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Qinetiq Puts U.S. Services Unit Under Review on Sales Slump

May 23 (Bloomberg) -- Qinetiq Group Plc, a defense company whose operations include drone aircraft, said it’s reviewing its U.S. services business after the division’s full-year sales fell 11 percent.

Revenue at the unit dropped to 475.6 million pounds ($715 million) as the company’s total sales declined 9.7 percent to 1.33 billion pounds in the year through March 31, London-based Qinetiq said in a statement today. Total revenue had been estimated at 1.35 billion pounds, the average figure from five analysts surveyed by Bloomberg.

“We are not ruling out any options with respect to U.S. services,” Chief Executive Officer Leo Quinn said in a phone interview. The review is scheduled for completion this year when U.S. government spending plans are clearer, he said.

Babcock International Group, another London-based defense services company, last year sold U.S. operations following a similar strategic review. Quinn said Qinetiq would retain a U.S. reach with its global products business, which has half its sales in the country.

The unit under review is too large to benefit from government small-business benefits and too small to achieve significant economies of scale, Quinn said. “What we need to decide is how do we strategically position this business in order to get maximum value,” he said.

U.K. Services

Qinetiq shares dropped 1 percent to 201.70 pence as of 9:52 a.m. in London, paring the rise to 9.9 percent this year and giving the company a market value of 1.33 billion pounds.

Qinetiq has been trying to adjust to lower defense spending in the U.S., and two months ago announced it would take a $25 million charge to fund cost cuts. It has also turned to non-defense markets to offset declines and is looking to take advantage of more outsourcing by the U.K. government.

“U.K. services was the stand-out performer, demonstrating its unique strengths as well as the benefits of our self-help program,” Quinn said.

U.K. sales are expected to remain “steady” this year, he said, and the company has “low visibility” in the U.S. as the White House and Congress spar over spending levels.

Qinetiq had a net loss of 133.2 million pounds, compared with net income of 246.3 million pounds a year earlier.

The company took a non-cash impairment of 255.8 million pounds to write down the value of its U.S. services business and a 16.3 million-pound net charge for restructuring measures.

Qinetiq raised its dividend 31 percent to 3.8 pence a share in a year it returned to positive net cash as it ended the period with 74 million pounds. The cash will be used principally to invest in expanding existing businesses rather than acquisitions, Quinn said.

To contact the reporter on this story: Robert Wall in London at rwall6@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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