22nd Mar 2007 07:01
QinetiQ Group plc22 March 2007 QinetiQ Group plc22 March 2007 QinetiQ Group plc - Pre-Close Trading Update QinetiQ Group plc, the international defence and security technology company,today issues the following trading statement in respect of the year ending 31March 2007. The Company's preliminary results will be announced on 31 May 2007.The Board considers that QinetiQ has made good progress in its first full yearas a public company, consistent with its growth strategy, with new businessareas offsetting the expected declines in MOD Research revenue and LCD royaltyincome. The Board confirms that the business has continued to trade in line withexpectations. In the Defence & Technology (D&T) sector, overall revenues have been broadlyconsistent with those in the prior year with growth in the Technology Supplystream continuing to offset declining MOD Research revenue as this area isincreasingly opened to competition. The sector has experienced its traditionallystronger second half and, in particular, a strong final quarter to the year. Thetrend of incremental operating profit margin improvement has continued thisyear. D&T achieved a notable success in January, when the MOD announced that Metrix,QinetiQ's joint venture with Land Securities Trillium, had been selected as thepreferred bidder for Package 1 and provisional preferred bidder for Package 2 ofthe 25 year DTR (Defence Training Rationalisation) managed services contract.Negotiations are ongoing with the MOD to refine the scope of the packages toaddress customer affordability. The target remains to agree the final scope byAutumn 2007, with financial close expected some 12 to 18 months thereafter. InDecember 2006 QinetiQ reached financial close on the 20 year CATS (CombinedAerial Target System) managed services contract, enhancing the service currentlyprovided under the LTPA contract. It is anticipated that this contract willdeliver approximately £100m of incremental revenues over its duration. Within Security & Dual Use (S&DU), the overall revenue performance is expectedto be similar to the previous year, despite the expiry of LCD patents whichaccounted for £13m of royalty income in 2005/06. Operating profit margins areexpected to be broadly similar to those achieved in the first half of thecurrent year. Commercial ventures have made steady progress, and a variety ofroutes to accelerate value creation based around the substantial technologyportfolio continue to be explored. QinetiQ North America (QNA) is delivering strong underlying organic growth,particularly in the Technology business, which has seen continued high shipmentlevels of the Talon robot. As previously indicated, the organic revenue growthin other parts of QNA was held back by continued delays in gaining securityclearances for new staff in the IT Services business and the anticipated declinein revenue from Westar's high margin Aerospace Filtration Systems business(AFS). While these factors have contributed to revenue at the lower end ofexpectations for the year, the change in revenue mix in favour of the highermargin product business is expected to result in profit levels, in localcurrency, in line with expectations. The weakening US dollar, which has declinedby some 7% year on year, has impacted on the translation of the trading resultsof QNA operations, although maintaining the majority of net debt in US dollarsmitigates the economic impact of currency fluctuations on the Group. QNA's organic growth has been complemented by three further acquisitionsannounced during the year, namely Ocean Systems Engineering Corporation(completed May 2006 for $53m), Analex Corporation (completed March 2007 for$173m) and ITS Corporation (completion expected April 2007 for up to $90m). QNAremains focused on its core growth opportunity areas and as a result realisedits investment in AFS which was sold in March 2007 for $39m. QinetiQ's operating cash conversion has been lower than expected in the secondhalf of the year due to a repeat of the trend seen two years ago for certainMinistry of Defence contracts to be awarded relatively late in the year, causingsome short term working capital absorption over the year end that is expected toreverse early in the next financial year. For further information please contact: Graham Love, Chief Executive Officer: +44 (0) 1252 392000Doug Webb, Chief Financial Officer +44 (0) 1252 392000 Nicky Louth-Davies, QinetiQ press office: +44 (0)1252 392809; +44 (0)7795 290593Chris Moseley, QinetiQ press office: +44 (0)1252 395559; +44 (0)7941 126064Adrian Colman, QinetiQ Investor Relations: +44 (0)1252 395366; +44(0)7740 432699 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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