Revenues up for QinetiQ but tough times ahead

DEFENCE supplier QinetiQ, which has axed hundreds of jobs from its Midlands operation, has announced full year group revenues up 5% with a 21% increase in underlying operating profit.

However, the firm has warned that the tough defence markets both domestically and in the US are likely to make trade tougher during the next 12 months and beyond.

QinetiQ is currently half way through a 24-month restructuring programme which is designed to make the company a leaner and more efficient organisation, focused on its core markets.

The group said this had helped achieve significant progress, with the result that QinetiQ was now well-positioned to create value over the medium term.
 
Group revenues were up 5% at £1,702.6m (2010: £1,625.4m), including a £19.7m benefit from the strengthening US dollar exchange rate and a £29.8m reduction in revenue for divested businesses.  

Within this, Global Products revenues grew 66%, driven by a strong demand for Q-NET, the vehicle survivability product.  US Services revenues fell 7% on an organic basis, impacted by government cutbacks, while in the UK, revenues fell 10% organically due to pressure on customer budgets, contract delays and a number of non-recurring items.

Despite this, underlying operating profit increased to £145.4m (2010: £120.3m), up 21%, resulting in an improved underlying operating margin of 8.5% (2010: 7.4%).  This reflected a strong volume-led margin performance in Global Products, bolstered by Q-NET sales.  Underlying pre-tax profit for the group was £114.6m, up 34% on the previous year (2010: £85.7m).
 
The restructuring of the UK businesses resulted in two non-recurring items:  a restructuring charge of £33.5m (2010:  £44.1m) and a pension curtailment gain of £4.9m (2010: £2.0m).  Other non-recurring items included a £23.8m write-off of previously incurred bid costs in relation to the termination of the Defence Training Rationalisation (DTR) programme by the Ministry of Defence.

Leo Quinn, chief executive officer, said:  “We are making significant progress in restoring QinetiQ to strength.  Our reshaping of the businesses, together with the reduction and refinancing of the debt, all contribute to a leaner and more agile group.  With a stronger balance sheet, we are now able to fund future growth and reinstate the dividend for shareholders.  

“We are unlikely to see a repetition of last year’s level of Q-NET sales, but the board believes that the programme underway to increase competitiveness will enable the group to perform in line with its expectations for the current financial year in what are likely to remain challenging market conditions.”  

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