Qinetiq Group (LON:QQ.) , the aerospace, defence and security systems group, this morning unveiled a “disappointing” set of full year results and announced plans to shake up its operations following a review by recently-appointed chief executive, Leo Quinn. In the 12 months to March 31, the group posted sales flat on last year at £1.625bn, with underlying pre-tax profits falling to £85.7m from £130m last time. It blamed the performance on challenging defence markets in both the US and UK and said it was suspending its dividend for 12 months while it carried out a programme of business boosting initiatives. Shares in the group rose by nearly 12% to 130p in early trading.

In its US business, QinetiQ said a £43m benefit from the strengthening US dollar exchange rate masked an overall organic decline in revenues at constant currency of 4%. Here, a decline in higher margin product sales was partially offset by growth in services. In the UK, its businesses suffered from a reduction in the historic concentration of Ministry of Defence (MOD) order flow towards the year end, although this impact was partially masked at the revenue level by higher pass through revenues, resulting in a 1% organic decline in EMEA revenues.

Mr Quinn’s review concluded that QinetiQ's rapid acquisition-based growth and its efforts to find applications for its intellectual property in new industrial markets had not created value for investors to date. In turn, the decision to enter the US market was sound, but returns as yet have been lower than expected and the group's balance sheet has become over-stretched. Internally, the organisation is understood to have become fragmented and overly complex and its processes weak.

In response, Mr Quinn is set to oversee an overhaul of operations, with the introduction of three core divisions: US Services, UK Services and Global Products. It is understood that the group now wants to focus on matching customer needs with its own core strength by simplifying its structure in order to boost cash generation and reduce debt. One blot on the landscape, however, is that the UK and US defence markets remain uncertain as a result of the economic environment. In the UK, the impending Strategic Defence and Security Review is also adding uncertainty to forecasts for defence spending.

Leo Quinn said: “This has been a difficult year for QinetiQ, with challenging conditions in our…

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