Industrial Sector Intro and QInetiq Presentation

8/8/2019 Industrial Sector Intro and QInetiq Presentation

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Industrial Sector

A brief introduction



Sector facts

$6.47t market cap

20 listed industries within sector

9,736 listed companies



Industries in Sector

Containers and Packaging

Industrial Suppliers

Business Training and Employment Agencies

Industrial Machinery Building Materials and Fixtures

Financial Administration

Marine Transportation

Heavy Construction Waste and Disposal Services

Electronic Equipment



Industries Cont..

Trucking

Electrical Components and Equipment

Aerospace

Transportation Services Delivery Services

Commercial Vehicles and Trucks

Business Support Services

Diversified Industrials Defence

Railroads



Considerations

Literature and the Big five (Chemicals, basic

resources (oil, gas, mining and steel),

industrial goods, aerospace and defence,

autombolies)

Subtly of sector



Output in PPP GDP

China (1) $4,102,132m

{European Union $3,728,083m}

United States (2) $3,122,124m India (3) $994,367m

Analysis of Graphs



Why Invest in the Industrial Sector

Recap

Yearly performance up 17.61%

Year-To-Date (YTD) up by 14.97%

EPS Growth (5 years) of +7.99% Second biggest sector market cap

Appropriate price-to-sales ratio, div yield and

p/e ttm ratios.



Q inetiQ Group plc

Industry: Aerospace & Defence

Yihui Wang



Q inetiQ Group plc Q inetiQ Group plc (Q inetiQ ) is engaged in supplying of

technical advice to customers in the aerospace, defence andsecurity markets. It is also engaged in the provision of fundedresearch and development (R&D) for customers. It invests Inthe commercialisation of promising technologies across all

areas of business. Q inetiQ has three sectors:

1) EMEA (Europe, Middle East and Australasia), which deliverstechnical advice, technology solutions, consultancy andmanaged services to the Ministry of Defence in the United

Kingdom, and civil and other government customers in theUnited Kingdom and Australia.

2) Q inetiQ North America, which provides technology andservices to the United States government.



3)Ventures, which comprises commercial product businesses

and business venturing activities. On July 01, 2009, it acquired

Cyveillance, Inc. On October 8, 2010, it disposed of its interest

in S&IS - a non-core security operations and access control

business to ManTech International Corporation.



Operations

More than 2,000 of Q inetiQ's Talon robots have been

deployed to Iraq and Afghanistan most of which are being

used to remotely locate and disable roadside bombs.

Q inetiQ's SPO stand-off threat detection system has been sold

to the US Transportation Security Administration for use at

American railway stations and airports. Q inetiQ's Zephyr, solar

powered unmanned aerial vehicle recently flew non-stop for

fourteen days an unofficial world record for longest duration

unmanned flight. Q inetiQ has a 25-year agreement with the UK Ministry of

Defence (MoD) to provide test and evaluation services and



Operations

manage military ranges. This agreement is the Long Term

Partnering Agreement (LTPA). It is a major stakeholder in the

UK Defence Technology Centre which places military research

contracts on behalf of the MoD.

Also, Q inetiQ has a 15-year agreement with the MoD under

the Maritime Strategic Facilities Agreement (MSCA) to provide

strategic maritime facilities and capabilities, including

hydromechanic facilities at Haslar, biomedical facilities on the

UK's South Coast, and submarine structures, survivability andshock testing facilities at Rosyth.



Performance from 2008-2010



Main infromation

2009 2008

Revenue 1625.4m 1617.3m

Operating (loss)/profit (25.3)m 128.1m

Loss /profit for the year (63.3)m 93.6m

Net debt 457.4m 537.9m

EPS -9.7 p 14.3p



Reason of the negative profit

1)The impairment of Intangible asset

During the year there has been an impairment of 53.4m againstintangible assets. A50.1m impairment of goodwill has arisen inTechnology Solutions Q NA (11.4m), Mission Solutions (30.8m)and Australia (7.9m). The remaining impairment charge of

3.3m is in respect of other intangible assets. The global economicuncertainty has led to weaker market outlooks which has, in turn,impacted on the future growth potential.

2)The impairment of plant, property and equipment

An impairment charge of £20.7m against the Groups land andbuildings was taken during the year relating to owned propertieswithin EMEA where there are no external tenants followingvacancies arising during the year.



3) EMEA reorganisation

The EMEA restructuring programme announced in May 2009 largelycompleted this financial year. The cost of this programme was£42.1m,all of which has been expensed to the income statement inthe year as a non-recurring item.



Financial ratios

2009 2008

ROA -4.05 5.59

EPS -9.7 14.3

Current ratio 1.36 1.85

Liquidity ratio 1.17 1.71

Gearing 155.57 160.49



Compare with the aerospace &

defense industry averageQ inetiQ Industry

Net profit margin(%) - 3.89 -32.2

Price-to Book value 4.79 -11.77

Long-term debt to 154.4 309.61equity(%)



RISK MANAGEMENT

A change in either US or UK Government spending ondefence and security

The Strategic Defence and Security Review in the UK, and thefinancial burden on both UK and US Government budgets

from the recent economic downturn, may lead to reducedspending in the markets in which the Group operates. Anyreduction in Government defence and security spending ineither the UK or the US could have an adverse impact on theGroups financial performance.

The UK move to cut its defence budget by 8 percent overall overthe next four years barely amounts



RISK MANAGEMENT

A significant shift in policy by either the Administration in the

US or in the UK, which results in a significant reduction in the

number of forces personnel present in Iraq and Afghanistan,

may have a materially adverse impact on the Groups financial

performance.

Strong demand for armour on US military vehicles in

Afghanistan led to better than expected sales for Q INETIQ ,

pushing its shares up more than 10 per cent

(http://www.ft.com/cms/s/0/d7b83e86-f33a-11df-a4fa-00144feab49a.html#ixzz161ZFhIh4)



RISK MANAGEMENT

Changing in the timing of contracts

The amounts payable under some Government contracts canbe significant and the timing of receiving orders could have amaterial impact on the Groups performance in a given

reporting period. After the cancellation of a £14bn, 30-year contract for

defence training. The stock is trading at just above its Augustlow of 104.7p. But the initial sell-off looks like anoverreaction; Q inetiq which has £1.6bn revenue at grouplevel was not earning revenue from the contract in any case.http://www.ft.com/cms/s/3/ed8b0492-dc28-11df-a9a4-00144feabdc0.html#ixzz161lHFmgU



RISK MANAGEMENT

Fixed price contracts

Some of the Groups revenue is derived from contracts which

have a fixed price. There is a risk that the costs required for

delivery of a contract could be higher than those agreed inthe contract due to operational overruns or external factors,

such as inflation. Any significant increase in costs which

cannot be passed on to a customer may reduce the

profitability of a contract or even result in a contract

becoming loss-making.

Industrial Sector Intro and QInetiq Presentation

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