Qinetiq soars on dividend promise

18th Nov 2010 11:02

Shares in Qinetiq rocketed as the high-tech defence group shrugged off the squeeze in defence spending to lift underlying interim profits and promise a return to dividends at the year-end.But there were scars from the recent round of defence costs, as losses rose to £37.6m in the half-year to September from £1.3m. Qinetiq took a £37.1m hit for bid costs on the now cancelled Defence Training Review programme, while there was a further £33.4m for UK business rationalisation. Revenues rose 7% to £865m, while adjusted profits increased 14% to £51.6m from £45.1m.Qinetiq cancelled its dividend last year and there was no interim this time either, but the firm says it expects to make a payment at the end of this year."Government policy reviews in both the US and UK have impacted the letting of contracts in our services businesses, but tight control on costs and the strong demand in Global Products have produced a solid performance. At the same time, the level of cash generation demonstrates our determination to strengthen the balance sheet," it said.Chief executive Leo Quinn defended the hefty spending on the aborted training programme, claiming it was an "investment" and would help it bid for future contracts.The group added, however, that the US trading environment is likely to remain challenging, with defence budgets under pressure in support of deficit reductions. Markets in which QinetiQ is well placed, including IT solutions, cyber security, logistics and sustainment, remain attractive.In the UK, the defence spending review confirmed the early retirement of the Harrier fleet and cancellation of the Nimrod MRA4, both of which will have a modest negative impact on UK Services revenues; but this is expected to be partially offset by continued support to the Tornado fleet and rotary wing aircraft and by the opportunities offered by the F-35 JSF. Overall, Qinetiq said it will meet its expectations for the current financial year, as the Global Products business fulfils current order demand.