Defence firm may turn back on American dream, while UK chip designer faces a transatlantic contender
Like many of its peers in the defence and aerospace sectors, Qinetiq has been stung by US federal spending cutbacks. So much so that the former Ministry of Defence research arm, privatised seven years ago, is now reviewing all of its North American operations, which provide engineering support to the US Army and Nasa.
Ultimately the review could lead to a sale of these operations. Unveiling Qinetiq’s positive annual results, CEO Leo Quinn said: “The decline in performance of US Services reflected the continuing very challenging market conditions and we have decided to initiate a strategic review of this division to determine the best way to maximise its value.”
Pulling out of North America would be an astonishing move, and it is by no means certain that this would happen. But Quinn emphasised that, having paid off more than half a billion pounds of debt, the company needs to focus its future investments on profitable activities, in which the UK has shown itself to be the “stand-out performer”.
Helped by “steady” growth in the UK, Qinetiq saw group underlying profits rise by 6 per cent to £152m for the year to end-March 2013. But while UK profits leapt 40 per cent to £85.8m, those from the US dived nearly 32 per cent to £21.9m. The falling value of the US operations led Qinetiq to write down (reduce) the value of these assets by £256m for the year. Overall group revenues dropped to £1.327.8bn from £1.469.6bn.
However, prospects in the UK look much rosier. In February the UK division agreed terms with the Ministry of Defence on pricing for the coming five-year period, Qinetiq said. The £1bn contract means the company will provide the MoD with “core test and evaluation and training support services through to March 2018”. Qinetiq also pointed out that, in the past year it has “extended it reach into the adjacent rail market”, via a new contract to provide procurement advice to Transport for London.
Investors seemed to like Qinetiq’s figures - and its US operations review - sending share values upwards. But while the coming year does look healthy for the company, its final decision on whether to sever its North American ties, or pursue some other outcome that keeps it in the US, could have major consequences for its long-term growth. For the next few years, though, its former owners at the MoD are helping to ensure that Qinetiq prospers despite the squeeze in defence spending.