QinetiQ profit boosted by strong Afghan gear sales


QinetiQ which makes bomb disposal robots and sniper detectors, posted a 14 percent rise in first-half profit, helped by strong sales at its global products unit and better cash generation, lifting its shares.

Sales at the British defence technology company’s global products business, which accounts for around a third of group revenue, grew 65 percent, driven by demand for its Q-NET vehicle survivability product to support operations in Afghanistan.

QinetiQ reported underlying pretax profit of 51.6 million pounds (US$82 million) for the six months to end-September on Thursday, on revenue 7 percent higher at 865 million, Reuters reports.

Its shares, which had fallen more than a third this year after it lost a key training contract with Britain’s defence ministry, were up 13 percent at 111.9 pence by 1030 GMT, valuing the business at around 729 million pounds.
“The overall beat comes from the lumpy products business, mainly from the Q-Nets order which the market had underestimated,” Bank of America analyst Celine Fornaro said in a research note, adding the company’s 231 percent cash conversion rate was a “key positive”.

QinetiQ, formerly Britain’s state-owned defence research agency, said it had cut net debt a quarter to 327 million pounds over the past 12 months, adding cost cuts and self-help measures were starting to bear fruit.

No interim dividend was paid but an end of year payout was likely, it said.

Last month, Britain slashed its defence budget 8 percent to help lower a huge budget deficit, cutting its army, navy and air force. US defence spending, also important to QinetiQ, was seen as flat at best.
“As yet the effect of new government policy, in both the US and UK, has not worked through to detailed implementation,” chief executive Leo Quinn said.
“Absent any immediate material change in customer requirements, overall the board believes that the group will meet its expectations for the current financial year, as the global products business fulfils current order demand.”

The company was expected to post a pretax profit of 91.8 million pounds for the year to end-March, according to a Thomson Reuters I/B/E/S poll.

QinetiQ said the US trading environment would likely remain challenging, with defence budgets under pressure.

It said US support service contracting reductions would likely have greater impact on contracts to which it has limited exposure but that the U.S. drive to have fewer and lower-cost suppliers would pressurise margins as customers looked to save money and competition intensified.

QinetiQ, which lost part of a British defence training contract in spending cuts last month, welcomed Britain’s decision to invest further in cyber security, science and technology.