QinetiQ Group plc (QQ) Earnings Call Transcript & Summary

Good morning. I am Ian Brown, part of the Investor Relations team at QinetiQ. I'm joined this morning by Steve Wadey, our CEO; and David Smith, our CFO. Before I hand over to Steve, I would like to point out a couple of things. Firstly, given the circumstances, this is very much a lockdown special. We are webcasting this ourselves, without the usual extended team of experts of how to support [indiscernible] London Stock Exchange, so I do hope you can see and hear us clearly. Steve and David will present the results and update on our strategy. [Operator Instructions] And with that, I will hopefully hand over to Steve. Steve?

Great. Thank you, Ian, and good morning, everybody, and welcome. Thank you for joining in these unprecedented times. And as Ian just said, David and I will present our full year results and also give you an insight into our strategic response to the COVID-19 crisis. This picture shows one of our teams supporting a national repatriation flight into Boscombe Down in the U.K. and represents our brilliant men and women who are committed and passionate about their work. I'd like to take this opportunity to thank them all for their outstanding contribution to our performance last year, and their adaptability as they continue to deliver vital outputs for our customers throughout the crisis. Thank you, you're really doing a great job. Our relentless focus on our customers has delivered our fourth year of growth, demonstrating that our strategy is working, and we are well-positioned for a new world. So the agenda this morning is as follows. I'll start by giving you the headlines, David will provide a commentary on our financial results. I'll come back and give you a strategic update, and we'll then open up for any questions. So let's start with the headlines. This has been an excellent year with strong operational performance and limited impact from the COVID-19 crisis. Orders are up 25%, maintaining good revenue visibility, with a backlog of GBP 3.1 billion. Revenue is up 18%, 10% on an organic basis. Profit is up 7%, 2% on an organic basis. Cash performance remained strong with 133% cash conversion, pre-CapEx. EPS is up 2%, and as previously announced, Board has postponed the dividend decision and guidance to group performance until later in the year. These decisions weren't taken lightly and will be reviewed as soon as sensible to do so. Our growth has been driven through disciplined execution of our growth strategy. We secured GBP 168 million of orders through the Engineering Delivery Partner contracts. We continue to demonstrate our improving business maturity, winning 4 major long-term contracts. Our most significant achievement was completing the acquisition of MTEQ, more than doubling the size of our business in the U.S. to 25% of the group. We've grown the international share of revenue from 21% to 31% over 4 years. And we've improved our employee engagement score by 10% as we continue to engage and incentivize our employees in driving our growth strategy. We enter FY '21 in a strong position, and we have driven a strategic response to the unfolding COVID-19 crisis. Whilst it's too early to understand the impact on our group performance, our key priorities for the coming year are implementing the robust actions that we've already put in place to boost our resilience, partnering with our customers to continue delivering their evolving priorities, engaging our employees to adapt and learn from our response to the pandemic and accelerating our focus and investment on critical capabilities to position us for a new world, driving medium- to long-term growth and healthy returns for our shareholders. I'll now hand over to David for an overview of our financial performance.

Thank you, Steve, and good morning, everybody. As usual, I'm going to begin with a summary of fiscal '20 financial performance before going into more detail on the guidance. As Steve mentioned, our strategy is delivering with a strong performance resulting in a fourth year of growth. We've grown both EMEA Services and Global Products this year, increasing overall revenue by 18% to GBP 1.1 million and by 10% on an organic basis. We've delivered underlying operating profit growth of 7% to GBP 133 million and our margin at 12.4% was within our target range of 12% to 13%. Underlying EPS rose 2% to 20p, despite an increase in our tax rate. And we delivered a strong [ 90% ] organic growth in order intake, 25% overall. And including the LTPA amendment, our backlog now stands at GBP 3.9 billion. We've achieved strong cash conversion with 133% underlying cash conversion, and our balance sheet remains very strong with net cash of GBP 85 million. We have seen some small effect from COVID-19 last year, which I'll come on to shortly. And as we previously announced, due to the unprecedented nature of the COVID-19 situation and the Board's wish to adopt prudent course of action to protect the long-term strength of QinetiQ, it will postpone the decision on the proposal of the dividend until later in the year. So across the board, this is a strong performance in fiscal '20. Going into some detail, I'm going to begin with our order performance. We made very strong progress in orders, with 19% organic and 25% overall growth. The main driver in the period was EMEA Services, which grew organically by GBP 115 million. And that growth was driven by a combination of the GBP 67 million multiyear contract for the UK Robust Global Navigation System, or R-GNS program, and GBP 168 million of orders under our Engineering Delivery Partner contract, that was nearly GBP 100 million higher than last year. In Global Products, orders grew by GBP 34 million, driven by the EUR 75 million Altius contract from the European Space Agency. The acquisition of MTEQ and NSC and the impact of the full versus half year for our 29 acquisitions contributed a further GBP 48 million to orders in the reported period. And at the start of fiscal '21, we have good visibility with GBP 850 million of fiscal '21 revenue under contract. So turning to revenue. We made good progress in EMEA Services with 12% organic revenue growth and 5% organic growth in Global Products. Combined, this gave us organic revenue growth overall of 10% in the period. Our acquisitions of MTEQ and the full year of the 2019 acquisitions contributed a further GBP 66 million, giving us overall reported revenue growth of 18%. And whilst not presented here, we continue to progress our strategy of becoming a more international business, and we've grown international revenue to GBP 333 million, which now represents 31% of total revenue. Turning to operating profit. Overall reported profit was up 7% and 2% on an organic basis, excluding acquisitions. Within this, there were some onetime net benefits amounting to GBP 6 million, driven by finalizing a business rates agreement and cost recovery on a major contract. In the prior year, nonrecurring items were [ settlement ]. In EMEA Services, profit grew by GBP 3.3 million on an organic basis, driven by revenue growth, offset by lower onetime management. And in Global Products, we saw a small decrease in profit, driven by our loss at Optasense of GBP 2 million, offset by gains in other businesses. MTEQ and NSC and the impact of a full year versus part year trading for the 29 acquisitions contributed GBP 5.8 million in organic profit and that resulted overall in a group margin of 12.4% compared to 13.7% in the prior period. And one of the drivers of this movement is the increase in contribution from EDP, which I'll explain in more detail shortly. So overall, a strong performance with organic growth across orders, revenue and operating profit. So turning now to the 2 divisions. For EMEA Services, the chart here shows a split by major business of our revenue within EMEA Services, and the 25% increase in orders was primarily due to the key wins, which I've already mentioned, particularly the R-GNS and EDP. We've made further good progress on EDP, with an additional GBP 168 million of orders. And as a single-source contract, given its minimal capital requirement, the margin we make on EDP and other similar contracts is lower than our average group margin, but it remains well in line with defense industry in general. And the capital-light model means we make an appropriate and attractive return on capital at this margin. We expect EDP to be a growth driver of our U.K. business in the medium to long-term. Revenue increased by 16%, 12% on an organic basis, driven by new work through the EDP and also in our BATCIS contracts as well. And underlying operating profit increased by GBP 3.8 million, with a resulting margin of 12.6%. Our total funded order backlog remains very strong, following the good orders performance, and we continue, to therefore, to benefit from good revenue visibility, with GBP 656 million of our fiscal '21 revenue under contract compared with GBP 565 million at the start of last year. Turning now to Global Products. Our Global Products division is a shorter cycle business than EMEA Services, and performance there is more greatly due to the timing of mixed product sets. We have incorporated MTEQ now in our entire Global Products division, reporting this through QinetiQ Incorporated, our new U.S. entity. Turning to performance. Orders grew 25% in the period, 14% organically, driven by the Altius contract with the European Space Agency. Revenue was up 23%, 5% organically, driven by small robots and upgrade kits in QinetiQ and continued growth in QinetiQ Target Services -- Target Systems. Underlying operating profit was up 16%, assisted by GBP 2.9 million from the acquisition of MTEQ and good performance in QTS. With MTEQ's low margin, there was around 0.5 point dilution of Global Products margin and about 0.1% or just over at the group level. This will go to about 0.5 point at the group level with the full year contribution. We have GBP 193 million of Global Products' fiscal '21 revenue under contract as of April 1 compared to GBP 141 million in the prior year. Turning to cash flows. Overall, our operating cash conversion of 133% was strong. We saw a very strong performance on working capital, particularly in the last few months of the year, prompted by -- supported by prompt customer payments, and that resulted in a working capital cash inflow of GBP 2.5 million. Despite this strong performance, we do anticipate some of this unwinding this year. Cash flow associated with CapEx was GBP 108 million as we continue to invest in our core contracts such as LTPA and in our business. And after CapEx, we had underlying net cash inflow of GBP 70 million. It's worth reemphasizing what I've said before that given the cash-generative nature of the business, we do expect to be able to fund our CapEx and organic investment from our operating cash flow. On this next slide, I present the movements in net cash. Fiscal '19 year-end net cash position of GBP 189 million has been restated to reflect the adoption of IFRS 16 on leases, which reduced net cash by GBP 28 million. Net cash inflow from operations of GBP 70 million, I've already mentioned, was partially offset by tax charges of GBP 10 million in small interest charge, and that resulted in free cash flow of around GBP 60 million. The acquisition of MTEQ and NSC resulted in an outflow of GBP 90 million, with a further GBP 8 million outflow for associated transaction costs, the majority of which relates to FX movements during the period. After the dividend, this means here that fiscal '19 final and fiscal '20 interim dividend receipts from property disposals and payment and finance leases, we ended the year with net cash of GBP 85 million. I now want to cover the trading impact on our liquidity position in light of COVID-19. Due to the uncertainty surrounding the resolution on national safeguarding measures and also the impact to customer priorities and budgets, we're adopting a cautious and prudent approach over the next few months. We're doing this in order to maintain the strength of the business in the long-term interest of our employees, customers and shareholders. With a total order book of GBP 3.1 billion, we do enter this crisis from the position of strength. Our EMEA Services Division benefits from long-term contracts, performing work that is critical to sovereign defense capabilities, and to date, has been less impacted by COVID-19. While some trials here -- activity has been delayed, this has largely been offset by the acceleration of work, more directly linked to the COVID-19 response. Although difficult to quantify the effects at this stage, we do anticipate some further deferral of contracting project delays due to difficulties with travel and logistics, and then medium-term potential project constraints. The Global Products business operates on a shorter cycle and therefore, more exposed to cancellation, delays and deferrals to trial activity. The effects are more pronounced in some of business areas than others. For example, in QinetiQ Target Systems, we've seen customers delay trial activity and reduce orders for targets as well as -- which has created the need to furlough staff at our Ashford manufacturing facility. We've also been affected in our German business with reduced flying hours, and the results of this and some operating cost issues have taken a small -- EUR5 million impairment to goodwill in -- to reflect respective lower margins and revenue. Our North America business, on the other hand, continues to see demand and delivery continue against robotic programs of record, for instance. Financially, we enter fiscal '21 in a very strong position with overall liquidity of GBP 360 million, comprising of net cash of GBP 85 million, supplemented by GBP 275 million undrawn committed credit facility, and that has an option for maturity through to September 2025. Overall, our balance sheet, therefore, remains robust with the capacity to support our growth plans for the company and provide resilience in the COVID-19 crisis, without having to raise any capital. The RCF was undrawn at year-end, although we will probably use it partially in the year to maintain a prudent level of available cash. We're supported by a sustained negative working capital position and are taking prudent steps to minimize short-term cash outflows, including inventory management, receivables, selections, et cetera. Additionally, we put in place a series of actions, including temporary CEO, CFO and senior salary reductions and reduced Board fees, reducing operating expenditure and deferring discretionary capital expenditure and the dividend decision deferral. Steve will put all of this into strategic context later. By taking these prudent measures to preserve our balance sheet, we'll be well placed to emerge from this crisis in a position to continue accelerating our strategy, delivering both organic and inorganic growth in the mid- to long-term. So turning now to technical factors. I'm just going to point out 3 here. Our effective tax rate was 14%, that was up, and we anticipated this to continue to increase due to the greater proportion of international revenue and profits and the higher U.K. tax rates that's recently announced by the chancellor. We had a small cash inflow from working capital in the year but at this stage, like our general outlook, we don't give detailed guidance on this, although a return to enact, I wouldn't be -- it wouldn't be unexpected. Capital expenditure is likely to remain similar to fiscal '21 -- fiscal '20 in fiscal '21 at GBP 70 million to GBP 100 million range as we continue to invest in our major contracts, although keeping under review discretionary CapEx in light of the crisis. And in line with what was said previously, we anticipate remaining in that sort of range until fiscal '23 as we invest organically in the business. So finally, on our outlook. While we enter fiscal '21 and position strength, it really is too early to draw conclusions on the overall impact of COVID-19 to our business. At this stage, we're planning for a range of outcomes, depending upon the duration and extensive measures, such as social distancing and potential budgetary pressures. We'll provide further updates to the market as more clarity presents itself, both in terms of near-term trading and long-term trends. With the continuing implementation of our strategy investment, we are well-placed to respond to changing customer requirements, delivering medium- to long-term profitable growth. I'm now going to hand back to Steve to take you through our strategic [indiscernible].

Thank you, David. The markets in which we operate are changing rapidly to deal with evolving threats, which will be accentuated by the COVID-19 crisis. In the U.K., the defense and security review is being delayed, although we can expect priorities to change and pressures on budgets to intensify. In the U.S., the drive for technological advantage continues to modernize capabilities across all domains, and the presidential election will take place later this year. In Australia, focus continues on the recapitalization of major defense platforms and developing indigenous industrial capabilities, supported by a strong budget outlook. Across all our markets, competition is increasing, and we're seeing a resurgence of national protectionism. The COVID-19 pandemic represents a strategic shock to both our financial and customer markets. Whilst we believe that demand will remain robust over the long-term, we also expect the crisis to drive fundamental changes to market dynamics. The global recession will drive ever-increasing pressure on budgets, and threats will evolve to demand greater exploitation of digital technologies and the need for greater agility and pace in delivering solutions for our customers. These changes reinforce my view that our inherent strength and strategy are particularly well-matched, enabling us to be agile and proactive to address both short-term challenges and pursuing medium- to long-term growth. As the scale of the COVID-19 pandemic became apparent, we rapidly established a strategic response to the crisis, coherent with our long-term strategy. Priority number one is protecting the health and well-being of our employees and their families. Whilst respecting national safeguarding measures, we've been agile in successfully mobilizing the company to 80% working from home and 20% on-site, based on physical need and/or national security requirements. And we are rapidly learning from our response to the crisis to accelerate our digital transformation, establishing more flexible distributed teams as part of our new normal. Priority number two is continuing to deliver for our customers. We've provided direct support to fighting COVID '19 as well as manufacturing PPE for local health services. Feedback from our customers has been excellent and they're appreciative of our continued delivery of critical defense and security outputs. Our focus is now on partnering with our customers to accelerate our approach to mission-led innovation as they reprioritize their needs. Priority number three is sustaining our company for the long-term. As David mentioned, we've taken prudent actions to boost our resilience in the short-term by managing cash outflows and reducing costs, including 250 of our senior leaders agreeing to a salary reduction, demonstrating their personal commitment to our company. We've done this in a balanced way to enable us to continue investment in future capabilities to drive medium- to long-term growth. In summary, we have responded with agility, successfully mobilizing the company to safely navigate the immediate challenges and ensuring we are ready to emerge as a stronger, more vibrant company to drive medium- to long-term growth. In May 2016, I launched our vision-based strategy to address rapidly changing market dynamics and drive growth by transforming our customer focus and our competitiveness. This strategy has delivered 4 successive years of growth and remains unchanged with 3 priorities: leading and modernizing U.K. defense test and evaluation; building an international company; and innovating for our customers' advantage. Our strategy was developed to respond to budget pressures and is built upon a customer value proposition we call mission-led innovation, enabling agile capability development through co-creation of solutions to meet our customers' needs across the life cycle: created, developing cutting-edge technology and rapidly turning it into capability; test it, assuring that capability will work when critically needed; use it, ensuring our customers are trained and operationally ready. Whilst I believe it's inevitable that our whole country's response to the pandemic will increase pressure on budgets, I also believe there's an emerging sense that we're not spending enough on innovation, research and technology to keep ahead of our adversaries. I'm, therefore, confident that our value proposition will have increasing resonance with our defense and security customers, delivering them better value for money and creating opportunities. We've made great progress in building an integrated global defense and security company. Over the last 4 years, we've grown our revenue by 42%, established an order book of more than GBP 3 billion and more than doubled our share of international revenue. This growth has been driven by our strategy-led choices to build and leverage our capabilities across the group, underpinned by a clear capital allocation policy with rigorous financial discipline to deliver returns for our shareholders. We've created a mindset of partnering and collaboration to focus on our customers' needs. We've upskilled our business-winning capability through recruitment and training, resulting in us consistently winning larger, long-term programs. We've strengthened our capabilities by investing in 6 acquisitions. And finally, our success has been underpinned by executing our programs efficiently and delivering consistently for our customers. With an addressable market of more than GBP 8 billion, we have significant potential. Key to our next phase of growth will be the continued disciplined execution of our strategy and maturing our high-performance culture by focusing on engaging and incentivizing our brilliant scientists and engineers to deliver our strategy, and implementing our global operating model to coherently expand into our home and priority countries. The first phase of our transformation and growth has been successful, and we're well-positioned and increasingly relevant for the future. The first priority of our strategy is to lead and modernize U.K. defense test and evaluation, ensuring capabilities we deliver, through the long-term partnering agreement, are relevant and competitive to meet U.K. defense needs and be attractive to our international allies. These capabilities are critical to defense and national security outputs, and I'm really pleased that our teams have adapted well to maintain deliveries throughout the COVID-19 crisis. We have successfully delivered the first year of the GBP 1.3 billion LTPA amendment. We're investing GBP 190 million with appropriate returns for our shareholders to modernize our ways of working and put in place new equipment and the infrastructure to support larger and more complex trials, and at the same time, attract new work. Feedback from our customers has been really excellent as we undertake major enhancements, whilst at the same time, continue to support delivery of major defense programs. Test and evaluation is an integrated and synergistic component of our value proposition and is at the center of enabling agile development and capability to counter evolving threats. Modernizing the LTPA is now delivering additional growth. The recent [ commander ] warrior exercise in Norway, experimenting with manned and unmanned teaming; strong demand from both U.K. and international customers for our state-of-the-art and cost-effective test Aircrew training program; and winning further upgrades to our air range capabilities to prepare from NATO's largest life [ bar ] [indiscernible] exercise, Formidable Shield, in 2021. Modernizing test and evaluation has, and will continue, to provide a strong platform for our growth. Our second strategic priority is to build an international company by developing our 3 home countries of U.K., U.S. and Australia, and creating new home countries in Canada, Germany and Belgium. In December, we completed the acquisition of MTEQ in the U.S. to accelerate our growth in the world's largest defense and security market. We are now a leader in advanced sensing, robotics and autonomy critical to modern warfare. We have secured a new special security agreement with the U.S. government, enabling collaboration across the group and underpinning our future growth. In Australia, we delivered a fifth successive record year of growth. We continue to expand into larger, longer-term work packages as part of the major service provider role we secured with Nova Systems. And we've won our first contract to design and construct an unmanned air system test range, leveraging our capabilities and experience from the LTPA in the U.K. My long-term ambition remains to grow our international share of revenue to 50%. We've more than doubled our international revenue over the past 4 years, with 25% now in the U.S. We have significant opportunity to drive further growth by implementing our multidomestic business model in our home and priority countries, by leveraging our skills and knowledge across international borders. And with more than 92% of our revenue delivered within our home and priority countries, our strategy remains resilient to the ongoing COVID-19 crisis. I'm pleased to say that as a result of our strategy, we are successfully becoming a truly integrated global defense and security company, adding value to our customers. Our third strategic priority is to focus on commercial and technical innovation. Our campaign-based approach has enabled us to win many larger, long-term contracts, and I'm pleased to see that we are successfully delivering and growing them. In the U.K., we secured GBP 168 million of new orders through the Engineering Delivery Partner, highlighting our success of our commercial innovation. In the U.S., we've won the Robotic Combat Vehicle Light program to integrate unmanned vehicles into ground combat operations. Finally, in Belgium, we are growing our space business, winning a EUR 75 million contract to design and build the Altius satellite for the European Space Agency. This year, we have matured our campaign-based approach to focus on long-term global opportunities aligned with our value proposition. Having established clear road maps to expand into our addressable market, we are winning critical building block opportunities and investing in complementary capabilities such as land domain training through the acquisition of NSC. As I mentioned earlier, the COVID-19 crisis is accelerating the need for mission-led innovation. We're well-positioned to do this by leveraging our current framework contracts and investing in current and future global capabilities. Our approach to technical and commercial innovation enables us to co-create solutions with our customers to put technology into the hands of the war fighter at pace, mission-led innovation in action, underpinning our next phase of growth. The world has changed significantly due to the strategic shock of COVID-19. In the short-term, we do anticipate a global recession, causing budget pressures to increase for our customers. However, we remain confident that our markets will adapt and provide opportunity for growth in the medium- to long-term. We must use this year to make ourselves even more relevant to emerging defense and security needs by developing new digital services to drive creativity and solutions at lower costs for our customer, and strengthening our technological capabilities and skills to deliver mission-led innovation to counter evolving threats. Learning from our response to the pandemic, we will also accelerate our transformation to find more innovative ways to deliver for our customers by embracing distributed working to increase our productivity, maturing our skills and processes to improve our performance, and capturing new market opportunities by investing in our core capabilities and global collaboration. Whilst this year will be challenging, I'm confident that we have the right strategy to be agile and proactive to changing market dynamics and enable our next phase of sustainable growth. So in summary. Our strategy is delivering, and I'm delighted that we've achieved 4 years of growth. This has been an excellent year with strong operational performance despite the limited impact of COVID-19 at the end of the year. We achieved 18% revenue growth and 7% profit growth, 2% on an organic basis. We've maintained a healthy order book of GBP 3.1 billion, providing good revenue visibility. And our most significant milestone was completing the acquisition of MTEQ in the U.S., providing a strong platform to grow in the world's largest defense and security market. We've adopted a strategic response to the unfolding COVID-19 crisis, with record order intake, organic profit growth and net cash on the balance sheet, we entered the year in a strong position. Whilst it's too early to understand the impact on our group performance this year, we're implementing robust actions to boost our resilience to the immediate challenges of the crisis and are accelerating our focus and investment on critical capabilities to enable us to emerge from the crisis as a stronger, more agile company. Our strategy has enabled us to successfully grow in an uncertain world over the last 4 years by adding value to our customers. Whilst the world has changed around us, our strategy is unchanged and is more relevant than ever to meet the needs of our customers in this new world, focusing on delivering mission-led innovation to meet evolving threats; leveraging our strengths across the group into our GBP 8 billion addressable market; and continuing to invest and build a truly integrated global defense and security company to drive medium- to long-term growth and healthy returns for our shareholders. David and I will now be happy to take any questions. Thank you.

[Operator Instructions] I think the first question is coming from Richard Paige.

A few questions, if I may, please. First of all, on the LTPA. We're obviously in this 2-year transition period to the new way of working. How should we expect to see that work its way through in terms of what we are seeing on our side of the fence in the financials, please? And secondly, is there any update you can provide on CapEx you've spent thus far and leveraging of that in terms of new customer wins or growth within that? And secondly, on that CapEx side, just -- you've obviously said within the COVID environment, you want to maintain flexibility. What flexibility do you have in that GBP 70 million to GBP 100 million of CapEx guidance with regard to what you're committed to spending? And then as just a second part on the cyber business, obviously growing very strongly within EMEA Services, helped by acquisitions. Could you just quantify the sort of level of organic growth that business is delivering and obviously -- and the opportunities within that as well, please?

Great. Thanks, Rich. Well, if I start off just describing maybe generally how we've got on with the LTPA, as you said, the first year and some of the CapEx investments. Now David put that into sort of the financial questions that you're asking, then maybe gone to flexibility in the organic growth. So I mean really, as I presented, I mean the LTPA has gone considerably well, very well in the first year. As you said, it's a 2-year transition. Yes, we've been delivering all of the outputs in parallel with that transition. But then we've been working and partnering with our customers to establish new ways of working and change infrastructure and build new capabilities fit for future. We've had a brilliant program with some tough milestones, it's a 2-year program, and every single one of the milestones about this year, we've hit on or ahead of schedule to full customer satisfaction. So the program, we're absolutely on track to complete the full operational capability or the full set of changes by the end of next year. In terms of the type of investment. We've been putting investment into a whole range of capabilities across the entire LTPA, from building new infrastructure in new buildings, new control rooms, also some new technology in terms of how data would be processed and shared within our ranges, but also with our partners. Yet new radars and new telemetry to support advanced trials. So there's a whole range. There's no one project really to sort of pull out, much like first, our LTPA contract, where it's very much around test aircrew training as an example. So a whole range of projects where the capital has been going in. So very successful, excellent feedback from the customer. And it absolutely has already been positioning us in winning business. And you may have noted in the presentation, I gave 3 examples of new business that we're winning through the LTPA. The LTPA is not just about test activity, it also undertakes experimentation and it undertakes training. So the example that I shared about Norway, where we were doing experimentation, that is using LTPA capabilities and people within that contract to take unmanned capability and experiment with cargoes over in Norway, and a hugely successful trial. Yes, and more of those experimental capabilities are bringing growth as we see that end-to-end capability through the LTPA. And the other one that I would choose is the series of trials that we call Formidable Shield, and we're winning new business, upgrading, target capability, the ability to process large missile capability as well as putting in additional infrastructure to support more complex trials. All of those changes are going on right now. I've been seeing photographs this week of physical change that's going on in the Hebrides, and all of that is preparing for next year's suite of trials. And they are tangible elements of growth that are occurring from the LTPA because we've been far more focused on the customer need, looking at the U.K. customer, international allies, making sure that we're preparing the ground -- excuse the pun, to make sure that we're fit to attract this new work. But now I'll pass over to David to put that into the financial terms that you asked for, Richard.

Yes. I mean I think fiscal '20 for us was a bit of a hybrid year because we were still spending on the -- we are still spending on the air range modernization and jus the air crew training projects from 3 years, so beginning to ramp up on the new LTPA projects. This year and the next 2 years will really be the peak of our spending on the LTPA. So to your question about flexibility around CapEx, that is somewhat limited by the need to make sure that we continue to meet the modernization objectives that we set out with a new partner in the LTPA. We are looking for areas where we may be able to move some money around to reduce the upfront cash flow. And that's why given a slightly bigger range on CapEx of GBP 70 million to GBP 100 million this year, it was successful in doing that. I think you asked a question also on the Cyber business, didn't you? We actually saw some good growth in our Cyber business last year. There was a whole series of projects that we won. R-GNS contract, BATCIS contract that we won the previous year and some other projects as well. And I think the number was in the GBP 40 million to GBP 50 million range of growth in our cyber and intelligence business last year. So we actually did see some really good growth in that business, and we're very pleased with the improvement that we're seeing on the prospects for that because they also had a very strong order scheme as well.

Great. I think the next question comes from Charlotte [indiscernible].

So I got 3 questions. I got 3 questions. First one, just wanted to touch on margins as we start to operate under a new world order. You mentioned COVID-19 impact on the QTS demand, which is a strategic contributor to Global Products. And then, when I think about EMEA Services, I just wonder longer-term if SSRO margins might to start building some pressure on things like benchmarking for -- in a global recession for margins on the basket products sort of company. So I mean, what's giving you confidence you can maintain a medium-term guidance of 12% to 13% at the group level? That's the first question. The second is on capital allocation. You're in cash conservation mode, as is everyone, at the moment. But given free cash flow's quite nicely ahead of the full year, and you've obviously got your net cash position even after M&A, my question is, how active do you expect to be on the future acquisition activity given your recessionary environment might provide you nice opportunities for you? And then finally, just following up on the earlier CapEx comment and looking ahead. You've announced deferrals to discretionary spend but will retain LTPA customer CapEx. I think it said most of it have probably modeled a nice roll off in 2023 for the LTPA. So my question is, what explicitly are you deferring for now? What's the impact on programs and growth by doing so? And should we, therefore, expect some catch-up spending in 2023 as a result?

Okay. Thanks, Charlotte. I'll take the second question about capital allocation and acquisition, and then I'll ask David to talk a little bit about margins and sort of CapEx requests. I mean first of all, I'd like to just sort of step back, Charlotte, and what I've really tried to express today is that we have had a robust strategy that's been operating in a challenging world in the last 4 years, and we've taken a very deliberate and focused business choices to make changes in the business and invest in areas where we could see leverage to great growth. And I think that's been really successful over the last 4 years. And as part of that strategy, as you pointed out, we had a very clear capital allocation policy, where the number one was investment in organic growth and bolt-on acquisitions where appropriate and complementary. As I've said, the strategy has not changed. The world around us has changed, but the strategy has not changed. And as you said, our medium- to long-term guidance is very much about continuing on our growth trajectory, but we need to be wise and prudent in the circumstances that we find ourselves. And that's why we've taken the various actions that we described in the presentation. And therefore, the answer to your question is the strategy has not changed, but we're in a situation where we've got short-term pressures, and the world that connects those is balanced. We just need to be really balanced and [indiscernible]. So we absolutely will, right now, keep our eye on the world of M&A. And when and if appropriate, we see something that is absolutely on point with our strategy and it's consistent and it's not going to cause us undue concern or risk in the short- or medium-term, then I could see that we could proceed. But it's very much about being intelligent, being thought-through, being strategy-led and making sure that we get the balance between the short-term environment that we find ourselves in and continuing with the strategy. So that's how I would think about your answer to the question of capital allocation. I'm going to ask David to talk about margins and also the CapEx profile going forward.

So let me put the margin question in a long-term context because clearly, if you go back 2, 3, 4 years, we were seeing margins in the 14%, almost 15% range. And we were very clear last year that, I mean, we thought very hard about this. What we're trying to do is [indiscernible] our top line revenue in the medium to long-term, but keep margins in the 12% to 13% bracket, which is a challenging bracket. It is above the average for the defense industry, and we recognize that it's a challenging number. But we still think it's a realistic objective to be setting out. Now there are some things in the short-term, I mentioned a couple of them, the growth of the EDP contracts is a chance for internal sales [indiscernible] capital. MTEQ in the next 2 or 3 years, as we sort of transition their business model, is going to be a dilutive effect on margins. But also, we see other areas that we're trying to grow. I mentioned some of the areas in Cyber & Information business. There should be some good opportunities to grow that business and building, as we've already set out so 2 or 3 years ago, building on the core LTPA structure to bring in additional work from international customers into the LTPA business is another area. So this is a portfolio mix, and we're trying to balance some of the pressures that we see from competitive pressures. And again, the opportunities that we can see developing [indiscernible] unique capability of [indiscernible] and higher-margin business. You're right, the thing that probably no one has factored in yet, is going to be an impact on the SSRO base case of low defense profitability. You could well be right that we might see that as an additional headwind over the next 2 or 3 years. I don't think anybody really knows the answer to that. But it's -- that was just [indiscernible] pressure, but I wouldn't want to back away from what we're trying to [indiscernible]. I'll just repeat again our top line, maintain sustainable margins in that 12% to 13% range and deliver a good return on capital for our investments.

Does that answer your question, Charlotte?

Yes, it does. And then just the CapEx at the end [indiscernible].

So you're right. We do defer some expenditure out of this year, it is likely that, that will be get picked up in '22 and '23. So it may get a bit more spread. We're not going to change the total CapEx, but we're looking with [indiscernible] projects, products upgrading buildings might be an example where it's not quite so time-critical that we can defer. There are other things that are very time-critical. We've got a lot of work going on, on digitizing ranges, for instance, that we think we might want to accelerate that. So there's again a portfolio balance that we'll have to write conversations with our customer around to make sure that we're continuing to meet their priorities and our commitments. Now let's see if we can find a different solution to the portfolio of internal investment.

Great. The next question comes from Chris Leonard at Crédit Suisse.

Just 2 questions from me, if I may, please. Staying on sort of the EMEA Services. I'm looking at EDP where you've seen a lot of growth over the last 2 years. I think I'm right in saying that the order intake you've had is maybe GBP 240 million as of the first 2-ish years of the contract, and that's a 10-year contract, from memory. With scope, you seem to be around GBP 1 million -- GBP 1 billion, sorry, plus. Does that still stand now? Or you may be thinking your run rate has been good and that could trend higher in terms of an outlook over the medium-term? And then the second question, turning towards Global Products. The U.S. robotics program of records that you have and this year, you've stated that small robotics have helped growth in Global Products. I'm just wondering if you can give any more visibility on what the sort of build rates could be going forward after the initial phase [indiscernible]? And similarly, actually, to the new contract on RCV, just giving us a pipeline of how that could develop, please?

Maybe I can just pick up the business context on both of those, Chris, and then maybe David can sort of add a couple of sort of financial points on that. I mean first of all, I'm pleased that you've brought up Engineering Delivery Partner, because I remember when I introduced it, it felt for a little bit maybe ethereal to a number of people in the market. And was it really going to be this program that was going to add substantial value to QinetiQ? And I think now, seeing the track record of EDP, I think on your question [indiscernible] people are now -- they're really starting to sit up and sort of question what impact it could be. I mean I'll go back to my opening phrase when we signed the contract in October, the year before last. I do believe that EDP will have the same level of impact and significance in QinetiQ in the long-term that the LTPA has. I think it absolutely will be GBP 1 billion-plus program. The difference is that we see the revenue and the benefit of that program, they're coming through in individual-tasking contracts rather than being contracted as 1 large fixed price program. So the nature of contracting is different, but the value will be similar in that sense. I also think it's worth just stepping back, particularly when we're in a COVID crisis and I've been talking about the pressures on customers' budgets. EDP was a brilliant example of the first phase of our strategy, where we deliberately engaged and partnered with our customers and co-created a commercial and technical solution, which was there to deliver savings and help them accelerate or have higher confidence in the delivery of their program. So that's what it's absolutely done. So it's not purely about measuring it from a financial point of view. Our customers are genuinely seeing benefits of that commercial approach. And it's one of the programs that we have integrated, managed, yet the largest supply chain. We're bringing the best of the British contracting to bear and deliver value for the customer. So it's a really good example of, yes, something that's going to grow and add value, which I think will be quite significant for the company in the long-term. But it's also a brilliant example of our stack [indiscernible] action in the last few years, which is also going to be the type of commercial innovation that we can lean in and support our customers over the coming weeks, months and years, as they deal with their budget pressures that are going to come as a result of the pandemic. So I think it's a really good example to have brought into the conversation. In terms of U.S. robotics. I mean I think that our performance on U.S. robotics is strategically going very well. The team in Boston, they've done very well winning several programs of records over the last couple of years, positioning ourselves not just in small robots but in medium-sized ground robots. And the recent win on the Robotic Combat Vehicle Light program, which is a demonstration phase, and we need to be clear that it's a demonstration phase. It is a great example of our innovation in robotics and autonomy being judged by our customer. And that is a couple of year demonstration program. It's doing something very new and different in the field of ground robotics. And the U.S. Army will judge in a couple of years' time whether that program will go ahead into a major production program. And clearly, there's no commitment to that at this point in time but we're in the box seat. We're the only contracted company that's part of our RCV demonstrator. We're leaning into that program. We're innovating. We're focusing on the war fighters' needs. And we look forward to the competition in 2 years' time. The other thing I would want to add on U.S. robotics is not just thinking about U.S. robotics as a stand-alone capability. The whole reason why we acquired MTEQ in the U.S. is that the synergy between robotics, autonomy and sensing provides a huge opportunity in the field of modern warfare, that's why we invested in the MTEQ acquisition; that's why Mary Williams, our President there, working with Jeff Yorsz, the President of the team in Boston. The 2 of them are now integrating that business to really build a solid platform in the U.S. to add even more value to the U.S. war fighter. And that's why we've also engaged with brilliant support from the U.S. government, the establishment of a special security agreement, an SSA, that will allow us to collaborate across the group in a controlled manner to share technology and leverage capabilities to support further growth in the U.S. So really, really pleased with what's going on in the U.S. And in fact, it's probably the biggest story that I want to convey on the success of last year. And David, maybe you can sort of come back and add a bit of color on the numbers for Chris.

Yes. I think on EDP, we actually had -- we're very pleased with the progress last year because it's accelerated quickly than I think we might have been able to expect. The adoption across wide range of MOD customers has been very strong. And I think people are seeing it is a very flexible way of procuring engineering services into a whole series of different requirements that are needed across a wide range of activities. So we've got the adoption. I think probably on the orders, I don't think we'll increase so much from where we are today, the revenue still command [indiscernible] as we obviously start delivering on those orders. But the key thing for us is actually to continue the trend of moving away from shorter-term work into longer-term contracting and making sure that, as we do that, we're really adding value and taking costs out to the customer. That's the whole theory of what we're trying to do rather than a plethora of very small, shorter contracts, actually trying to move this on to a more sustainable basis where we can provide the right capability and skills over a period of time and take cost out to the customer. There's still more work to be done in that area. And that, by the way, also helps us improve our own margin business as well as we do that because we can provide higher added-value services as well. So there's a win-win to the customer taking cost down and us as well, something, which [indiscernible]. On U.S. robotics, I mean, I think in this particular calendar year, I'm talking about fiscal '21, we're still really in the early phases. It's more going to be '22 and '23 when we start seeing ramp-up in production volume on CRS-I and the RCV live program that Steve mentioned is a year, maybe 18 months behind that. But we're making good progress on both of those. And equally, on RCV-Light, for instance, we're already seeing synergies between the business, so it's based in Boston and our new acquisition in MTEQ in terms of providing sensor solutions into that overall package. That's proving the theory that the bots in SupCon [indiscernible] and sensing is a very integrated suite that we can offer to the customers and provide better solutions that we can provide those on a comprehensive basis rather than individual basis.

Does that answer your questions, Chris?

So thanks, Chris. So the final question comes from Andrew Gollan at Berenberg.

Okay. So I've got a couple of questions on the COVID impacts. So firstly, on the revenue side. So the disruption and effects that you've seen really picked up post the year-end. I understand there's lack of visibility going forward. But is there anything you can say on the shortfall impact so far, say, in the first 6 weeks -- what the revenue impact compared to expectations in April, for example, as we are, I guess, picking out on these impacts? Just a follow-on from that. Is there any style of recovery in customers' behavior maybe as well kind of looks like up again, any signs of that? Any potential to catch up? Or is it just a blip or just loss of revenues? So that was the revenue side. On the cost side. As far as cost actions, as far as I can see, it's the salary cuts and the pay freezes, presumably a temporary effect linked to the revenue impact. Are there any kind of structural changes to costs that need to be made as part of the strategy or the aligning strategy to customers are going to have less cash? So that's the cost question. And then the last question is on working capital. In the presentation, you talked about accelerated payments boosting working capital number. Just some color on that, really. Where did that come from? Is that a U.K. thing? Or is it a U.S.? Is it anything to do with progress payments picked up in the U.S.? Or if it's a U.K., it's the first I've heard of any acceleration from the MOD.

Okay. Thank you, Andrew. Clear question. So the first one on revenue. Maybe I could just make a couple of comments on that. And actually will just be linked to that, then into our cost actions. Then David, maybe you can bring those together in answering Andrew's last one. I mean first of all, in terms of where -- I think David was clear in his presentation, where we have seen impacts is being around activity that's been directly impacted by cross-border implications, where travel restrictions or customer reprioritization has affected revenue, and David mentioned in his presentation some of the trial activity. And some of that impacted the year-end. And there's been some continuity of similar levels in terms of coming into April. In terms of signs of recovery. I mean there are 2 points that I would make. Even in the last week, we have seen some trials that were either delayed or deferred by customers in March. This week, they've started to rebook them. And I know that, that's sort of a very sort of small example. But it is a sort of example of green shoots of where we have seen some impact with some customers themselves who has started to work through the impact of the crisis. They're starting to that and work through ways that they need to replan their activity. So it's the nature of that type of activity where we're seeing the impact. And yes, we have seen some green shoots in some cases where customers have replanned. And I want to sort of take the opportunity to reinforce the statistic that I put into the presentation, because we have had some commentary that says that our international growth strategy has slowed in a COVID-19 situation. And we've got a strategy that has 3 home countries, U.K., U.S., Australia; 3 priority countries, Canada, Germany and Belgium; and 92% of our revenue last year was delivered within those 6 countries, not subject to cross border trade. And I think that sort of -- should give great confidence to those of you looking at the sort of the risk and the resilience level of the company where, we're not in contrast to some other businesses, a business that is very dependent on how elements of civil aviation or commercial aerospace. And equally, we're not a heavy manufacturing export-driven business. The majority of our revenue is delivered from within each of those 6 nations. I think that builds some level of resilience that we are focused on. And the nature of our business is also far more about science and technology, research and development within those nations. And you will have seen even commentary yesterday, I think the [indiscernible] talking about, but innovators are going to be key to recovery. And I think if you connect my answer to Chris' question about EDP, and the profile of our company, that's why from a medium to long-term point of view, yes, we'll see what level of impact we have this year. But we absolutely have the same strategy, and it will accelerate the transformation, that gives us confidence in our medium- to long-term strategy. In terms of your question about cost actions. I mean they're very strategic, very thought-through. We wanted to make sure that they were not only going to give us additional resilience to boost us to sort of weather whatever storm the COVID crisis could throw at us, but they were done in a fair, balanced and proportionate way across all of our stakeholder groups, whether that's shareholders, customers or employees to ride through that storm and come out as a stronger company. I do think there will be -- and we haven't done them all yet, I do think there will be some levels of structural change. And during the course of the presentation, I mentioned that we are accelerating our transformation. And I'll just give you one example about what do I mean by that. We very well-adopted home working. And we're going through a process now of defining what we call our new normal. And we expect some level of distributed home and on-site working, maybe even in a blended way, they're being part of our new normal, being part of a permanent feature, and that could significantly affect, as an example, the real estate, the permanent real estate of this company on an ongoing basis. And that could be a structural cost change that we make in our business. And equally, David on the previous question, talked about areas of capital that we're going to have to invest in and maybe accelerate. And digital transformation is just one of those examples where already, we've actually approved an acceleration of our digital transformation program, all the way through from not just focusing on core communication tools to enable that more distributed working, but also collaboration tools internally as a company with industry and with our customers so that we can provide that innovation and that service with digital services in a different way. And I think these things over time -- we don't have all of the answers, Andrew, will create some structural change in our cost base. But I would say very much in a positive way, that actually becomes a platform to propel us into our next phase of sustainable growth. So David?

Yes. I mean I'll be a bit specific about your first question because you did ask. I think in March and April, we've seen low sort of mid single-digit millions [indiscernible] so they are relatively small [indiscernible] overall revenue. And some of those things are just going to be deferrals. They will come in the year. And indeed, I mentioned, I think in my presentation, that we have temporarily shut the Ashford manufacturing facility for QTS. We will have to restart that probably in the next month because we do have an order book and we're going to have to restart that and searching the right time to do that. The working capital actually is a U.K. energy and unless I think while given some credits. I think we've been [indiscernible] response set because they know, I think that it's very important to keep cash flowing to us in the circumstances because equally, we've been paying our owner synergies more quickly as well to avoid any risk really in the supply chain. So they were pretty [indiscernible] at the end of March and has continued during April. And we are returning that, if you like, in terms of making sure that we [indiscernible] possible as well. And I think that is a general defensing, I don't think we're unusual on that. I think that's happening to our defense peers as well.

Does that answer your questions, Andrew?

I think that concludes the questions, Steve.

Okay. We'll just maybe wait if there are any last minute questions from anyone. Any raised hands in?

Yes. A question from Alex [indiscernible].

I just had a quick question about the dividend deferral decision. Just wanted to try and understand that in a bit more detail. What are you looking for to sort of make you think about that dividend coming back? And is it that the dividend would come back, I think in absolute terms at the same level? I just want to sort of hear your thinking around that.

Yes. I mean, I think I said it in the presentation, but I really like to reinforce it. The decision wasn't taken lightly, Alex, it really wasn't. And it was something that we deliberated on with the whole board. And we just really feel that we're in a global crisis, and it is unprecedented. And we just don't know -- all of us in the world exactly how these crisis will unfold. And therefore, we really lend in as a business and I just referred to, taking fair, balanced and proven proportionate actions across all of our stakeholder groups. And the Board took that decision to postpone the dividend decision until [indiscernible] year, the same time as giving the same in terms of guidance for the year. And it's part of that prudency in the short-term just to build resilience for whatever will occur in the coming weeks and months. And very much as a business, we have your interests at the top of our minds. We will continuously review the situation, and we'll look for the trends, and we'll get to the position. And as soon as it's sensible to do so, we'll review that decision and determine what we take forward in terms of any dividend. And that's really the sort of the background to it. And maybe just ask David to sort of bring a little bit more color to it, Alex.

Yes. Alex, this is clearly a difficult decision, and we're trying to make sure that the actions we take really balance well across what we're asking from [indiscernible], what we're asking from shareholders to maintain the strength. And we will evaluate this [indiscernible]. We had a discussion that in the recent Board meeting, we'll ensure how further discussions in the next weeks as well to make sure that we're doing the right thing here. And we're conscious of the fact that we need to make sure that over time, we give the right return to shareholders. But at the present, given the uncertainty, we think it is the prudent and the wise thing to do to hold on to that cash for the moment until it's clear what the outcome is going to be, it's going to be more long-lasting or short-term, we just don't really know. I don't see [indiscernible] and therefore, isn't the right thing to be doing over mentioning that.

And the only additional point, Alex, and I'll come back to the -- I mean, the phrase that when we created the strategic response framework, which I presented, the overall guiding principles are very much about the fair balance and proportionate response across all stakeholders. And of course, we've put them in, and they've had impact on all of our stakeholders, and we understand that. And of course, what we don't know is the unfolding impact of the crisis, which is why we've taken them to boost resilience. But of course, we'll want to remove these as quickly as we can. So we'll look at how the situation unfolds. We'll look at our performance. We'll look for more of those green shoots. And I can assure you that I've got exactly the same question from 250 leaders that are personally volunteered, sacrificed the best salary as a demonstration of commitment to not only the company, but to you as shareholders, to help the company ride through this storm as quickly as possible and get back on to the trajectory that we were on. So fully understanding question, fully understand the [indiscernible].

Can I just sort of ask one more? Just would the intention be to sort of -- if you -- let's say you come back onto the -- things carry on in the same vein where you're not seeing a material impact from the pandemic, would the intention be to make to make the deferred final, let's say, it comes back after the interims. Would it be that you pay the deferred final and then pay the interim dividend as normal, i.e., you go back to paying roughly GBP 38 million growing at sort of 3% to 5% or 4% to 6% annually? Is that what we're looking at? I'm just nervous of a backdoor cut here that were done necessary to use the cash for other things undefined.

Yes. I mean Alex, we're not trying to -- we're trying to find the right way through it over the next 6 to 12 months. Clearly, at some stage, when we get back onto the trajectory that we were on anyway, [indiscernible] how did we exactly handle that in terms of final full-year interim, I think it's actually a bit of the detail. The quantum is what we need to decide and point in [indiscernible] to be about how we see the cash outflows going in the business over the next 6 to 12 months. And it's just too early to say because we don't really understand fully what revenue [indiscernible]. We just need some more time to be able to assess them.

Yes. We'll look at it regularly. We'll see how the situation unfolds. We understand the question you're asking. And we would take a fair and balanced judgment at the right time. And it's at the top of the minds of the Board, I can assure you, Alex.

Okay. Certainly, one other question. Just -- I don't know if you got asked because my computer crashed halfway through the Q&A. The EIS writedown in Germany, was that just the auditors taking quite an aggressive approach? Can you just explain a little bit more about what drove that write down, please?

Nothing. [indiscernible] we proposed that. We -- I had another look at the business plan for EIS or for what now call [indiscernible]. And they've been impacted over the last year or more recently by sort of reduced line, that's when the COVID effects this year and some additional costs in some of our programs. And we've, therefore, just taken a more prudent view of how we see them recovering from that over the next 2 to 3 years. And we gave this annual goodwill test in anticipation of that, of taking a more prudent [indiscernible] on the business and therefore, that said, if you like a bit of a mechanical effect in terms of the good will investment. And what we've, therefore, written off is the mechanical answer to that question. But it was proactive for me and the management team. Obviously has been heavily reviewed by the auditors' [indiscernible].

Is there sort of a long-term impairment to the sort of business case for owning that asset and growing it and using it to grow a position in Germany? I'm sort of a little bit confused as to maybe a bit of a reduction in scope of a current contract or a couple of contracts.

There's still a lot of growth in the plan, but probably not so much as we have time lost and therefore, they're taking more conservative view about the pace of that [indiscernible].

Okay. Just final one for me then, EDP. That sort of -- the way I understand it, you sort of stand in the middle, really. So you sort of allocate and control the spend to some degree. I guess, it depends on where that spend is. But then you have the ability to sort of allocate it to yourselves where you can supply the service. So I'm trying to understand how we should think about the margin. Can you try and maybe give us an indication of -- let's say, we have a run rate of GBP 100 million a year of revenues from that contract at some point, I don't know what you did last year. What percentage do you think would be fulfilled by QinetiQ businesses services and what percentages would be external third-party? And what would the margins be on this? Would they be materially different?

So first of all, I mean it's to sort of clarify how the model works. The Engineering Delivery Partner program, we're the prime and we have a consortium and we manage a complete ecosystem of supply chain across the U.K. So as a prime, we have effectively a program management office with key partners, and the customer is involved. We're engaging the customer in terms of what tasks they need to perform to deliver various outputs, whether it's saving money in certain programs or delivering timeliness of their sort of in-service dates. And that team jointly develops industrial teams to deliver each of those tasks. So they're not all individual projects that are just determined to be allocated as such to individual companies. They're sort of integrated packages of work which will have multiple companies involved in them. It's true to say that some of those packages of work may not involve our own engineering and science capability, but many of them do. And that's very much driven by the best skills, the best capabilities across the entire supply chain. So very much similar to, in some ways, what you might see in a normal major procurement program where an integrated industrial team puts together to deliver to the program. In terms of the sort of revenue type mix and margin, David, maybe I could ask you to talk to that.

Yes. And there are different models within the EDP. I won't go into too much context, really depending on the level of value added, there are different charge rates. As things get increasingly complex over the longer period, then demand increase [indiscernible] compared to shorter-term, just pure sort of almost like a cost delivery piece. As I mentioned earlier, we are consistently trying to move this onto the longer-term: a, because it delivers best cost savings for the customer; but secondly, from our own point of view, I increase margins. I mean I think we deliver -- and I'm just trying to remember the number. I think it's between 25% to 30% at the moment of work is in that kind of range. And the rest is coming from the rest of the supply chain or to other partners and over 100 other people [indiscernible] in the supply chain. And we get -- we book the revenue and we get a margin depending on our own workforce, also some margin on work is done by other people. And so it is a mix in terms of the results in our groups.

What's the target? So is it similar to the LTPA where historically, there's a base rate, it's defined, and then you have an ability to outperform that base rate through outperformance? Is it similar to that, that you can sort of guide to a base rate expectation, but there's going to be a range that is basically above that base rate, depending on how you -- depending on the split that we've talked about, how much is delivered internally and then based on the delivery of the contracts and how well you deliver them. Is that fair? So if I was to close numbers out sort of a base of 6 and a sort of upside to sort of 9, 10? Is that how you can think about it?

So the numbers are probably in that kind of range, yes. And you're absolutely right, there's always going to be an incentive to take cost out as you actually implemented the project, that's [indiscernible]. So these things are individually contracted. And therefore, I think pretty well every case has its own [indiscernible] to it. But we're not talking about double-digit margins and the sort of range that you've indicated is probably fair in the portfolio. But how we do with it in that does depend on how we manage to mix the portfolio, and try and drive up the high value-added work during the [indiscernible].

We don't have any further questions, Steve, at this time.

Okay. Great. Well, thank you, everybody, for joining. If you do have any follow-up questions, then please send them through to Ian, and we'll pick them up off-line. So thank you very much, and appreciate you taking the time to join us. Thank you. Bye.

Thanks.

Goodbye.