Qinetiq hit by lower defence budgets

Qinetiq Group, a developer of aircraft and other defence systems for the British military, said yesterday first-half sales fell 7.3 per cent despite an increased operating margin resulting from restructuring.

The company, which in 2007 secured a multi-million pound contract from the UK ministry of defence (MoD) to use the Tornado jet fighter as a test platform for its missile systems, said sales declined to £685.5 million (Dh4 billion) in the six months that ended on September 30 from £739.6m a year earlier.

Contracts typically awarded by the Pentagon in September did not take place this year, said Leo Quinn, the chief executive.

"Qinetiq's interim results highlight the difficult trading conditions in both the UK and US defence markets," Georgina O'Toole, a research director at TechMarketView, said yesterday.

"However, the [firm's] UK services business performed better than the US business, achieving an increase in the underlying operating profit of 37 per cent to £38.3m on flat revenues of £289.6m and thus contributed heavily to a 16 per cent increase in the group's underlying operating profit, which was up 16 per cent to £95.3m," she added.

The UK company and other defence contractors are contending with uncertainty about US defence plans that have slowed activity at the Pentagon at the same time military spending in the United Kingdom is pared. Qinetiq has undergone rounds of cost-cutting in both countries.

"Visibility remains much lower than usual, particularly in the US," Mr Quinn said, predicting full-year performance would be in line with expectations. Strong competition is causing "aggressive bids" and slowing business, the company said.

Ms O'Toole said the company would target opportunities to grow its UK business, particularly in supporting the MoD as it transformed and reduced its internal resources, citing the UK government's planned 30 per cent reduction in MoD civil servant posts.

"Qinetiq should be well placed to offer the MoD client-side technical services as a result," she said.

business@thenational.ae