Shares in defence and security company QinetiQ (QQ.) plummeted 9.5% to 297.8p after flagging supply chain disruption challenges which could result in a significant downgrade to short-term guidance.

The issue relates to a large complex multi-year programme and the company said it is working closely with the customer and ‘making progress, jointly with our supply chain, towards recovery of the programme and mitigating this risk to less than £15 million’.

Richard Palge, analyst at Numis said ‘this is a surprisingly large number (and we hope highly conservative, in line with management’s usual approach) given the historical and current profitability of Global Products.’

The company is guiding for full year revenue growth of around 5% and an underlying operating margin to be at the lower end of its expected range of between 11%-to-12%.

Numis has lowered its full year operating profit forecast by 3% to £148 million but left its medium forecasts largely unchanged.

MEDIUM TERM GUIDANCE UNCHANGED

QinetiQ has maintained its medium-term guidance for mid-single-digit organic growth with strategic acquisitions adding further growth and an operating profit margin of between 12%-to-13%, although in the short term investment in the digital transformation programme is expected to reduce the margin by 1%.

Today’s disappointing news takes the shine off a strong first half performance, which saw order intake up 25% to £700 million, which looks impressive against a 37% growth comparison a year ago.

The company said operating cash flow has been good and it finished the half to 30 September with net cash of £140 million.

Strong performance from EMEA (Europe, Middle East, and Africa) was offset by weaker performance in Global Products which saw US revenues drop 15% year-on-year because of lower orders.

The US was impacted by the move to a new US administration and the shifting priorities from counter-insurgence missions in Afghanistan to ‘near peer threats in the Indo-Pacific’.

However, QinetiQ has ambitions to double the size of its US business over the next five years through organic growth and strategic acquisitions and has made changes in the leadership designed to achieve its goals, including the search for a new chief executive.

QinetiQ remains focused on its strategy to build a global integrated defence and security company and the increase in new orders and contract wins in the first half shows good progress.

READ MORE ABOUT QINETIQ HERE

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Issue Date: 14 Oct 2021