QinetiQ profits fall on order delays
DEFENCE technology and security firm QinetiQ has reported a 34% fall in full-year profit, with revenues flat over the year.
The company, which has a technology centre in Malvern, was hit by delays in Ministry of Defence contracts, while the overall decline in the United States economy also affected the results.
QinetiQ is now planning to restructure its business in an attempt to revive its flagging fortunes.
QinetiQ, which makes hi-tech military equipment, saw underlying pre-tax profit of £85.7m, which compares to £130.2m last year.
Revenues for the year to the end of March were £1.62bn, compared with £1.61bn last year.
Operating profit for the year was £120.3m, which compared to £151.6m this time last year.
Net debt was reduced to £457.4m from £537.9m, while underlying earnings per share fell from 15.9p last year to 11.1p.
The results are in line with expectations, analysts had predicted that profits would fall somewhere between £57m and £140m, with the consensus opting for a figure around £89m.
In a statement to accompany the full results, the firm said: “The UK businesses suffered from a reduction in the historic concentration of Ministry of Defence order flow towards the year end, although this impact was partially masked at the revenue level by higher pass through revenues, resulting in a 1% organic decline in EMEA revenues.”
Leo Quinn, QinetiQ chief executive, said: “This has been a difficult year for QinetiQ, with challenging conditions in our core markets and considerable internal change.”
He said the firm’s markets were likely to remain uncertain for some time, but it now had a “decisive programme of self-help to restore value”.
“We are acting to make our costs more competitive, our productivity better and our debt lower. We are changing our structure to benefit from QinetiQ’s overall strengths. Most of all, we are working to transform our culture into one based on leadership, accountability and empowerment of what is an outstanding group of people,” he added.
With these immediate steps, the board said it believed it would be able to meet its expectations for the current year.
“At the same time our goal is to build the right foundation for a return to profitable and sustainable growth in the future,” said Mr Quinn, who was appointed chief executive last November.
QinetiQ said its rapid acquisition-based growth and its efforts to find applications for its intellectual property in new industrial markets had not created value for investors to date.
It added that its decision to enter the US market was sound, but returns as yet had been lower than expected and the Group’s balance sheet had become over-stretched as a result.
Internally, the company said it had become fragmented and overly complex with weak processes.
“Insufficient strategic focus and transparency have led to a high level of cost and loss-making activity. These issues, combined with external market conditions – which are likely to remain difficult while the UK and US Governments develop policies to address their spending and deficit challenges – have caused the group’s performance over recent years to fall below its potential,” said the results statement.
In outlook, the firm said that during the current financial year, the performance of QinetiQ’s service businesses was likely to remain steady overall. The product businesses, whose performance is by nature more variable, should benefit from the release of some orders in the US delayed from last year, although it said this would be partially offset by the weaker UK environment.
