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QinetiQ Group — Targeting acquisitions and contracts

QinetiQ Group — Targeting acquisitions and contracts

QinetiQ CEO Steve Wadey has now got the bit between his teeth and is on a mission to expand the company internationally while exploiting growth opportunities in the core UK business. The recent acquisition of Meggitt Target Systems (MTS) seems to make strategic sense, both industrially and financially. This note introduces our FY18 numbers for the first time. Our new FY17 forecasts reflect the purchases of MTS and Rubikon and the £1bn amendment to the Long Term Partnering Agreement (LTPA) with the UK Ministry of Defence (MOD).

Analyst avatar placeholder

Written by

QinetiQ Group

Targeting acquisitions and contracts

Updated forecasts

post-acquisition

Aerospace & defence

22 March 2017

Price

281.1p

Market cap

£1,599m

Net cash (£m) 30 September 2016

271.2

Shares in issue

568.8m

Free float

96%

Code

QQ

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

2.1

8.3

20.6

Rel (local)

0.8

3.0

2.1

52-week high/low

283.2p

217.5p

Business description

QinetiQ provides technical support services to customers in the global aerospace, defence and security markets. The group operates through two divisions: EMEA Services (82% FY16 sales) and Global Products (18% FY16 sales).

Next events

FY17 results

25 May 2017

Analysts

Alexandra West

+44 (0)20 3077 5700

Roger Johnston

+44 (0)20 3077 5722

QinetiQ Group is a research client of Edison Investment Research Limited

QinetiQ CEO Steve Wadey has now got the bit between his teeth and is on a mission to expand the company internationally while exploiting growth opportunities in the core UK business. The recent acquisition of Meggitt Target Systems (MTS) seems to make strategic sense, both industrially and financially. This note introduces our FY18 numbers for the first time. Our new FY17 forecasts reflect the purchases of MTS and Rubikon and the £1bn amendment to the Long Term Partnering Agreement (LTPA) with the UK Ministry of Defence (MOD).

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/15

763.8

108.5

15.3

5.4

18.4

1.9

03/16

755.7

108.6

16.3

5.7

17.2

2.0

03/17e

777.9

106.8

16.3

6.2

17.2

2.2

03/18e

826.0

111.1

16.9

6.6

16.6

2.3

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

LTPA affords some margin protection

The £1bn contract amendment to the Long Term Partnering Agreement (LTPA) with the UK Ministry of Defence (MOD) is significant for two reasons. First, it should provide some margin protection in the EMEA Services division, where the company has been guiding for a decline due to a declining baseline profit rate set by the MOD for single source contracts. Previously the MOD repriced the LTPA every five years meaning that QinetiQ never benefitted from long-term efficiencies, but this new agreement is for 11 years. Second, the MOD’s long-term commitment has empowered QinetiQ to invest in the facilities which should stimulate additional longer-term growth, ideally from international customers.

Acquisition of MTS will be 5% EPS accretive in FY18

The acquisition of Meggitt Target Systems fills a gap in QinetiQ’s existing Test & Evaluation offering. We expect the deal to be 5% accretive in FY18 because it brings c £30m of revenue into the Global Products division at a 19.8% margin which is higher than that of QinetiQ. QinetiQ paid 9x FY16 EBITDA, which is in line with its own rating and therefore looks to be a fair price for a high quality asset.

Valuation: Solid defence play with growth options

In our note of August last year we espoused that QinetiQ was a de-risked investment with potential catalysts to come from deploying the balance sheet. Since then, there have been a number of contract wins and the acquisition of MTS, CEO Steve Wadey’s first major M&A deal, is reassuringly value creating. The stock is trading on 16.6x FY18e EPS, which is a c 10% premium to its peers in the Aerospace & Defence sector. Its forecast dividend yield of 2.3% in FY18e compares less favourably to some of its peers but QinetiQ has more growth opportunities given its nascent international business. Its net cash position (FY17e £193m) provides scope for more M&A activity now that the capital expenditure requirements of the LTPA are known.

Forecasts updated for acquisition and LTPA contract

We have updated our FY17 forecasts and publish our FY18 numbers for the first time. Our FY17 EPS is 3.9% higher than previously forecast due to £7m of additional revenue from MTS, a 10bps improvement in the EMEA Services margin due to the LTPA agreement and a lower tax rate as a result of R&D allowances. Our FY18 numbers incorporate £30m of revenue for MTS in Global Products and £10m of revenue for Rubikon in EMEA Services.

Exhibit 1: Forecast revisions table

EPS, p

PBT, £m

EBITDA, £m

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2017e

15.6

16.3

4.5

105.1

106.8

1.6

130.0

132.6

2.0

2018e

N/A

16.9

N/A

111.1

N/A

141.3

Source: Edison Investment Research

LTPA contract should provide some margin protection

In December 2016 QinetiQ announced a £1bn contract amendment to its Long Term Partnering Agreement (LTPA) with the UK MOD. The agreement secured half of the core LTPA revenues at the 2016 Single Regulations Office (SSRO) baseline profit rate of 8.95% out to 2028. This is helpful to the EMEA Services margin for two reasons. First, it means that c £100m of revenue per year is no longer subject to repricing every five years. The SSRO profit rate is the starting point but companies can earn higher returns through good execution of contracts, and they keep the benefits of efficiency savings. However, historically, the repricing mechanism has meant QinetiQ had to give up these gains every five years when the MOD rebased the contract. It now has an 11-year window over which to plan how best to optimise its margins; longer-term efficiency programmes are now a viable business proposition.

Second, it protects QinetiQ from feeling the full impact of the SSRO’s declining single source baseline margin, which was announced last week as 7.46% for FY17/18, a 17% reduction on the FY16/17 figure of 8.95%. In FY16, 70% of EMEA Services revenues were from single source contracts (ie uncompeted) with the MOD. Removing the £100m of revenue per year for the LTPA amendment reduces that figure to 54%. The change to our published numbers is minimal (+10bp on the EMEA Services margin in FY17); however, over the life of the contract we expect QinetiQ to see additional margin benefits from the productivity savings it generates. Management has previously guided that the EMEA Services margin should decline; we now believe some of this decline may be mitigated by this amendment.

The new contract’s 11-year timeframe out to 2028 has reassured QinetiQ of the MOD’s long-term commitment. As a result, QinetiQ has now committed to an additional £60-70m of capital expenditure on the programme bringing the total to £180m, of which £120m will be spent in the next three years. Approximately £95m will be invested in modern tracking equipment, instrumentation and range infrastructure at MOD Aberporth and MOD Hebrides ranges. This will help reduce the overall operating costs of the ranges, ensuring they remain competitive with the latest capabilities. QinetiQ is targeting the repatriation of UK Defence money that defence primes spend on the MOD’s behalf. The company estimates that approximately half the UK’s test and evaluation money is currently spent overseas because the UK is not deemed to have the correct facilities. The Hebrides has the potential to provide ‘best in class’ facilities, unrivalled in size and interoperability of range which should attract defence primes to use it as one of their testing grounds. The investment should also make the UK ranges world class, thus attracting international customers. This is a win win situation. The MOD gets a higher return out of its fixed asset and it provides a platform for growth for QinetiQ.

£85m will be spent developing the future military test pilot programme. QinetiQ will replace the oldest aircraft in the current flying fleet with new systems-rich aircraft that can deliver the new syllabus whilst costing less to maintain, thus reducing the overall running costs of the RAF’s Air Warfare Centre at Boscombe Down. A new commercial test pilot qualification will also be introduced, opening up the school to a wider range of students.

Acquisition of Meggitt Target Systems is 5% EPS accretive

On 21 December 2016 QinetiQ announced it had acquired Meggitt Target Systems for £57.5m on a cash free, debt free basis. The business generated approximately £28m of revenue and £5.5m of operating profit (19.6% margin) in the year to 31 December 2016. We therefore raise our FY17 forecasts for QinetiQ by £7m (1.1%) to account for one quarter of the additional revenue and we have added £30m to FY18e revenue, assuming slight growth in the business next year. Our analysis of the deal suggests it was a financially and strategically astute acquisition. As a cash buyer, QinetiQ paid a fair price at 9x EBITDA (which is in line with its overall rating) and we calculate the deal to be 5% EPS accretive in FY18e. The Meggitt Target Systems, now QinetiQ Target Systems, fills a gap in QinetiQ’s existing Test & Evaluation offering as the business makes cost-effective unmanned aerial, naval and land-based target systems. Customers using any of QinetiQ’s ranges need targets to test against so the company is now able to offer an end-to-end solution. QinetiQ Target Systems also generates 90% of its revenues from outside the UK so complements QinetiQ’s desire to become a more international company.

The new strategy is evolving

CEO Steve Wadey is a man on a mission to internationalise QinetiQ. He appointed the first Managing Director responsible for International business last August and has developed a campaign style approach to winning new business. This is similar to his experience of partnering at the European missile manufacturer MBDA where he had to manage the complex relationship between a prime contractor and the MOD. He only spoke about this new approach in broad terms at the FY17 interim results (see Exhibit 2), but our understanding is that he is encouraging all the different parts of the business to be more joined up in order to offer strategic partnering to a broader range of customers, outside QinetiQ’s traditional hunting ground of the UK Ministry of Defence (MOD).

Exhibit 2: Slide 20 from 2017 interim results presentation

Source: Qinetiq

Management has identified 30 different campaigns where QinetiQ should be able to win new business, thus driving organic growth. We believe that the largest campaign is currently to grow the Test and Evaluation business, where QinetiQ thinks it has the ability to double its market share in the UK alone. The most important metric to measure the success of this campaign led approach will be the level of order intake (see Exhibit 3), so we shall be watching it closely over the next year.

Exhibit 3: QinetiQ order intake £m (LHS) and as a % of revenue (RHS)

Source: Edison Investment Research, Qinetiq

QinetiQ’s strategy of organic growth through exploiting international opportunities combined with M&A activity could result in a very different shape business in a few years’ time. In FY16, 70% of revenue came from the UK government. We believe that Qinetiq is at the beginning of its international journey, as its defence peer Thales was three years ago.

Exhibit 4: Financial summary

£m

2015

2016

2017e

2018e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

763.8

755.7

777.9

826.0

Cost of Sales

0.0

0.0

0.0

0.0

Gross Profit

763.8

755.7

777.9

826.0

EBITDA

 

134.5

134.7

132.6

141.3

Operating Profit (before amort. and except.)

 

113.5

111.3

106.9

111.4

Intangible Amortisation

(1.5)

(2.5)

(1.1)

(0.9)

Exceptionals

(3.1)

(18.4)

(3.5)

(1.6)

Other

0.0

0.0

0.0

0.0

Operating Profit

108.9

90.4

102.3

109.0

Net Interest

(3.5)

(0.2)

1.0

0.5

Profit Before Tax (norm)

 

108.5

108.6

106.8

111.1

Profit Before Tax (FRS 3)

 

105.4

90.2

103.3

109.5

Tax

12.0

8.4

(12.9)

(15.3)

Profit After Tax (norm)

96.7

95.8

93.5

95.5

Profit After Tax (FRS 3)

117.4

98.6

90.4

94.2

Average Number of Shares Outstanding (m)

630.9

587.0

573.4

564.9

EPS - normalised (p)

 

15.3

16.3

16.3

16.9

EPS - normalised and fully diluted (p)

 

15.2

16.2

16.2

16.8

EPS - (IFRS) (p)

 

18.6

16.8

15.8

16.7

Dividend per share (p)

5.4

5.7

6.2

6.6

Gross Margin (%)

100.0

100.0

100.0

100.0

EBITDA Margin (%)

17.6

17.8

17.1

17.1

Operating Margin (before GW and except.) (%)

14.9

14.7

13.7

13.5

BALANCE SHEET

Fixed Assets

 

354.8

317.4

386.6

453.4

Intangible Assets

122.5

81.4

125.4

124.1

Tangible Assets

229.6

233.4

258.1

325.7

Investments

2.7

2.6

3.1

3.6

Current Assets

 

386.1

453.8

386.6

443.0

Stocks

18.5

19.0

20.2

21.7

Debtors

143.4

129.9

143.9

152.8

Cash

195.5

274.5

191.3

235.6

Other

28.7

30.4

31.2

32.8

Current Liabilities

 

(370.6)

(383.9)

(380.1)

(403.3)

Creditors

(370.6)

(383.9)

(380.1)

(403.3)

Short term borrowings

0.0

0.0

0.0

0.0

Long Term Liabilities

 

(72.2)

(62.5)

(59.9)

(103.0)

Long term borrowings

0.0

0.0

2.2

(41.2)

Other long term liabilities

(72.2)

(62.5)

(62.2)

(61.8)

Net Assets

 

298.1

324.8

333.2

390.1

CASH FLOW

Operating Cash Flow

 

112.5

182.4

111.1

148.4

Net Interest

0.0

(3.5)

(0.2)

1.0

Tax

0.0

(17.3)

(12.9)

(15.3)

Capex

(29.0)

(30.2)

(40.5)

(97.5)

Acquisitions/disposals

75.9

27.4

(57.5)

0.0

Financing

(106.8)

(48.6)

(47.0)

0.0

Dividends

(31.7)

(32.3)

(34.0)

(35.7)

Other

4.1

1.1

0.0

0.0

Net Cash Flow

25.0

79.0

(81.0)

0.9

Opening net debt/(cash)

 

(170.5)

(195.5)

(274.5)

(193.5)

HP finance leases initiated

0.0

0.0

0.0

0.0

Other

(0.0)

(0.0)

0.0

(0.0)

Closing net debt/(cash)

 

(195.5)

(274.5)

(193.5)

(194.4)

Source: Company accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by QinetiQ Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

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Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by QinetiQ Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

F&C Managed Portfolio Trust — Diverse exposure with income and growth options

F&C Managed Portfolio Trust (FMPT), launched in 2008, comprises two listed investment portfolios – an income portfolio (FMPI) and a growth portfolio (FMPG) – this is a differentiated structure for an investment trust. These portfolios provide investors with a long-term savings vehicle. Both portfolios hold at least 25 investments (currently concentrated portfolios of c 40 investment companies); they are benchmarked against the FTSE All-Share index, however, there are no maximum levels set for underlying exposures to geographic regions or sectors. A unique feature of FMPT is that any net income generated by FMPG is transferred to FMPI in exchange for capital, which benefits the income prospects for FMPI and potential capital growth prospects for FMPG. NAV total returns for both portfolios have outperformed the benchmark over one, three and five years.

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