Trump’s chaos is hurting defence industry, warns British military supplier
The chaos unleashed by Donald Trump’s reluctance to back America’s allies has triggered a squeeze on defence spending, military contractor Qinetiq has warned.
On Monday, the UK company cut its revenue and profitability targets, blaming “recent geopolitical uncertainty” for a dearth of new contract awards since January.
Qinetiq shares fell as much as 22pc – wiping more than £500m off the market value of the Hampshire-based business.
The contractor had already warned that tight public spending and the election of new governments in Britain and US had triggered a slump in the awarding of short-term contracts that typically deliver revenue within a year.
However, that weakness has now spread as defence departments and armed forces around the world review their operations in light of the US president’s policy on Ukraine and his administration’s reluctance to fund the defence of allies.
Demand at Qinetiq’s US arm has been particularly hard hit since January, partly by contract delays at the Pentagon but also because overseas customers are reconsidering their requirements as they adjust to America’s new policy, delaying high-margin export deals.
Products impacted by the pause in spending include the Talon bomb disposal robot and the similar but smaller Spur, which can be carried in a soldier’s backpack and deployed to a building occupied by enemy forces, a spokesman said. Both are made in the US.
The company will take a £70m hit because of the “challenging US market conditions” on inventory and cost recovery.
Its American operations will also be restructured following a review by industry veteran Tom Vecchiolla, the company’s new chief, leading to a £140m write-down.
Sash Tusa, a defence analyst at Agency Partners, questioned the value of Qinetiq’s recent acquisitions in the US, and said the company had been guilty of conflating the size of the defence market there with the attractiveness of potential returns.
He said, the US budgeting environment has become “extremely unstable” as Elon Musk’s department of government efficiency (Doge) seeks to extract savings from defence contractors, while Qinetiq is underexposed in Continental Europe, where military spending is set to grow fastest.
In the UK, some contracts awarded to the company’s intelligence arm that accounts for a quarter of sales have been put on hold pending the outcome of the Government’s defence spending review, which may not report back until the autumn.
The division provides research and engineering services in areas including strategic communications, cyber security and the Defence Digital initiative, which seeks to transform the use of technology by the Ministry of Defence.
Qinetiq shocked markets by cutting its target for annual revenue growth to 2pc from 7pc and predicted a 10pc profit margin, down from 12pc.
The company, formerly the Government’s defence-research agency, sought to bolster investor confidence by extending a share buyback programme for a further two years.
Qinetiq said its main UK defence division, responsible for half of all revenue, relies on longer-term contracts and is continuing to deliver a strong performance.
