QinetiQ Group (LSE:QQ.) announced it has agreed to sell its US business to Serco for $292m, concluding the strategic review the defence technology company had been running since its full-year results in May.
The London-listed defence, security and aerospace technology group, a FTSE 250 constituent, reported underlying operating profit up 14% to £110m for the six months to 30 September, with the underlying operating margin rising 120 basis points to 11.9%.
"The agreed US business sale sharpens QinetiQ's focus on the areas where we see the strongest opportunities for growth," said chief executive Steve Wadey, adding that the company sees "opportunities to expand roles and leverage into European NATO and key allies."
Statutory results tell a different story: QinetiQ swung to an operating loss of £79.1m from a profit of £64.3m a year earlier, after taking a £175m non-cash impairment charge on the US business, comprising £166.4m of goodwill and £8.2m of acquired intangible assets.
Statutory basic earnings per share came in at a loss of 21.6p, against a profit of 7.1p in the first half of the prior year.
QinetiQ said the US market "has changed" and that, despite improvements to the business, it lacked the scale to meet its growth and returns expectations relative to the rest of the portfolio.
The transaction remains subject to regulatory approvals and is expected to complete in the first quarter of 2027.
Order intake rose 9% to £771m, excluding a £1.7bn five-year Long-Term Partnering Agreement extension secured in the prior year, while underlying revenue grew 3% to £923m.
Revenue excluding the US business grew around 5% in the first half, QinetiQ said, even as near-term customer budgetary pressures persisted.
The funded order backlog stood at £4.4bn at period end, which the company said provides good multi-year visibility.
Underlying earnings per share grew 18% to 16.8p and return on capital employed rose to 41% from 21% a year earlier.
Net debt increased to £274m from £181m a year earlier, driven by working capital, tax timing and higher capital expenditure, though leverage remained within target range at 0.8 times.
The interim dividend rises 33% to 4.0p per share, from 3.0p, payable on 5 February to shareholders on the register on 8 January.
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QinetiQ said the majority of proceeds from the US sale will be returned to shareholders, with the existing buyback programme to be topped up by an additional £100m per year over FY28 and FY29, on top of the £100m annual buyback already running through FY29.
The company reiterated its FY27 guidance of 3-5% revenue growth, an underlying operating margin of 11.0-11.5%, earnings per share growth of 8-10% and cash conversion above 90%, alongside its target of more than £550m of free cash flow across FY27-29.
Management pointed to a £13bn annual addressable market across the UK, European NATO and key allied markets, including £6bn in the UK, where the defence budget is set to reach £68bn this financial year and rise 5% annually over the next three years.
QinetiQ also flagged a £20m investment over the coming years in its Helena family of laser sources for counter-drone and air-defence applications, working with partners including MBDA and Rheinmetall.