
items (1.2) (4.8)
Specific adjusting items:
Defined benefit pension scheme net finance
expense (1.1) (0.6)
----------------------------------------------- ----- -----
Total finance expense (2.3) (5.4)
----------------------------------------------- ----- -----
Net finance expense (1.3) (4.1)
----------------------------------------------- ----- -----
8. Taxation - continuing operations
2016 2015
----------- ---------- ------ ----------- ---------- -------
Specific Specific
all figures in GBP adjusting adjusting
million Underlying* items* Total Underlying* items* Total
-------------------------------- ----------- ---------- ------ ----------- ---------- -------
Analysis of charge
Current UK tax expense/(income) 2.2 (35.6) (33.4) 0.5 - 0.5
Overseas corporation
tax
Current year 2.4 - 2.4 1.4 (0.5) 0.9
Adjustment for prior
year - - - (1.0) 0.6 (0.4)
-------------------------------- ----------- ---------- ------ ----------- ---------- -------
Current tax expense/(income) 4.6 (35.6) (31.0) 0.9 0.1 1.0
Deferred tax expense/(income) 7.7 20.0 27.7 11.3 (22.9) (11.6)
Deferred tax impact
of change in rates (0.2) - (0.2) (0.4) - (0.4)
Deferred tax in respect
of prior years 0.7 (5.6) (4.9) - (1.0) (1.0)
-------------------------------- ----------- ---------- ------ ----------- ---------- -------
Deferred tax expense/(income) 8.2 14.4 22.6 10.9 (23.9) (13.0)
-------------------------------- ----------- ---------- ------ ----------- ---------- -------
Taxation expense/(income)
- continuing operations 12.8 (21.2) (8.4) 11.8 (23.8) (12.0)
-------------------------------- ----------- ---------- ------ ----------- ---------- -------
Factors affecting
tax charge/(credit)
in year
Principal factors
reducing the Group's
current year tax
charge below the
UK statutory rate
are explained below:
Profit/(loss) before
tax 108.7 (18.5) 90.2 107.8 (2.4) 105.4
-------------------------------- ----------- ---------- ------ ----------- ---------- -------
Tax on profit/(loss)
before tax at 20%
(2015: 21%) 21.7 (3.7) 18.0 22.6 (0.5) 22.1
Effect of:
Expenses not deductible
for tax purposes
and
non-taxable items 3.7 4.5 8.2 (7.9) 1.7 (6.2)
Research and development
credits/reliefs (13.7) (36.8) (50.5) (10.7) - (10.7)
Tax in respect of
an FY09 US acquisition
- payable to the
tax authorities 16.2 - 16.2 - - -
Tax in respect of
an FY09 US acquisition
- recoverable from
insurers (16.2) - (16.2) - - -
Utilisation/(recognition)
of deferred tax asset
in respect of UK
trading losses - 25.2 25.2 - (25.2) (25.2)
Current tax losses
for which no deferred
tax asset was recognised - - - 6.9 - 6.9
Deferred tax impact
of change in rates (0.2) - (0.2) (0.4) - (0.4)
Deferred tax in respect
of prior years 0.7 (5.6) (4.9) 0.9 - 0.9
Other deferred tax
movements - (4.8) (4.8) - - -
Effect of different
rates in overseas
jurisdictions 0.6 - 0.6 0.4 0.2 0.6
-------------------------------- ----------- ---------- ------ ----------- ---------- -------
Taxation expense/(income)
- continuing operations 12.8 (21.2) (8.4) 11.8 (23.8) (12.0)
-------------------------------- ----------- ---------- ------ ----------- ---------- -------
Effective tax rate 11.8% (9.3%) 10.9% (11.4%)
-------------------------------- ----------- ---------- ------ ----------- ---------- -------
* Definitions of underlying measures of performance and specific
adjusting items can be found in the glossary.
UK Group companies have now elected to obtain tax benefits in
respect of allowable R&D expenditure through the R&D
Expenditure Credit ('RDEC') process rather than through the
previous treatment as a super-deduction in the tax computations.
This election was made retrospectively back to 1 April 2013 and the
incremental impact on the tax expense for the years ending 31 March
2014 and 31 March 2015 has been reported in the current year as a
specific adjusting item. The change of regime results in the
utilisation of previously capitalised UK trading losses and the
associated deferred tax asset has been written off in the current
year, also reported as a specific adjusting item. Other deferred
tax movements include the effect of changes in estimates in respect
of the apportionment of book values between qualifying and
non-qualifying property, plant and equipment.
Deferred tax has been calculated using the enacted future
statutory tax rates.
At 31 March 2016 the Group had unused tax losses of GBP154.8m
(2015: GBP291.6m) which are available for offset against future
profits. GBP26.1m of these losses are time limited of which GBP6.3m
will expire in 2034 and GBP19.8m will expire in 2035. Certain UK
tax losses had been recognised on the balance sheet as at 31 March
2015 as a deferred tax asset of GBP25.2m. As noted above those tax
losses have now been utilised following the election into the RDEC
regime. No deferred tax asset is recognised in respect of the
remaining tax losses due to uncertainty over the timing and extent
of their utilisation.
Factors affecting future tax charges
The effective tax rate continues to be below the UK statutory
rate, primarily as a result of the benefit of research and
development tax relief in the UK. The effective tax rate is
expected to remain below the UK statutory rate in the medium term,
subject to the impact of any tax legislation changes, the
geographic mix of profits and the assumption that the benefit of
net R&D tax relief retained by the Group remains in the tax
line. Future recognition of unrecognised tax losses will also
affect future tax charges.
9. Dividends
An analysis of the dividends paid and proposed in respect of the
years ended 31 March 2016 and 2015 is provided below:
Pence Date paid/
per share GBPm payable
--------------------------------------- ---------- ---- ----------
Interim 2016 1.9 11.1 Feb 2016
Final 2016 (proposed) 3.8 21.6 Sept 2016
--------------------------------------- ---------- ---- ----------
Total for the year ended 31 March 2016 5.7 32.7
--------------------------------------- ---------- ---- ----------
Interim 2015 1.8 11.1 Feb 2015
Final 2015 3.6 21.2 Sept 2015
--------------------------------------- ---------- ---- ----------
Total for the year ended 31 March 2015 5.4 32.3
--------------------------------------- ---------- ---- ----------
The Directors propose a final dividend of 3.8p (2015: 3.6p) per
share. The dividend, which is subject to shareholder approval, will
be paid on 2 September 2016. The ex-dividend date is 4 August 2016
and the record date is 5 August 2016.
10. Earnings per share
Basic earnings per share is calculated by dividing the profit
attributable to equity shareholders by the weighted average number
of ordinary shares in issue during the year. The weighted average
number of shares used excludes those shares bought by the Group and
held as own shares. For diluted earnings per share the weighted
average number of shares in issue is adjusted to assume conversion
of all potentially dilutive ordinary shares arising from unvested
share-based awards including share options.
For the year ended 31 March 2016 2015
---------------------------------- -------- ----- -----
Weighted average number of shares Million 587.0 630.9
Effect of dilutive securities Million 3.7 3.7
---------------------------------- -------- ----- -----
Diluted number of shares Million 590.7 634.6
---------------------------------- -------- ----- -----
Underlying basic earnings per share figures are presented below,
in addition to the basic and diluted earnings per share, because
the Directors consider this gives a more relevant indication of
underlying business performance and reflects the adjustments to
basic earnings per share for the impact of specific adjusting items
(see note 3) and tax thereon.
For the year ended 31 March 2016 2015
---------------------------------------------------------------- ------------- ------ ------
Underlying EPS - continuing operations
Profit attributable to equity shareholders GBP million 98.6 117.4
Remove loss after tax in respect of specific adjusting items* GBP million (2.7) (21.4)
---------------------------------------------------------------- ------------- ------ ------
Underlying profit after taxation GBP million 95.9 96.0
---------------------------------------------------------------- ------------- ------ ------
Weighted average number of shares Million 587.0 630.9
---------------------------------------------------------------- ------------- ------ ------
Underlying basic EPS - continuing operations Pence 16.3 15.2
---------------------------------------------------------------- ------------- ------ ------
Diluted number of shares Million 590.7 634.6
---------------------------------------------------------------- ------------- ------ ------
Underlying diluted EPS - continuing operations Pence 16.2 15.1
---------------------------------------------------------------- ------------- ------ ------
For the year ended 31 March 2016 2015
---------------------------------------------------------------- ------------- ------ ------
Underlying EPS - total Group
Profit attributable to equity shareholders GBP million 106.1 104.7
Remove loss after tax in respect of specific adjusting items* GBP million (10.2) (8.0)
---------------------------------------------------------------- ------------- ------ ------
Underlying profit after taxation GBP million 95.9 96.7
---------------------------------------------------------------- ------------- ------ ------
Weighted average number of shares Million 587.0 630.9
---------------------------------------------------------------- ------------- ------ ------
Underlying basic EPS - total Group Pence 16.3 15.3
---------------------------------------------------------------- ------------- ------ ------
Diluted number of shares Million 590.7 634.6
---------------------------------------------------------------- ------------- ------ ------
Underlying diluted EPS - continuing operations Pence 16.2 15.2
---------------------------------------------------------------- ------------- ------ ------
For the year ended 31 March 2016 2015
-------------------------------------------------------------- ------------ ------ ------
Basic and diluted EPS - continuing operations
Profit attributable to equity shareholders GBP million 98.6 117.4
Weighted average number of shares Million 587.0 630.9
----------------------------------------------------------------- ------------ ------ ------
Basic EPS - continuing operations Pence 16.8 18.6
----------------------------------------------------------------- ------------ ------ ------
Diluted number of shares Million 590.7 634.6
----------------------------------------------------------------- ------------ ------ ------
Diluted EPS - continuing operations Pence 16.7 18.5
----------------------------------------------------------------- ------------ ------ ------
For the year ended 31 March 2016 2015
-------------------------------------------------------------- ------------ ------ ------
Basic and diluted EPS - total Group
Profit attributable to equity shareholders GBP million 106.1 104.7
Weighted average number of shares Million 587.0 630.9
----------------------------------------------------------------- ------------ ------ ------
Basic EPS - total Group Pence 18.1 16.6
----------------------------------------------------------------- ------------ ------ ------
Diluted number of shares Million 590.7 634.6
----------------------------------------------------------------- ------------ ------ ------
Diluted EPS - total Group Pence 18.0 16.5
----------------------------------------------------------------- ------------ ------ ------
* For details of 'specific adjusting items' refer to note 3.
11. Goodwill
all figures in GBP million 2016 2015
--------------------------- ------ -------
Cost
At 1 April 183.3 541.4
Acquisitions - 0.1
Disposals (16.2) (370.1)
Foreign exchange 4.4 11.9
---------------------------- ------ -------
At 31 March 171.5 183.3
---------------------------- ------ -------
Impairment
At 1 April (76.1) (400.1)
Disposals 11.0 328.9
Impairment (31.9) -
Foreign exchange (1.4) (4.9)
---------------------------- ------ -------
At 31 March (98.4) (76.1)
---------------------------- ------ -------
Net book value at 31 March 73.1 107.2
---------------------------- ------ -------
Goodwill as at 31 March 2016 was allocated across various cash
generating units (CGUs) in the following segments: EMEA Services
(two) and Global Products (two). Goodwill previously allocated to
an EMEA Services CGU (the Cyveillance business) of GBP5.2m was
written off in the year on disposal of that CGU.
Goodwill is attributable to the excess of consideration over the
fair value of net assets acquired and includes expected synergies,
future growth prospects and employee knowledge, expertise and
security clearances. The Group tests each CGU for impairment
annually, or more frequently if there are indications that goodwill
might be impaired.
Impairment testing is dependent on management's estimates and
judgments, particularly as they relate to the forecasting of future
cash flows, the discount rates selected and expected long-term
growth rates. Significant headroom exists in all CGUs with the
exception of US Global Products, discussed below, and management
considers that there are no likely variations in the key
assumptions which would lead to an impairment being recognised in
any of the other CGUs.
Key assumptions
Cash flows
The value-in-use calculations generally use discounted future
cash flows based on financial plans approved by the Board covering
a two-year period. Discounted cash flows for the US Global Products
CGU were based on a Board-approved three-year plan, reflecting
increases in revenue from new product lines. Cash flows for periods
beyond these periods are extrapolated based on the last year of the
plans, with a terminal growth-rate assumption applied.
Terminal growth rates
The specific plans for each of the CGUs have been extrapolated
using a terminal growth rate of 2.0% - 2.4% (2015: 2.0% - 3.0%).
The US Global Products terminal growth rate was 2.4% (2015: 3.0%).
Growth rates are based on management's estimates which take into
consideration the long-term nature of the industry in which the
CGUs operate and external forecasts as to the likely growth of the
industry in the longer term.
Discount rates
The Group's weighted average cost of capital was used as a basis
in determining the discount rate to be applied, adjusted for risks
specific to the market characteristics of CGUs as appropriate on a
pre-tax basis. This is considered to appropriately estimate a
market participant discount rate. The pre-tax discount rates
applied for the two EMEA Services CGUs were 11.7% and 14.7%, for
the UK Global Products CGU was 11.7% and for the US Global Products
CGU was 11.3%.
Sensitivity analysis shows that the value of the terminal year
cash flow, the discount rate and the terminal growth rates have a
significant impact on the value of the discounted cash flow.
Significant CGUs
US Global Products
The carrying value of the goodwill for the US Global Products
CGU as at 31 March 2016 was GBP37.9m (2015: GBP67.2m). The decrease
results from an impairment of GBP31.9m in the year following a
reduction in the value in use, calculated using the assumptions
noted above. The impairment is primarily due to the combined impact
of changes to the discount rate and terminal growth rate.
Sensitivity analysis has been undertaken to assess the impact of
changes to the key assumptions. Applying a sensitivity to remove
new product growth would increase the impairment by GBP4.5m.
Alternatively, increasing the discount rate by 1% would increase
the impairment by GBP6.0m and reducing the terminal growth rate by
1% would increase the impairment by GBP5.3m. The carrying value of
net operating assets as at 31 March 2016 was GBP82.8m.
Other CGUs
The UK Global Products CGU and the two individual CGUs within
EMEA Services all have significant headroom. An increase in the
discount rate or a decrease in the terminal growth rate by 1% would
not cause the net operating assets to exceed their recoverable
amount. The carrying value of goodwill for the UK Global Products
CGU as at 31 March 2016 was GBP5.5m (2015: GBP5.2m). The carrying
values of goodwill for the two EMEA Services CGUs as at 31 March
2016 were GBP27.5m and GBP2.2m (2015: GBP27.5m and GBP2.1m). The
Directors have not identified any other likely changes in other
significant assumptions between 31 March 2016 and the signing of
the financial statements that would cause the carrying value of the
recognised goodwill to exceed its recoverable amount.
12. Net cash
As at 31 March
2016 2015
------------------- -------------------------- -----
all figures in GBP
million Assets Liabilities Net Assets Liabilities Net
--------------------------------- ------ ----------- ----- ------ ----------- -----
Current financial
assets/(liabilities)
Deferred financing
costs 0.3 - 0.3 0.3 - 0.3
--------------------------------- ------ ----------- ----- ------ ----------- -----
Borrowings 0.3 - 0.3 0.3 - 0.3
Available for sale
investment 9.9 - 9.9 10.0 - 10.0
Derivative financial
instruments 0.6 (0.2) 0.4 0.5 (0.5) -
Finance lease debtor/(creditor) - - - 1.5 (1.4) 0.1
--------------------------------- ------ ----------- ----- ------ ----------- -----
Total current financial
assets/(liabilities) 10.8 (0.2) 10.6 12.3 (1.9) 10.4
--------------------------------- ------ ----------- ----- ------ ----------- -----
Non-current assets/(liabilities)
Deferred financing
costs 0.5 - 0.5 0.8 - 0.8
--------------------------------- ------ ----------- ----- ------ ----------- -----
Borrowings 0.5 - 0.5 0.8 - 0.8
Derivative financial
instruments 0.1 (0.2) (0.1) 0.1 (0.1) -
Total non-current
financial assets/(liabilities) 0.6 (0.2) 0.4 0.9 (0.1) 0.8
--------------------------------- ------ ----------- ----- ------ ----------- -----
Cash 68.4 - 68.4 41.6 - 41.6
Cash equivalents 195.1 - 195.1 142.7 - 142.7
--------------------------------- ------ ----------- ----- ------ ----------- -----
Total cash and cash
equivalents 263.5 - 263.5 184.3 - 184.3
--------------------------------- ------ ----------- ----- ------ ----------- -----
Total net cash as
defined by the Group 274.5 195.5
--------------------------------- ------ ----------- ----- ------ ----------- -----
At 31 March 2016 GBP1.6m (2015: GBP1.3m) of cash was held by the
Group's captive insurance subsidiary, including GBP0.1m (2015:
GBP0.1m) that was restricted in its use.
Reconciliation of net cash flow to movement in net cash
all figures in GBP million 2016 2015
----------------------------------------------------- ------ -------
Increase/(decrease) in cash and cash equivalents
in the year 78.4 (137.3)
Repayment of US$ private placement notes - 147.1
Outflow in respect of purchase of available for sale
investment - 10.0
Payment of bank loan arrangement fee - 1.3
Capital element of finance lease payments 1.4 2.8
Capital element of finance lease receipts (1.5) (3.0)
------------------------------------------------------ ------ -------
Change in net cash as defined by the Group resulting
from cash flows 78.3 20.9
Cash and cash equivalents disposed - (1.0)
Amortisation of deferred financing costs (0.3) (0.7)
Finance lease receivables - 0.3
Finance lease payables - (0.2)
Foreign exchange and other non-cash movements 1.0 5.7
------------------------------------------------------ ------ -------
In-year movement in net cash as defined by the Group 79.0 25.0
Net cash as defined by the Group at the beginning
of the year 195.5 170.5
------------------------------------------------------ ------ -------
Net cash as defined by the Group at the end of the
year 274.5 195.5
------------------------------------------------------ ------ -------
Less: other financial assets and liabilities (11.0) (11.2)
------------------------------------------------------ ------ -------
Total cash and cash equivalents 263.5 184.3
------------------------------------------------------ ------ -------
13. Post-retirement benefits
The Scheme is a final salary plan, which provides benefits to
members in the form of a guaranteed level of pension payable for
life. The level of benefits provided depends on the members' length
of service and their final pensionable earnings at closure to
future accrual. In the Scheme, pensions in payment are generally
updated in line with the Consumer Price Index (CPI).
The fair value of the QinetiQ Pension Scheme assets, which are
not intended to be realised in the short term and may be subject to
significant change before they are realised, and the present value
of the Scheme's liabilities, which are derived from cash flow
projections over long periods, and thus inherently uncertain,
were:
all figures in GBP million 2016 2015
--------------------------- --------- ---------
Equities - quoted 347.9 447.2
Equities - unquoted 66.1 70.0
LDI investment(1) 362.8 323.4
Corporate bonds 314.2 311.4
Alternative bonds(2) 176.6 176.3
Property 126.6 113.4
Cash and other 16.2 12.9
------------------------------ --------- ---------
Total market value of
assets 1,410.4 1,454.6
Present value of Scheme
liabilities (1,448.1) (1,494.0)
------------------------------ --------- ---------
Net pension liability
before deferred tax (37.7) (39.4)
Deferred tax asset 1.5 1.6
------------------------------ --------- ---------
Net pension liability
after deferred tax (36.2) (37.8)
------------------------------ --------- ---------
(1) The Scheme has assets invested in a Liability Driven
Investment portfolio. As at 31 March 2016 this hedges against 40%
of the interest rate and 100% of the inflation rate risk, as
measured on the Trustee's gilt-funding basis.
(2) Includes allocations to high-yield bonds, secured loans and
emerging market debt.
Changes to the fair value of Scheme assets
all figures in GBP million 2016 2015
-------------------------------------------- ------- -------
Opening fair value of Scheme assets 1,454.6 1,304.6
Interest income on Scheme assets 46.3 53.9
Re-measurement (loss)/gain on Scheme assets (75.8) 116.3
Contributions by the employer 14.6 9.2
Net benefits paid out and transfers (28.1) (28.1)
Administrative expenses (1.2) (1.3)
-------------------------------------------- ------- -------
Closing fair value of Scheme assets 1,410.4 1,454.6
-------------------------------------------- ------- -------
Changes to the present value of the defined benefit
obligation
all figures in GBP million 2016 2015
-------------------------------------------- --------- ---------
Opening defined benefit obligation (1,494.0) (1,326.8)
Interest cost (47.4) (54.5)
Actuarial gain/(loss) on Scheme liabilities
based on:
Change in financial assumptions 40.4 (128.3)
Experience gains 24.8 7.8
Change in demographic assumptions - (20.3)
Net benefits paid out and transfers 28.1 28.1
-------------------------------------------- --------- ---------
Closing defined benefit obligation (1,448.1) (1,494.0)
-------------------------------------------- --------- ---------
Total expense recognised in the income statement
all figures in GBP million 2016 2015
---------------------------------------- ---- ----
Net interest on the net defined benefit
liability 1.1 0.6
Administrative expenses 1.2 1.3
---------------------------------------- ---- ----
Total expense recognised in the income
statement (gross of deferred tax) 2.3 1.9
---------------------------------------- ---- ----
Assumptions
The major assumptions used in IAS19 valuation of the Scheme
were:
2016 2015
-------------------------------------------- ---- ----
Discount rate applied to Scheme liabilities 3.4% 3.2%
CPI inflation assumption 2.1% 2.1%
-------------------------------------------- ---- ----
Assumed life expectancies in years:
Future male pensioners (currently aged
60) 89 88
Future female pensioners (currently aged
60) 91 91
Future male pensioners (currently aged
40) 91 91
Future female pensioners (currently aged
40) 93 93
-------------------------------------------- ---- ----
14. Contingent liabilities and assets
Subsidiary undertakings within the Group have given unsecured
guarantees of GBP32.8m at 31 March 2016 (2015: GBP36.2m) in the
ordinary course of business.
The Company has on occasion been required to take legal action
to protect its intellectual property rights, to enforce commercial
contracts or otherwise and similarly to defend itself against
proceedings brought by other parties. Provisions are made for the
expected costs associated with such matters, based on past
experience of similar items and other known factors, taking into
account professional advice received, and represent management's
best estimate of the likely outcome. The timing of utilisation of
these provisions is uncertain pending the outcome of various court
proceedings and negotiations. However, no provision is made for
proceedings which have been or might be brought by other parties
unless management, taking into account professional advice
received, assesses that it is more likely than not that such
proceedings may be successful. Contingent liabilities associated
with such proceedings have been identified but the Directors are of
the opinion that any associated claims that might be brought can be
resisted successfully and therefore the possibility of any outflow
in settlement is assessed as remote.
The Group has not recognised contingent amounts receivable
relating to the Chertsey property which was disposed of during 2004
or the Fort Halstead property disposed of in September 2005.
Additional consideration is potentially due on the purchasers
obtaining additional planning consents, with the quantum dependent
on the scope of the consent achieved.
The Group has also not recognised contingent amounts receivable
relating to property impairments in prior years that may
potentially be recovered from the MOD. Recovery is subject to
future negotiations. It is not considered practicable to calculate
the value of this contingent asset.
15. Cash flows from operations
For the year ended 31 March
all figures in GBP million 2016 2015
------------------------------------------------- ------ ------
Profit after tax for the year 106.1 104.7
Adjustments for:
Taxation income (8.4) (11.8)
Net finance costs 1.3 4.1
(Profit)/loss on business divestments
and disposal of investments (23.7) 12.9
Reversal of unutilised restructuring provisions - (1.0)
Amortisation and impairment of purchased
or internally developed intangible assets 2.8 1.5
Amortisation of intangible assets arising
from acquisitions 2.0 3.6
Impairment of goodwill 31.9 -
Depreciation and impairment of property,
plant and equipment 23.0 22.0
Loss on disposal of property, plant and
equipment 1.2 1.2
Share of post-tax (profit)/loss of equity
accounted entities (0.5) 0.1
Share-based payments charge 4.7 3.6
Changes in retirement benefit obligations (13.4) (7.9)
Net movement in provisions (0.3) (1.6)
------------------------------------------------- ------ ------
126.7 131.4
------------------------------------------------- ------ ------
(Increase)/decrease in inventories (0.2) 2.6
Decrease in receivables 13.8 27.3
Decrease in payables (6.9) (22.2)
------------------------------------------------- ------ ------
Changes in working capital 6.7 7.7
------------------------------------------------- ------ ------
Cash generated from operations 133.4 139.1
Add back: cash outflow relating to restructuring - 0.6
Add back: disposal-related pension contribution - 6.0
Less: cash generated from discontinued
operations - (1.8)
Net cash flow from operations before specific
adjusting items 133.4 143.9
------------------------------------------------- ------ ------
Reconciliation of net cash flow from operations
before specific adjusting items to underlying
operating cash flow
all figures in GBP million 2016 2015
------------------------------------------------- ------ ------
Net cash flow from operations before specific
adjusting items 133.4 143.9
Purchases of intangible assets (1.6) (4.2)
Purchases of property, plant and equipment (28.6) (24.8)
Proceeds from sale of property, plant
and equipment 0.4 -
------------------------------------------------- ------ ------
Underlying operating cash flow 103.6 114.9
------------------------------------------------- ------ ------
Glossary
Book to Ratio of funded Amortisation of intangible
bill ratio orders received Specific assets arising from
in the year to adjusting acquisitions; impairment
revenue for the items of goodwill and intangible
year, adjusted assets; gains/losses
to exclude revenue on business divestments
from the 25-year and disposal of property
LTPA contract and investments;
net pension finance
expense; net restructuring
charges/ recoveries;
tax on the preceding
items; one-off recovery
of research and development
tax credits and associated
write-off of tax
losses; and other
significant non-recurring
deferred tax movements
SDSR Strategic Defence
and Security Review
C4ISR Command, control, SSRO Single Source Regulations
communications, Office
computers, intelligence,
surveillance and
reconnaissance
CPI Consumer Price
Index
UK GAAP UK Generally Accepted
Accounting Practice
DE&S MOD's Defence, Underlying Basic earnings per
Equipment and Support basic earnings share as adjusted
organisation per share to exclude 'specific
adjusting items'
Underlying The tax charge for
effective the year excluding
tax rate the tax impact of
'specific adjusting
items' expressed
as a percentage of
underlying profit
before tax
EBITDA Earnings before Underlying Net cash inflow from
interest, tax, net cash operations before
depreciation from operations cash flows of specific
and amortisation (post capex) adjusting items less
net cash outflow
on purchase/sale
of intangible assets
and property, plant
and equipment
EPS Earnings per share Underlying Net finance costs
net finance excluding net pension
costs finance costs
Underlying The ratio of underlying
operating net cash from operations
cash conversion (post capex) to underlying
operating profit
excluding
share of post-tax
result of equity-accounted
joint ventures and
associates
Funded The expected future
backlog value of revenue
from contractually
committed and funded
customer orders
(excluding the
GBP998m third-term
re-pricing of the
LTPA contract)
IAS International Accounting Underlying Underlying operating
Standards operating profit expressed
margin as a percentage of
revenue
IFRS International Financial Underlying Operating profit
Reporting Standards operating as adjusted to exclude
profit 'specific adjusting
items'
LTPA Long Term Partnering Underlying Profit before tax
Agreement - 25-year profit before as adjusted to exclude
contract established tax 'specific adjusting
in 2003 to manage items'
the MOD's test
and evaluation
ranges
MOD UK Ministry of
Defence
Organic The level of year-on-year
growth growth, expressed
as a percentage,
calculated at constant
foreign exchange
rates, adjusting
comparatives to
incorporate the
results of acquired
entities but excluding
the results for
any disposals or
discontinued operations
for the same duration
of ownership as
the current period
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EANSSAEAKEFF
(END) Dow Jones Newswires
May 26, 2016 02:00 ET (06:00 GMT)
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