QinetiQ's Expansion Plans Pay Off

(MoneyWatch)  QinetiQ is a company formed when the British government privatized their defense test and evaluation centers and work. The company absorbed various facilities and most of the former civil service work force. As such they are very reliant on spending by the Ministry of Defence on the work done at the places they used to own and operate.

The company has also looked to get in on the expansion of defense spending in the United States over the last several years by buying up selected American companies. For example they bought Westar which allowed penetration into the U.S. Army aviation market. They have also begun to bid on U.S. contracts and quickly were able to establish a presence.

This strategy has seemed to pay off and is a good demonstration of how European firms moved to take advantage of the work and money available in the United States. The company has just reported that in the last fiscal year their profit increased by almost one hundred percent. A good deal of this was driven by the expansion into the U.S. Total profits for the year were almost $3 billion. Forty-seven percent of this coming from U.S. operations.

The company is facing a challenge in that the U.K. is expected to cut back on defense spending due to the winding down of operations in Iraq and the fiscal climate that it is operating in. This year already there has been a twenty-three percent decline in work from the UK government. This has led to plans by the company to reduce its English workforce by four hundred jobs as part of a cost control measure. As expected at a time when you are making record profits laying people off, especially those unionized, doesn't go over that well. QinetiQ may be facing job actions in the near future.

What does all this mean? It is possible the company may move to divest itself of the old British government facilities and workforce and continue to expand its overseas operations. It could move into different lines of business in the UK as well that might see more future work rather then the current plans which are declining. It is clear that in the foreseeable future that the U.S. will be a better market as while that country faces large deficits like Britain they are a little more manageable. The U.S. is also continuing plans to modernize their force and fight in Afghanistan and Iraq requiring a higher level of spending.

QintetiQ is not unique in this situation and many other companies that rode the expansion since 9/11 will be facing the same kind of decisions.