Qinetiq warns on profits following delays in government contracts

The defence contractor Qinetiq warned yesterday that its profits would be lower than expected after cutbacks in government spending delayed crucial contracts.

Shares in the company plunged by 12 per cent to 143.3p after the group admitted that its traditionally stronger second half "will not occur in the current financial year".

Qinetiq, which last year cut 400 jobs and froze pay in an attempt to reduce costs, revealed in November that it was experiencing "short-term uncertainties" in its two crucial markets. It said yesterday: "In the seven weeks since that time, these conditions have not improved and delays have been seen in orders from government customers in both the UK and US. As a result, the group's performance in the second half is expected to be broadly similar to that of the first half."

Qinetiq's first-half pre-tax profits fell by 2 per cent to £45.1m.

The group said that even though the US administration had announced its policy for the campaign in Afghanistan, there remained a lack of clarity over orders for unmanned ground vehicles and "survivability" products. It added that political and economic factors behind delays in the UK "have remained largely unchanged".

Analysts had predicted full-year profits would fall to £145m in the year to the end of March, down from £151m the previous year. Nick Cunningham, an analyst at Evolution Securities, said the "profit warning implies around 15 per cent downside on consensus forecasts".

Qinetiq also announced that its chairman, Sir John Chisholm, was to retire from the board earlier than planned. He will step down at the end of next month, and be replaced by Mark Elliott, who was appointed to the board in May last year. Sir John had intended to retire by this year's annual general meeting.

He said the time was right to leave after nine months of planning his successor, which culminated in the appointment of Mr Elliott and Leo Quinn, the new chief executive. He said it would "end a journey I started nearly 19 years ago when I took on the challenge of creating a successful commercial enterprise out of the research laboratories of the Ministry of Defence".