British defence and technology group QinetiQ Group Plc (LSE:QQ.) saw its shares climb more than 8% on Thursday after reporting stronger-than-expected full-year earnings and confirming it is reviewing the future of its U.S. operations, with “all options under active review”.
For the year ended 31 March, underlying operating profit increased 18% to £218 million from £185 million a year earlier, ahead of analyst expectations of £211.3 million. Underlying earnings per share rose to 31.5 pence, beating the market consensus of 30.9 pence, while revenue came in at £1.92 billion, broadly matching forecasts of £1.93 billion.
“QinetiQ’s FY results show a company fighting to regain market confidence,” said analysts at Jefferies in a note.
The board proposed a full-year dividend of 11 pence per share, up from 8.85 pence the previous year and above the consensus estimate of 9.6 pence. The increase reflects a revised dividend policy targeting payouts of between 35% and 40% of underlying earnings per share.
“We have delivered a resilient performance in more challenging markets, with organic revenue growth, margin expansion and strong cash generation driven by disciplined execution and restructuring,” chief executive Steve Wadey said in a statement.
QinetiQ said its U.S. business generated revenue of £393.4 million during the year, down from £453.9 million previously, following restructuring measures that included the disposal of its Federal IT portfolio. The company stated that the business has now been stabilised but added it is evaluating its strategic role within the wider group.
The company said it recognises the “need to deliver enhanced value for shareholders and are actively assessing the strategic fit of the US business within the Group, including a review of all options.”
“What grabs the attention more, however, is confirmation that the group is assessing the strategic fit of the US business, with “all options under review,” Jeffries added.
“Seen as lower quality, more volatile, exiting this business whilst likely painful relative to the price paid for it, would leave QinetiQ a higher quality organisation in our view, with a much cleaner strategy,” the broker added.
Within the group’s divisions, EMEA Services generated revenue of £1.53 billion and underlying operating profit of £182.3 million, producing an operating margin of 11.9%. Global Solutions reported underlying operating profit of £35.6 million and improved margins of 9%, compared with 3.6% in the prior year.
Free cash flow increased 41% to £159 million, while net debt stood at £159 million, equivalent to leverage of 0.5 times net debt to EBITDA.
Order intake reached £3.57 billion, supported by a £1.70 billion extension to the company’s Long-Term Partnering Agreement, resulting in a record year-end order backlog of £4.80 billion. Excluding LTPA-related activity, the book-to-bill ratio was 1.14 times.
QinetiQ also announced a £200 million extension to its share buyback programme, with £100 million planned annually through to the end of the 2029 financial year.
Looking ahead, the company expects revenue growth of between 3% and 5% in the coming year, alongside operating margins of 11% to 11.5% and underlying earnings per share growth of 8% to 10%. Management also forecast cash conversion above 90% and free cash flow exceeding £550 million across financial years 2027 to 2029.
More about QinetiQ
QinetiQ Group Plc is a UK-based defence and security technology company providing advanced research, testing, engineering and advisory services to government and commercial customers. The group operates across defence, aerospace, cybersecurity and critical infrastructure markets, with operations spanning the UK, Europe, Australia and the United States.
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