QinetiQ Group plc (LON:QQ.) has today issued a trading update covering its fourth quarter to 31 March 2020.
FY20 results: performance in line with expectations
Building on a strong first half to the financial year, the Group has continued to perform in line with our expectations during the remainder of FY20 despite the impact of COVID-19. However, given the unprecedented nature of COVID-19 and the Board’s wish to adopt a prudent course of action to protect the long term, it will postpone the decision on the proposal of a full year dividend until later in the year.
Response to COVID-19
The COVID-19 crisis is affecting all our key markets and we continue to monitor closely the impact on our business. We have seen some level of disruption to customer trials and product shipments due to changing customer priorities and travel restrictions. Whilst we have a strong order book, underpinned by significant long-term contracts we are taking a measured approach to protecting skills and critical capabilities, delivering flexibly for our customers and ensuring resilience within the business.
Our priorities are:
1) Protecting the health and wellbeing of our employees and their families
Our primary concern is for our people, whose knowledge and expertise are key to our success. Globally, we are taking steps to ensure that employees can work effectively and safely from home while continuing to feel supported. For those employees who need to work on our sites to enable delivery of critical defence and national security programmes, we have implemented a range of safeguarding measures including social distancing, additional cleaning services and provision of personal protection equipment as necessary to ensure our working environments are safe and clean.
2) Continuing the delivery of critical work for our customers
The work QinetiQ does is vital to maintaining the capabilities of defence, security and critical national infrastructure, including the emergency services. Whilst our customers are facing significant challenges due to the threat of COVID-19, we are working closely with them to ensure we can provide support to the delivery of their priorities at this critical time.
3) Maintaining the ongoing strength of QinetiQ for the long-term
The full impact of COVID-19 on our business is difficult to predict and is dependent upon the extent and duration of actions aimed at reducing the spread of the virus. To protect the business we are implementing a series of actions in the short-term to sustain our skills and critical capabilities for the long-term. These temporary measures include the CEO and CFO agreeing to a salary reduction of c.33% and the wider Board agreeing to a 25% reduction in fees. We are also taking a prudent approach to controlling cash outflows, including reducing operating expenditure and deferring discretionary capital expenditure.
Maintaining balance sheet strength
We have a strong balance sheet and expect to end FY20 with c.£60m of net cash available. We have an undrawn committed revolving credit facility of £275m. The facility had an initial term of five years and two one-year options to extend the final maturity to September 2025.
Our customers are typically well-rated governments and at present we do not anticipate the current COVID-19 situation to negatively impact their payment practices.
Given the uncertainty surrounding the economic outlook, we believe it is appropriate to remain prudent. In addition to the pro-active steps we are taking around cost and investment, the Board has decided to postpone the decision on the proposal of a final full year dividend until later in the year when there is greater clarity.
With a strong balance sheet and order backlog of nearly £3bn we enter FY21 from a position of strength, however we are realistic that restrictions imposed by Governments internationally to counter the spread of COVID-19 will have an impact on revenues. We are working closely with our customers to understand their immediate priorities and will provide a fuller assessment of the situation at our full year results presentation.
Steve Wadey, QinetiQ Group Chief Executive Officer said:
“The business remains robust with good liquidity, a strong balance sheet and significant order backlog. However we believe, based on recent events, it prudent to implement a number of short-term actions to control cash outflow. Our immediate priorities are to protect the health and wellbeing of our employees and their families; to continue to deliver the vital work we do for our customers; and to sustain the skills and critical capabilities of our business for the long-term. Our customers face unprecedented challenges in overcoming COVID-19, while continuing to deliver critical defence and security capabilities; we play a key role in supporting them to do this.
“I would like to thank our people, who have risen to the challenge this environment creates for QinetiQ and our customers. Over the past weeks they have shown considerable commitment and agility in responding to the changing ways of working while continuing to safely support our customers. Never has our shared purpose of saving lives, defending sovereign capabilities and delivering where others can’t felt more real or relevant.”