Qinetiq warns on profits as orders for Afghanistan falter

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The Independent Online

The defence group Qinetiq issued a profit warning yesterday, blaming "delays" to contracts from the UK Government and continued uncertainty over the US military strategy in Afghanistan.

The warning came as the company posted a pre-tax loss of £1.3m for the half-year to 30 September, after being hit by reorganisation costs.

But Qinetiq cited "short-term uncertainties" in its two biggest markets, the UK and US. "In the UK, political and economic factors are delaying the letting of contracts; in the US, the finalisation of policy for Afghanistan continues to impact Government decision-making."

Given the difficulties in completing pending orders in the US and securing the normal pattern of contract wins in the UK, the group said it was unlikely to achieve its previous expectations. The profit warning came after Leo Quinn, the former boss of the banknote-maker De La Rue, joined Qinetiq as chief executive last week. News of his appointment has helped to boost the defence group's shares by 29 per cent over the last month, said analysts at Investec. Its chief executive Graham Love is stepping down on Monday.

Nick Cunningham, at Evolution, referred to "deep problems". He added: "So why did Qinetiq change its management? Now we know: it is facing negative growth, not just in the UK but also in its recently acquired US businesses. This is highly structural and will be hard to fix. Meanwhile, Qinetiq is the most indebted stock we follow so it can't acquire its way back to growth."

Qinetiq's half-year revenues jumped by 11 per cent to £806.3m.

Despite the profit warning, Chris Dyett, at Investec, said the numbers were "modestly ahead of our forecasts", but the delays in defence contract awards in both the US and UK led him to downgrade his forecasts for 2010 and 2011 by about 15 per cent.

Qinetiq increased its interim dividend by 5 per cent to 1.58p. The company said it "continues to believe" that Qinetiq is "well positioned" to take advantage of the longer-term trends in the defence and security markets.

Although its European business historically enjoys a seasonally stronger second half, including the letting of a large volume of shorter-term contracts, Qinetiq said it currently has "limited visibility on the amount and timing of these orders". In the US, the company said that given the uncertainty over the US military strategy, its technology services division is experiencing delays on certain orders for survivability products and unmanned ground vehicles.

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