11th Feb 2015 11:29
LONDON (Alliance News) - QinetiQ Group PLC on Wednesday affirmed its guidance for the full-year despite continued challenges in its markets, saying it expects a solid performance in its Europe, Middle East and Africa Services business but forecasting difficulties in its Global Products arm.
The FTSE 250-listed defence services company said its EMEA Services arm is performing well and has a high level of contracted revenue for the final quarter of its financial year to the end of March, despite uncertainty in the UK defence market related to current spending overhauls at the Ministry of Defence.
The EMEA Services arm provides technical, testing, evaluation and training services to the defence industry.
QinetiQ said its core Air, Weapons and Maritime businesses all performed well and said it is making progress in its Explore cyber-security arm, having secured a GBP3 million contract with an unnamed financial institution recently. The group also recently established a Canada office for the Explore arm in order to capitalise on expected demand for tender assessment, cost and risk advisory services from the Canadian government.
The EMEA Services business propped up the business in the first half, producing slightly higher revenue on the back of high utilisation levels in the Weapons and Maritime businesses. The performance of the division offset a drop in revenue in its Global Products defence technology arm, which served to drag down pretax profit for the company in the first half as it was hit by lower US military spending.
The company said in its half-year results in November that it has eliminated its exposure to the US federal services market via the sale of its US Services arm to The SI Organization Inc for USD165 million in 2014, but said the wind down of US military operations in Afghanistan and the subsequent reduction in the country's Overseas Contingency Operations procurement budget is hitting its US products business hard.
The company said it is working to refocus the business on contract-funded research and development projects under the Department of Defense's 'peacetime' programmes of record.
But those problems which had hit the Global Products business in the first half have continued into the second, QinetiQ said, with lower funding for US military operations continuing to eat into conflict-related sales.
UK product sales are partially offsetting the problems in the US, the group said, as is a recent contract win from the Canadian Department of National Defence. The group also said its OptaSense Distributed Acoustic Sensing business is making progress, in spite of weak adoption of the technology in the oil and gas industry owing to prevailing conditions within that market.
QinetiQ said its expectations for the year are unchanged. It forecasts a steady performance from the EMEA Services arm in the final months of the year, despite the transformation programme initiated at the Ministry of Defence and the potential changes to the budgetary environment related to the upcoming UK General Election.
For Global Products, QinetiQ said a range of possible outcomes exist for the business, given it has a "lumpy" revenue profile heavily influenced by the timing and shipment of key orders. It added it expects conflict-related product sales to continue to be depressed by weaker US demand.
QinetiQ shares were down 0.1% to 188.80 pence late Wednesday morning.
By Sam Unsted; [email protected]; @SamUAtAlliance
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