QinetiQ : Financial Document

QinetiQ Presentation: Acquisition of Avantus

Monday 8th August 2022

Transcript

Disclaimer

This transcript is derived from a recording of the event. Every possible effort has been made to transcribe accurately. However, neither QinetiQ nor BRR Media Limited shall be liable for any inaccuracies, errors, or omissions.

John Haworth:	Good morning and welcome to our presentation where we will explain
	our acquisition of Avantus Federal in the U.S. that we announced on
	Friday evening. I'm John Haworth, Group Eirector of investor relations
	at QinetiQ. I'm joined by Steve Wadey, our CEO, Carol Borg, our CFO
	and Shawn Purvis, President and CEO of our U.S. business. Steve, Carol,
	and Shawn will run through the presentation, after which there'll be an
	opportunity for you to ask questions. In order for you to ask a
	question, please use the telephone line provided, Steve over to you.
Steve Wadey:	Great. Thank you, John, and good morning everybody and welcome to
	our Webex this morning. I'm absolutely delighted to share with you
	that we've entered into an agreement to acquire Avantus in the U.S.
	The conflict in Ukraine has reinforced the vital importance of a
	technologically advanced defence and security industry, especially in
	precision effects that we see on the TV, but also in the rapidly growing
	domains of cyber and information that we don't see. This deal is a
	major step forward in delivering our long term global growth strategy,
	and is totally aligned with our customers' mission, both now and in the
	future. We've selected Avantus as a high quality business with state of
	the art mission-focused cyber and data analytics capabilities, similar to
	those that we have in the UK. The combination with QinetiQ, which
	meets all our acquisition criteria, creates a powerful and differentiated

	team, provides an exciting new platform to build a disruptive mid-tier
	business in the U.S., an opportunity to leverage our capabilities for our
	customers globally, and offers compelling returns for our shareholders
	as we drive growth.
Steve Wadey:	So let me start by giving you a summary of the strategic rationale and
	the key transaction terms. These are the seven key highlights of the
	deal. It's an all cash acquisition at $590 million, including a net tax
	benefit worth $70 million to us. Avantus is a market leading mission
	focused cyber, data analytics, and software development solutions
	provider for U.S. defence, intelligence and Homeland Security
	customers. It delivered approximately $300 million of revenue last year
	and has 1,150 employees. Avantus provides a strong and aligned
	cultural fit, focused on its customers and employees, and has a very
	talented management team and employee base, which augments our
	strengthened U.S. leadership team that we have recently built. The
	combination of Avantus and QinetiQ transforms our U.S. business with
	complementary capabilities, to create a platform to accelerate growth
	in our customers' high priority segments aligned with the U.S. national
	security mission. Avantus is a mature and highly integrated business
	that is aligned with our global strategy to focus on and build six
	distinctive offerings by extending our customer base and increasing

	our breadth and scale within the U.S., whilst providing further growth
	opportunity from global leverage.
Steve Wadey:	Financially, the business is highly attractive, with a $2.4 billion order
	pipeline providing significant visibility, and at least 10% forward
	revenue growth attracting stable double digit operating margins. The
	business case for the acquisition is compelling, with enhanced
	shareholder returns and effective use of our balance sheet. The deal is
	a strong strategic fit, compelling economic case with high confidence
	integration, and a major step forward in delivering our global growth
	strategy.
Steve Wadey:	The key terms of the transaction are, from a valuation perspective, the
	deal is an all cash acquisition at a purchase price of $590 million,
	including the $70 million tax benefit. The last 12 month performance
	of the business to June 2022 was $298 million of revenue, with $35.5
	million of adjusted EBITDA, representing an enterprise value multiple
	of 14.6 times, net of the tax benefit. In terms of financial performance,
	we expect the business to deliver at least double digit revenue growth
	and stable operating margins, consistent with our group guidance.
	Therefore, the deal will be immediately earnings accretive, with double
	digit EPS growth by the end of the first full year, and return on
	invested capital will exceed our cost of capital by the end of the third
	full year after completion.

Steve Wadey:	The financing of the deal is very conservative, through a combination
	of existing cash and new debt facilities, creating leverage of
	approximately 1.3 times net debt to EBITDA, whilst targeting rapid de-
	leveraging to less than one times by the end of the first full year after
	completion. The deal is subject to U.S. regulatory approvals and
	customary closing conditions, and we expect the transaction to
	complete by the end of the calendar year.
Steve Wadey:	In conclusion, this is a fantastic strategic acquisition for our company
	that is completely in line with our global strategy, creates an exciting
	platform to grow in the U.S., and will deliver enhanced shareholder
	returns.
Steve Wadey:	So let me introduce the agenda and team for this morning's
	presentation. First, we have Shawn Purvis, our president and CEO of
	QinetiQ US. Shawn joined QinetiQ in February and is making great
	progress with her mandate to deliver our short term operational
	performance. Today, she will talk to you about Avantus and the
	powerful combination with QinetiQ US as part of our strategy to
	realise our long term ambition and deliver a disruptive mid tier
	business in the U.S. I will then give you more colour on the strategic
	rationale for the acquisition and the role it plays in delivering our
	group's global growth strategy. Then Carol Borg, our group CFO, will
	talk you through the financial aspects of the deal and why it offers