QinetiQ's shares took a 7 per cent pounding as already brittle investor confidence was rocked by a profit warning accompanying the half-year results. The group must now look to its new chief executive, Leo Quinn, for a clear solution to its structural problems.
Pre-tax profits were wiped out by a one-off charge of £46.4m but were only marginally down on an underlying basis. Worryingly, QinetiQ faces reduced visibility in its troublesome Europe, Middle East and Africa (EMEA) division and has suffered due to the stickiness of orders in what should be the faster-growing US business.
While QinetiQ North America reported a 24 per cent increase in revenue, taking account of currency movements, it actually suffered a 3 per cent organic sales decline due to a slowdown in product orders from the US Department of Defense. Despite overall revenue growth, operating profits were only marginally up at £35.6m, as lower high-margin original equipment sales pushed the overall margin down from 10.7 per cent to 8.8 per cent.
The EMEA division produced flat sales of £400m but cost controls helped push operating profits 12.5 per cent higher to £30.6m. The business suffered due to a 21 per cent decline in research spending by the UK Ministry of Defence. Some EMEA revenues are weighted towards the second half, but management said the visibility for these is now limited.
Evolution forecasts pre-tax profits of £110m for 2010, with EPS of 12p, rising to £166m and 19.8p, respectively, in 2011 (£130m and 15.8p in 2009).
QINETIQ (QQ.) | ||||
|---|---|---|---|---|
| ORD PRICE: | 166p | MARKET VALUE: | £1.1bn | |
| TOUCH: | 165-166p | 12-MONTH HIGH: | 188p | LOW: 123p |
| DIVIDEND YIELD: | 2.9% | PE RATIO: | 16 | |
| NET ASSET VALUE:* | 79p | NET DEBT: | 87% | |
| Half-year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 727 | 36.6 | 4.30 | 1.50 |
| 2009 | 806 | -1.3 | 0.10 | 1.58 |
| % change | +11 | - | -98 | +5 |
Ex-div: 20 Jan Payment: 19 Feb *Includes intangible assets of £754m, or £114p a share. | ||||
