Defence firm QinetiQ looks to next stage of growth as FY revenue falls
DEFENCE supplier QinetiQ, which maintains a base in Malvern despite cutbacks, said today the culmination of its two-year self-help programme had provided a solid platform from which to launch the next phase of its restructuring.
The group has been prompted to revise its business model following the austerity measures imposed by both the Ministry of Defence and the US Defence Department.
In a full-year results statement, the company said revenue for the period was down 11% to £1,469.6m (2011: £1,702.6m) on an organic basis at constant currency, excluding a £25.8m reduction for divested businesses. The firm said the decline reflected the uncertain trading environment and contract delays in the US and UK defence markets, and the exceptionally strong demand for the Q-Net® vehicle survivability product last year.
Despite the difficult trading conditions underlying operating profit rose 11% to £161.3m (2011: £145.4m) and the underlying operating margin increased to 11% (2011: 8.5%) as a result of last year’s early cost reduction in the UK businesses and improved efficiencies and mix in Global Products.
The cost reductions resulted in the loss of hundreds of jobs from the Malvern depot and the firm’s head office in Basingstoke.
These improvements were partially offset by lower margins in US Services where the restructuring is now complete, reducing indirect costs by $25m.
Underlying pre-tax profit was £118.3m (2011: £114.6m) with net finance costs increasing to £43m in 2012 (2011: £30.8m). This included accelerated interest costs of £27.4m (2011: £8.8m) associated with the early repayment of $177m of private placement debt, and a net pension finance credit of £6.4m (2011: £9.1m). Full year underlying earnings per share were 14.6p (2011: 14.2p).
Commenting on the results, Leo Quinn, Chief Executive Officer, said: “Two years ago we began QinetiQ’s transformation with our 24 month self-help programme. During that time, despite market headwinds, we have focused the portfolio, upgraded the leadership to drive a more competitive commercial culture and rebuilt the balance sheet. These achievements provide a strong foundation from which to launch our next phase, the Organic-Plus programme.
“At the heart of QinetiQ is a strong defensible core, built on the deep domain expertise of its people. We will continue to invest in this core as the changing needs of our customers provide opportunities for medium-term growth. Our portfolio also contains a number of smaller businesses, some of which could have considerable potential for the future.
“Given the continuing uncertainty and lower than normal visibility in our markets, our expectations for trading performance in the current year remain unchanged. However, the success of our self-help programme in restoring both the balance sheet and portfolio to strength gives the board confidence in QinetiQ’s ability to build significant value over the next phase of its development.”
