QinetiQ gears up for West’s battle with IS

Contractor’s shares surge as terror threat rises

SHARES in QinetiQ surged almost 12pc yesterday after the defence technology and engineering group cheered investors with strong half-year results.

The stock hit an all-time high during the day before closing 24.4p higher at 260.1p.

The rise provided a fillip for fledgling chief executive Steve Wadey. Having joined from missile maker MBDA six months ago to replace departing Leo Quinn, Wadey has been touring the business, visiting more than 30 sites to figure out what makes the armaments-tester tick.

Chief among his in-tray priorities was the challenge of growing the legacy business – which emerged from the privatisation of the Defence Evaluation and Research Agency – while also finding new revenue streams to reduce dependency on the core defence business at a time when military budgets in the West are shrinking.

Having launched a controversial initial public offering in 2006 involving private equity firm Carlyle, the group went on a spending spree and overstretched itself with a raft of acquisitions in the US. When Quinn arrived from banknote-maker De La Rue he set about repairing the damage after a clutch of profit warnings dented confidence in the business.

Quinn streamlined the firm and offloaded the US unit for £150m.

Today the group is underpinned by a major 25-year deal to run Ministry of Defence sites around the country, including the historic airfield at Boscombe Down, Wiltshire, home of the world-famous Empire Test Pilot School, and gunnery ranges at Shoeburyness, Essex. This work brings in £1bn every five years.

Increasingly technology-driven, QinetiQ has also built a reputation for evaluating weapons and testing bombs. It also has a major maritime operation testing ships, submarines and other vessels and boasts the largest water tank in Europe at Portsmouth.

A Cyber, Information and Training unit formed last year helps train the UK’s Joint Forces Command as well as other Government and commercial customers.

QinetiQ was quick to highlight yesterday how its products could help governments who are battling rising security threats from Islamic State and other militant groups, as demonstrated by the Paris attacks.

Speaking to the Mail yesterday, Wadey (pictured) said QinetiQ’s core competencies were well matched to help handle the world’s defence and security challenges amid budget pressures. ‘There is a lot of uncertainty in markets around the world, but what we do see as evident is that a number of common themes are emerging,’ he said. ‘We have the increasing security threats and the terrible events of last weekend [in Paris] go to prove that point. We also see government budgets under pressure and there’s a drive for greater efficiency, more innovation and leveraging international partnerships.’

QinetiQ operates in three key markets. The UK is the largest with the US and Australia also significant. ‘For me... each is an opportunity to look at what we can do to develop and grow market share,’ Wadey said. ‘It is too early to say which other international markets could be developed.’

Wadey’s expertise in international co-operation and exporting at MBDA will undoubtedly come in handy as he looks to grow the company overseas.

Closer to home, QinetiQ yesterday unveiled a new £153m, fiveyear contract with the MoD to deliver aircraft engineering services for the RAF’s Typhoon and Tornado (above) combat jets and A400m transport aircraft.

When any of the aircraft go through upgrades to equipment such as weapons release gear or sensors, the MoD requires independent certification and trials to gain clearance for them to be used on operations. This contract was booked after the half-year ended. Sales were up in the six months to September 30 to £370.9m from £365.6m a year earlier while the order book slumped to £228.4m from £320.5m. Wadey said this was largely down to the timing of some deals. He also indicated next week’s Government Strategic Defence and Security Review could provide a further boost.

Defence Secretary Michael Fallon and other ministers have highlighted three themes for the review: innovation, efficiency and international sales.

‘They are good themes and I expect them to be clearly articulated,’ Wadey said. ‘The engineering services contract is a great example of what the Government is going to be looking for. It is about delivering more for less through partnership. It is an innovative business model.’

Once it has been unveiled Wadey will be thinking how best to match QinetiQ’s capabilities to the Government’s needs and boost its order book.

SEPARATELY BAE Systems has been awarded a contract for the fifth Astute class nuclear-powered submarine, taking the total value for work on the vessel to £1.3bn.

The contract covers the design and remaining build, test and commissioning activities on HMS Anson, the fifth of seven technologically advanced submarines in the class.

Manufacturing of the vessel began in 2010, and HMS Anson is now at an advanced stage of construction at BAE Systems’ site in Barrow-inFurness, Cumbria. It is on schedule to begin sea trials in 2020.

Yesterday, shares closed 7.5p higher at 484.1p.