In a year that marked the tenth anniversary of QinetiQ’s listing on the London Stock Exchange, it was appropriate that we embarked on the next chapter as a publicly-listed company. During the year, we appointed Steve Wadey as our new Chief Executive Officer (CEO), set out a vision and strategy for QinetiQ and delivered a solid operating performance in challenging markets.
In the year to 31 March 2016, orders grew 8% to £659.8m (2015: £613.6m), Group revenue was £755.7m (2015: £763.8m), and underlying operating profit* was £108.9m (2015: £111.3m). Full year underlying earnings per share* were 16.3p (2015: 15.2p). Total Group profit after tax was £106.1m (2015: £104.7m). Underlying operating cash conversion remained strong at 96% (2015: 103%) with net cash increasing to £274.5m (2015: £195.5m).
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.
On 27 April 2015, the Board was delighted to appoint Steve Wadey as CEO. We were looking for an outstanding leader with a track record of driving growth, a deep understanding of the defence sector and the technological know-how to lead our people; Steve met all these criteria.
Steve was attracted to the role by the expertise of our employees who are held in high regard across industry. In an environment where we are witnessingincreasing security threats, many of which can only be met through innovative thinking, there is strong demand for this expertise; we would like to thank employees across QinetiQ for their hard work and dedication this year.
Steve’s first move as CEO was to establish a Leadership Community QinetiQ, bringing together the top 100 leaders every month for the first time. I have seen first-hand how this community is contributing to the future direction of the company and would like to put on record my appreciation for this step-change in leadership.
Not only are our leaders accountable for driving business performance, they also ensure that we are behaving responsibly to the benefit of all our stakeholders – so that we operate safely, uphold strong governance, support environmental stewardship of the sites which we operate, and invest in our local communities.
Over the last year, this new leadership team has injected great energy and fresh thinking to accelerate our transformation to a more customer-focused company. Achieving our ambition of becoming the chosen partner will require a relentless focus on continuing to meet our customers’ needs in both defence and commercial markets. There is much more to do, but QinetiQ’s customer satisfaction scores remain strong, so we have a good foundation to build on.
Along with customers and employees, shareholders are key stakeholders in QinetiQ as the owners of the company. We would like to thank our investors for their continued support this year and for their constructive dialogue, particularly during the CEO transition.
We are clear that continued capital discipline underpins growing, sustainable returns and that unlocking QinetiQ’s unrealised potential requires focused investment in growth. In recognition of this, our priorities for capital allocation are: organic investment complemented by bolt-on acquisitions where there is a strong strategic fit, the maintenance of balance sheet strength, a progressive dividend, and the return of excess cash to shareholders.
The Board proposes a final dividend of 3.8p per share for the year ended 31 March 2016 (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 our commitment to a progressive dividend.
A £150m share buyback, which commenced on 28 May 2014, following the disposal of US Services, was completed by 30 September 2015 with 72.5m shares purchased in total. In November 2015, we were pleased to be able to announce a further £50m share repurchase, of which £47m remains to be completed.
Strategic growth, balanced with capital discipline, is the top priority we have set as a Board this year and the mandate we gave to Steve on his appointment. The Board has been actively engaged in the development of a revised strategy for QinetiQ and fully endorses the future direction. We are encouraged by the progress that has been made this year and will continue to support the leadership team with the successful delivery and implementation of strategic priorities.
The other priorities we have set as a Board are succession planning and ensuring the effective stewardship of QinetiQ through appropriate governance processes and systems of control. The Board recognises that good governance is fundamental to the successful delivery of our strategy as it ensures the continued support of customers, employees and other key stakeholders. This year has seen an external evaluation of the effectiveness of the Board and details can be found on page 61.
In January 2016 we announced the appointment of Lynn Brubaker as a Non-executive Director. Lynn has spent her career in the aerospace industry, culminating in her appointment as Vice President and General Manager of Commercial Aerospace at Honeywell International. Her international experience is particularly relevant to QinetiQ and we were pleased to welcome her to the Board.
I would like to thank Board members for the support they have given me this year.
Solid operating performance in challenging markets
Steve Wadey appointed as CEO
Lynn Brubaker appointed as Non-executive Director
Set out a vision and strategy
Capital allocation policy published
6% increase in full year dividend
£150m capital return completed
£50m buyback announced in November 2015, £47m remains to be completed
* FY = Financial year to 31 March.