22nd May 2014 11:54
LONDON (Alliance News) - Defence company QinetiQ Group PLC Thursday said it swung to a small pretax profit in its last financial year as impairments halved, but its profit excluding charges fell as it continued to be hit by the drawdown in US military operations in recent conflict zones.
Like peers in the defence industry, the maker of products including unmanned bomb disposal robots and protection systems for armoured carriers has been hit hard in recent years by the winding down of military operations in countries like Iraq and Afghanistan as well as cuts to, or uncertainty about, defence spending in the US and UK in the wake of the financial crisis.
It has been selling some businesses, and expanding in other areas in an attempt to make it less reliant on US defence spending, but is still expecting uncertainties in the UK and US defence markets to continue weighing on its business in the current financial year.
Last month, Qinetiq said it will sell its US Services business for USD165 million plus a potential earn out of up to USD50 million, and return GBP150 million to shareholders through a share buyback when the deal completes,
It reported a pretax profit of GBP4.1 million for the year to March 31, compared with a loss of GBP137.0 million a year earlier, as goodwill impairments halved to GBP125.9 million, from the GBP255.8 million it booked in the previous year as a result of the deterioration in its markets.
Pretax profit excluding items like impairment charges and losses or gains on disposals, fell to GBP119.4 million, from GBP152.1 million, as revenue declined to GBP1.19 billion, from GBP1.33 billion, and its pre-items operating margin fell to 11.1%, from 12.7%.
"The performance of US Services was impacted by continued uncertainty in the US federal services market. In Global Products, there was a decrease in US conflicted-related sales against the very strong prior year levels of Q-Net deliveries," it said.
Q-Net is the company's armoured vehicle protection product that protects vehicles from rocket propelled grenades.
On a more positive note, it said its EMEA Services unit delivered organic growth for the first time in five years, increasing revenue by 3% on an organic basis at constant currency.
However, it predicted only a "steady" outlook for the EMEA Services unit due to restructuring and budget cuts at the UK's Ministry of Defence.
"Notwithstanding the strong performance in EMEA Services last year, the MOD transformation programme is likely to create some short-term uncertainty in the UK defence market, and the division's performance as a whole is expected to remain steady this year," it said.
It also said that there are a wide range of possible outcomes for the performance of its Global Products division, which has a "lumpy revenue profile" dependent on the timing and shipment of key orders.
"Although newer products are recording notable milestones, the drawdown of American overseas military forces is expected to continue to depress demand for conflict-related products, and the division is unlikely to see significant benefits from the repositioning of its US operations until later in the year," it said.
Still, the company said it will pay a final dividend of 3.20 pence for its last financial year, up from 2.70 pence a year earlier, bringing its total dividend 4.60 pence, up from 3.80 pence.
"The full year dividend represents an increase of 21% reflecting the board's confidence that the group's Organic-Plus strategy will deliver value to shareholders over the medium term. The Board's policy is that the dividend will be progressive from this new level which is consistent with the strength of the retained group," it said.
Qinetiq Group shares were up 0.4% at 199.80 pence Thursday morning.
By Steve McGrath; [email protected]; @stevemcgrath1
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