Afghanistan conflict gives boost to sales at Qinetiq

Sales at the British defence technology company's global products business, which accounts for around a third of group revenue, grew 65 per cent, driven by demand for its Q-NET vehicle survivability product.

QinetiQ reported underlying pre-tax profit of 51.6m for the six months to the end of September yesterday, on revenue 7 per cent higher at 865m.

"The overall beat comes from the lumpy products business, mainly from the Q-Nets order which the market had underestimated," Bank of America analyst Celine Fornaro said in a research note, adding that the company's 231 per cent cash conversion rate was a "key positive".

QinetiQ, formerly Britain's state-owned defence research agency, said it had cut net debt by a quarter to 327m over the past year.

It said cost-cutting and self-help measures were starting to bear fruit. No interim dividend was paid but an end of year payout was likely, it said.

Last month, Britain cut its defence budget by 8 per cent to help lower a huge budget deficit, cutting its army, navy and air force.

Analysts believe US defence spending, which is also important to QinetiQ, will be flat at best.

"As yet the effect of new government policy, in both the US and UK, has not worked through to detailed implementation," chief executive Leo Quinn said.

He continued: "Overall, the board believes that the group will meet its expectations for the current financial year, as the global products business fulfils current order demand."

The company was expected to post a pre-tax profit of 91.8m for the year to the end of March, according to a Thomson Reuters poll of analysts.

QinetiQ said the US trading environment was likely to remain challenging, with defence budgets under pressure.

It said US support service contracting reductions were likely to have greater impact on contracts to which it has limited expo- sure.

The company said the US drive to have fewer and lower-cost suppliers would put pressure on margins as customers looked to save money and competition intensified.

QinetiQ, which lost part of a British defence training contract in spending cuts last month, welcomed Britain's decision to invest further in cyber security, science and technology.

Its shares, which had fallen by more than a third this year, rose following the trading update yesterday.