Strong demand for armour on US military vehicles in Afghanistan led to better than expected sales for Qinetiq, the defence group, pushing its shares up more than 10 per cent.
The division that manufactures Qinetiq’s Q-Net Kevlar armour saw sales jump 61 per cent in the six months to £247m ($396m).
Q-Net panels, which resemble fences used to enclose tennis courts, are affixed to the sides of mine-resistant personnel carriers to deflect the force of rocket-propelled grenades.
The demand for armour from the US military has continued to grow since complaints from servicemen as early as 2004 that they were forced to protect their vehicles using armour made from scrap metal.
“It protects the vehicle but more importantly it’s lightweight and allows full manoeuvrability of the vehicle,” said Leo Quinn, chief executive of Qinetiq.
“The alternative at the moment is a couple of tonnes of iron around the vehicle, which in some cases can make the vehicle useless.”
However, US services and UK services, Qinetiq’s two other divisions, were less successful, with sales falling 6 and 7 per cent respectively.
Together they make up more than 70 per cent of group turnover and have been hit by delays in contract awards and a move away from outsourcing by the US military.
For the six months to September 30, pre-tax losses widened from £1.3m to £37.6m on revenues up 7 per cent to £865m. The group moved to losses per share of 6.4p, having reported earnings of 0.1p in the same period last year.
The increase in losses is attributable to several one-off costs including restructuring charges on Qinetiq’s UK business. Stripping out the costs of this acquisition, profit rose 14 per cent from £45m to £52m.
Qinetiq shares rose 12.4 per cent, or 12.3p, to 111.3p.
● FT Comment
After a terrible year, Qinetiq’s shareholders may now be breathing easier. The group started 2010 with its second profit warning in as many months, blaming poor visibility on US and UK contracts. As defence budgets in the UK and US shaped up for cuts, investors made for the exits. By last week, the stock had fallen 40 per cent since January. The shares now trade on 7 times 2012 earnings, similar to larger rival BAE Systems, and Thursday’s figures offered reassuring improvements in working capital and net debt. However, the surge in armour sales is likely to taper off next year and the bulk of revenues from the group’s service businesses remain under pressure from government budget cuts. Investors who want a defence stock in their portfolio may choose to wait until the spring when there will be greater clarity on both US and UK defence budgets.
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