QinetiQ targets assault on commercial projects

QinetiQ, recently spun out of the MoD’s DERA, last week previewed some of its new research projects in the fields of intelligent highways and mobile phone infrastructure.

Newly privatised research organisation QinetiQ, spun out of the MoD’s Defence Evaluation and Research Agency, last week previewed some of its new ‘civilian’ research projects in the fields of intelligent highways and mobile phone infrastructure.

The group, which has around 8,500 employees (the majority of which are engineers) is aiming to use high-tech systems developed for the military to solve civilian problems.

QinetiQ chief executive Sir John Chisholm said group is now aiming to increase the commercial share of Qinetiq’s work. Defence work currently represents 85% of its income with the remaining 15% from commercial customers. The strategy is to increase commercial revenue by 50% and double overall sales within the next ten years from its current level of £800m.

The group already has projects under development with the Highways Agency for ‘intelligent’ highway systems. In a separate project, QinetiQ aims to offer an infrastructure solution for debt-laden mobile phone companies seeking antennae that carry new broadband services.

The highways projects involve the use of technology created for military sonar for vehicle detection systems. Using fibre-optic-based sensors in the road, measures traffic density, direction, speed, axle weight and axle separation can be determined. The application of such systems could include improved road congestion management through better traffic flow information.

For the telecoms project, QinetiQ has teamed up with London based Rotch Property Group. The resulting joint venture company Quintel will provide mast antenna that can receive and transmit all five 3G operators’ radio signals simultaneously. This allows 3G license holders to combine mast requirements and avoid the added expense of rolling out their own separate nationwide infrastructure.

QinetiQ is estimated to be worth around £800m, and is aiming to float in early 2002. This will ‘allow the group to take advantage of the greater freedom of plc status to expand the commercial business,’ said Chisholm.

Privatisation will be achieved in two stages. The first, expected early next year, will see the Ministry of Defence’s share reduce to around 50%. A second stage will be realised once the MoD is satisfied with the company’s equity growth.

That second stage could see government share ownership drop to a single special share, allowing the government to continue to exercise control over the company, for example to block foreign ownership. The government has a similar share in BAE Systems.

The creation of QinetiQ has been compared to the 1996 spin-out of AEA Technology, formerly the Atomic Energy Authority. While AEA has shown some successes in a number of fields over the last five years, it has been hit by the downturn in the fortunes of technology and engineering companies.

AEA’s shares now stand only 30p above the original offer price of 260p, and in June this year the company posted a £9.4m loss on a turnover of £379m.

‘The AEA experience will just make the markets look more rigorously at the company,’ said Simon Linnett, managing director of NM Rothschild, the Investment bank advising on the float. He said QinetiQ’s strong points were its core defence income and embedded technological value, or ‘military know-how’.

A QinetiQ spokesperson claimed the group’s initial set of first half results, due in September, would be depressed by one-off costs relating to the company’s involvement in public-private partnerships.

The government-owned side of DERA’s research operations has been renamed DSTA, the Defence Science and Technology Laboratory, and will continue working on classified nuclear, biological and chemical issues for the military.

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