QinetiQ warns defence markets remain challenging
DEFENCE supplier QinetiQ, which has axed hundreds of jobs from its Midlands operation, warned today that conditions in the UK and US defence markets remained challenging.
In a trading update covering the period since May 26, the group said budget pressures continued to create uncertainty and delays in orders. Accordingly, defence spending is set to remain limited and competition for contracts will be tough.
To maintain efficiency, the group said it was continuing with its strategy to develop a “leaner” group, which is seen as more competitive. The programme concentrates on the group’s three priorities of focusing on core capabilities; transforming the culture and strengthening the balance sheet.
Due to the delayed passing of the US defence budget, the group’s US services business has had a slightly slower start to the year, excluding the impacts of currency and the disposal of S&IS in the prior year.
The loss of revenue on completed programmes, including the Iraqi Flight Training School, has offset the ramping up of new revenue streams such as the NASA ESC contract. The programme to integrate the business, reduce duplicate overheads and deliver greater competitiveness is under way and expected to complete in the first half of the year.
Having predicted the market decline last year and taken early action to address its cost base, the group said its UK Services business was responding well to revenue pressures.
“Further progress is being made on embedding QinetiQ’s new culture, processes and commercial skills, strengthening both the business and its engagement with customers as they reshape their strategic plans. During the first quarter UK Services won a £22m multi-year support contract to provide test and evaluation services for the A400M aircraft,” it said.
The UK business continues to be impacted by contract delays and cancellations from the MoD, although completion of the cost reduction programme in the prior period will mitigate the impact of these trading conditions on the profit line.
As part of its focus on core capabilities, in July, the group agreed the disposal of Spectro – a supplier of oil and fuel analysis instrumentation – which generated net proceeds of approximately $17m after tax and costs. Yesterday the group announced the sale of its UK fuel and lubricants business for a total cash consideration of £0.5m.
It said a relentless drive for strong cash generation, backed by rigorous group-wide processes and continuing low levels of contract capital expenditure, together with the Spectro disposal, had delivered a further reduction in net debt to below £200m.
In outlook, it said despite the continuing uncertainty and challenging conditions in its markets, the board believed greater agility and competitiveness would enable the group to perform in line with its previous expectations for the current financial year.
