QinetiQ Group plc

Good to see you all here. So welcome to our interim results presentation, and good to see you here in the room and also those joining us live on the webcast. I'm John Howarth, Group Director of Investor Relations, and I'm joined today by Steve Wadey, our Group CEO, and Carol Borg, our Group CFO. As normal, Steve will run through the presentation, after which there will be an opportunity for you to ask questions. Thank you very much. Enjoy the presentation. Steve, over to you.

Great. Thank you, John, and good morning, everybody, and welcome to our interim results for FY24. Thank you for joining us today. In September, I was delighted to announce that we had won a $224 million five-year contract to provide systems engineering services for the US Space Development Agency. Our contract supports building the SDA's next-generation satellite network launched from SpaceX's Falcon 9 rockets, as shown in this picture. This critical capability provides the U.S. with enhanced situational awareness and missile tracking of the battle space. This contract is the largest competitive win for Avantis since our acquisition last year and is a clear demonstration of the value we are creating from the combination of Avantis and Kinetic. And I'll cover more on this story later. I'd also like to thank our incredible people across the whole company. As the world continues to experience a heightened threat environment, they have continued to support our customers' operational priorities and delivered a really strong first-half performance. And as a team, we have a robust customer-focused strategy and are delivering long-term sustainable growth. So the agenda this morning is as follows. I'll start by giving you the headlines. Carol will provide a commentary on our financial results, and then I'll come back and give you a strategic update. We'll then open up for questions. So let's start with the headlines. We've delivered strong and consistent operational performance across the company globally. Orders are up 19%, a record high of £953 million and a book-to-bill of 1.3, demonstrating increasing demand for our distinctive offerings. Revenue is up 31% and profit is up 35%, delivering excellent organic growth of 19% and 25% respectively and improving margin to 11.3%. Cash conversion was 50% due to short-term timing effects and returns remain healthy with EPS up to 13.4 pence and an interim dividend of one-third prior year total. Beyond this impressive organic performance, our biggest highlight was Avantis winning $657 million of new contract awards. Whilst Avantis' first half revenue was slower than expected due to the US continuing resolution and competitor protests, the team have done a really great job integrating the business and winning these awards. This outstanding performance builds strong momentum to drive future revenue growth and demonstrates that the combination of Avantis and Kinetic is creating a powerful platform to deliver for our U.S. customers. As a differentiated company, we have a clear strategy and a robust organic growth plan to deliver £2.4 billion revenue at 12% margin by FY27. Our strategy is underpinned by disciplined capital allocation and provides optionality to compound growth with bolt-on acquisitions to reach our long-term ambition of £3 billion revenue. Our focus remains on supporting our customers' mission and increasing returns for shareholders in both the short and long term. We're on track to deliver our full year performance in line with market expectations. I'll now hand over to Carol to take you through our financial results.

Thank you, Steve. Good morning, everyone. In this section of the presentation, I will provide more detail on our first half financial performance. Like Steve, I am very pleased with our results. We've delivered strong and consistent operational performance, continued to deliver revenue growth at improved operating profit margins, and are seeing the Avantis acquisition deliver through winning an impressive amount of new and re-competed business. Firstly, our key financial highlights. In the first half, we have delivered excellent order intake of 953 million pounds, growing 19% on a reported basis, demonstrating high demand for our distinctive offerings. Excellent revenue at £883 million, growing 31% on a reported basis, up 19% on an organic basis, delivered through good program execution across all of our major contracts and the contribution of our acquisitions last year. We delivered excellent underlying operating profit at £100 million, which represents 11.3% margin. I'm particularly pleased by the margin in the half, an increase on the first half last year and stable compared to last full financial year, demonstrating our effort to drive consistent operational performance. Underlying net cash flow from operations was £72 million, resulting in a cash conversion rate of 50%. This cash conversion is lower than we have delivered in the past, but is merely short-term timing and is already reversing. Leverage is at 0.9 times net debt to EBITDA. Underlying basic earnings per share of 13.4 pence is up 18%, reflecting increased profit offset by higher interest payments and increased UK tax rate. And with our focus on delivering returns, we have added return on capital employed for the first time in our half-year results. Using a rolling 12-month profit, Rokey continues to remain attractive at 25.5%. And whilst not shown on this slide, I can confirm that an interim dividend of 2.6 pence per share will be paid. So overall, strong and consistent underlying performance in the first half, which is a good foundation to deliver on our full year expectations, de-risking the second half. I will now provide further detail on our performance, bringing out our two operating segments, which, just to remind you, in April we renamed Global Products to Global Solutions to reflect the changing nature of that segment following the addition of Avantis last year. Orders. We have delivered excellent order performance in the period with orders of 953 million pounds growing 19%, 2% on an organic consistent currency basis against a high prior year comparator. As we articulated at our investor seminar three weeks ago, we are highly relevant in high growth market segments. Some of these segments are evidenced by the orders that we have won in the half. namely 190 million of orders under the Engineering Delivery Partner Framework and a 39 million pound Battlefield Communication Program renewal in the UK and significant new awards in the US. Order performance by our integrated acquisitions has been impressive. As Steve has already outlined, we have won contract awards totalling $657 million in Avantis since the start of the financial year, booking $195 million in our first half orders as per our prudent order recognition policy. It is pleasing to see continued growth in overall backlog figure up to 3.1 billion pounds as at the end of September, particularly with growth continuing outside of our LTPA contract. Our orders won and backlog demonstrate our unique value proposition and high demand for our distinctive offerings. Revenue. We have delivered excellent revenue at £883 million, growing 31%, 19% on an organic, consistent currency basis. This revenue growth has been driven by four main factors. Firstly, the strong orders won last year flowing into revenue across all of our major contracting frameworks, including EDP and LTPA. Secondly, operational requirements have driven some short-term taskings. Thirdly, with our contracting terms, the impact of inflation has benefited revenue growth. And finally, inorganically, with the addition of our recent acquisitions of Avantis and Air Affairs. The investment we have made in recent years into our business winning capabilities across our three home countries is delivering results, driving this impressive level of continued organic revenue growth across the group. It is pleasing to also see good revenue cover. We start the second half with 92% of our full year revenue guidance under contract, de-risking our full year delivery. Underlying operating profit. We have delivered excellent underlying operating profit at £100 million, which is 11.3% margin. This represents an increase of 35%, 25% on an organic consistent currency basis. I'm pleased to see improved margin with good margin performance across both our segments, demonstrating our effort to drive consistent organic operational performance. The improved margin continues the momentum that I have previously guided. In particular, in EMEA services, profit has grown, reflecting excellent revenue growth at modestly higher profit margin. In global solutions, profit has grown with margins increasing towards double digit. And inorganically, our acquisitions achieved good margin in line with our expectations with Avantis maintaining double digit operating profit margin. Now turning to the segmentation split of the group performance. First we have EMEA Services. EMEA Services has delivered significant year-on-year growth, continuing to demonstrate success in our strategy to win and deliver larger, longer-term contracts. we've increased orders by 4% and revenue by 23%, both on an organic basis. Our largest orders in the half were 190 million pounds of EDP orders, a 39 million pound battlefield communication program renewal, and a 54 million pound variation of price contract on the LTPA to reflect inflationary impacts. Revenue growth has been particularly strong year on year and in line with the second half of last year, demonstrating our relevance in high growth market segments. Operating profit margin has seen a modest increase to 11.8%, demonstrating strong and consistent delivery performance. Amaya Services delivered a good book-to-bill ratio of 1.2 times, excluding the LTPA, and has a funded order backlog of 2.7 billion pounds, giving us good forward revenue visibility. Next on to Global Solutions. Global Solutions combines our world-leading technology-based products and services. On an organic basis, orders and revenue have been broadly flat. Our largest orders in the half were a $51 million aircraft launch and recovery system award and an $84 million full production contract for the next generation advanced bomb suit, of which $34 million has been recognised in the half. We achieved an impressive book-to-bill ratio of 1.4 times and grew our funded order backlog to £0.4 billion. Whilst Avanta's first half revenue was slower than we expected due to the US continuing resolution and competitor protests, we are really pleased with the recent contract awards and momentum. The combination of Avantis and Kinetic is creating a platform that gives us great confidence in the future growth of this business in the second half and beyond. As I have previously communicated, we have been driving improved margins in this segment. Operating profit has been strong with margins improving 150 basis points to 10%, reflecting good margin stability in the US and higher margin products in our threat representation and niche intelligence businesses. Cash. Cash flow management remains strong, but as guided at our Q2 trading update, cash conversion in the first half was lower than prior periods due to short-term timing. We delivered underlying net cash flow from operations of £72 million, which, compared to the excellent underlying operating profit, resulted in a cash conversion of 50% due to timing of contract receipts and payables. We are already seeing this reversing and therefore I am confident that we are on track to deliver full-year cash conversion of at least 90% in line with guidance. As outlined in our recent investor seminar, we have a clear and disciplined capital allocation policy that provides the financial frame to deliver our long-term strategy. We have deployed £47 million in capital investments to support our future organic growth. After distributing £31 million in dividends and an increase of £26 million in lease obligations from entering into new long-term property arrangements in both the UK and the US, this has resulted in a closing net debt position of £274 million. This is equal to leverage at 0.9 times well below our recently communicated maximum leverage guidance of 1.5 times. We continue to maintain a rigorous approach to the deployment of our capital, enabling delivery of our long-term strategy to compound and accelerate growth and shareholder returns. My final slide is the outlook slide, articulating our guidance, which is consistent with what we have previously guided. FY24, in line with market expectations. We enter the second half with confidence, a healthy order book and positive momentum with 92% of revenue under contract. We confirm that our full year performance will be in line with market expectations, which I have set out in the footnote of this slide. We expect to deliver high single digit organic revenue growth and high teams reported revenue growth at stable operating profit margin. Capital expenditure is expected to remain within the 90 to the 120 million range. Longer term guidance unchanged. As we articulated at our investor seminar, our long-term guidance reflects the financial expectation arising from the delivery of our strategy, which remains unchanged. We remain on track to deliver our exciting ambition to build a company of £3 billion revenue at 11% to 12% margin by FY27. And with that, I'll now hand back to Steve.