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© Crown copyright 2013
QinetiQ Group plc
Annual Report & Accounts 2021
Accelerating
global
ambition
Our purpose
QinetiQ is dedicated to protecting lives, defending sovereign capability and securing the vital
interests of our customers.
Who we are
We are a leading science and engineering company operating primarily in the defence and
security markets. We are an information, knowledge and technology based company with
the breadth and depth of more than 6,500 highly dedicated employees.
What we do
We apply our unique technical expertise across the product lifecycle, helping our customers
to create, test and use defence and security capabilities. Not only do we develop cutting-edge
technology and turn it into a capability, we also tell customers if that capability will work when it
is critically needed and ensure they are trained and operationally ready to use it when it matters.
Anticipating the current, emerging and future threat environment and proactively understanding
our customers’ needs to provide mission-led innovation is critical to our success.
* Throughout this report FY21/2021 refers to QinetiQ’s financial year ended 31 March 2021.
** The report also refers to “Underlying” measures of performance. Definitions of the
Group’s alternative performance measures can be found on page 183.
See more online at www.QinetiQ.com
Strategic Report
How we have performed
Financial highlights
A strong financial performance, delivering our fifth consecutive year of revenue growth
£1,151.0m
£972.1m
£776.4m
2021
2020
2019
Orders
£1,151.0m
(FY20: £972.1m)
£1,278.2m
£1,072.9m
£911.1m
2021
2020
2019
Revenue
£1,278.2m
(FY20: £1,072.9m)
2021
2020
2019
£151.8m
£133.2m
£124.9m
Underlying operating profit
£151.8m
(FY20: £133.2m)
2021
2020
2019
£112.3m
£117.6m
£114.8m
2021
2020
2019
22.1p
20.0p
19.7p
2021
2020
2019
21.9p
18.7p
20.1p
Statutory operating profit
Underlying earnings per share
Statutory earnings per share
£112.3m
(FY20: £117.6m)
22.1p
(FY20: 20.0p)
21.9p
(FY20: 18.7p)
Non-financial highlights
Positioning ourselves for long-term sustainable global growth
Full operating capability on the LTPA
Grown international revenue to 33% of Group
Embedding sustainability into the business
After a two-year transition period, we
successfully reached full operating capability
on the renegotiated LTPA contract, on schedule,
with positive customer feedback.
Supported by strong US business growth
and continued organic growth in other
international markets, international revenues
increased to 33% of Group revenue.
We introduced a new sustainability KPI as part
of our drive to embed sustainability into our
strategy. We also made significant progress
against our greenhouse gas emissions target.
Leveraging capabilities to drive growth
Improved employee engagement
Strategic portfolio optimisation
We won a number of strategically significant
contracts in the period, demonstrating our
ability to leverage our global expertise to drive
UK and international growth.
We adapted our ways of working in the midst
of COVID-19 and continued to listen to our
people to understand what matters to them,
with employee engagement increasing by 6%.
We completed the disposal of three non-core
businesses (OptaSense, Boldon James and
Commerce Decisions) and acquired Naimuri,
a highly complementary advanced data
analytics business.
Contents
Strategic report
02 About QinetiQ
04 Our stakeholders
06 Chairman’s statement
08 Chief Executive Officer’s review
10 Our business model
12 Trading environment
14 Market themes
16 Our growth strategy
18 Operating review
22 Chief Financial Officer’s review
26 Key performance indicators
30 Risk management
37 Longer-term viability assessment
37 Going concern statement
38 Stakeholder engagement
39 Responsible and sustainable business
48 Section 172 (1) statement
50 Non-financial information statement
Governance
Financial statements
55 An introduction from our Chairman
128 Consolidated income statement
57 Governance framework
58 Board of Directors
60 Board activity
61 Board decision making
65 Purpose, values and culture
67 Stakeholder engagement
72 Division of responsibilities
75 Composition, succession and evaluation
75 Nominations Committee report
80 Director effectiveness
83 Audit, risk and internal control
85 Audit Committee report
92 Risk & Security Committee report
95 Directors’ remuneration report
97 Remuneration at a glance
100 Annual report on remuneration
113 Directors’ report
117 Independent auditors’ report
129 Consolidated comprehensive income statement
129 Consolidated statement of changes in equity
130 Consolidated balance sheet
131 Consolidated cash flow statement
131 Reconciliation of movements in net cash
132 Notes to the financial statements
176 Company balance sheet
177 Company statement of changes in equity
178 Notes to the Company financial statements
Other information
180 Five-year financial summary
181 Additional financial information
182 Glossary
184 Shareholder information
Annual Report & Accounts 2021
1
About QinetiQ
Where we operate
We are a global company delivering mission-led innovation around the world
Our home countries, where we have more than 500 people in-country are the UK, US and Australia. We also have a significant
in-country presence in Canada, Germany and Belgium. Many of our facilities around the world are unique assets that are critical
to maintaining national defence capabilities, and are often the only place where certain trials can take place.
US
Sites: 6
Employees: 638
UK
Sites: 32
Employees: 5,368
Australia
Sites: 5
Employees: 532
Home countries
Priority countries
Canada
Sites: 2
Employees: 76
Belgium
Sites: 1
Employees: 156
Germany
Sites: 3
Employees: 111
Revenue by customer location
Revenue by division
3%
67%
7%
6%
17%
2
QinetiQ Group plc
£857.8m
UK
£215.6m
US
£77.9m
Australia
Europe
£88.2m
Rest of world £38.7m
74%
26%
EMEA Services £939.9m
Global Products £338.3m
How we are structured
We report through two divisions; EMEA Services and Global Products
Within these two divisions our business units are aligned to customer domains or geographies.
EMEA Services
Combines world-leading expertise with unique facilities
to generate and assure capability. It does this through
capability integration, threat representation and operational
readiness, underpinned by long-term contracts that provide
good revenue visibility and cash generation.
Maritime & Land
Delivers operational advantage
to customers by providing
independent research, evaluation
and training services.
Air & Space
De-risks complex aerospace
programmes by testing systems and
equipment, evaluating the risks and
assuring safety.
Cyber & Information
Helps customers respond to
evolving threats based on our
expertise in cyber security, secure
communication networks and
devices, intelligence gathering
and training.
International
Our International business
leverages our expertise and skills
developed in the UK and applies
them to opportunities in attractive
markets globally.
Approximate revenue
Approximate revenue
Approximate revenue
Approximate revenue
£360m
FY20: £315m
£225m
FY20: £200m
£250m
FY20: £185m
£105m
FY20: £100m
Global products
Delivers innovative solutions and products to meet
customer requirements. It undertakes contract-funded
research and development, developing intellectual property
in partnership with key customers and through internal
funding with potential for new revenue streams.
United States
Develops and manufactures innovative
defence products specialising in robotics,
autonomy and sensing solutions.
Space Products
Develops small satellites, payload
instruments, subsystems and ground
station services.
EMEA Products
Provides research services and bespoke
technological solutions developed from
intellectual property spun out from EMEA
Services. QinetiQ Target Systems is reported
in EMEA Products.
Approximate revenue
£210m
FY20: £120m
Approximate revenue
Approximate revenue
£40m
FY20: £25m
£90m
FY20: £105m
Our business model
See how we create value for our
stakeholders in our business model
on pages 10 to 11.
Our growth strategy
Read more about our strategy
to drive long-term growth for
the benefit of all stakeholders
on page 16.
Our people and culture
Our success is dependent on our
people and ability to foster the right
culture. Learn more about our people
and culture on pages 42 to 46.
Annual Report & Accounts 2021
3
Strategic Report About QinetiQ
Our stakeholders
Creating value for all of our stakeholders is critical to our long-term success
O u r s takeholders
ulators
g
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ployee s
m
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S
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Our
Stakeholders
Shareho l d e r s
Commun i t i e s
Our stakeho l d e r s
Primary stakeholders
Other stakeholders
Primary stakeholders
Customers
Shareholders
Employees
Our customers are at the centre
of our vision and the foundation
of our success. We strive to apply
our strengths to their advantage to
deliver mission-led innovation, and
invest time in understanding and
responding to their needs.
Our shareholders’ ongoing support
enables us to invest in our business
and execute our growth strategy for
the benefit of all stakeholders. In return
we aim to deliver long-term sustainable
growth and attractive returns.
We are a people business and our
employees are critical to our success.
Their health, safety and wellbeing
is vital and we are committed to
providing fulfilling careers where our
employees can perform meaningful
and intellectually stimulating work.
Other stakeholders
Suppliers
Communities
Regulators
We occupy a unique position in
defence, working in partnership
with various suppliers to deliver
the best solutions for our customers.
We strive to adopt a collaborative
approach and ensure we treat our
suppliers with integrity, taking a fair
and sustainable approach.
We strive to be a good neighbour,
having a positive impact on our local
communities and wider society; from
our outreach programme, inspiring
the next generation of scientists and
engineers, to providing services to
ensure the safety and security of
members of society.
Various aspects of our business
involve oversight from regulators. We
engage with regulators to understand
changing regulations, ensuring we can
meet these requirements.
Our approach to engagement:
In order to deliver responsibly and for the benefit of all stakeholders we must understand what matters to our stakeholders.
To do this we engage in a variety of ways in an open and transparent manner, trying to identify common goals. In some cases
the Board will engage directly with certain stakeholders, however in others the relevant delivery teams will manage this engagement.
This is dependent on the stakeholder and issues considered, with engagement led by those best placed to effect any necessary
change. We expect that our approach and how we engage with our stakeholders will continue evolving as we pursue further growth
and geographic expansion.
See Stakeholder engagement on page 38.
See Section 172 (1) statement on page 48.
4
QinetiQ Group plc
Investor proposition
By focusing on our customers’ needs and evaluating all investment opportunities with
the same rigour, we aim to deliver sustainable and attractive returns to our shareholders
Our investment case is underpinned by five key attributes:
Unique capabilities and relevant offerings
We operate unique capabilities around the world critical to maintaining national defence
and security. In addition, many of our capabilities are well aligned with customer priorities:
6,500+
highly skilled employees
• A key partner to sovereign nations, operating critical Test and Evaluation capabilities
in multiple domains
• Leading scientific and technical expertise and state of the art facilities with high
barriers to entry
• Relevant offerings for emerging threats with leading expertise in cyber, information,
robotics, autonomy and sensing solutions
Attractive financial characteristics
Our business has attractive financial characteristics supported by a strong balance
sheet which enables us to invest and realise our long-term growth ambitions:
• Long-term contracts and a growing order pipeline provide a high level of
revenue visibility
• A cash generative business model with the ability to self-fund organic and finance
inorganic investment
• A clear capital allocation policy and strong return on capital employed
>50
specialised sites
around the world
£800m
of FY22 revenue
under contract
28%
return on capital
employed in FY21
Significant opportunity for international growth
We have a clear growth strategy in each of our international markets which will support
us in delivering:
>£20bn
addressable market
• Strong organic growth and targeted acquisitions in our home and priority countries
•
International revenue of more than 50% of Group revenue by 2026
• Global leverage of capabilities across the Group
166%
growth in international
revenue over five years
A clear strategy to deliver sustainable global growth
We have an evolved strategy and renewed ambition to deliver long-term sustainable
growth, complemented with a targeted investment programme and a well-defined ESG
strategy. Our strategy is focused on:
£750m
invested and committed
in the last five years
• Delivering distinctive offerings to customers which offer exceptional value
• Leveraging our global capabilities to drive growth
• Applying disruptive innovation to support our customers’ mission
Delivering growth and shareholder returns
By focusing on our customers’ needs and executing our strategy we are
delivering long-term sustainable growth and strong shareholder returns:
• Fifth year of organic revenue growth, despite the impact from COVID-19
• Complemented with targeted and strategically aligned acquisitions
•
Increasing returns to shareholders with a progressive dividend policy
£2bn+
revenue ambition
by FY26+
c.70%
revenue growth in
the last five years
56%
total shareholder
return in five years
Annual Report & Accounts 2021
5
Strategic Report Chairman’s statement
“ QinetiQ has demonstrated its
resillience through this last year,
but we also took a number of
bold steps to drive future growth.”
See our Board of Directors on page 58.
See our Governance framework on page 57.
The last year has been like no other, with every aspect of our
lives affected by the COVID-19 pandemic. While all individuals
and businesses have been impacted in one way or another,
QinetiQ has continued to focus on our core purpose; to protect
lives, defend sovereign capability and secure the vital interests
of our customers.
I am extremely proud of how we have delivered mission critical
outputs for our customers in these uncertain times. This
has been made possible by the commitment, dedication and
resilience of our people. We took difficult decisions at the start
of the year to preserve cash and ensure we emerged from the
pandemic well positioned for future growth. These decisions
were tough, but nonetheless necessary as we adapted to the
initial disruption and new ways of working.
Maintaining the health, safety and wellbeing of
our people
As we navigated the challenges presented by the pandemic, our
first priority was safeguarding the health, safety and wellbeing of
our people. Like many organisations, we were forced to quickly
adapt to home and hybrid working models. As a defence and
security business there were naturally a number of activities
which could not be conducted from home, and we introduced all
necessary social distancing and PPE requirements to facilitate
this. We placed a firm emphasis on communicating openly with
our people throughout the pandemic to ensure we had a shared
understanding and approach.
More generally we continued to focus on engaging with our
employees through the “Global Employee Voice” network to
understand the issues they face in order to improve how it feels
to work at and be a part of the QinetiQ family. Encouragingly,
employee engagement increased again this year by 6%, following
a 10% increase in engagement in the prior year.
Our values
Integrity
We take pride in our decisions, and work to create
a sustainable and responsible business. We take
personal responsibility to do the right thing, both
as an organisation and as individuals.
Collaboration
Delivering value through partnership and teamwork, we
actively collaborate with our colleagues, customers and
industry partners. We know that working together is the
best way to meet our customers’ needs.
Performance
Our performance is measured by how we deliver for
our customers; meeting their needs through flawless
execution and delivery of the mission-critical solutions
on which they depend.
6
QinetiQ Group plc
Historical dividend payments
Key
Final
Interim
4.6p
3.2p
3.8p
2.7p
2.9p
2.0p
1.4p
1.1p
0.9p
6.6p
6.6p
4.5p
4.4p
6.9p
4.7p
6.3p
4.2p
6.0p
4.0p
5.7p
3.8p
5.4p
3.6p
1.8p
1.9p
2.0p
2.1p
2.1p
2.2p
2.2p
2012
2013
2014
2015
2016
2017
2018
2019
2020*
2021
*
Following the onset of COVID-19 we deferred our final FY20 dividend until the full
impact was known. We subsequently paid the final FY20 dividend in November 2020.
Delivering responsibly and sustainably
for the benefit of all our stakeholders
As a Board we recognise the importance of delivering results
in the right way. We considered our wider purpose during the
year and remain focused on creating the right culture to support
long-term growth for the benefit of all interested parties. From
our engagement process it is apparent that sustainability is
becoming increasingly important to all of our main stakeholder
groups; our customers, our shareholders and our employees.
to both of them for their contribution. Overall I am confident
we have the right mix of skills and experience on the Board
to provide effective challenge and support to the business
as it continues to grow.
It was with great sadness that we received the news that Ian
Mason, who had served on the Board since 2014, unexpectedly
passed away in April 2021. Ian will be greatly missed, not only for
his strong contribution to the Board, but also as a trusted friend
and colleague. Our thoughts are with Ian’s family.
QinetiQ currently possesses strong ESG credentials and I am
pleased that we are rated “AA” by MSCI and as the “Sector
Leader” in Aerospace and Defence by Sustainalytics. Despite this
we must not be complacent or stand still and as expectations on
businesses continue to grow, we are committed to improving our
ESG credentials. Sustainability issues were previously discussed
at the Risk & CSR Committee meetings, however ESG has now
become a topic for discussion at main Board level, not just
at a sub-committee. We have been focusing on how we can
further embed sustainability into our core business strategy,
and introduced a new sustainability-linked performance metric
as a key performance indicator for the business during the year.
We are working on our net zero plan and intend to publish this
in due course.
Emerging with strength to deliver
long-term success
We made some tough decisions at the start of the year to
maintain the resilience of our business, however FY21 has
been a truly encouraging year for QinetiQ. Despite difficulties
and challenges in adapting to our new ways of working and
in managing a global business in the current environment,
our performance has been excellent. We have delivered a
fifth year of growth, something made possible by the ongoing
commitment and hard work of our people, who I would again,
like to thank for their contribution. In this context I would
particularly like to thank Steve and the Global Leadership
Team for their dedication and hard work.
Board changes
There were some changes to the membership of the Board
during the year. Admiral Sir James Burnell-Nugent retired at the
end of 2020 having served on the Board for over nine years.
On behalf of us all, I want to thank James for his outstanding
contribution to the Board and wider business over that period.
He was replaced by General Sir Gordon Messenger who brings
a wealth of military experience having served as a Royal Marine
for 37 years, finally retiring as Vice-Chief of the Defence Staff.
Deputy Chair, Michael Harper, who has now served on the Board
for nine years will also be stepping down in due course, once a
replacement for him has been agreed. James and Michael have
guided the company with skill and diligence through a difficult
transition to where we are now and I am sincerely grateful
QinetiQ has demonstrated its resilience through this last year
but we also took a number of bold steps to drive future growth;
we launched an evolved strategy and renewed ambition, and we
accelerated our digital investment to improve collaboration and
digital solutions for our customers. I am confident that these,
combined with our increased focus on sustainability and the
continued resilience of our people, will support us in achieving
excellent results and exceeding our stakeholders’ expectations
over the long-term.
Neil Johnson
Non-executive Chairman
20 May 2021
Annual Report & Accounts 2021
7
Strategic Report Chief Executive Officer’s review
“ Throughout this challenging
year, QinetiQ has proven its
commitment and focus to deliver
critical defence and security
capabilities for our customers.”
See Our business model on page 10.
See Our growth strategy on page 16.
Through continued and disciplined execution of our strategy we
have delivered our fifth year of growth, despite the challenging
market environment due to the COVID-19 pandemic. Our FY21
performance was strong, with the largest order intake in a
decade growing orders by 18% (11% on an organic basis),
delivering revenue growth of 19% (10% on an organic basis),
growing underlying operating profit by 14% (6% on an organic
basis) with underlying operating profit margins at the top end of
our short-term target range at 11.9%. We also delivered a strong
cash performance with 131% underlying cash conversion before
capital expenditure. International revenue now represents 33% of
Group revenue, grown from £158m in FY16 to £420m in FY21.
Strong organic growth was complemented by revenue and profit
contribution from recently acquired businesses. This includes
the advanced sensing solutions business formerly known as
MTEQ, acquired in December 2019, training specialist NSC,
acquired in February 2020, and Naimuri, a specialist in software
development and data analytics, acquired in July 2020. This
contribution was partially offset by the disposals of Boldon
James, Commerce Decisions and OptaSense in the year. These
transactions were all strategy-led choices to allow increased
focus on our core offerings and reflect our ambition to grow the
company by delivering mission-led innovation for our defence
and security customers’ advantage.
This year has proved to be an important further step in the
maturity and development of the company, demonstrating
our strength, resilience and delivering on our promises for all
our stakeholders. This year we have not only navigated the
challenging dynamics of COVID-19 but we have pushed forward,
launching our evolved strategy, increasing the scale of our
ambition and delivering a strong set of financial results. With our
strategy firmly embedded and producing consistent results, we
are making good progress in building a truly integrated global
defence and security company.
We are committed to providing a safe environment at all
Company sites for the benefit of our employees, contractors,
tenants and visitors. In March 2021 there was an incident at our
Pendine site in the UK, which resulted in one of our employees
sustaining serious injuries. Our focus will remain on supporting
our colleague and their family over the coming months and
anyone across the business who has been affected by the
incident. We are continuing to support the external investigations
into the incident and we have launched our own, to better
understand what happened and any lessons we can learn
and apply so to continue to improve our safety first culture.
Successfully mitigating the challenges
of COVID-19
The COVID-19 pandemic has had a profound impact on people
and our society throughout 2020. With a long-term vision-based
strategy focused on anticipating and adapting to our customers’
needs, a strong balance sheet and a significant order backlog,
QinetiQ is well placed to continue delivering growth, as we have
seen through our financial results and customer feedback this
year. Our response focused on our three strategic priorities of
protecting the health and wellbeing of our employees, continuing
to deliver critical work for our customers and maintaining the
strength of QinetiQ for the long-term.
As we entered the COVID-19 crisis, we took necessary and
decisive action to maintain the strength of our company and
ensure we retained the critical skills and capabilities to drive
long-term growth. We implemented a series of short-term
temporary actions which included salary reductions, stringent
cost control, incentives paid in shares and deferral of the
dividend decision. The actions taken increased the resilience
of the company, allowing us to maintain a strong balance sheet,
deliver for our customers and to position the company for
growth as we emerged from the crisis. We adapted our ways
of working to ensure we continued to deliver for our customers
while ensuring we protected the health and wellbeing of
our employees.
As the COVID-19 pandemic continues to evolve in all of the
countries in which we operate, we continue to follow national
guidelines, providing testing and equipment as appropriate to
support our employees and interactions with our customers.
This “new normal” is continuing to prove effective and will be a
8
QinetiQ Group plc
catalyst for change in our ways of working. Like all businesses,
QinetiQ has been impacted by the COVID-19 pandemic, by
differing amounts across the company, but we have successfully
managed to offset the negative impacts through our strong,
decisive and collective actions pulling together as a company to
deliver a strong financial performance even in the face of this
unprecedented global pandemic.
The changing market dynamics present
opportunities for the Group
As a global defence and security company we operate in six home
and priority markets with a multi-domestic strategy, supporting
the development and sustainment of indigenous capabilities.
As the threat environment becomes increasingly complex,
enabled by rapid technological advances and our adversaries’
alternative approaches to warfare, Western forces must rethink
their approach to defence and security. The importance
of information advantage, emerging technologies, cyber
capabilities and autonomous systems is increasing significantly.
In addition, the interoperability between platforms to create
integrated systems and seamless co-ordination between forces
and nations, to ensure a concerted approach to countering
modern threats, including those that sit below the threshold of
conventional warfare, is of paramount importance.
Pressure on Government resources world-wide will intensify and
global Defence departments will need to balance investment in
traditional platforms against investment in new technologies
including data and information capability. With our domain
knowledge, partnering skills and a track record of delivering
mission-led innovation to create and assure capabilities with
agility and at pace, whilst delivering efficiencies and savings
to customers, we are well positioned to benefit from this
transition. We are investing significantly in digital transformation
to enhance customer solutions. While the world around us
continues to change, our offerings are becoming more relevant
than ever. Furthermore, in our home countries of the UK, US
and Australia we are well aligned with the key areas of future
increased spend, such as data analytics, robotics, autonomy and
sensing – partnering alongside our customers to help solve their
complex challenges.
Evolution of the strategy to accelerate
future growth
Our strategy to apply mission-led innovation for our customers’
advantage has enabled us to grow in an uncertain world over
the last five years. We have delivered c.70% revenue growth and
c.40% operating profit growth, more than doubled our order
backlog, increased our qualified order pipeline by three times
to over £6bn and increased our 3 year forward revenue under
contract by c.60%. We have made seven acquisitions and three
disposals, invested significantly to drive organic growth and
modernised the LTPA contract and relationship with the UK MOD.
Following five years of growth we have evolved our strategy and
created greater focus for our next five years of growth, building
distinctive offerings to provide high-value solutions, supporting
nations with a shared defence and security mission. We have
redefined our addressable market from >£8bn to >£20bn per
year, with increased clarity around our distinctive offerings into
our target markets in the UK and Australia and specific inclusion
of the RDT&E market in the US (£15bn addressable market) and
reduced our Rest of World addressable market to reflect our
reprioritised focus. We are targeting global expansion through
careful investment decisions and execution of a multi-domestic
strategy, delivering value for our customers and growing our
revenues to over £2bn. The next phase of growth will have a
lower capital intensity, thereby supporting a strong return on
capital (ROCE) for our shareholders.
Environmental, Social and Governance (ESG)
Our core purpose as a company is clear, and what drives us
as a company and as employees is our critical role in defence
and security; protecting the lives of our armed forces and
the societies in which we operate, and defending sovereign
capability. This core purpose is central to our organisation
and at the heart of what we do.
Across the company we take our ESG responsibility seriously.
Ensuring it is embedded into our operations and strategy
reduces risk and creates value, something we have done for
many years. While we uphold the highest ethical standards
and a sensitive approach to conservation, we also support and
enable our customers’ ESG needs and expectations through
the services and products we deliver. In FY19 we set a target to
reduce our scope 1 and scope 2 greenhouse gas emissions by
25% from an FY19 baseline, by FY25 – we have exceeded this
target in FY21, with a 28% reduction, earlier than targeted due
to the change in working patterns through COVID-19. We will
publish our plan towards Net Zero in the next year.
Our value proposition is in providing mission-led innovation for
our customers to help solve their complex defence and security
challenges – this value proposition helps both to support the
achievement of operational outcomes and the implementation
of strong ESG values, for both us and for our customers. We
help our customers “Create it”, for example in the development
of new bomb disposal equipment, or new sensing and autonomy
platforms using robotics to take our armed forces out of harm’s
way; we help our customers “Test it”, ensuring the equipment
works as it should improving safety and accuracy; and we
help our customers “Use it”, supporting our customers with
their training needs, often in a combined live and synthetic
environment reducing emissions, cost and improving safety.
Our purpose is underpinned by our commitment to operate
responsibly and sustainably for the benefit of all our
stakeholders, looking after the environments in which we
operate, acting as a strong ethical leader in defence and
helping to make society safer for us all.
In light of the changing market dynamics and our successful
track record of growth, at our Interim Results we announced
an evolution of our strategy to reflect our global business, our
distinctive offerings, and the innovative approach we take to
solving our customers’ problems.
Steve Wadey
Chief Executive Officer
20 May 2021
Annual Report & Accounts 2021
9
Strategic Report Our business model
A sustainable business model creating value for all stakeholders
Our fundamental strengths
Customer focus
Our employees are inherently
customer focused and
adopt innovative and leading
approaches to exceed our
customers’ expectations. This
approach is underpinned by
a high-performance culture
where employees are engaged
and empowered, supporting
strong customer relationships
and enabling us to act as a
trusted partner’ in the delivery
of critical services.
Distinctive offerings
We operate some of the
most advanced Research,
Development, Test & Evaluation
facilities around the world.
These facilities are often unique
assets that are of strategic
importance to national defence
capabilities. By combining
these facilities with the unique
expertise of our people we are
able to support our customers
in countering current, future and
emerging threats.
Technical expertise
Many of our employees are
highly skilled scientists and
engineers with deep domain
knowledge and know-how.
Their technical expertise is
critical to delivering mission-led
innovation for our customers
and our success is dependent
on our ability to recruit, retain
and engage high-calibre people.
Collaborative approach
The modern threat
environment often requires
collaboration across industry
and academia to procure
the most effective solution.
By forming complementary
partnerships and by managing
large networks of small and
medium size enterprises, our
collaborative approach ensures
we deliver the most effective
solutions for customers.
Stakeholder value creation
Customers
We deliver mission critical
solutions to our customers
helping them to address their
most pressing challenges.
They benefit from a responsive
and agile approach, the ability
to innovate at pace and value
for money.
Employees
Our employees work in an
environment where the work
they do makes a genuine
difference to our customers and
their safety. They have rewarding
careers in highly skilled areas
and are able to satisfy their
intellectual curiosities.
Suppliers
Working with our suppliers we
bring together complementary
industry leading thinking in a
truly collaborative environment
to the benefit of the customer,
QinetiQ and our suppliers.
Shareholders
Our business model,
supported by our strategy,
aims to deliver sustainable
long-term growth and returns
to our shareholders.
49our Net Promoter Score is
in the category of “Good”
6%increase in employee
engagement
1,000
SMEs paid ahead of
schedule during COVID-19
11%increase in
underlying EPS
Financial characteristics and sustaining our business model
A large proportion of our work is delivered under long-term contracts and we typically start the year with a significant
proportion of revenue under contact, providing a high level of revenue visibility. In addition our business is cash generative
by nature, meaning we are able to organically invest in our capabilities and sustain our business model.
Our people are critical to our success and we are continually investing to support their career development, wellbeing and
engagement. We are also investing in our facilities and digital infrastructure tools, ensuring we can continue to support our
customers against the future and emerging threats they must contend with.
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QinetiQ Group plc
Our customer
value proposition
Create it
Developing cutting-edge technology
and rapidly turning it into capability
Utilising our research and experimentation
capabilities, our test and evaluation expertise
and extensive domain knowledge, we develop
and apply cutting-edge technology to help
our customers create a true capability. We
evaluate, integrate and secure the platforms,
systems, information and assets on
which missions depend.
Test it
Assuring a capability will work when it
is critically needed
We offer customers agile and realistic testing
experiences so they can be sure that their
capability works when it is critically needed. We
operate some of the most advanced land, sea and
air ranges in the world and combine the ability
to manage live-fire exercises and rehearsals
with our digitally-enabled infrastructure
to provide customers with
realistic and cost effective
testing solutions.
What do we do?
We deliver mission-led innovation by
applying our inherent strengths to support
the agile development of solutions that
meet our customers’ needs; helping
them to create, test and use critical
defence and security capabilities.
Use it
Ensuring our customers are trained
and operationally ready
Combining real and simulated training experiences
we can ensure our customers are operationally
ready to use their capabilities when it matters. By
blending testing, mission rehearsal and training,
and analysis we give customers tangible evidence
about how their capabilities perform within
highly authentic environments and provide
advice on how to prepare them for
operational use.
131%underlying cash conversion
(pre-capex) in FY21
£800m
of FY22 revenue under contract
Annual Report & Accounts 2021
11
Strategic Report
Trading environment
The UK, US and Australia are our home countries and collectively represent 90% of our
revenue. We also have a significant presence in our three priority countries of Canada,
Germany and Belgium.
UK
Current revenue
Market opportunity
Revenue
£858m
Market share
<30%
>£3bn
+2–3% growth
In March 2021, the UK published the Integrated Review, which
will determine defence and security policy moving forwards.
This followed the previous announcement of the allocation
of an additional £24.1bn in funding over a four-year period
in November 2020, the largest investment in UK defence
since the Cold War period. The Integrated Review has placed
science and technology at the heart of the UK’s defence
policy with innovation cited as critical to UK success. Over
the next four years, the UK will invest over £6.6bn in research
and development to develop next generation and emerging
technologies in areas such as cyber, space, directed energy
weapons, and advanced high-speed missiles.
As the UK seeks to develop and deploy next generation
capabilities faster than their adversaries, we are well positioned
to support them in applying mission-led innovation to achieve
this. Our unrivalled expertise in Research & Development and
Test & Evaluation combined with our recent investment to
modernise UK test ranges will help our customers generate and
assure new and emerging technologies at pace. Delivering value
for money remains critical to our customers and we will continue
to utilise innovative delivery models to support our customers in
achieving this.
US
Current revenue
Market opportunity
Revenue
£216m
Market share
<2%
>£15bn
+3% growth
The US maintains the largest defence budget worldwide, with the
FY21 budget of $741bn, more than the next ten largest countries
combined. Despite the impact of COVID-19, the FY22 budget
request of $753bn is broadly flat in real terms and highlights
the need to counter the threat from China as the Department
of Defence’s top challenge. It also cited the need to deter
destabilising behaviour by Russia and emphasised the need
for collaboration with partners and allies to build the concepts,
capabilities, and posture necessary to meet these challenges.
In the US, we are a market leader in robotics, autonomy and
advanced sensing solutions, an area of budget growth, delivering
value to our customers through the rapid development and
deployment of disruptive solutions. We have ambitious growth
plans in the US. This is underpinned by a relevant offering
with a growing need to provide actionable intelligence into war
fighters’ hands quicker and a push to develop and integrate
multiple autonomous and semi-autonomous systems as the
US seeks to invest in next generation technologies to maintain
a technological advantage.
12
QinetiQ Group plc
Strategic Report
Australia
Current revenue
Market opportunity
Revenue
£78m
Market share
<15%
>£0.5bn
+3–5% growth
Tensions in the Indo-Pacific region remain heightened with
the area becoming the main theatre for competition between
global powers. In light of the increased possibility of conflict
in the region, Australia published its Defence Strategic Update
and Force Structure Plan in July 2020, placing an increased
emphasis on force readiness and capability modernisation.
Despite the economic impact of COVID-19, the Defence
Strategic Update stated that defence spending would rise to
AUD 74bn by 2029-30, from AUD 42bn in 2020-21, with AUD
270bn of investment to modernise defence capabilities over
the next decade. With growing expertise in Test & Evaluation
and Engineering Services in Australia and the ability to
leverage expertise from across the wider Group, we see many
opportunities to support the Australian forces in modernising
sovereign defence capabilities as they seek to deter adversaries
and maintain stability in the region.
Other international markets
Current revenue
Market opportunity
Revenue
£126m
Market share
<10%
>£1.5bn
+1–3% growth
In order to achieve our ambition of growing international
revenue to more than 50% of Group revenue, we aim to drive
growth in our three home countries and in our three priority
countries of Canada, Germany and Belgium. Leveraging
Group-wide capabilities is a critical part of our international
growth strategy which supports allies in developing sovereign
defence capabilities.
Canada is an attractive market for QinetiQ where we see
opportunities to support the Canadian Armed Forces in
modernising their own capabilities. The outlook for Canadian
defence spending is positive with spending of $18bn in 2020
expected to grow by 3% per annum over the next five years,
underpinned by Canada’s drive to hit NATO spending targets.
Europe is also an attractive market for QinetiQ, where the need
to modernise defence capabilities creates exciting opportunities
for growth. Within this, Germany is a key market for QinetiQ
where we currently offer airborne training. Recent performance
has been below expectation and a significant contract loss and
competitive market dynamics have resulted in a £25m goodwill
impairment in the year, but new management are growing the
pipeline in other areas and we do expect future growth from this
important market. Belgium is another key market within Europe,
where we are seeing increasing demand for our space products
driven by the European Space Agency.
Sources
Jane’s Market Budget Forecast April 2021, UK MOD and US DOD forecasts for RDT&E, Australia Defence publications and QinetiQ estimates.
Market share based on FY21 revenue.
CAGR: Compound Annual Growth Rate.
Higher growth rate than US market due to focus on high priority growth segments.
Annual Report & Accounts 2021
13
Market themes
The long-term themes reshaping defence markets around the world
The markets in which we operate are continually evolving as our customers adapt to the dynamic threat environment around them.
Most of our customers now seek to rapidly modernise their defence and security capabilities so they can better address current and
future threats. They want to achieve operational advantage over an adversary, protect themselves and their stakeholders against the
impact of action against them, or project power at range to deter malicious actors.
The level of modernisation required to achieve these outcomes in today’s environment relies on successful innovation through the
effective application of science, engineering and technology to enhance existing capabilities, create and assure new ones, and train
users to deploy them effectively. That innovation must be focused solely where it needs to deliver an impact for defence and security
users and in essence, to be successful must always be “mission-led”.
How are defence and security markets changing?
1. Rising global tensions and increasingly
2. The proliferation of grey-zone warfare
complex threats
The threat environment continues to become increasingly
complex, fuelled by rapid advances in technology and
heightened geopolitical tensions. From hypersonic
missiles and advanced fighter jets to low cost consumer
drones adapted to cause harm, technological advances
have enhanced the lethality of threats at both ends of the
spectrum, giving both state and non-state actors access to
capabilities which undermine western superiority. In parallel
to traditional threats, digital-based threats continue to grow
in sophistication, and are often deployed in conjunction with
more conventional threat forms.
Grey-zone activity has increased significantly in recent years
as the supremacy of western forces has driven adversaries
to adopt new tactics. Grey-zone tactics often include acts
which would not typically provoke a conventional military
response, but nevertheless undermine defence and security,
as well as economic and political stability. Typical threats
in this space include cyber-attacks aimed at compromising
critical national infrastructure, disinformation campaigns
and political meddling. Key challenges for our customers
include improving cyber resilience, improving threat
detection and adapting at pace.
3. Need for advanced capabilities,
informational advantage and
better interoperability
Maintaining technological superiority is critical in this
increasingly complex threat environment. Our customers
are investing heavily in R&D to develop next generation
capabilities and ensure informational advantage. Areas
such as robotics, autonomy, advanced data analytics,
artificial intelligence and novel weapons are all of particular
interest to our customers. These new and emerging
technologies must be integrated with traditional defence
capabilities and across our markets there is a need for
greater interoperability between platforms and systems to
create true capabilities. This extends to the need for greater
cooperation between different forces and nations to ensure
a concerted effort in countering these modern threats.
4. Resilience of supply chains
In light of the growing tension and competition between
global powers, nations are increasingly focused on
developing resilient domestic supply chains. These supply
chains must operate cohesively, as a single ecosystem,
to respond to the changing and complex customer
requirement. This is a critical part of maintaining a sovereign
defence capability that can function without undue reliance
on international trade and expertise or raw materials from
potentially hostile states.
14
QinetiQ Group plc
How are we evolving to these new market dynamics?
1. Delivering disruptive science, engineering
and technology required to modernise
defence and security capabilities
QinetiQ was founded on innovation with Research,
Development, Test & Evaluation at the core of what we
do. As a predominantly service-based business we are
uniquely placed to operate across the breadth of platforms,
systems and lifecycles unlike a more traditional vertical
platform manufacturer. We can experiment, innovate and
develop new capabilities, drawing on a broad range of
existing, emerging and disruptive technologies. We emulate
advanced threats and test and evaluate the resilience
and interoperability of the systems and platforms used to
respond to these threats to provide assurances. We have
invested heavily in contracts such as the LTPA to ensure
we have the capabilities to generate and assure future
capabilities and will continue to apply disruptive innovation
to create relevant capabilities and offerings.
2. Delivering value for money through
innovative delivery models
Governments around the world face significant fiscal
pressure with high budget deficits and growing debt levels
exacerbated by the impact of COVID-19 support programmes.
Against this backdrop nations have a growing number of
threats to defend against and must wrestle with modernising
traditional defence capabilities while also developing future
digitally enabled technologies. This means defence budgets
must deliver value for money. We act as a strategic partner to
our customers, understanding their challenges and applying
our technical expertise to provide innovative solutions. We
believe by focusing on our customers’ needs and helping
them realise cost efficiencies we can create opportunities
for growth. Engineering Delivery Partner is an example of an
innovative delivery model we have adopted for the provision
of engineering services to the UK MOD, which has delivered
both savings to the customer and growth in our business.
3. Partnering for innovation
4. A multi-domestic strategy
The capabilities our customers require can often be so
complex that no one company can deliver them alone. In
addition, cutting-edge technology is more often found in
the commercial sector and academia. The defence industry
can benefit from leveraging this technology, but it needs
new and more effective partnerships to rapidly convert
emerging technologies into assured deployable capability.
We collaborate across the supply chain, but also form
novel partnerships with organisations outside of defence
to provide the agility and expertise required to innovate at
pace. Our ability to work across platforms and technologies
and form powerful partnerships helps deliver mission-led
innovation to our customers.
Our strategy is a multi-domestic strategy aimed at
developing sovereign defence capabilities within the
countries in which we operate. A key example of this
approach in action is the recent development of an
unmanned aerial systems flight test range in Australia on
behalf of the Queensland Government, which will act as a
critical component of many unmanned aerial systems
programmes and initiatives (read more on page 20).
Annual Report & Accounts 2021
15
Strategic Report Our growth strategy
Evolving our strategy
Since we launched our vision-based strategy in 2016 we have delivered excellent growth in an uncertain environment. While our vision
and drive to deliver mission-led innovation for our customers’ advantage remains unchanged, in light of our growth to date and the
changing threat environment, we have evolved our strategy to support the next phase of our global growth.
Our vision
Our vision is to be the chosen partner around the world for mission-critical solutions, innovating
for our customers’ advantage.
Our strategy
Our three strategic pillars that will help us to achieve our vision are complementary and mutually
reinforcing. These are global leverage, distinctive offerings and disruptive innovation.
Global leverage
Distinctive offerings
Disruptive innovation
We are building an integrated global
defence and security company and
will leverage our capabilities through
single routes to market in the UK,
the US, Australia, Canada, Germany
and Belgium.
By co-creating distinctive products
and services we will offer exceptional
value for our customers in engineering,
experimentation, test, training,
information and autonomous systems.
We will continue to invest in and apply
disruptive business models, digitisation
and advanced technologies to enable
our customers’ operational mission
at pace.
Strategic enablers
Our strategy is underpinned by our strategic enablers, which support long-term growth in our business.
These strategic enablers are sustainability, a high performance culture, complementary acquisitions and
our digital transformation programme.
Sustainability / ESG
We are continuously
improving our ESG
focus to ensure we
deliver responsibly and
sustainably for the benefit
of all stakeholders. Sound
governance structures and
effective risk management
are critical to the execution
of our strategy and will
ensure that progress
against our strategy
is sustainable.
A high performance
inclusive culture
We are nurturing a
high-performance
inclusive culture, where
employees are engaged
and understand how
they contribute to our
success. This is supported
by our core values of
integrity, collaboration
and performance, which
encompass who we are
and how we operate.
Digital transformation
and globalisation
Our digital transformation
will help support our next
phase of global growth and
our investment in digital
is aimed at:
• Enhancing customer
solutions
• Enabling collaboration
• Developing modern,
integrated tools
and systems
Complementary
acquisitions
We accelerate our strategic
progress by acquiring
highly complementary
companies. These
strategically aligned
businesses often add a
unique capability to the
Group, supporting the
delivery of distinctive
offerings to customers
and accelerating
growth, sometimes in
international markets.
16
QinetiQ Group plc
Strategic progress
Our achievements over the last five years
Our ambition for the next five years
• c.70% revenue growth, c.40% underlying operating profit growth
• The same level of growth to deliver >£2bn revenue
• More than doubled our order backlog
• Invested significantly to drive organic growth: LTPA,
R&D, Digitisation
• Strategy-led portfolio decisions: Seven acquisitions and
three disposals
• Increased international share of revenue from 21% to 33%
• Delivering sustainably and responsibly – 28% reduction in
Scope 1 & 2 emissions since FY19
at stable margins
• Strong Return on Capital Employed
• Investment to drive continued organic growth: LTPA,
R&D, Digitisation, ESG
• Continued disciplined acquisition strategy – both in
acquisition and delivery
• Significant growth in our international markets, targeting
>50% of our revenue from international
• Net Zero plan published and making good progress
FY16 £755m
FY21 £1.3bn
UK 79%
c.70%
growth
International 21%
RoW 10%
AUS 6%
US 17%
c.70%
growth
UK 67%
FY26+ £2bn+
BEL
RoW
GER
CAN
AUS
US
Strategic achievements in FY21
Global leverage
• Successfully leveraging our capabilities into the global Test and Evaluation market,
with notable contract wins in Australia and Canada.
• Increasing international utilisation of UK ranges with a five year contract signed
with the US Air Force to train at MOD Aberporth and MOD Hebrides.
• Our Modular E-X-Drive technology developed in the UK is being integrated onto an
existing combat vehicle under a US Army contract to trial hybrid electric drive technology.
Distinctive offerings
• Completed the two-year transition programme under the LTPA achieving
“Full Operating Capability”.
• Made significant progress integrating our combined US operations. Our US business
delivered four prototype vehicles to the US DoD, under the Robotic Combat Vehicle
Light (RCV-L) programme.
• Acquired Naimuri, a highly complementary advanced data analytics business,
and disposed of three non-core businesses (Boldon James, Commerce Decisions
and OptaSense).
Disruptive innovation
• Signed a pre-collaboration agreement to work alongside industry partners and
the UK MOD on the UK’s next generation fighter concept known as Tempest.
• Appointed to lead the Weapons Sector Research Framework by DSTL to research
and develop new and novel technologies including laser and radio-frequency
directed energy weapons.
• Engineering Delivery Partner, our innovative delivery model for the provision
of engineering services to the UK MOD, surpassed 1,100 tasks and £600m
of orders since inception.
Annual Report & Accounts 2021
17
Strategic Report Operating review
EMEA Services
Overview
EMEA (Europe, Middle East and Australasia) Services combines world-leading expertise with unique facilities to provide
capability generation and assurance, underpinned by long-term contracts that provide good visibility of revenue and cash flows.
The division is also a market leader in research and advice in specialist areas such as Command, Control, Communications,
Computers, Intelligence, Surveillance and Reconnaissance (C4ISR), weapons and energetics, and cyber security.
Financial performance
Orders1
Revenue
Underlying operating profit
Underlying operating margin
Book to bill ratio2
2021
£m
866.0
939.9
118.6
12.6%
1.2x
2020
£m
670.0
797.4
100.6
12.6%
1.1x
Total funded order backlog
2,710.6
2,797.7
1
2
Includes share of orders from Joint Ventures and excludes the LTPA contract
amendment signed in FY20.
B2B ratio is orders won, excluding the share of orders from JV orders, divided by
revenue recognised, excluding the LTPA contract.
Orders for the year increased by 29% to £866.0m
(2020: £670.0m), including £19.3m from acquisitions and
growing £173.2m (26%) on an organic basis. The organic
increase was driven by £158m of orders for Typhoon phase 1
under the Engineering Delivery Partner (EDP) framework contract.
Revenue increased by 18% to £939.9m (2020: £797.4m),
including £18.3m from acquisitions, and grew by 15% on an
organic basis, principally driven by new work under the EDP
contract, Defence Digital contracts (in Cyber & Information)
and ongoing growth in Australia.
At the beginning of FY22, £684m of the division’s FY22 revenue
was under contract, compared to £656m (of the FY21 revenue)
at the same point last year. This reflects the contribution from
the acquired business in the year together with the 26% organic
increase in orders won in the year.
Underlying operating profit grew by 18% to £118.6m
(2020: £100.6m) assisted by the inorganic contribution from
acquisitions. Organic underlying operating profit growth was
13% driven by revenue growth, good margin performance on
LTPA and EDP, and cost actions, including lower travel whilst
most employees were working from home.
Including the Long Term Partnering Agreement (LTPA), the
proportion of EMEA Services revenue derived from single
source contracts has reduced slightly to approximately 68%
(2020: approximately 70%). While we have increased revenue
derived from competitive contracts this has continued to be
complemented by growth in single source EDP work.
FY21 review
Maritime & Land (39% of EMEA Services revenue)
The Maritime & Land business delivers operational advantage
to customers by providing independent research, evaluation
and training services.
• We successfully completed the Reinvigorated LTPA two-year
transition programme and achieved Full Operating Capability
(FOC) on 31 March 2021. Following the 2016 and 2019 LTPA
amendments, we have transformed the Test, Evaluation and
Training Services contract from an availability-style approach
to one that delivers clear outputs to customers measured
through delivery of Event Types (trials and other activities)
and by improving our capabilities through our investment
programme. Over the transition period we have delivered all
milestones on or ahead of schedule improving our services,
enhancing customer engagement and maximising value
for money. The transition phase also saw a significant
mobilisation of our investment programme with over 50
projects commencing and a number reaching a conclusion,
for example, new weapons facilities at the Hebrides and
Shoeburyness ranges and the delivery of a new range
helicopter supporting operations in Scotland.
• Leveraging our investment in UK T&E, we were awarded a five
year $27m contract with the US Air Force in Europe (USAFE)
to provide training events and targets for their F-15E and F-35
5th generation fighter aircrafts, utilising facilities at MOD
Aberporth and MOD Hebrides ranges. This is an important
example of our LTPA investment attracting international
customers to our UK ranges – the first return to the UK for
the USAFE since 2015 for their training needs. Initial air-to-air
missile target firings at our Hebrides range in the financial year
have been successful.
• In June 2020, alongside industry partners MBDA and Thales,
we were appointed to lead the Weapons Sector Research
Framework (WSRF) by DSTL, expected to be worth £300m
over five years. The framework, which brings together over
70 industry and academic partners to develop and exploit
technology for the benefit of the UK, replaces the previous
Weapons Science and Technology Centre (WSTC) contract,
with a broader scope of research activities including laser and
radio-frequency directed energy weapons.
18
QinetiQ Group plc
Air & Space (24% of EMEA Services revenue)
The Air & Space business de-risks complex aerospace
programmes by evaluating systems and equipment, assessing
the risks and assuring safety.
• Engineering Delivery Partner (EDP) has continued to drive
performance, surpassing 1,100 tasks and £600m of orders
since inception in October 2018. Delivery in the year has
remained strong with over 3,400 deliverables to our customers
through the EDP contract. Key contract awards through
EDP include:
- A five-year contract valued at £158m to provide a range
of engineering services for Typhoon, from planning and
acceptance through to regulatory assurance, trials support
and optimisation of in-service capability.
- Two five-year contracts totalling £28m to provide engineering
and safety services for the A400M and P8 Poseidon
aircrafts. Services include providing support to the multi-
nation certification and qualification programme, release
to service, safety and airworthiness, structural integrity,
environmental management support and trials.
- An extension of the EDP contract with a multi-year
agreement named Futures Lab, replacing and building on the
former Niteworks contract, to bring EDP’s network of SMEs
and technology organisations to solve complex defence
challenges, maximising innovation and exploitation of new
capabilities to the front line.
• QinetiQ has signed a pre-collaboration agreement to work
alongside industry partners and the UK MOD on the UK’s
next generation fighter concept known as Tempest. Drawing
on our extensive T&E expertise and investment in new digital
techniques we will provide capability assurance, helping
streamline the development programme while also exploring
how our advanced technologies could be used to enhance
operational capability of the platform.
• In June 2020 we completed an Army Warfighting Experiment,
with an airborne team comprising a manned helicopter and
semi-autonomous unmanned aircraft working together to
identify targets, the first time such a trial has taken place in
the UK.
• As outlined in our 4 March 2021 Investor Seminar, Renewed
ambition to accelerate sustainable growth, to ensure we are
even more relevant to the changing character of warfare and
stay ahead for our customers’ advantage, one important area
of our digital transformation programme is our investment in
digital T&E to enable the rapid development of next generation
products & services. This investment will expand our strong
physical offerings into the virtual world to add greater value and
pace to our customers and enable our future growth.
Cyber & Information (27% of EMEA Services revenue)
The Cyber & Information business helps government and
commercial customers respond to fast-evolving threats based
on its expertise in training, secure communication networks
and devices, intelligence gathering and surveillance sensors,
and cyber security.
• As cyber capabilities and informational advantage become
increasingly critical we are seeing growing demand for C4ISR
(Command, Control, Communications, Computers, Intelligence,
Surveillance, and Reconnaissance), data intelligence and
training services across our markets.
• In July 2020 we acquired Naimuri, a leading software
development and data analytics company for £24.4m, net of
cash received. Naimuri partners with QinetiQ on a number
of key programmes delivering mission-led innovation to UK
intelligence and law enforcement customers. We aim to invest
in their capabilities to drive growth in existing security markets
and new defence markets.
• Vivace is our agile QinetiQ-run programme for the Home Office
where we are working with over 250 organisations to rapidly
bring the best minds to bear on the most complex digital
challenges for front line law enforcement and security – this
programme has been renewed and is delivering significant
wider benefits to society, for example, supporting how human
trafficking cases can be solved quicker in a more technically
advanced way, and using technology to catch child abuse
offenders and keeping children safe online.
• We have been recognised as a key strategic supplier to
Strategic Command (Defence Digital and Defence Intelligence),
winning orders in excess of £82m in the period across the UK
Army’s communication and information programme (BATCIS
contract), Defence’s new operational IT programme (New
Style of IT contract), supporting the transformation of Defence
Intelligence, intelligence solution contracts and various
ongoing services including support to crypt-key developments
and Skynet 5 operations.
• Included in the above, we have won a £18m contract through
EDP in support of the ongoing transformation of Strategic
Command’s Defence Intelligence capabilities. This contract
will support many areas of the transformation of Defence
Intelligence including training, information assessment and
operation, and Typhoon mission data production; providing
advice and technical leadership to improve interoperability
of systems and platforms, the broader exploitation of key
information assets and support to the modernisation of the
defence information enterprise. Also included is a new Rapid
Innovation Capability based on similar agile services provided
to the Home Office under the Vivace contract, bringing ideas
from concept to operational capability at pace. This contract
has been won in collaboration with Naimuri, Inzpire and NSC –
a great example of leveraging our acquired capabilities into an
important core and growing market.
• In December 2020 we acquired the final 15% share capital
of Inzpire Group Limited, two years after our initial strategic
investment. Both Inzpire and NSC, leading providers of
operational training, mission rehearsal and simulation across
the Air and Land domain, are performing well and delivering
strong growth.
Annual Report & Accounts 2021
19
Strategic Report Operating review continued
International (10% of EMEA Services revenue)
Our International business leverages our expertise and the skills
we have developed in the UK and applies them to opportunities
in attractive markets globally.
• Leveraging our T&E expertise from the UK we won two
important contracts in Australia, to design & construct and
operate & maintain an unmanned aerial systems (UAS) flight
test range in Queensland. The test range was opened on
schedule and has completed its first customer exercise in
December 2020. This demonstrates excellent progress in
leveraging our UK capabilities to support international growth.
• In November 2020 we won a framework contract with the
Australian Space Services Training Areas and Simulation
Branch (SSTASB) worth up to AU$55m over five years, to
provide consultancy and advice for satellite communications,
PNT (position, navigation and timing), simulation, health
knowledge management, and records digitisation.
• We have commenced a multi-million investment programme
in Australia to create and operate an Engineering and
Innovation Centre, to leverage our global engineering
capabilities and products, such as targets and robotics
into the Australian market.
Global Products
Overview
Global Products delivers innovative solutions to meet
customer requirements. The division is technology-based
and has shorter order cycles than EMEA Services. Our
strategy is to expand the product portfolio and win larger,
longer-term programmes to improve the consistency of the
financial performance of this division.
Financial performance
Orders
Revenue
Underlying operating profit
Underlying operating margin
Book to bill ratio1
Funded backlog
2021
£m
285.0
338.3
33.2
9.8%
0.8x
233.5
2020
£m
302.1
275.5
32.6
11.8%
1.1x
307.2
• In Canada we are making good progress and secured a
1 B2B ratio is orders won divided by revenue recognised.
contract to develop a roadmap for the modernisation of Royal
Canadian Air Force (RCAF) air weapons ranges. This is a
critical step in accommodating Canada’s next generation of
fighter aircraft and a major step in becoming a trusted partner
in the region.
• In Germany, despite COVID-19 impacting flying hours in Q1,
flying activity recovered strongly resulting in revenue for the
year being roughly flat compared to the prior year. However,
order intake in the year was less than target and new orders
are taking longer to convert than our original expectations.
As a result of this and re-baselining the future business plan
with the new Managing Director of the business, we have
written down £25m of goodwill associated with the acquisition
in anticipation of the financial impact of lower revenue and
margins. We continue to seek ways to leverage our capabilities
within QinetiQ Germany and see good opportunities to drive
long-term growth in this significant European defence market.
Orders decreased by 6% to £285.0m (2020: £302.1m) following
the significant €75m order for the European Space Agency Altius
contract in FY20 and delays in US contracting due to COVID-19
and the change in administration, offset by an £83m inorganic
contribution from the prior year MTEQ acquisition. The organic
orders decline was 26%.
At the beginning of FY22, £117m of the division’s FY22 revenue
was under contract, compared to £193m (of the FY21 revenue)
at the same point last year. This decrease reflects the lost
contribution from the disposed business in the year together with
the timing of orders and delivery, especially in the US and QTS.
Revenue was up 23% on a reported basis at £338.3m (2020:
£275.5m), primarily due to a whole year’s contribution from the
MTEQ business acquired in December 2019. On an organic basis,
revenue decreased by 6% due to COVID-19 impacting delivery of
small robotics in the US and shipments in QTS and OptaSense
(before disposal).
Global Products underlying operating profit grew by 2% to
£33.2m (2020: £32.6m) reflecting a whole year’s trading of
MTEQ. On an organic basis operating profit decreased by 20%.
This was driven primarily by QTS delays of high margin products
and a loss in OptaSense prior to disposal.
20
QinetiQ Group plc
FY21 review
United States (62% of Global Products revenue)
Our US operations are managed as a single business,
bringing together our expertise in robotics with the acquired
capabilities (from MTEQ in December 2019) of autonomy
and sensing solutions.
• In July 2020 we signed an agreement with the Defense
Counterintelligence & Security Agency enabling us to operate
all of our US defence operations under a Special Security
Agreement. This replaces the previous Proxy Agreement,
fundamentally changing how we approach the world’s largest
defence market.
• Our US business has experienced some COVID-19 and change
of administration delays impacting performance. MTEQ, that
we acquired in December 2019, has delivered revenue growth
compared to the previous 12 months on a like-for-like basis
(part of which was before QinetiQ’s ownership) and positive
momentum is growing, with continued growth in key sectors,
strong delivery and cost efficiencies.
• We won a number of notable contracts in the year including:
a $24m four-year sensor services contract; a $21m three-
year contract to provide architecture and multi-modal sensor
integration for mounted and dismounted war fighters; and
three contracts totalling $47m across sensor research,
development, engineering services. We are successfully
leveraging our capabilities into our global markets, with
the hybrid electric drive technology in the US, supporting
expanded targets capabilities and pursuing sales of US
robotics systems into Australia. Our orders won provide a
strong foundation for growth, in many areas of increased
customer funding. We continue our expansion into Airborne
ISR, large robotic combat vehicles and early development on
Space payloads.
• In partnership with Pratt Miller Defense, we delivered the four
prototype vehicles required to the US DoD ahead of schedule,
under the Robotic Combat Vehicle Light (RCV-L) programme,
in advance of testing and experimentation in 2021.
• We delivered over 300 thermal sighting units to the US Army
national training centres to support enhanced soldier training,
and completed multiple critical ISR, Maritime and Robotics
systems for the US Army and other customers, providing
higher confidence in target detection and engagement.
• With our focus on larger and longer-term programs of
record we are establishing strategic relationships on major
programmes, including the Pratt Miller partnership on the
RCV-L, with Hypersat for the launch of six commercial
hyperspectral satellites and with General Atomics for our
work on aircraft carrier launch and recovery systems and
our ISR systems.
Space Products (12% of Global Products revenue)
QinetiQ’s Space Products business provides satellites, payload
instruments, sub-systems and ground station services.
• We have won a number of significant new contracts in our
Belgium Space business, including a new contract with the
European Space Agency worth €8.5m for the development and
production of microgravity based heat transfer experiments,
expected to be installed on the International Space Station
in 2026. This represents further progress as we build on our
€4m investment into new, higher grade cleanroom facilities
in Belgium.
EMEA Products (23% of Global Products revenue)
EMEA Products provides research services and bespoke
technological solutions developed from intellectual property
spun out from EMEA Services. It also includes our QinetiQ
Target Systems (QTS) business.
• Working in partnership with BAE Systems, our E-X-Drive
technology has been selected for use by the US Army for
their prototype hybrid-electric Bradley Fighting Vehicle. This
is a £7m prototype contract as a testbed for integrating the
E-X-Drive as part of a series hybrid powertrain under the
Combat Vehicle Power and Energy architecture and mobility
capabilities development program. It is an excellent example of
deploying our IP to enhanced operational performance whilst
improving the sustainability of the platform.
• QinetiQ Target Systems experienced significant disruption due
to COVID-19 during the first half with cancellations of trials
and deployments due to travel restrictions around the world.
The business saw a good level of recovery in the second half
with customers resuming trials and exercises. Furthermore, in
the second half we won some significant orders giving further
confidence in business recovery and growth. We expect to
return to pre-COVID levels from FY22 and we remain extremely
positive on the longer-term outlook for the business.
Disposals (3% of Global Products revenue)
During FY21 we completed three disposals of non-core
businesses resulting in a net cash benefit of £54.4m (combined
enterprise value of £69m). The decision to divest of these three
businesses was a strategic choice to allow increased focus on
our core capabilities:
• In June 2020 we completed the sale of Boldon James to
HelpSystems International Limited for an enterprise value of
£30m. Boldon James was acquired by QinetiQ in 2007 and
it has become a leading provider of data classification and
secure email solutions. In the year ended 31 March 2020
Boldon James generated revenue of £9m.
• In November 2020 we completed the sale of Commerce
Decisions to Harris Computer, a division of Constellation
Software, for an enterprise value of £8.5m and deferred
consideration of up to £1.5m contingent on performance to
March 2022. QinetiQ acquired Commerce Decisions in 2008
and it has become a market leader providing software and
consultancy services to enable some of the largest and most
complex procurements around the world. In the year ended
31 March 2020 Commerce Decisions generated revenue
of £8.3m.
• In December 2020 we completed the sale of OptaSense to
Luna Innovations Inc. for an enterprise value of £29m. QinetiQ
created OptaSense in 2008 and it has become a global leader
in distributed fibre optic sensing solutions, delivering decision-
ready data in multiple vertical markets, including pipelines,
oil and gas, border and perimeter security, transportation,
and power and utilities. In the year ended 31 March 2020
OptaSense generated revenue of £24.2m.
Annual Report & Accounts 2021
21
Strategic Report Chief Financial Officer’s review
“ Our rigorous focus on
performance and ensuring
we keep costs under control
means we were successfully
able to offset the impact
from COVID-19.”
See our Financial KPIs on pages 28 to 29.
Financial performance
(£m)
Revenue
Operating profit
Profit after tax
(p)
Earnings per share
Dividend per share
Statutory results
Underlying* results
2021
2020
2021
2020
1,278.2
1,072.9
1,278.2
1,072.9
112.3
124.7
117.6
106.5
151.8
126.1
133.2
113.7
21.9
6.9
18.7
6.6
22.1
6.9
20.0
6.6
(£m)
Total funded order backlog
Total orders1
Net cash inflow from operations
Cash conversion ratio
Free cash flow
Net cash
Underlying* results
2021
2020
2,944.1
3,104.9
1,151.0
199.0
131%
103.1
164.1
972.1
177.8
133%
59.5
84.7
1
Includes share of orders from Joint Ventures and excludes LTPA contract
amendment signed post year end in 2019.
* Definitions of the Group’s alternative performance measures can be found on
page 183.
Overview of full year results
We reported a strong performance in FY21, delivering growth
across orders, revenue and profitability as we continue to
successfully implement our strategy. Our rigorous focus on
performance and ensuring we keep costs under control means
we were successfully able to offset the impact from COVID-19.
We enter FY22 in a strong position, with a large order backlog
and a robust balance sheet. Strong cash generation from the
company has continued in FY21 with 131% cash conversion, and
a net cash position of £164.1m continues to provide support for
investment opportunities.
Orders in the year totalled £1,151.0m (2020: £972.1m), an 18%
increase, 11% on an organic basis. This included £158m of
Typhoon phase 1 orders under the EDP framework contract
in EMEA services.
At the beginning of FY22, approximately £800m of the Group’s
FY22 revenue was under contract, compared to £850m (of the
FY21 revenue) at the same point last year. This reflects the
disposal of businesses and converting backlog on long-term
contracts into revenue during the year.
Revenue increased 19% to £1,278.2m (2020: £1,072.9m), assisted
by an additional £117.2m from a full-year of trading from our
FY20 acquisitions and a small contribution from Naimuri which
completed in the first half of FY21. Revenue grew by 10% on an
organic basis, with a 15% organic increase in EMEA Services
primarily due to Engineering Delivery Partner (EDP) offset by
a 6% organic decrease in Global Products driven by COVID-19
related impacts in QTS, OptaSense and our US business.
22
QinetiQ Group plc
Order bridge
18% total growth
11% organic growth
£173.2m
(£71.9m)
£102.7m
£1,151.0m
(£0.5m)
£1,048.3m
£972.1m
(£24.6m)
Revenue bridge
19% reported growth
10% organic growth
£1,072.9m
(£17.2m)
£121.8m
(£14.3m)
(£2.2m)
£1,161.0m
£117.2m
£1,278.2m
*
Acquisitions comprise of £98.9m for MTEQ and NSC for period with no prior year
comparator and £3.8m for Naimuri.
Disposals comprise £24.6m for Optasense, Boldon James and Commerce Decisions
(sold in FY21), for the equivalent periods after disposal in prior year (FY20).
* Acquisitions comprise of £109.6m for MTEQ and NSC for period with no prior
year comparator and £7.6m Naimuri.
Disposals comprise of £17.2m of revenue from Optasense, Boldon James and
Commerce Decisions (sold in FY21), for the equivalent periods after disposal
in prior year (FY20).
Underlying operating profit was up 14% at £151.8m (2020:
£133.2m). The majority of the increase was due to a full year
contribution from businesses acquired in the prior year (offset
partially by the impact of three disposals in the current year) but
the organic performance was still an increase of 6% (£7.3m), a
strong performance considering the impact on operations due to
COVID-19. The inorganic growth also included a small contribution
from Naimuri, which was acquired in the first half of FY21.
EMEA Services operating profit grew 18% assisted by a full-year
of trading from our FY20 NSC acquisition and FY21 acquisition
of Naimuri. On an organic basis EMEA Services profit grew by
13% due to revenue growth and significant cost savings. Global
Products underlying operating profit grew by 2% reflecting a full
year of trading from our FY20 MTEQ acquisition. On an organic
basis Global Products profit declined by 20% due to COVID-19
significantly impacting shipments in QTS and OptaSense
(before disposal).
Total operating profit was £112.3m (2020: £117.6m), net of a
£39.5m expense in respect of specific adjusting items (2020:
£15.6m), as set out opposite.
Underlying profit before tax increased 13% to £149.9m (2020:
£132.2m) in line with the increase in underlying operating profit,
with underlying net finance expense at £1.9m (2020: £1.0m).
Total profit before tax was £146.2m (2020: £123.1m).
Specific adjusting items
Specific adjusting items, shown in the “middle column”, at the
profit after tax level amounted to a total net loss of £1.4m (2020:
net loss of £7.2m). This included a gain on sale of businesses
and investments of £28.7m (2020: £nil) and finance income
of £7.1m (2020: £6.5m) related to the defined benefit pension
net surplus, offset by a £25.4m goodwill impairment (2020:
£14.1m) in relation to the QinetiQ Germany business and £10.9m
amortisation of acquisition-related intangibles (2020: £7.5m). The
tax effect of items impacting profit before tax was an income
of £2.3m (2020: expense of £1.4m). The tax line also included a
£3.3m gain in the prior year from recognising US tax losses.
Further analysis is set out in note 4 with goodwill (and
impairments of) discussed in note 14.
Net finance costs
Net finance income was £5.2m (2020: £5.5m). The underlying
net finance expense was £1.9m (2020: £1.0m) with additional
income of £7.1m (2020: £6.5m) in respect of the defined benefit
pension net surplus reported within specific adjusting items.
Annual Report & Accounts 2021
23
Strategic Report Chief Financial Officer’s review continued
Tax
The total tax charge was £21.5m (2020: £16.6m). Deferred tax
has been calculated at the rate at which the timing difference
is expected to reverse. The underlying tax charge was £23.8m
(2020: £18.5m) with an underlying effective tax rate of 15.9% for
the year ending 31 March 2021 (2020: 14.0%). The effective tax
rate continues to be below the UK statutory rate, primarily as a
result of the benefit of research and development expenditure
credits (‘RDEC’) in the UK which are accounted for under IAS
12 within the tax line. An adjusted effective tax rate before
the impact of RDEC would be 19.4%. The effective tax rate is
expected to remain below the UK statutory rate in the medium
term, subject to any tax legislation changes, the geographic mix
of profits, the recognition of deferred tax assets and while the
benefit of net RDEC retained by the Group remains in the tax line.
The tax in respect of the pre-tax specific adjusting items of
£3.7m (note 4) was a £2.3m net income. The prior year tax in
respect of the pre-tax specific adjusting items of £9.1m was a
£1.4m net expense. Together with a £3.3m credit in respect of
recognition of tax losses in the US the total specific adjusting
items tax income in the prior year was £1.9m.
At 31 March 2021 the Group had unused tax losses and US
carried forward interest expenses of £73.2m (2020: £90.3m)
which are available for offset against future taxable profits.
Cash flow, working capital, capex and net cash
Underlying net cash flow from operations was £199.0m (2020:
£177.8m) with an underlying operating cash conversion pre-
capex of 131% (2020: 133%). This included a £12.7m working
capital unwind driven by the timing of contract receivables
Capital expenditure decreased to £79.5m (2020: £107.8m)
impacted by project delays due to COVID-19. We continue to
invest in core contracts including the LTPA following the contract
amendment announced in April 2019. After paying tax and
net interest of £16.4m the Group generated free cash flow of
£103.1m (2020: £59.5m), before business disposal proceeds,
net of cash divested and transaction costs, of £54.4m (2020:
£nil) and business acquisition consideration of £28.5m (2020:
£90.2m). Looking forward, given the nature of our business
model, we expect to continue to fund our capex requirements
from operational cash flow.
As at 31 March 2021 the Group had £164.1m net cash (2020:
£84.7m). The increase in net cash was primarily due to the
£103.1m free cash flow and business disposal proceeds of
£54.4m, offset by business acquisition consideration of £28.5m
and dividend payments of £37.7m (2020: £38.0m).
The Company is party to a £275m multi-currency revolving credit
facility (with an “accordion” feature to expand up to a maximum
of £400m), provided by a consortium of banks, of which £65m
will mature on 27 September 2024 and £210m will mature on
27 September 2025. The facility, undrawn as at 31 March 2021,
contains a modest pricing adjustment (+/- 2bps), aligned to
delivering our FY25 (Scope 1 and 2) carbon reduction target.
Underlying operating profit* bridge
14% reported growth
6% organic growth
£133.2m
(£1.3m)
£13.5m
(£6.2m)
(£1.0m)
£138.2m
£13.6m
£151.8m
EMEA
Services
organic
Global
Products
organic
Foreign
Exchange
2021 (excl.
Acquisitions)
Acquisitions
(current &
prior year)**
2021
* Definitions of the Group’s alternative performance measures can be found on page 183.
** Acquisitions comprise of £11.8m for MTEQ and NSC for period with no prior year comparator and £1.8m for Naimuri.
Disposals comprise of £1.3m from Optasense, Boldon James and Commerce Decisions (sold in FY21), for the equivalent periods after disposal in prior year (FY20).
24
QinetiQ Group plc
Capital allocation
Priorities for capital allocation remain in the long-term as:
1. Organic investment complemented by bolt-on acquisitions
where there is a strong strategic fit;
Dividend
The Board proposes a final FY21 dividend per share of 4.7p
(2020: 4.4p) making the full year dividend 6.9p (2020: 6.6p).
The full year dividend represents an increase of 5% in line with
the Group’s progressive dividend policy.
2. The maintenance of balance sheet strength;
3. A progressive dividend; and
4. The return of excess cash to shareholders.
The Group is not subject to any externally imposed
capital requirements.
Through FY21 we have demonstrated our capital allocation
policy in action, continuing our investment in our core
international business, disposing of non-core assets
and acquiring strategically aligned capabilities to drive
long-term growth.
Return on Capital Employed (ROCE)
In order to help understand the overall return profile of the Group,
last year we reported our Return on Capital Employed, using the
calculation of: Underlying EBITA / (average capital employed less
net pension asset), where average capital employed is defined as
shareholders equity plus net debt (or minus net cash).
Subject to approval at the Annual General Meeting, the final FY21
dividend will be paid on 26 August 2021 to shareholders on the
register at 30 July 2021.
Pensions
The net pension asset under IAS 19, before adjusting for deferred
tax, was £214.3m (31 March 2020: £309.7m). The key driver
for the decrease in the net pension asset since the March 2020
year end was losses due to changes in financial assumptions
(primarily in respect of inflation), which increase the present
value of scheme liabilities, partially offset by an increase in value
of scheme assets.
The key assumptions used in the IAS 19 valuation of the scheme
are set out in note 28.
For the avoidance of doubt, the strategic report covering pages
1 to 51 has been approved by the Board and signed on their
behalf by:
For FY21 Group ROCE was 28%, in line with the previous year
(2020: 28%). As we continue to invest in our business to support
sustainable long term growth our ROCE is forecast to decrease
but to remain attractive, at the upper end of the 15-20% range.
David Smith
Chief Financial Officer
20 May 2021
Earnings per share
Underlying basic earnings per share increased by 11% to 22.1p
(2020: 20.0p) benefiting from the higher underlying profit after
tax. Basic earnings per share for the total Group (including
specific adjusting items) increased 17% to 21.9p (2020: 18.7p).
The average number of shares in issue during the year, as used
in the basic earnings per share calculations, was 569.7m (2020:
567.0m) and there were 571m shares in issue at 31 March 2021
(all net of Treasury shares).
Annual Report & Accounts 2021
25
Strategic Report Key Performance Indicators
Non-financial
KPIs
The overall objective of our strategy is to
deliver sustainable growth, creating long-term
value for our stakeholders.
Our progress is measured by a range of
financial and non-financial key performance
indicators (KPIs). Understanding
measurements that give us insight into issues
such as customer satisfaction, health and
safety and employee engagement help us
enhance our performance and are vital in
ensuring our progress is sustainable.
Meanwhile measures such as orders, organic
revenue growth, profitability and cash flow
track our financial performance. Similar
indicators are used to review performance
in each of the Group’s business units and
where relevant, are accompanied by indicators
specific to those business units.
During FY21 we reviewed and updated our non-
financial KPIs to reflect our priorities and those
of our stakeholders. We added greenhouse gas
emissions as a KPI, evolved our early careers
KPI to be global (previously UK only) and
while we will continue to report and monitor
voluntary employee turnover, it is no longer a
KPI. We have evolved our early careers target
from UK only to global.
See Responsible & sustainable
business on pages 39 to 47.
26
QinetiQ Group plc
Customer satisfaction
(Net Promoter Score)
Health and safety (LTI)
49(FY20: 59)
2.6(FY20: 2.7)
FY21
FY20
FY19
49
50
59
FY21
FY20
FY19
2.6
2.7
4.4
Description
Description
The Net Promoter Score is an
internationally recognised metric
for customer satisfaction. The
NPS is calculated by deducting the
percentage of customers who are
detractors from the percentage who
are promoters, and can therefore
range from -100 to +100.
The Lost Time Incident (LTI) rate is
calculated using the total number of
accidents resulting in at least one
day taken off work, multiplied by
1,000 divided by the average number
of employees in that year.
Performance this year
Performance this year
Our LTI decreased slightly in FY21 to
2.6, from 2.7 in FY20, supported by
our ongoing commitment to safety
through our Safe for Life programme
and new EHS strategy (see page 42).
Link to strategy
As a company it is imperative
we operate with the highest
level of safety. Not only is this
the right thing to do for our
people, but for our customers
who entrust us with safety-
critical work.
The safety, health and wellbeing
of our people is therefore
intrinsically linked to our
strategic success.
Our customer feedback score
remains in the category of “Good”
supported by our continual
improvement approach to actioning
customer feedback. We have seen a
decrease in score against the prior
year with the sample size increasing,
however no systemic trends have
been identified.
Link to strategy
Measuring customer
satisfaction provides us with
insight into our customers’
views. Complemented with
qualitative surveys, this provides
us with actionable insights
that enable us to improve our
customer experience.
This supports our ambition
of becoming our customers’
chosen partner which requires
a relentless focus on meeting
their needs in both our home
countries and overseas.
Customer satisfaction is a
metric used for the Bonus
Banking Plan.
Early careers talent (%)
Employee engagement
(Score out of 10)
Greenhouse gas emissions
Scope 1 & 2 (tonnes CO2e)
3.3(FY20: 2.3% UK)
7.3(FY20: 6.9)
29,444
(FY20: 35,587)
FY21
FY20
FY19
3.3%
(Global)
2.3%
(UK)
4.0%
(UK)
FY21
FY20
FY19
7.3
6.9
6.3
FY21
FY20
FY19
29,444
35,587
41,073
Description
Description
Description
The total number of our early
careers community (apprentices,
graduates, sponsored students) as a
percentage of our global workforce.
(We have previously only reported
our UK performance).
In FY19 we implemented Peakon,
an employee engagement
measurement tool, which provides
regular insights into how our people
feel about working at QinetiQ,
enabling us to identify what we are
doing well, but also where we can
improve and take action.
In FY19 we set a target to
reduce our scope 1 and scope 2
greenhouse gas emissions, by 25%
from the FY19 baseline, aligned with
science based targets.
Performance this year
Performance this year
Performance this year
We have increased our investment in
early careers and in the UK our early
careers population increased from
2.3% to 3.6% of the UK workforce.
We are now measuring this metric
globally and the global proportion is
3.3% (see page 44).
At the end of FY21 our engagement
score increased to 7.3, supported
by our “Engagement in Action”
programme. There is still more to do
and we will continue to build on our
progress, implementing initiatives
aimed at improving the experience
of our employees (see page 43).
In FY21 we achieved a significant
reduction in our scope 1 & 2
emissions (see page 40) making
good progress towards our FY25
target. This benefitted from changes
to ways of working due to COVID-19,
reducing our emissions.
Link to strategy
As a knowledge-based business
it is critical to our long-term
viability that we develop the
next generation of employees.
This year we updated this
KPI to be global, to reflect
our global business and
the maturing nature of our
international operations.
Link to strategy
Employee engagement is a key
part of sustaining our strategy.
Having an engaged workforce
delivers increased productivity
and retention. Improving
employee engagement is
essential to creating a positive
culture within QinetiQ and
aligns with our behaviour
of “listen”.
Link to strategy
Setting a target and measuring
and reporting our greenhouse
gas emissions is an important
way to demonstrate our
commitment to addressing
climate change, a critical part
of our sustainability strategy,
and underpinning our wider
business performance.
Annual Report & Accounts 2021
27
Strategic Report Key Performance Indicators
Financial KPIs
Orders (£m)
International revenue (£m)
Organic revenue growth (%)
£1,151.0m
(FY20: £972.1m)
£420.4m
(FY20: £333.4m)
10%
(FY20: 10%)
FY21
FY20
FY19
£1,151.0m
£972.1m
£776.4m
FY21
FY20
FY19
£420.4m
£333.4m
£273.7m
FY21
FY20
FY19
10%
10%
8%
Description
Description
Description
This is the level of new orders and amendments
to existing orders booked in the year. This
provides a measure of the Group’s ability to
sustain and grow QinetiQ. While some orders are
booked and delivered in-year, the level of orders
booked in the year is one indicator of future
financial performance.
This represents revenue derived from non-UK
customers, that was recognised in the period.
International revenue demonstrates the Group’s
ability to win and deliver work outside of the UK.
Building a global defence and security business
and leveraging Group-wide capabilities is a core
pillar of our strategy.
The Group’s organic revenue growth is calculated
by taking the increase in revenue over prior
year pro-forma revenue, at constant exchange
rates. It excludes the impact of acquisitions and
disposals. See glossary for definition.
Performance this year
Performance this year
Performance this year
Orders in the year were £1,151.0m, up by 18%,
or by 11% on an organic basis. This organic
increase was driven by EMEA Services where
orders grew by 26% on an organic basis due to
excellent growth in EDP orders. In Global Products
orders declined by 26% on an organic basis due
to contracting delays in the US and a large order
for the European Space Agency in the prior year.
This was offset by the contribution from MTEQ
in the US.
Non-UK revenue grew by 26% (£87.0m) to
£420.4m in FY21. This was driven by an inorganic
contribution of £98.9m in the US, following the
acquisition of MTEQ in 2019. On an organic
basis international revenue marginally declined
due to COVID-19 significantly impacting Global
Products shipments in QTS and OptaSense
(before disposal).
Revenue grew by 10% on an organic basis, driven
by a strong performance in EMEA Services where
organic revenue growth was 15%, due to excellent
growth in EDP and good delivery on the LTPA
contract. This was partially offset by an organic
decline of 6% in Global Products, reflecting COVID-19
disruption in QinetiQ Target Systems, OptaSense
and our existing US operations.
Link to strategy
Link to strategy
Order intake enables us to assess the
effectiveness and execution of our strategy
which is designed to grow the Group. Order
intake is used as a metric for the Bonus
Banking Plan, but for executive remuneration
purposes is adjusted to exclude businesses
acquired during the year.
Growing our international revenues and
leveraging Group-wide capabilities to support
growth is a core pillar of our strategy, which
aims to deliver long-term sustainable growth
for shareholders. International revenue was
previously used as a metric for remuneration
purposes in the Deferred Share Plan in
FY20. It is no longer used for remuneration
purposes but remains a key KPI.
Link to strategy
Organic revenue growth demonstrates the
Group’s ability to grow market share and
sources of revenue within its chosen markets
before the effect of acquisitions, disposals
and currency translation. Delivering long-
term sustainable growth is critical to our
success. Our organic growth rate reflects
the successful execution of a relevant and
consistent strategy.
28
QinetiQ Group plc
Underlying operating
profit (£m)
Underlying earnings
per share (p)
Underlying net cash flow
from operations (£m)
£151.8m
(FY20: £133.2m)
22.1p
(FY20: 20.0p)
£199.0m
(FY20: £177.8m)
FY21
FY20
FY19
£151.8m
£133.2m
£124.9m
FY21
FY20
FY19
22.1p
20.0p
19.7p
FY21
FY20
FY19
£199.0m
£177.8m
£135.3m
Description
Description
The earnings before interest and tax, excluding
all specific adjusting items. See glossary
for definition.
The underlying earnings, net of interest and tax,
excluding all specific adjusting items, expressed in
pence per share. See glossary for definition.
Description
This represents net cash flow from operations
before cash flows of specific adjusting items and
capital expenditure. See glossary for definition.
Performance this year
Performance this year
Performance this year
Underlying operating profit increased by 14%
(£18.6m) to £151.8m. This includes an inorganic
contribution of £11.8m from the acquisitions of
MTEQ and NSC, completed in the prior year, as well
as a £1.8m contribution from the acquisition of
Naimuri, completed in July 2020. This was partially
offset by the disposals of Boldon James, Commerce
Decisions and OptaSense. On an organic basis
underlying operating profit increased by 6%.
Underlying earnings per share grew by 11% (2.1p)
to 22.1p, with the higher growth in underlying
operating profit partially offset by a higher
effective tax rate (see note 9).
Underlying net cash flow from operations was
particularly strong, growing by 12%. This reflects a
strong profit performance and low working capital
unwind from the good position at the end of FY20.
Link to strategy
Link to strategy
Link to strategy
Underlying operating profit is used by the
Group for performance analysis as a measure
of operating profitability. Specific adjusting
items are excluded because their size and
nature mask the true underlying performance
year-on-year.
Underlying EPS provides a measure of
the earnings generated by the Group after
deducting tax and interest. Specific adjusting
items are excluded because their size and
nature mask the true underlying performance
year-on-year.
This provides a measure of the Group’s
ability to generate cash from its operations
and gives an indication of its ability to
make discretionary investments in
facilities and capabilities and pay
dividends to shareholders.
Annual Report & Accounts 2021
29
Strategic Report Risk management
Our approach to identifying and managing risks
How we protect our business
Effective management of current and emerging risks is
critical to achieving our strategic goals. Our Group Director
of Risk & Governance has oversight and responsibility for risk
management across the organisation, providing risk expertise
and support to the businesses and reporting risk information to
the Global Leadership Team, the Board and its Audit and Risk &
Security Committees.
Risk processes cannot operate in isolation and, like safety and
security, must work within an appropriate culture to create
effective risk based decision making. Our Group-wide risk
management framework supports and develops the risk culture
within the organisation to inform our decision-making at both
the strategic and operational levels, adopting both a top-down
and bottom-up approach. Our culture and risk management
processes together enable us to be stronger and more resilient
in the face of challenges, managing threat and optimising
opportunity, to support the long-term success of our business.
The risk management framework continues to evolve with our
business and the rapidly changing external environment in which
we operate to ensure we are best placed to deliver results, while
simultaneously innovating for our customers’ advantage.
Principal risks
The Group Risk Register consists of material risks relating
to the effective delivery of our strategy. The Board and Global
Leadership Team look to assess these principal risks from
a number of different perspectives, both individually and
collectively. The Board recognises that some risks may be
affected by factors outside the control of the Company and
that despite the robustness of the risk management processes
they cannot provide absolute assurance and unknown risks
may manifest without warning. We have proven processes
in place to rapidly deploy appropriate management in these
situations, and utilise lessons learned across the organisation
as part of our ongoing drive for continuous improvement.
These were successfully deployed in the early stages of the
COVID-19 pandemic and proved to be effective and deliver
business resilience.
Over the past 12 months one new material risk has been
included in our Group risk profile relating to the successful
delivery of our ambitious US growth strategy. The Mergers and
Acquisition risk has increased in likelihood due to the heightened
growth ambition coupled with our recent acquisition in the US
(read more on our performance in the US on page 21). Despite
the major global crisis created by the COVID-19 pandemic
and the rapidly changing external environment all other risks
have remained stable owing to the resilience of our business
model and our effective crisis and risk management processes.
Identifying, attracting and retaining the right people now and
in the future is essential to QinetiQ’s success and while the
associated Group risks have previously been mitigated to a level
that they are no longer considered to pose a principal risk to
QinetiQ, they remain a key consideration in our operational and
strategic planning and, where localised risk remains, are included
and managed within other identified risks.
Emerging risks
We define emerging risks as newly developing or changing risks,
where the extent and implications are not yet fully understood.
These risks are identified and managed using the same
established risk management framework as our principal risks
and are included as part of our strategic planning process
to ensure we capitalise on the opportunity and minimise the
downsides they present. Where appropriate we establish
“Working Groups” to monitor and scrutinise the potential impacts
of the emerging risks and ensure relevant mitigation actions
are undertaken at pace. We also consider the wider impact
of emerging external risk, for example where a risk creates
challenges for our customers it may create an opportunity
where we have well aligned capability to further support
them, and therefore allows us to make good progress in the
current environment.
The evolving COVID-19 pandemic has, to date, had limited impact
on our operations. Our sites and facilities have remained open;
we quickly transitioned to a hybrid remote working model and
accelerated our digital transformation programme to support
new ways of working. Overall this has meant we are more
globally connected and have maintained our top priority of
protecting our people’s health and wellbeing. Looking forward
the potential global economic impacts of the pandemic and their
subsequent effect on QinetiQ remain uncertain.
Whilst Brexit has had negligible operational impact on QinetiQ to
date we continue to monitor this as a developing risk because of
the ongoing uncertainty around the potential broader, including
economic, ramifications. We have and continue to undertake
robust mitigation throughout the Brexit transition, including
proactive management of supply chain dependencies and
ensuring our employees and systems were prepared for any
resultant changes, including in the regulatory environment.
We recognise that ESG concerns are rapidly moving up our
investors’ and stakeholders’ agenda and our subsequent
need to ensure we provide visibility on the materiality of the
potential risks and how we are managing them. We have a
well-established Corporate Responsibility & Sustainability
(CR&S) Programme in place, bolstered by robust sponsorship
from the Global Leadership Team and our Board, to ensure we
are identifying and managing the ESG risks to our company,
including compliance with legislative and reporting requirements.
30
QinetiQ Group plc
Through 2020 issues such as climate change, the COVID-19
pandemic, a growing focus on diversity and inclusion, new
customer requirements (e.g. social value in UK Government
procurement) and defence ethics were all key topics. We
carefully track the emerging ESG risks, assessing their potential
impacts and where necessary building in additional workstreams
under the CR&S Programme to ensure robust mitigation is
undertaken. To reflect the growing importance and necessary
focus, our CR&S Director now reports on the Programme directly
to the Board, rather than via a sub-committee.
We have described our approach to ESG in more detail in the
responsible and sustainable business section of this report
(pages 39 to 47).
Risk management and assurance activity
Three lines model
Our risk management and assurance activity follows the
established three lines model with the first and second line
reporting to Global Leadership Team and Board, and the third
line reporting to the relevant Board Committees. The first line is
performed by operational management, who own and manage
the risks in accordance with the Group Operating Model; the
second line is performed by the compliance, assurance and risk
functions; and the third line is performed by the internal audit
team and external assurance providers.
The three lines model
Board
Responsible for effective risk management and internal control across the QinetiQ Group
Set risk appetite and assess principal and emerging risks
Audit Committee and Risk & Security Committee
Receive reports from the
assurance functions
Monitor and review the
principal and emerging risks
Risk deep dives
Monitor the effectiveness
of internal controls
Global Leadership Team
Identify and monitor the principal and emerging risks, as well as material risks (including operational)
reported from the businesses and Group functions
Management
Independent Assurance
1st Line
Managers identify and evaluate risks
Design and operate internal controls and
other mitigation measures
Application of risk appetite, delegated
authorities, policies, procedures
and codes of practice
Report risks through relevant reporting
and escalation processes
Manage the day to day
operational risks
2nd Line
Risk Management and other oversight
functions with limited independence
Design and facilitate the
risk management processes
across the Group
Provide risk expertise and support
Responsible for continually
improving the risk management
process across the Group
Monitor compliance with policies
and standards
Report to the Board and
the Global Leadership Team
3rd Line
Internal Audit and other external
independent assurance providers
Review and evaluate risk
management activity and provide
assurance over the effectiveness
of the control environment
Manage the confidential
reporting process
Report to the Board and the
Global Leadership Team
Annual Report & Accounts 2021
31
Strategic Report Cautious
Balanced
Eager
Risk management continued
QinetiQ risk appetite
The Board identifies and reviews its
tolerance to risk by establishing a clear
risk appetite and setting appropriate
delegations of authority to the executive
and senior leaders. We focus on those
critical risk areas necessary to achieve
our strategic goals. Risk appetite is
articulated by defining three categories
which balance scrutiny and mitigation
activity against likely benefit:
Cautious
Avoidance of uncertainty – with
negligible or low residual risk.
Applying innovation prudently
where the risks are fully understood.
Balanced
Preference for delivery options that
have a low or moderate degree of
residual risk. Applying innovation only
where successful delivery is likely.
Eager
Willing to consider delivery options
with greater inherent risk and eager
to be innovative.
Commercial
Opportunities relating to increased
market share where we have proven
delivery into existing markets
Opportunities that translate proven
delivery into new markets
Opportunities that translate new
capability or delivery into existing
customers
Opportunities that involve new
capability or delivery into new
markets
Operational
Operational delivery
Compliance with legal and
regulatory requirements
Strategic risks
Execution of our UK growth strategy
Risk
Impact
Mitigation
UK Government budget constraints
lead to reduced spending in core
markets in which we operate. This
and the ever increasing pace required
to introduce new technology to
respond to emerging threats results
in a risk that our approaches/
offerings for evaluating capability
may not remain relevant.
A reduction in
revenue and
associated
profitability from
the Group’s UK
Defence and
Security contracts.
COVID-19:
There remains the potential for this
risk to be exacerbated by the impact
of COVID-19 both requiring different
approaches to deliver in a COVID
secure way and any impact on
Government spending.
Our strategy is focused on leading and modernising UK test
and evaluation in support of our UK and overseas customers’
objectives and developing our training and mission rehearsal
and data intelligence/cyber businesses. This includes ongoing
proactive engagement with our major customers to enable us
to support their objectives through mission-led innovation.
Our focused investment into contracts enhances our offerings
that support our customers with their efficiency challenges
as well as ensuring that we provide the right services as the
threat environment continues to evolve. We continue to deliver
new customer solutions and are increasingly moving towards
modelling and synthetics, as well as embracing the next
generation of digital transformation.
We are expanding the links between our UK and global Test
& Evaluation business as evidenced through securing the
contract to build and operate the Queensland Flight Test
Range and post Brexit will maintain relationships with the UK
Government to support bilateral relationships within Europe;
there is increased recognition that T&E is an enabler to military
capability and prosperity.
Metrics
Customer
satisfaction
All financial KPIs
Responsibility
Group Function
Director Business
Development
Managing Directors
A&S, M&L and C&I
Risk appetite
Eager
Likelihood/Impact
Medium/Medium
Proximity/Velocity
1-2 yrs/Medium
Strategy
Global Leverage
Distinctive Offerings
Disruptive
Innovation
32
QinetiQ Group plc
Execution of our US growth strategy
Risk
Impact
Mitigation
Adverse impact
on the Group’s
financial
performance.
There is a risk that the US Business
will be unable to establish a
robust and distinct position in
the marketplace and deliver our
significant growth ambitions,
resulting in impact to the strategic
direction of the Group and potential
reputational damage.
COVID-19:
The ongoing impact of the
pandemic may exacerbate this
risk through increased customer
budget constraints.
Our US strategy is focused on developing our relationships with
the DoD through mission-led innovation at pace in areas of
technology such as robotics and autonomy, sensor solutions
and systems, artificial intelligence and maritime systems where
we feel we have strong technology capability and the ability
to deliver the most appropriate products or services. We have
developed specific and ambitious growth strategies for the
US and are developing our capability to enact those strategies
through robust operational integration.
We undertake extensive due diligence, taking the appropriate
professional advice to ensure structural, regulatory, legal and
political risks are understood and minimised. In addition, our US
business is included in our Group Audit and Assurance plans.
The creation of single routes to market enables our in-country
team to leverage the global QinetiQ brand and our Group-wide
capabilities; maximising the opportunities to cross-sell and offer
more comprehensive solutions to the domestic challenges our
US customers face.
We are maturing our global end-to-end processes and systems,
and the integration of our US business, as well as the global
leverage of capabilities, such that we can act with agility and
pace in response to our US customer requirements.
Metrics
All financial KPIs
US revenue as % of
total revenue
Responsibility
President US
Business
Risk appetite
Balanced to Eager
Likelihood/Impact
High / Very High
Proximity/Velocity
0-1 yrs/Medium
Strategy
Global Leverage
Distinctive Offerings
Disruptive
Innovation
International strategy
Risk
Impact
Mitigation
Our International Business conducts
business in a number of markets,
including Australia, Canada and
Germany. Plans to grow these
businesses to achieve our Global
Leverage may be impacted by
external influences outside of our
control, such as geo-political risks,
or specific risks arising from working
in new markets and globalised
operation. Political uncertainties,
including the UK leaving the EU could
also impact the availability and focus
of customer budgets.
COVID-19:
The ongoing impact of the pandemic
may exacerbate this risk through
increased budget constraints and
restrictions on International travel
however the acceleration of our
digital investment programme has
resulted in increased connectivity
across our international businesses.
Unable to realise
expected growth
in the planned
timeframes.
Our international strategy is focused on our home and priority
markets where we feel we have the best routes to access with
the most appropriate products or services. We have developed
specific and ambitious growth strategies for Australia and our
three priority markets.
Metrics
All financial KPIs
International
revenue as % of
total revenue
We undertake extensive due diligence, taking the appropriate
professional advice to ensure structural, regulatory, legal and
political risks are understood and minimised. In addition, our
international businesses are included in our Group Audit and
Assurance plans.
The creation of single routes to market enables our in-country
teams to leverage the global QinetiQ brand and our Group-wide
capabilities; maximising the opportunities to cross-sell and offer
more comprehensive solutions to the domestic challenges our
customers face.
We are maturing our global end-to-end processes and systems,
as well as the global leverage of capabilities, such that we
can act with agility and pace in response to our customer
requirements.
Responsibility
Managing Director,
International
Managing Director,
A&S
Risk appetite
Balanced to Eager
Likelihood/Impact
High/High
Proximity/Velocity
0-1 yrs/Medium
Strategy
Global Leverage
Distinctive Offerings
Disruptive
Innovation
Annual Report & Accounts 2021
33
Strategic Report Risk management continued
Strategic risks continued
Innovation strategy
Risk
Impact
Mitigation
Failure to innovate to enable the
realisation of new ideas for our
customers and our organisation in
the face of market and environmental
changes such as rapidly evolving
customer needs, technological
change and increased competition.
Specifically failure to:
• Create a culture of innovation;
• Develop relevant business models,
processes and products/services;
• Attract and retain the right talent.
COVID-19:
The global implications of the
pandemic, both internally and for
our customers, have provided an
opportunity for increased innovation
in collaborative working and
customer engagement through
digital means.
Negative impact
on the Group’s
market position,
competitiveness,
future growth.
Global initiatives to ensure innovation and the
necessary underlying culture is embedded across the
Group, including:
Metrics
Customer satisfaction
Employee engagement
•
Investment in innovative approaches and tools,
for example the use of digital platforms to provide
enhanced collaboration environments for our
employees and customers, and virtual environments
to demonstrate our capabilities;
• Diversity and Inclusion programmes to drive and
foster diverse thinking;
• Commercial innovation, including agile approaches
to contracting;
Responsibility
Group Function Director
Business Development
Group Function Director
Strategy & Planning
Group Function Director
Technical
Group Function Director
Human Resources
• Ensure we identify, attract and retain the right
people now and for the future.
Ongoing Group-wide communications and training to
drive understanding and adoption of our mission-
led innovation ethos, to deliver better operational
outcomes for customers and end-users; working
collaboratively to solve complex problems, at pace.
Risk appetite
Balanced
Likelihood/Impact
High/High
Proximity/Velocity
1-2yrs/Low
Strategy
Global Leverage
Distinctive Offerings
Disruptive Innovation
A material change to the UK Government’s use of existing large contracts
Risk
Impact
Mitigation
The LTPA and EDP
directly contribute
a material
proportion of the
Group’s revenue
and earnings and
if utilisation of
these contracts
were to change,
our financial
performance
could be adversely
impacted.
The Long Term Partnering Agreement
(LTPA) is a 25-year partnering
contract with the UK MOD to provide
test, evaluation, and training services.
The Engineering Delivery Partnership
(EDP) programme is a 10 year
agreement delivered by the Aurora
Engineering Partnership and is
established as the default route for
contracted engineering services
for UK MOD Defence Equipment &
Support (DE&S) and is also available
to the wider UK MOD.
UK Government budget constraints,
could lead to a material change in
use of these large contracts.
COVID-19:
Budget constraints may be
exacerbated by the impact of
the pandemic.
We are investing significantly into the LTPA capabilities
to ensure they remain relevant and modern. The
investment portfolio is agile to changing customer
needs and technological advances to ensure we
remain at the cutting edge.
At the end of March we transitioned to a fully output
based contract, an approach that delivers clear outputs
to customers, measured through the delivery of event
types. This enables us to capitalise on opportunities
delivering outputs in new and agile ways, optimising
the efficient delivery of the contract.
EDP is a collaborative programme with DE&S and
our Aurora partners, that provides customers with
key capacity and capability, focused on long-term
outcomes that maximise efficiencies and operational
performance. By undertaking larger programmes of
work, we are able to leverage our scale and drive out
duplication. Our customer solutions have consistently
demonstrated our ability to achieve challenging value
for money and performance targets.
Metrics
All financial KPIs except
orders
Customer satisfaction
Responsibility
Managing Director M&L
Managing Director A&S
LTPA Portfolio Director
Risk appetite
Balanced
Likelihood/Impact
Medium/ High
Proximity/Velocity
0-1yrs/Low
Strategy
Global Leverage
Distinctive Offerings
Disruptive Innovation
34
QinetiQ Group plc
Mergers and acquisitions
Risk
Impact
Mitigation
M&A activity continues to form
a key element of our strategic
growth plans in order to expand
our customer offerings within our
home markets of the UK, the US and
Australia, as well as in our priority
growth markets. There is a risk
that our new acquisition selection
and integration do not realise the
maximum potential benefits.
COVID-19:
The ongoing effects of the pandemic
may exacerbate this risk, including
the impact of potential customer
budget constraints.
Adverse impact
on the Group’s
financial
performance.
Robust governance is underpinned by the M&A
Committee, which reports to the Board, and the
relevant Integration Steering Committees for newly
acquired companies.
All acquisitions are thoroughly assessed for strong
strategic alignment for value creation potential and
for integration risk. Extensive due diligence involves
internal experts and a variety of external advisory
companies, and every integration is managed
separately to ensure focus. Best practice, learned from
successful integrations, is rigorously applied to each
new transaction.
Portfolio rationalisation is ongoing where appropriate,
including the disposal of OptaSense, Boldon James
and Commerce Decisions.
The transformation and digitisation programme
Risk
Impact
Mitigation
Failure to realise
benefits will
challenge our
ability to meet our
strategic growth
targets and limit our
capacity to scale
affordably.
Global Leadership Team workstream sponsorship and
Group-wide stakeholder engagement.
Budget and scope managed through a robust project
governance model reporting to the Global Leadership
Team and Board that gives sufficient flexibility to
respond to changing customer needs but with the
guiderails in place to identify and control potential
cost overruns.
Benefits realisation is managed through a strong
focus on change management to drive adoption
and the required changes to behaviours. For example
key functions creating their own roadmaps to deliver
a globalised service sponsored at Global
Leadership level.
Identify and deploy the right people to deliver the
programme and maximise the benefits.
The Transformation and Digitisation
Programme aims to position QinetiQ
for further growth by globalising
consistently around the customer
to deliver excellence. In order to
achieve this we must invest in our
processes and systems to embed
a robust Global Operating Model,
supported by digital transformation,
including improved technology,
data and analytics. This requires
significant alignment and effort
across the Group as well as cultural
and behavioural changes.
There is a risk that the investment
required to achieve the intended
outcomes is greater than budgeted,
that the programme benefits are
not fully realised and our Group
ambitions are constrained.
COVID-19:
The global restrictions imposed as
a consequence of the pandemic
presented the opportunity to
accelerate parts of our digital
programme resulting in enhanced
global connectivity and the rapid
adoption of hybrid-working.
Metrics
Inorganic Growth
Revenue & Profit
Responsibility
Group Function Director
Strategy & Planning
Group Managing Directors
Chief Financial Officer
Risk appetite
Balanced
Likelihood/Impact
High/High
Proximity/Velocity
1-2yrs/Low
Strategy
Global Leverage
Distinctive Offerings
Metrics
Customer satisfaction
Employee Engagement
All financial KPIs
Responsibility
Group Function Director
Business
Transformation & Services
Risk appetite
Balanced
Likelihood/Impact
High/High
Proximity/Velocity
0-1yrs/Medium
Strategy
Global Leverage
Distinctive Offerings
Disruptive Innovation
Annual Report & Accounts 2021
35
Strategic Report Risk management continued
Operational risks
Significant breach of relevant laws and regulations
Risk
Impact
Mitigation
We operate in highly regulated
environments across many
jurisdictions. Non-compliance
to existing and new
requirements, such as the
Task Force on Climate-related
Financial Disclosures (TCFD),
presents risks to people,
property and the environment
as well as having the potential
to compromise our ability to
conduct business in certain
markets, potentially having
an impact on a variety of
stakeholders.
COVID-19:
The consequences of the
pandemic, including increased
hybrid working and reduced
numbers on-site, has the
potential to exacerbate the
risk of a safety or regulatory
non-compliance.
Security and IT systems
Failure to comply
with particular
regulations could
result in serious
detriment to people,
property and the
environment, and/
or a combination
of fines, penalties,
civil or criminal
action, suspension
or debarment
from government
contracts, as well
as significant
reputational
damage to QinetiQ.
Maintaining and strengthening a proactive safety and regulatory
compliance culture across the Group is a key part in minimising
the risk of a failure.
The Group Operating Model clearly defines lines of
responsibility through the organisation. In addition we have
robust policy, procedures and mandatory training in place. The
QinetiQ Code of Conduct sets out clear expectations for the
Group and its employees; in some areas, such as bribery and
corruption, the company adopts a zero tolerance approach.
We drive continuous improvement using a range of approaches
such as audit and evaluation, focused training, strategic
improvement programmes, and business objectives.
One example is our Group-wide Health, Safety and Environment
strategy where each manager in the Group shares a supporting
collective objective delivering personal ownership towards
continuous safety improvement.
The effectiveness of our Internal Controls Framework is tested via
the use of a Group-wide Board Assurance Map.
ESG risks are robustly managed under the CR&S Programme.
Metrics
Health, Safety &
Environment
Mandatory training
compliance
Commercial intermediary
monitoring
Responsibility
Company Secretary/Group
General Counsel
Group Function Director
Technical
Group Managing Directors
Risk appetite
Cautious
Likelihood/Impact
Medium/High
Proximity/Velocity
0-1yr/High
Strategy
Global Leverage
Distinctive Offerings
Risk
Impact
Mitigation
A breach of physical or data
security, cyber-attacks or
IT systems failure leading
to loss of customer or
company information could
have an adverse impact on
our reputation, customer
confidence and operational
delivery.
COVID-19:
The consequences of the
pandemic, including increased
hybrid working, has the
potential to exacerbate the
data and cyber security risks.
Significant
reputational
damage, as
well as service
interruptions and
the possibility of
withdrawal of our
accredited status
(our “licence to
operate”) resulting
in exclusion from
some types of
government
contracts and
subsequent impact
on orders, revenue
and profit.
Metrics
Cyber dashboard
Security dashboard
Responsibility
Group Director
Transformation and
Business Services
Risk appetite
Cautious
Likelihood/Impact
High/High
Proximity/Velocity
0-1yr/High
Strategy
Global Leverage
Distinctive Offerings
As a key supplier in the Sovereign National Security supply chain, we
must ensure that the organisation’s security meets Governments’ and
other relevant requirements worldwide. We employ a holistic security
threat approach through four interlocking pillars: Physical, Information,
Cyber and Personnel Security. Our changing and increasingly
sophisticated threat environment is continuously reviewed, using
appropriate tools and techniques, as part of our over-arching Security
Strategy such that new and emerging threats are removed or
mitigated, ensuring our strategy appropriately balances the security,
cost and flexibility required for any given solution.
Our programme of continuous security improvement includes:
• A Group Cyber Security Standard;
• Targeted Cyber Security Training for key IT employees;
• Deployment and continual upgrade of cyber security detection
and protective technologies;
• Annual strategic security reviews;
• Mandatory security awareness training for all employees and
contractors;
• Continuous Group-wide communications to employees;
• Annual group-wide Security Culture survey;
• Regular updates to the Risk & Security Committee.
Security culture, behaviour and ensuring our people have appropriate
awareness of the threats to our organisation is critical to our risk
mitigation. To further embed this we have introduced collective
security objectives for our Leadership Teams.
Our on-going digital transformation and IT improvement programme
continues to deliver improved IT robustness through a range of
approaches including renewing IT systems and moving to cloud
based solutions.
36
QinetiQ Group plc
Longer-term viability assessment
Assessing the prospects of the Group
The Group’s corporate planning processes involve the following
individual processes covering differing time frames:
Alongside the annual review of risk scenarios applied to the
strategic plan, performance is rigorously monitored to alert the
Board and Global Leadership Team to the potential crystallisation
of a key risk.
1. An annual Integrated Strategic Business Plan (ISBP) process
that looks at the financial outlook for the following five years.
This process commences with an assessment of the orders
pipeline producing an order intake scenario. A review of the
phased delivery profile and the cost base required to support
this enables generation of base-case, high-case and low-case
profit forecasts. Capex and working capital requirements are
also collected, reviewed, approved and a cash flow produced
for the plan period;
2. An annual budget process that covers the first year of the
five-year planning horizon in detail;
3. A bi-annual forecast process to update the view of the first
budget year (the year which would be in progress);
4. A rolling monthly “latest best estimate” process to assess
significant changes to the budget/forecast for the year in
progress; and
5. The financial impact of principal risks (individually and
cumulative), together with mitigating actions.
The corporate planning process is underpinned by assessing
scenarios and risks that encompass a wide spectrum of
potential outcomes, both favourable and adverse. The downside
risk scenarios are designed to explore the resilience of the Group
to the potential impact of all the significant risks set out on
pages 32 to 36, or a combination of those risks.
The scenarios are designed to be severe but plausible, and take
full account of the availability and likely effectiveness of the
mitigating actions that could be taken to avoid or reduce the
impact or occurrence of the underlying risks, and that realistically
would be open to them in the circumstances. In considering
the likely effectiveness of such actions, the conclusions of
the Board’s regular monitoring and review of risk and internal
control systems, as discussed on page 83, is taken into account.
COVID-19 can manifest itself on Group performance through
two key factors: lack of availability of key resource to provide our
services due to illness or H&S restrictions; reduced availability
of funds to our customers to procure our services. Both are
considered within the Group’s sensitivity analysis, with the
former becoming a lower probability risk as the successful
vaccination programme rolls out.
We consider that this stress-testing based assessment of the
Group’s prospects is reasonable in the circumstances of the
inherent uncertainty involved.
The period over which we confirm
longer-term viability
The period over which the Directors consider it possible to form
a reasonable expectation as to the Group’s longer-term viability
is the five-year period to 31 March 2026. This is the period
covered by our strategic planning process and is subject to
stress-testing and scenario planning around potential risks. It has
been selected because it presents the Board and readers of the
Annual Report with a reasonable degree of confidence while still
providing an appropriate longer-term outlook.
Confirmation of longer-term viability
As noted on page 116, the Directors confirm that their
assessment of the principal risks facing the Group was robust.
Based upon the robust assessment of the principal risks facing
the Group and their stress-testing based assessment of the
Group’s prospects, all of which are described in this statement,
the Directors have a reasonable expectation that the Group will
be able to continue in operation and meet its liabilities as they
fall due over the period to 31 March 2026.
Going concern statement
The Group’s activities, combined with the factors that are likely
to affect its future development and performance, are set out
on pages 18 to 36. The Chief Financial Officer’s review on pages
22 to 25 sets out details of the financial position of the Group,
the cash flows, committed borrowing facilities, liquidity, and the
Group’s policies and processes for managing its capital and
financial risks. Note 27 on page 150 to the financial statements
also provides details of the Group’s hedging activities, financial
instruments, and its exposure to liquidity and credit risk.
taken by management to maintain the strength of our business,
the Directors believe that the Group is well positioned to manage
its overall business risks successfully.
After making enquiries, the Directors have a reasonable
expectation that the Group has adequate resources to continue
in operational existence for the foreseeable future. The Group
therefore continues to adopt the going-concern basis in
preparing its financial statements.
The Group meets its day-to-day working capital requirements
through its available cash funds and its bank facilities. The
COVID-19 crisis has introduced considerably more uncertainty
across markets globally. As such the market conditions in which
the Group operates are expected to be challenging as spending
from the Group’s key customers comes under pressure. Despite
these challenges, and considering the decisive action already
The Group is exposed to various risks and uncertainties, the
principal ones being summarised in the “Principal risks” section
on pages 30 to 36. Crystallisation of such risks, to the extent not
fully mitigated, would lead to a negative impact on the Group’s
financial results but none are deemed to be sufficiently material
to prevent the Group from continuing as a going concern for at
least the next 12 months.
Annual Report & Accounts 2021
37
Strategic Report Stakeholder engagement
ulators
g
e
R
ployee s
m
E
S
u
p
p
l
i
e
r
s
C
u
s
t
o
m
e
r
s
O u r s takeholders
Understanding what matters to our stakeholders
Shareho l d e r s
Commun i t i e s
Our stakeho l d e r
s
Customers
QinetiQ customers value the relationships we build with them and the time we invest in understanding their needs. They appreciate the depth and
breadth of knowledge we apply to providing them with mission critical solutions and the flexibility we show in helping them reach their goals. They
expect delivery to be on time, every time and to the highest standards.
How we engage
Impact of engagement
Every QinetiQ customer has a delivery team continually engaging with them and
adapting our approach to ensure their objectives are achieved. In addition, we regularly
take the time to step back and listen and act upon our customers’ views on our
performance and relationships through our formal customer research systems.
Our delivery teams continually adapt our approach to ensure customers’
needs are met. The formal feedback we receive is reviewed at all levels of
our organisation to ensure we continuously improve and evolve our business
processes and delivery solutions.
Shareholders
Our shareholders value sustainable and long-term growth delivered through the successful execution of our strategy. As part of this, they expect
us to do business in a sustainable and ethical manner taking into account other key stakeholders.
How we engage
Impact of engagement
We engaged with our shareholders during the year through virtual roadshows,
results presentations and the AGM. In addition, our Chairman proactively engaged
with shareholders to seek their views on the business, strategy and management
team. Our Chair of the Remuneration Committee also met with several
shareholders to seek their views on remuneration matters ahead of the AGM.
We greatly value our shareholders’ feedback which is shared with the executive
team and the Board. The feedback received during the year has influenced our
strategic thinking. Following feedback from investors we have increased our
emphasis on ESG related matters and are improving our disclosure accordingly.
Employees
Our employees want to work in a safe, diverse and inclusive environment that offers successful and rewarding careers. Our employees greatly
value our engagement and efforts to action their feedback.
How we engage
Impact of engagement
Our methods of engagement include: Quarterly Peakon surveys, Q-talks, Global
roadshows led by our CEO and Global Leadership Team, our Global Employee
Voice Group (GEV) and other engagement forums (e.g. works councils), as well as
indirectly through feedback on platforms such as Glassdoor.
Our engagement has helped us to identify priority focus areas to improve the
employee experience. By listening to our people we have been able to drive
improvements in these areas which have been recognised in more recent Peakon
surveys (equipment, growth and reward). Engagement with our employees has
informed our response to the COVID-19 pandemic and our employees have been
supportive of our approach.
Suppliers
Suppliers value a collaborative environment where they are treated fairly and are valued regardless of their respective size.
How we engage
Impact of engagement
In addition to day-to-day engagement through normal business activity, we actively
engaged with key partners through a series of “Board to Board” meetings. We engage
with our suppliers through our QinetiQ Collaborate Programme, we seek new suppliers,
through our presence at external events and engagement with Small to Medium sized
Enterprises through our participation at “Meet the Buyer” events.
This engagement continues to ensure we are partnering effectively to support our
customers. It gives us insight into industry developments and ensures effective
collaboration between QinetiQ and its partners and suppliers.
Communities
Our communities want us to be considerate neighbours but also a source of future employment and opportunities.
How we engage
Impact of engagement
We engage via a variety of community investment activity such as outreach,
volunteering, supporting local charities and community liaison.
Our community investment activity is viewed positively. Through our community
liaison, our regular updates have ensured local people are aware of our activity.
Our outreach activity has provided benefit to young people.
Regulators
Our regulators expect us to meet high standards of safety and environmental stewardship and legal requirements.
How we engage
Impact of engagement
We engage with regulators via meetings, audits and reports.
Through engagement we are able to ensure we continue to meet the high
standards expected by regulators.
38
QinetiQ Group plc
See our Section 172 (1) statement on pages 48 to 49.
Responsible and sustainable business
Our focus on Environmental, Social and Governance issues
Our QinetiQ purpose and strategy is enabled by our high performance inclusive culture,
underpinned by our values and behaviours and our commitment to deliver responsibly
and sustainably for the benefit of all of our stakeholders.
Strategy, materiality and stakeholder engagement
Our Corporate Responsibility and Sustainability (CR&S) strategy
underpins our business strategy and is designed to meet
stakeholder expectations across environmental, social and
governance (ESG) themes. During FY21 we have been focusing
on improving how CR&S is embedded in the strategic planning
process and a review was undertaken, looking at our core non-
financial KPIs. We have introduced some changes, including a
new KPI for our greenhouse gas emissions, reflecting our focus
on climate change (see page 27). By ensuring we are building ESG
into the heart of our strategy and decision making we are better
able to manage risks and create value.
To drive continuous improvement we regularly undertake
materiality reviews; this structured process allows us to assess
global trends, best practice (e.g. connecting with the Sustainable
Development Goals), understand stakeholder expectations and
align with our business strategy. The landscape is rapidly changing
and it is important that we evolve our strategy to ensure we are
focused on what is most important. CR&S progress and plans are
tracked via monthly performance review by the GLT and we also
ensure it is embedded across our risk management process.
This ensures delivery of responsible business practice has top
level support and is underpinned by strong governance.
Our Risk and CSR Committee has received reports and briefings
on all material CR&S issues including business ethics, anti-
bribery and corruption, health and safety, diversity and inclusion
(D&I), environment, reputational risk and human rights (see page
92). This is supported by committees including the Business
Ethics Committee and new Climate Change Steering Group.
Following recognition of the growing importance of ESG issues
to stakeholders, during FY21 we have transitioned reporting
on CR&S to the Board directly, starting at the January Board
meeting see page 56.
Collaboration and engagement
Understanding the current priorities of our stakeholders
(primarily customers, shareholders and employees) is achieved
through regular engagement. Examples in FY21 include a focus
on ESG in one of our Investor Seminars and a range of webinars
for our employees. We are proactive in our sector, in FY21
accepting the Chair role for the Sustainability Working Group
with our trade body and Industry co-Chair the Climate Change
and Sustainability Steering Group in the UK Defence Suppliers
Forum. We are also actively collaborating with customers and
peers across topics such as ethics, D&I and skills. We have been
leading a programme around the Sustainable Development Goals
creating information sharing workshops for those in our sector to
learn and share best practice.
Our purpose
Protecting lives, defending sovereign capability and securing the vital interests of our customers
Environmental
Social
Governance
Material issues
Climate Change
Environmental Management
Waste and Resources
Conservation and Biodiversity
Sustainable solutions for customers
Financing linked to GHG targets
Material issues
Employee Engagement
Diversity and Inclusion
Employee Health Safety & Wellbeing
Employee Learning and Development
Employee Reward and Recognition
Community investment & STEM outreach
Material issues
Business Ethics
Code of Conduct
Anti-bribery and Corruption
Tackling Modern Slavery
Ethical Trading Policy
Responsible & Sustainable Procurement
Leadership Remuneration
Integrity
Fully supported by
Board & GLT
Our values
Collaboration
Industry engagement and leadership
Cross-functional approach
Performance
MSCI: AA rating
Sustainalytics: A&D Sector Leader
We deliver responsibly, sustainably and for the benefit of all our stakeholders
Annual Report & Accounts 2021
39
Strategic Report
Responsible and sustainable business continued
Environmental stewardship
Environmental stewardship has never been more important, with climate change and impact on biodiversity ever growing global
concerns. We actively play our part through reducing our greenhouse gas emissions, our conservation activities and the solutions
we provide for our customers to meet their sustainability agenda.
Greenhouse gas emissions and energy management
Total Scope 1 emissions (tCO2e)
Total Scope 2 emissions (tCO2e)
Total Scope 1 & 2 emissions (tCO2e)
Intensity ratio (tCO2e per £m of revenue)
FY21
15,872
13,572
29,444
23
FY20
19,289
16,298
35,587
33
Energy consumption (kWh) resulting in above reported emissions
122,808,625
139,780,656
Proportion of energy consumption arising from UK operations (%)
Proportion of emissions arising from UK operations (%)
99%
99%
98%
98%
FY19
20,096
20,977
41,073
45
N/A
N/A
N/A
Figures subject to FY21 assurance process undertaken by PwC.
In FY19 we set a target to reduce our scope 1 and 2 greenhouse
gas (GHG) emissions by 25% by FY25 from an FY19 baseline
(aligned with Science Based Targets) and continue to make
good progress. We have seen a 28% reduction in our emissions
(against the baseline); this has been primarily due to working
differently during the COVID-19 pandemic, for example reduced
use of QinetiQ vehicles and significantly less employees working
on our sites. While it is positive that our emissions were less
overall, we do expect some increase in FY22 as we see a change
in working patterns.
We have been focusing on developing our net zero strategy and
we plan to retain a FY25 target as an interim step. We continue
to implement improvement programmes across our business,
underpinned by our ISO 50001 certification; some examples of
energy efficiency action taken in the year include:
• Upgrades to air conditioning units on our Malvern site,
which will increase efficiency and significantly increase the
proportion of free cooling. We have seen significant energy
savings since installation.
• We have started a programme to remove and replace the use
of Sulphur hexafluoride (SF6) within some range equipment.
While we only use very small amounts, this refrigerant has a
very high global warming potential and so removal equates
into a significant reduction of emissions.
• We own and manage a significant number of buildings and
so have been emptying buildings no longer used, and moving
to “background” heating, to minimise energy use but protect
building fabric.
• We have engaged with employees through campaigns such as
“the Battle of the Base-load” targeting unnecessary overnight
and weekend energy consumption and holiday shutdowns and
we have a monthly call with our Energy Champions to discuss
projects and ideas.
In FY22 we will focus on:
• Developing our net zero strategy
• Further roll out of sub-metering
• Renewable generation using photovoltaic arrays and
assessment of other potential capability
• Electric vehicles and charging infrastructure
PricewaterhouseCoopers LLP (PwC) carried out a limited assurance
engagement on selected GHG emissions data for the year ending
31 March 2021 in accordance with International Standard on
Assurance Engagements 3000 (revised) and 3410, issued by the
International Auditing and Assurance Standards Board. A copy
of PwC’s report and our methodology is on our website (www.
qinetiq.com/en/our-company/corporate-responsibility/climate-
change). A summary of our Scope 1 and Scope 2 emissions is
shown above; we have adopted a financial control approach and
have used defra emission factors. The figures that have been
covered by this assurance process are indicated in the table by the
following symbol: We also publish here our energy performance
and examples of energy action taken in the year, meeting the
SECR (Streamlined Energy and Carbon Reporting) requirements.
Responding to climate change: TCFD reporting
During FY21 we have been preparing for the formal Task Force
on Climate-related Financial Disclosures (TCFD) reporting
requirements, which come into force for large companies in
FY22. TCFD requires us to demonstrate our understanding of the
impact and opportunities that climate change poses to QinetiQ
Group over the short, medium and long term. This is not just
physical risks (eg changes to temperature and precipitation) but
“transition” risk, such as policy or disruptive technology as the
world de-carbonises. To meet this requirement we will be using
the framework recommended by TCFD, outlining our approach to
governance, strategy, risk management and metrics and targets.
Governance: In FY21 we put in place a new Climate Change
Steering Committee which is chaired by our CFO. We have clear
oversight by both our GLT and our Board and will report regularly.
We will also be working closely with senior leaders responsible
for strategy and for risk.
40
QinetiQ Group plc
Environmental stewardship
Strategy: A key area will be for us to outline the actual and
potential impacts of climate related risks and opportunities
across the Group, and embed consideration of climate change
into our strategy and financial planning. We will also be able to
consider our resilience under different climate change scenarios.
Risk management: There is no one-size-fits-all methodology
and we are selecting appropriate scenarios in order to undertake
the physical risk assessments. We have previously undertaken
climate change risks assessments for core sites and are looking
to build on this to create a robust methodology to roll out to
all sites and assets that enables us to identify, assess and
then manage climate related risks. We are also working on our
approach to transition risk, to reflect the territories where we
have sites, customers and suppliers. We know that this is not a
one-off exercise, but we will need to develop an approach that
allows us to update appropriately.
Metrics and targets: In FY21 we updated our Group non-
financial KPIs and will now be tracking our GHG emissions as
one of our core KPIs (previously reported but not a KPI). We are
transitioning from our current FY25 emissions reduction target
(which focuses on scope 1 and scope 2 emission) to a net zero
strategy. We will also need to look at specific metrics and targets
to assess risk and build into our strategy and risk processes.
See our Non-financial KPIs on pages 26 to 27.
Environmental stewardship
As part of our refreshed Global EHS Strategy (page 42), we
strengthened our commitment to environmental stewardship.
We work to protect our environment, minimising our footprint,
seeking to enhance biodiversity and delivering responsibly
and sustainably for our customers. This has been the case
throughout the pandemic as we’ve maintained our focus
on environmental protection while our sites have remained
operational, as underpinned by our ISO 14001 certification in the
UK and Canada. Environmental issues are reviewed regularly by
the MDs and at the Risk & Security Committee.
Our waste target is to increase the annual proportion (%) of
UK waste re-used and recycled from our underlying waste
production. We have implemented Waste Management Action
Plans at our significant waste producing sites which account
for 95% of waste produced. Performance declined slightly with
81.5% (FY20: 84.7%) of underlying waste reused or recycled.
This was mainly because our Disposals Management Group, as
a key enabler of our reuse and recycling activities, was limited
by COVID-19 restrictions. However total waste was significantly
lower in FY21, down by approximately 34% on the previous year.
During the year we have engaged and communicated with
our people on a range of environmental issues, explaining our
approach to environmental stewardship and encouraging their
participation. Although during the pandemic we’ve had to pause
our environmental volunteering programme, we used World
Environment Day as an opportunity to engage with our teams
through various virtual events. We’ve helped to strengthen
the links between good environmental stewardship and good
business, for example how the business critical work on St.
Kilda has been achieved through meticulous planning for
environmental protection in this extremely sensitive habitat.
Many of the sites we run on behalf of the UK MOD have
significant conservation protection and so our Sustainability
Appraisal approach ensures we can balance complex trials with
careful protection of rare flora and fauna.
As we see our climate changing we are anticipating changes
to habitats and so recognise the need to continue to balance
operational resilience alongside potentially new populations of
rare species. We also work with organisations such as Marwell
Wildlife to facilitate research studies. Using our technical
specialists, we took an innovative approach to understanding
the potential acoustic impact on marine mammals of a new sea-
skimming aerial target, to ensure delivery of a customer trial met
our shared high standards of environmental stewardship.
Sustainable solutions
QinetiQ’s global team is driving military land platform
electrification through the development of the third
generation Modular E-X-Drive transmission. Working with
BAE Systems as prime contractor, QinetiQ’s world leading
electric drive technology will be integrated into a Bradley
Fighting Vehicle for demonstration in summer 2022. As part
of a hybrid electric powertrain which is inherently more fuel
efficient than a conventional mechanical system, E-X-Drive
will deliver improved automotive performance, increased
on board electrical power to feed integrated sub systems,
as well as carbon emissions reduction supporting the
sustainability goals of our customers.
Annual Report & Accounts 2021
41
Strategic Report
Responsible and sustainable business continued
Social: Our people and our communities
We recognise that to support our strategy we must embed a high performance inclusive culture, where health, safety and wellbeing is
a priority and our people are engaged, empowered and clear about how they contribute to our success and feel recognised. We strive
to be a good neighbour and have a positive impact in the communities that we operate in.
Improving the safety, health and wellbeing of our people
The health, safety and wellbeing of our people is our priority and with COVID-19, support for our people and their families has
never been more important. Since 2017 when we launched our three year Environment, Health and Safety (EHS) strategy we
have significantly reduced the number of safety incidents and contributed towards driving a new level of safety culture in our
company. This year we have updated our EHS strategy with four key themes:
1. Enabling and
empowering safe and
competent people
who are engaged
to make informed
EHS decisions
2. Building a community
of strong, active
and visible leaders
who have a clear
commitment to safety,
employee wellbeing
and environmental
matters
3. Globalising our
approach to EHS, so
that we strengthen
governance, support
global working, and
share best practice
4. Continuous monitoring
and improving
to strengthen
performance and
enhance employee
wellbeing while
creating a safe,
successful and
resilient business
The health and wellbeing of our people and the environment in
which we operate are intrinsically linked to our success; with our
people, investors and regulators expecting to see a commitment
to continuous improvement. A focus area for the strategy has
seen the development of a new EHS competency framework,
which now clearly frames the knowledge, skills and behaviours
needed for people to successfully carry out their role. Leaders
and managers play a significant role in cultivating a culture of
safety and wellbeing; leading the way and role modelling the
right behaviours.
We will continue to provide a framework and tools to improve the
conversations and engagement with our people, to communicate
a clear message to support our EHS vision and strategy. We
have a thriving global network of EHS practitioners, who engage
regularly to support global working and share best practice.
COVID-19
Engaging regularly with our people, we put in place a range
of guidance and controls to protect their safety, health and
wellbeing, whether working at home or on site. This has included
enabling 80% of our employees to work remotely with practical
guidance, and office and IT equipment, developing a “working
on site” policy, online training to support safe working on site,
COVID-19 testing for those coming onto site and ensuring all
our sites adhere to COVID-19 guidance in line with government
regulations in each location.
Working through the pandemic has been challenging and so we
have provided additional support through flexible working and
special paid leave.
We have delivered a series of manager briefings to over 800
managers globally and in January we ran a company-wide,
manager led intervention, to engage with our teams on COVID-19
related safety and wellbeing aspects. This has been positively
received enabling our people to share their experiences and any
challenges they face. We continue to monitor the advice and
guidance provided by our home country governments ensuring
the right precautions are in place which meet these requirements
as well as our company standards.
In March 2021 there was an incident which resulted in one of our
employees sustaining serious injuries. We are supporting external
investigations and undertaking our own, to better understand what
happened and any lessons we can learn and apply (see page 94).
Lost Time Incident (LTI) Rate1
2021
2020
2.6
2.7
1
LTI rate is calculated as the number of lost time incidents where the employee
is away from work for one or more days, times 1,000, divided by the total number
of employees.
The LTI rate for the whole of the Group is a key non-financial
KPI (see page 26) and has decreased from 2.7 in FY20 to 2.6 in
FY21. Safety issues are part of a regular governance drumbeat,
monthly through MD meetings, quarterly through GLT meetings
and the Risk & Security Committee, with six monthly summary
overviews to Board. There were no prosecutions, prohibition
notices or improvement notices issued by regulators in the UK
during the last financial year for safety or environmental matters.
42
QinetiQ Group plc
Social: Our people and our communities
Wellbeing
The wellbeing of our people has been one of our top priorities
as we have navigated the pandemic. We have supported our
people through a range of mechanisms, signposting to existing
resources, such as our network of Mental Health First Aiders
and our Employee Assistance Programme, while creating new
guidance and resources, resilience workshops and a focus on
managers regularly “checking-in”with their teams - to reflect not
only that employees have had to adapt to working differently but
also that COVID-19 impacted our wellbeing.
This year we have developed a new global wellbeing strategy, as
part of the EHS strategy, which focuses on five pillars: physical
health, mental health, personal growth, work environment and
financial wellbeing. The strategy sets a five year timeline, to
create and sustain a culture that will differentiate us in our sector,
where all our people are proud to work and we are focused on
both our personal and collective wellbeing.
Engaging with our people
Our people have adapted quickly to new ways of working due
to COVID-19. This has provided an opportunity to create a more
flexible and inclusive working environment, with greater choice
for our people to ensure they are at their most productive in
hybrid ways of working, whether working remotely, on our sites
or through a blended approach.
Employee engagement is a strategic priority and has been
more important than ever through the pandemic. We measure
engagement quarterly across the Group and it has continued to
improve, with a score of 7.3 in January 2021 compared with 6.9
in January 2020. We continue to see good levels of participation
(an average of 74%) similar to FY20. Listening and responding to
feedback from our people has helped us improve the employee
experience, ensuring we can identify the top priorities for us
to address via our Engagement in Action plan. We introduced
specific COVID-19 pandemic questions into Peakon to gain
insights into how our people felt about our response to the
pandemic. The feedback tells us that our people feel that we
responded appropriately and implemented the right precautions
to keep them safe.
We communicate regularly with our people through a range
of channels and this was even more important this year as
we adapted to the pandemic. Our Global Employee Roadshow
became virtual to ensure we continued to provide clarity on
our strategic priorities, and so employees know how they can
contribute and are supported to deliver our goals; we had a
higher than ever attendance. We also introduced a COVID-19
information hub, issued regular COVID-19 news bulletins to keep
employees informed as government requirements and our own
measures evolved across our home and priority countries.
We have revised the purpose and vision of the Employee
Engagement Group and re-launched as the Global Employee
Voice (GEV) which has representatives from each of our home
and priority countries, including our subsidiary companies. The
GEV meet regularly with the CEO and Group Director of Human
Resources and the Chair actively participates at leadership
engagements events. The GEV have met with the Chairman and
Board members during the year (see page 68). We also have a
range of employee networks as part of diversity and inclusion
programme (see page 45).
To underpin our commitment to engagement, our leaders
have a collective objective for engagement as part of their
incentivisation. We have also maintained a focus on supporting
managers, recognising the additional challenges they have
faced with changes to our ways of working. We have provided
additional toolkits and resources, to support wellbeing and
virtual working.
Our voluntary turnover was 8.7% in FY21 compared with 9.7%
in FY20 with key hotspots in markets such as US and Australia.
See our Non-financial KPIs on pages 26 to 27.
Our focus for FY22:
• Further improve employee engagement
by focusing on our priority improvement
areas
• Embed our Global Employee Voice
approach
• Launch our global wellbeing strategy
• Continue to develop our approach to new
ways of working, including leadership and
employee support
Annual Report & Accounts 2021
43
Strategic Report
Responsible and sustainable business continued
Social: Our people and communities continued
Developing our people
As a result of the pandemic, we have adapted the way in which
we deliver our learning and talent management programmes. Our
priorities have focused on maintaining critical SQEP (Suitably
Qualified and Experienced Person) capability, nurturing and
growing our early careers talent pipeline and enabling our leaders
to manage team and individual performance effectively as they
adjusted to remote working or hybrid working practices in their
teams. To achieve this we have;
• Developed a virtual corporate induction and manager team
essentials programme for the UK
• Made significant progress in implementing globalised people
systems and processes by deploying Success Factors, a
global Human Resources Information System
• Increased our investment in and focus on early careers talent
within Australia and UK
• Strengthened our in house coaching capability
• Continued collaboration with industry, e.g. the UK Defence
Growth Partnership and STEM futures, focusing on future skills.
• Matured our Talent Management approach in areas of
identification and assessment to enable global growth.
As a member of The 5% Club, we commit to publishing a
breakdown of our UK early careers community (see chart
below). We also show the percentage of our UK workforce
that comprises early careers; this increased to 3.6% in FY21,
compared with 2.3% in the previous year.
As well as providing apprenticeships for employees early in their
career, we are also actively supporting 33 colleagues at later
stages of their careers to undertake apprenticeships.
Early careers
We have increased our investment in and focus on early
careers talent, with a total of 229 apprentices, graduates
and year-in-industry students at end of FY21. The FY21 UK
intake has significantly increased compared with FY20. In
Australia we continue to develop our early careers pipeline
with a new cohort on-boarded virtually, building on the new
approach developed in the UK. The virtual on-boarding
included a range of channels and interventions and
received great feedback from the community, winning an
Innovation Award in the 2020 recognition programme. For
the cohort that completed their programmes in 2020 we
hosted a virtual celebration event. The engagement in this
community has significantly improved (by 1.6) in Peakon
since July 2020. The Early careers % continues to be a key
KPI, and this year we have expanded it to be a Global, not
just UK focused (see page 27). In addition, we provided 19
high quality, paid summer placements across our business.
See our Non-financial KPIs on pages 26 to 27.
Apprentices
FY18
129
FY19
101
FY20
67
FY21
72
Graduates
109
90
50
98
Sponsored students
11
8
2
24
% UK Workforce
4.8
4.0
2.3
3.6
2018
2019
2020
2021
Our focus for developing our people in FY22:
• Update and globalise mandatory training
• Continue to globalise our people systems
and processes
• Use Success Factors to support career
development and talent management
• Continue investment and development
of our early careers talent
• Improve strategic workforce planning
to underpin our skills and resourcing
strategy
44
QinetiQ Group plc
Social: Our people and communities continued
Creating a diverse and inclusive environment
Our people are critical to our success, so it is vital that we create
a workplace that is inclusive; where our differences are not only
embraced but make us stronger. To achieve this our Inclusion
2025 strategy is focusing on building a workplace and culture
where everyone can feel valued, be authentic and realise their full
potential. Our focus in FY21 has been across three key themes,
awareness of the importance of diversity and inclusion (D&I) to
QinetiQ, leadership and employees.
• We have delivered awareness campaigns on the importance of
D&I as well as targeted campaigns on autism, dyslexia, mental
health, women in STEM, psychological safety, gender balance,
Black History Month, LGBT History Month, the menopause
and disability.
• We rolled out “inclusion” training for all employees and have
developed a new resource hub on a wide range of D&I topics.
We have also created a series of short tool-kits and have
rolled out language and banter team discussion sessions,
across the business.
• For the second year we had D&I as part of our leadership
incentive scheme. Leaders were required to actively participate
in D&I activity and over the course of the year have run team
sessions, written blogs and supported reverse mentoring and
employee networks.
• We have launched new employee networks to broaden
the range of diversity focus. In addition we introduced D&I
champions in each of our business units and functions (Terms
of reference on page 80). Our champions and network leaders
meet regularly to share ideas and best practice.
• Our reverse mentoring programme has been very successful
with our second and third cohorts launched in FY21.
• Our continued focus on gender balance has ensured that
for the third year QinetiQ has been awarded an “Employer
of Choice for Gender Equality” citation in Australia.
Gender diversity
FY21
FY20
Board directors1
Female
3 (37%)
Male
5 (63%)
Female
2 (22%)
Male
7 (78%)
Senior managers2
57 (19%)
239 (81%)
54 (17%)
267 (83%)
All employees3
1,447 (22%) 5,145 (78%) 1,384 (20%) 5,080 (80%)
FY21
1,447
FY20
1,384
5,145
5,080
1 For more information on Board diversity see page 76.
2 Senior managers are defined as employees who have responsibility for planning, directing
or controlling the activities of the Group, or a strategically significant part of it. This
includes directors of subsidiary companies. It includes our Global Leadership Team (GLT)
but excludes our CEO and CFO who are captured under Board directors.
3 Excluding senior managers.
Total employee gender mix
Male
Female
Our D&I priorities in FY22 will be to:
• Continue to raise awareness of
the benefits of a high performing
inclusive culture
• Mobilise our leaders to continue
to undertake D&I activities
• Embed our D&I employee networks
across the business
• Increase our focus on gender balance,
working towards improving female
representation at senior leadership level
Annual Report & Accounts 2021
45
Strategic Report Responsible and sustainable business continued
Social: Our people and communities continued
Reward and recognition
Reward and recognition are key elements of our people strategy
and an important part of our overall value proposition for
employees. We have been listening to feedback and our focus in
FY21 has been on rewarding for performance, our All Employee
Incentive scheme, our Thank-Q programme and our approach to
the gender pay gap.
Our Rewarding for Performance framework has continued to
embed across the Group, including extending our Pay &
Progression board and policy to be global. As part of initial
response to COVID-19 our Board, GLT and senior leaders
voluntarily took short-term measures to support our cost and
cash conservation activities (see page 94 for details). Our All
Employee Incentive Scheme (AEIS) for FY21 performance was
increased to £1,250 for stretch performance (previously £1,000),
and our FY21 award payout of £1,217 reflects the outstanding
contribution by our people. Our Thank-Q programme continues
to be the key mechanism for spontaneous through year
employee recognition, and for FY21 we held a virtual gala event
to recognise and celebrate those employees who have gone
above an beyond. Our mean UK Gender Pay Gap for FY20
(reported in March 2021) has decreased to 13.9 % (14.8% in
the previous year).
Supporting the armed forces
As a signatory to the UK Armed Forces Covenant and Gold
Award winners in the MOD Defence Employer Recognition
Scheme, we are proud to support the armed forces, our own
employees who serve as reservists, cadet force adult volunteers,
forces spouses and cadets. This year we launched a new
network for employees who are ex-military (veterans and
reservists) as part of our D&I programme.
Investing in our community
Our aim is to be a good neighbour to benefit the wider socio-
economic wellbeing of the communities where we operate. Our
approach is to understand local needs of the communities in
which our businesses are based, and to align these with our
business strategy and our employees’ professional skills. We
offer time for volunteering and one of the main ways we support
our local communities is through STEM (science, technology,
engineering and maths) outreach with young people, raising
aspirations and signposting to rewarding careers. Due to
COVID-19, we have had to quickly adapt our outreach activities,
which have traditionally been in person and so could not continue
safely in that format. With schools closed for part of the year
and the need for our employees to focus on their core role to
support national defence and security, we have not been able to
reach as many young people directly through outreach activities
as we have done in previous years. However, we adapted our
volunteering criteria to recognise a new need in our communities
and ways for our employees to contribute, for example
supporting the emergency services. At a time when COVID-19
has caused significant uncertainty for many young people in
education, it is important that we continue to play our part.
46
QinetiQ Group plc
FY21 Case study
International Women in Engineering Day (INWED):
23rd June 2020
To celebrate INWED we ran a communications campaign
and a series of virtual events; a webinar on engineers
“Shaping the world” in Australia, “Meet the Engineer” panels
in the UK, and in the US, a live practical activity. In each
session, attendees were able to talk to our female engineer
panellists about their career pathways.
We have valued the expertise of partners such as the Jon Egging
Trust, STEM Learning and Primary Engineer in the UK to continue
to understand young peoples’ current needs, and to design and
deliver virtual and remote outreach activities, which we can
deliver globally. Our STEM Ambassadors have adapted resources
and engaged with partner schools to adapt to their new needs.
Highlights in FY21 include:
• Adapting STEM Outreach activities to a virtual audience in
the UK, US and Australia, such as a “Meet our Engineers”
event for International Women in Engineering Day in June
• Our STEM Ambassadors engaged with an estimated 1,000
young people in the UK through bespoke online outreach
activities, and through larger events or external organisers
such as Ask Me I’m an Engineer
• Our Australia CR&S Committee continued to work together
remotely and fundraise over $25k for a number of their
chosen charities (eg supporting veterans, mental health
and emergency services)
• Launch of a three-year charity partnership with SSAFA,
The Armed Forces Charity, in the UK
In FY22 our focus will be:
• To further develop virtual STEM outreach resources and
activities, reaching a wider and more diverse audience
• Continue to learn from and collaborate with our charity
and outreach partners and contribute to employee
engagement
• Focus on our Armed Forces Covenant commitments
Governance: How we do business
This section focuses on how key aspects of governance support how we do business responsibly and
sustainably. It is linked to our corporate governance section which provides detail on Board oversight.
Human rights
As part of our ongoing programme to address modern slavery,
we introduced a new action plan across the Group. We provide
in-depth training to people in key roles and continue to develop
new supporting resources for all employees. We regularly review
our policies and our approach to risk in the supply chain. Our
Supplier Code of Conduct helps to ensure our suppliers have
clarity of their responsibilities on human rights. Our annual
modern slavery and human trafficking statements are published
on our website. We seek to anticipate, prevent and mitigate
potential negative human rights impacts through our policy
and processes, which underpin our commitment to responsible
business practices. For example, we address salient human
rights issues through our Code of Conduct, trading policy,
international business risk management process and export
controls process. We monitor the application of these policies
and procedures through our business assurance processes and
regular self-assessment with oversight by our Business Ethics
Committee. We believe that this integrated approach is effective
in ensuring our business acts responsibly and respects all
human rights.
Working with our supply chain
Our supply chain is an extension of our own organisation.
We ensure that it is committed to the same standards of safety,
security and governance as we are. We have a Supplier Code
of Conduct and our on-boarding and vetting process ensures
that suppliers understand the issues important to us. We
are signatories to the UK Prompt Payment Code, and report
our payment details as required by legislation. We focused
on paying small supplier early through COVID-19. In FY21
we ran supplier events to raise awareness of issues such as
social value and modern slavery. Working in collaboration with
wider industry we foster and develop ecosystems which draw
together communities to answer complex science, engineering
and technology challenges, supporting our customer offering.
Through this approach we enable access to opportunities of
Small to Medium Sized Enterprises and non-traditional defence
suppliers, removing barriers of entry and promoting inclusive
procurement.
Business ethics – doing business the right way
Our Code of Conduct defines our ethical standards, providing
clear direction and guidance on how we do business. It also
contains information on ethical decision-making and how to seek
help. We review it annually to reflect the evolving needs of our
business, the regulatory environment and best practice. Annual
business ethics training is mandatory and supports our people
in understanding and using the Code of Conduct. The training
is undertaken by our Board and is available to our suppliers and
customers. We provide a number of challenging scenarios to
help our people know what to do if they were to come across
issues such as bribery, fraud, harassment, conflict of interest
and modern slavery.
We strive to create an environment where our people feel
confident to “speak up” and provide a number of different ways
for them to seek help or raise concerns, which we promote
in awareness campaigns, in the code of conduct and in our
ethics training. They can talk to a manager, use our ethics email
advice services, our global network of Ethics Champions and
our independently run, 24/7, confidential reporting line. We have
responded to all queries received via our ethics email advice
services and confidential reporting line. These routes are also
available to third parties. We provide guidance for managers
on how to create an open and inclusive environment where
our people feel confident to raise concerns, and how to listen
to and support anyone who may come to them with an issue.
Our approach to confidential reporting is overseen by our Audit
Committee (see page 88). Our ethics programme is overseen
by our Business Ethics Committee, chaired by our Chief Ethics
Officer (the Company Secretary). We are members of our trade
association, ADS, Business Ethics Network where members can
share best practice on ethics, human rights and anti-bribery.
Anti-bribery and corruption (ABC)
We have a zero-tolerance approach to bribery and corruption.
Our ABC programme is continuously reviewed to ensure that it
adheres to regulatory requirements and addresses the bribery
and corruption risks that we recognise face our Company.
The principles of our anti-bribery and corruption procedure
are embedded within key processes and instructions, covering
subjects such as the use of commercial intermediaries, gifts
and hospitality and facilitation payments. All third parties that
we engage with are subject to initial, and repeat, risk-based due
diligence, along with ongoing monitoring to address bribery and
corruption risks. In addition to our mandatory business ethics
training we provide specific training for our people in roles with
a higher potential exposure to bribery and corruption risks which
is repeated bi-annually. The programme is overseen by the Chief
Ethics Officer and receives internal assurance and oversight to
ensure that it remains effective. No material breaches of our
procedures were identified during the year.
Annual Report & Accounts 2021
47
Strategic Report Section 172 (1) statement
We welcome our responsibilities to promote the success of the
company in accordance with section 172 of the 2006 Companies Act.
The Board of Directors confirm that during the year under review, it has acted to promote the long-term success of the Company
for the benefit of the shareholders, while having due regard to matters set out in section 172(1)(a) to (f) of the Companies
Act 2006, being:
s. 172(1) matter
Relevant disclosures
(a) The likely consequences of any decision in the long term
Company purpose – pages 39 and 65
Business model – pages 10–11
Strategy – page 16
Dividend policy – page 25
Longer-term viability statement – page 37
(b) The interests of the Company’s employees
Improving the safety, health and wellbeing of our people – pages 42–43
Engaging with our people – page 43
Developing our people – page 44
Rewarding and recognising our people – page 46
Non-financial information statement – pages 50–51
Board employee engagement – pages 67–68
Diversity and inclusion – page 45 and 79 to 80
(c) The need to foster the Company’s business relationships
Business ethics – doing business the right way – page 47
with suppliers, customers and others
Anti-bribery and corruption – pages 47 and 51
Human rights – pages 47 and 51
Modern slavery – pages 47 and 51
Supply chains – page 47
Supplier stakeholder management – page 47
(d) The impact of the Company’s operations on the
Responding to climate change – pages 40–41
community and the environment
Greenhouse gas emissions and energy management – page 40
Investing in our community – page 46
TCFD disclosures – page 40
(e) The desirability of the Company maintaining a reputation
Stakeholder propositions – page 4
for high standards of business conduct
Our sustainable business model – pages 10–11
Our values – page 6
Our Culture – page 66
Our approach to responsible and sustainable business – page 39
Internal controls – page 86
(f) The need to act fairly between members of the Company
Investor engagement – pages 69–70
The Annual General meeting – page 71
48
QinetiQ Group plc
Our Chairman, with the assistance of the Company Secretary,
sets the agenda for each Board meeting to ensure that the
requirements of section 172 are always met and considered
through a combination of the following:
• Board papers ensure that stakeholder factors are addressed
where judged relevant
• Standing agenda points and papers presented at each
Board meeting: for example, the CEO presents updates on
the financial overview, strategic progress, investor relations,
businesses development, and operational progress. The
Company Secretary also presents at each Board meeting
relevant corporate governance and compliance matters
• A rolling agenda of matters to be considered by the Board
throughout the year, including a two-day strategy review, which
considers the purpose and strategy for the Group, supported
by a budget for the following year and a medium-term (five-
year) financial plan. Agenda items for the following year are
set based on the discussions held and decisions taken by the
Board throughout the year
• Consistent approach to minute taking with details as to when
section 172 factors are being considered
Board activity and principal decisions in FY21
The principal decisions taken by the Board in FY21 are detailed
on pages 60 to 64. These decisions cover a variety of topics,
including the Group’s response to COVID-19, our Environment,
Health and Safety strategy and portfolio optimisation decisions.
Due to the nature of these decisions, a variety of stakeholders
had to be factored into the Board’s discussions.
Typically in large and complex companies such as QinetiQ,
the Directors fulfil their duties partly through a governance
framework that delegates day-to-day decision making to the
employees of the company. The Board recognises that such
delegation needs to be part of a robust governance structure,
which covers our values, how we engage with our stakeholders,
and how the Board assures itself that the governance structure
and systems of controls continue to be robust. The main
methods used by the Directors to perform their duties include:
• An annual strategy meeting which assesses the long-term
sustainable success of the Group and our impact on key
Stakeholders
• The Board’s risk management procedures identify the
potential consequences of decisions in the short, medium
and long term so that mitigation plans can be put in place to
prevent, reduce or eliminate risks to our business and wider
stakeholders (see pages 30 to 36)
• The Board sets the Group’s purpose, values and strategy and
ensures it is aligned with our culture (see page 65)
• Direct and indirect stakeholder engagement (see pages 38 and
67 to 71)
• External assurance is received through audits, stakeholder
surveys and reports from brokers and advisers
• Specific training for our Directors and senior managers
(see page 82)
• Regularly scheduled Board presentations and reports, by
way of example: customer engagement, risk register reports,
health & safety reports, whistle blowing reports (if relevant),
defence process review, dividend policy and people and culture
strategy and developments
• The discharge of Directors’ duties and oversight of
these duties, of which further details are included in
the Governance section
• Corporate responsibility, including business ethics, anti-bribery
and corruption, human rights, environmental stewardship
and use of resources, sustainable solutions, greenhouse gas
emissions and energy management, investing in our local
communities and our commitment to the armed forces
• Formal consideration of any these factors which are relevant
to any major decisions taken by the Board throughout the year
• Review of many of these topics through the risk management
process and other standard Audit Committee, Risk & CSR
Committee and Remuneration Committee agenda items
Annual Report & Accounts 2021
49
Strategic Report Non-financial information statement
The non-financial reporting requirements
contained in sections 414CA and 414CB of the
Companies Act 2006 are addressed within this
section by means of cross reference in order
to indicate where they are located within the
strategic narrative and to avoid duplication here.
We have a range of policy and guidance,
some of which is published on our website:
www.QinetiQ.com.
Certain of the non-financial information required
pursuant to the Companies Act is provided by
reference to the following locations:
Non-financial information
Section
Business model
Policies
Business model
Non-financial information
statement
Principal risks
Risk review
Principal risk management
Risk performance
Key performance indicators
Key performance indicators
Pages
10–11
50–51
31–32
32–36
32–36
26–29
Our people
Policy statement
Code of Conduct
Health and safety
Description
Our Code of conduct lays out our ethical standards, providing our people with clear direction and guidance
on how we do business across the Company. There are details on ethical decision making and also how
to seek help and raise concerns. The code is structured to include a range of advice for our people, our
customers and partners, our company and shareholders and our communities and the public. We review our
Code of Conduct annually to reflect the needs of our business, regulations and best practice.
Our Health and Safety policy outlines our commitment to continuously improving standards of safety
management and compliance. The effectiveness of the policy is governed through our assurance process
and our six-monthly self certification. Safety issues are part of a regular governance timetable, monthly
through MD meetings, quarterly through Global Leadership Team (GLT) meetings and Board with a six-
monthly summary overview to the Board.
Diversity and inclusion
Our Equality, Diversity and Inclusion (ED&I) policy details our approach to promoting ED&I in our workplace.
The effectiveness is governed via our assurance processes and KPI with monthly oversight by our GLT as
well as regular oversight by the Board.
The environment
Policy statement
Description
Environmental management
Energy and carbon management
Waste management
Sustainability appraisal
We are committed to embedding an environmentally sustainable approach to business because we
understand its importance to our business and our stakeholders. The effectiveness of our policy is governed
through our assurance process and our six-monthly self certification. Environmental issues are part of a
regular governance timetable, with oversight by the GLT and the Board. We are certified to ISO 14001 in the
UK and Canada and so are subject to external audit.
Underpinning our ISO 50001 certified energy management system is our energy and carbon management
policy, which creates the framework for our Energy Management Action plans. Our policy is part of regular
governance review and self certification as well as external audit to ensure we are meeting certification
requirements.
We recognise that reducing waste meets our sustainability goals, and improves efficiency. The effectiveness
is governed via our assurance processes and KPI with monthly oversight by our GLT as well as regular
oversight by the Board.
Sustainability appraisals are required under the LTPA. They involve an assessment of an activity across 16
sustainability themes. The effectiveness is governed via our assurance processes as well as regular review
and oversight by the UK MOD customer.
50
QinetiQ Group plc
Community and Society
Policy statement
Description
Volunteering policy
Safeguarding children
and vulnerable adults
Tax
Our policy provides guidance for employees to use company time to use their skills to make
a positive difference in the community. The effectiveness is monitored by the CR&S team
and via our assurance process.
Our policy explains the importance of safeguarding as part of our community investment programme
and outlines requirements for risk assessment and the right behaviours. The policy is managed both
by the CR&S team and locally by safeguarding experts in our Early Careers Team and is managed via our
assurance process.
Our Tax strategy (available on our website) outlines our commitment to being compliant with tax legislation,
wherever we do business. We recognise our responsibility to pay the right amount of tax, at the right time
and in the right jurisdiction. Oversight of this commitment comes through external challenge, such as
business risk reviews and audit questions from tax authorities and external auditors and internal reviews
such as quarterly tax updates with executive level reviews of process and procedure.
Sponsorship and donations
Our policy is designed to ensure that all donations are made to appropriate organisations. We ensure that
there is screening and due diligence and we also undertake selection with oversight of the CR&S team and
the Sponsorship and Donation Committee. This is managed by our assurance process.
Human rights
Policy statement
Human rights
Description
We seek to anticipate and prevent potential negative human rights impacts through our policy and
processes and address salient human rights issues through our Code of Conduct, trading policy,
international business risk management process and export controls process. We monitor the application of
these policies through our business assurance processes and regular self assessment and with leadership
oversight (GLT and Board). We believe that this integrated approach is effective in ensuring our business
acts responsibly and respects human rights.
Modern slavery
Our policy focuses on management of the supply chain and the requirements for due diligence. In addition
we include modern slavery in our resourcing policy. The effectiveness is monitoring via our assurance
programme and leadership oversight (GLT and Board).
Supply chain code of conduct
Our supplier code of conduct helps ensure our suppliers have clarity on our expectations on human rights
issues.
International trade compliance
As an international business, it is vital that we operate fully within the requirements of international
export requirements and this is address by our policy. The effectiveness is monitoring via our assurance
programme and leadership oversight (GLT and Board).
Anti-bribery and anti-corruption
Policy statement
Description
Code of Conduct
Our Code of conduct lays out our ethical standards, and contains advice on anti-bribery and corruption.
Anti-bribery and corruption
Our anti-bribery and corruption policy sets out our responsibilities in observing and upholding our zero
tolerance approach to all forms of bribery and corruption. This important policy has significant senior
oversight at GLT and Board level, is managed via our assurance processes and self certification and there are
regular internal audits.
Commercial intermediaries
Managing commercial intermediaries is one of a suite of key polices which supports our zero tolerance
approach to ABC. It provides clear guidance on approach. This policy has executive and Board oversight,
is subject to our assurance process and self certification.
Sanction screening
Gifts and hospitality
It is key that we comply with any sanctions requirements and so undertake various screenings. This is
captured in our policy which has GLT and Board oversight, is subject to our assurance process and self
certification.
Our gifts and hospitality policy is one of a suite of polices which supports our zero tolerance approach to
ABC. It provides clear guidance on what is appropriate and how to record. This policy has GLT and Board
oversight, is subject to our assurance process and self certification.
Annual Report & Accounts 2021
51
Strategic Report Corporate Governance
52
QinetiQ Group plc
An introduction from our Chairman
Governance framework
Board of Directors
Board activity
Board decision making
Purpose, values and culture
Stakeholder engagement
Division of responsibilities
Composition, succession and evaluation
Nominations Committee report
Director effectiveness
Audit, risk and internal control
Audit Committee report
Risk & Security Committee report
Remuneration at a glance
Annual report on remuneration
Directors’ report
Independent auditors’ report
55
57
58
60
61
65
67
72
75
75
80
83
85
92
97
100
113
117
Annual Report & Accounts 2021
53
Governance Corporate Governance
Statement of compliance with the 2018 UK Corporate Governance Code (the Code)
The Board is accountable to shareholders for its standards of governance and throughout the year the Board has applied and
been compliant with the principles and provisions set out in the Code, with the exception of Provision 38 (alignment of Executive
Directors’ pension with those available to the employees). See page 99 for further information. The Code is publicly available
at www.frc.org.uk.
Listed below are the Code principles, and details of where we have addressed them in this Annual Report.
1. Board Leadership and Company purpose
3. Composition, succession and evaluation
Provides an overview of the activities undertaken by the
Board in the year, how the Board has considered its s. 172(1)
responsibilities and its governance framework
Code principle A
• Section 172(1) statement – pages 48 to 49 and 61 to 64
• Board of Directors – pages 58 - 59
Code principle B
• Our growth strategy – page 16
• Section 172(1) statement – pages 48 to 49 and 61 to 64
Sets out key processes, which ensure that the Board and
its Committees can operate effectively
Code principle J
• Nominations Committee report – pages 75 to 82
Code principle K
• Board of Directors – pages 58 to 59
• Nominations Committee report – pages 75 to 82
Code principle L
• Director effectiveness – pages 80 to 82
4. Audit, risk and internal control
Explains the role of the Board, the Audit Committee and the Risk
& Security Committee in ensuring the integrity of the financial
statements and maintaining effective systems of internal controls
Code principle M
• Audit Committee report – pages 85 to 91
Code principle N
• Fair, balanced and understandable – page 89
Code principle O
• Risk Management – pages 30 to 36
• Audit Committee report – pages 85 to 91
• Risk & Security Committee report – pages 92 to 94
5. Remuneration
Describes the Company’s remuneration arrangements in
respect of its Directors, how these have been implemented
in FY21, and details of our remuneration policy
Code principle P
• Directors remuneration report – pages 95 to 112
Code principle Q
• Directors remuneration report – pages 95 to 112
Code principle R
• Directors remuneration report – pages 95 to 112
• Company purpose – page 65
• Culture – pages 66 to 67
Code principle C
• Strategic report – pages 2 to 51
• Audit Committee report – pages 85 to 91
• Risk & Security Committee report – pages 92 to 94
Code principle D
• Our people and communities – pages 42 to 45
• Stakeholder engagement – page 38 and 67 to 71
• Section 172(1) statement – pages 48 to 49 and 61 to 64
Code principle E
• Our people and communities – pages 42 to 45
• Employee engagement – pages 67 to 69
• Confidential reporting – page 84
2. Division of responsibilities
Explains the roles of the Board and its Directors
Code principle F
• Governance framework – page 57
• Division of responsibilities – pages 72 to 74
Code principle G
• Governance framework – page 57
• Board of Directors – pages 58 to 59
• Division of responsibilities pages – 72 to 74
Code principle H
• Section 172(1) statement – pages 48 to 49 and 61 to 64
• Time commitment – page 73
Code principle I
• Board and Committee processes – page 74
54
QinetiQ Group plc
An introduction from our Chairman
“ As a Board, we have focused
on taking the essential decisions
and steps to successfully navigate
QinetiQ through this unprecedented
period of time, while protecting
all of our stakeholders.”
Dear Shareholder,
I am pleased to present this year’s corporate governance
statement. This report provides a summary of the system
of governance adopted by the Company and will enable our
shareholders to evaluate the manner in which the Code’s
principles and provisions have been applied by the Company
(Listing Rule 9).
Board activities and response to COVID-19
The year has been dominated by the COVID-19 pandemic and the
unprecedented challenges it has presented. At the outset of the
pandemic, we as a Board worked quickly and decisively with the
senior management team in developing a Group-wide strategic
framework to focus on three main priorities:
1. Protecting our employees’, and their families’, health
and wellbeing
2. Continuing to deliver for our customers, to support national
defence and security
3. Sustaining our company for the long term
This framework has remained relevant and important throughout
the pandemic and has allowed us to focus on delivery and
response to the challenging environment in which we continue
to operate.
During the year we have called on the extensive skills and
experience of the entire Board when navigating through this
period. Our robust governance framework, and how this
is implemented, has been fundamental to our ability to do
this successfully.
Stakeholder engagement – more important
than ever
As a result of the pandemic, the Board had to make a number
of challenging decisions, which affected all our stakeholders
in different ways, and we have sought to balance the needs of
our many stakeholders throughout the year, be they employees,
customers, suppliers, shareholders or regulators, while taking
steps to secure the Group’s longer term success. There has
been a constant dialogue with all of the main stakeholder
groups, and on behalf of the Board, I would like to take this
opportunity to thank them all for their partnership during this
very challenging time.
The 2018 UK Corporate Governance Code emphasises the need
for boards to develop effective relationships with all stakeholders,
including understanding their views. My fellow Directors and
I have worked extensively on our approach to these important
matters, to ensure that all voices – those of shareholders,
employees, customers, suppliers and communities – find their
way to the Boardroom.
Environmental, Social and Governance (ESG)
During the year, the Board and I have had many discussions
on how to best keep evolving our approach to ESG matters. As
part of our regular business review, we are able to oversee and
monitor management of ESG issues, which are being delivered
through our Corporate Responsibility and Sustainability function.
We are proud of the significant progress made to date on our
ESG strategy, and we continue to support the business in its
ambition to embed this further into corporate strategy and
decision making.
Annual Report & Accounts 2021
55
Governance Corporate Governance Statement
An introduction from our Chairman continued
We recognise and welcome the growing focus by our
shareholders, customers and employees on these important
matters, the need for us to reflect our stakeholders’ expectations,
and the added value in areas such as business opportunities,
employee engagement, and energy efficiency. This approach has
informed and guided our response to the COVID-19 pandemic,
with a focus on caring for our employees, supporting the
communities and customers we serve, and help protect and
restore the economies we operate within.
To ensure that the Board can provide the appropriate oversight to
ESG issues we have established a new Climate Change Steering
Committee, chaired by our CFO. The Climate Change Steering
Committee is placed underneath the Global Leadership Team,
with the CFO providing a direct link to the Board.
Culture
Promoting a culture of openness and debate in the boardroom is
one of my key responsibilities as Chairman, and as a Board we
play an important leadership role in promoting the desired culture
throughout the organisation. By spending time with the business
and its people, the Board and I have seen that the culture and
values of QinetiQ (integrity, collaboration and performance), are
clearly embedded and genuinely lived. In QinetiQ, I have found a
culture that is grounded, responsible and humble, where people
have confidence in their capabilities and our strategy, and with
a strong desire to learn and develop. The Company has spent
considerable time over the last few years getting the culture right
and we are continuing this journey.
Board and Management Succession
In April 2021 we announced with great sadness that Ian Mason
had passed away suddenly. Ian had been a Non-Executive
Director on the QinetiQ Board since June 2014. He was a
trusted and valued colleague and friend, and our thoughts
are with his family.
We welcomed Shonaid Jemmett-Page to the Board in May 2020.
She took on the position as Audit Committee Chair when Paul
Murray stepped down from the Board in July 2020. Shonaid
has a strong financial background and is an experienced
Non-Executive Director in the energy and financial sectors,
which has served to strengthen the Code’s requirement that at
least one member of the Committee has recent and relevant
financial experience. During the year she has provided the Audit
Committee with a fresh perspective, suitable challenge and
scrutiny of the external auditors, and her input to the Board
discussions has been invaluable.
In October 2020 Gordon Messenger was appointed to the Board
and in January 2021 he succeeded James Burnell-Nugent, who
retired from the Board in December 2020, as the Chair of the
Risk & Security (formerly Risk & CSR) Committee. Gordon’s
unique operational experience from the Defence sector has
already enabled him to steer the Risk & Security Committee
successfully in its new direction.
Ensuring a diverse culture on the Board and the Global
Leadership Team (GLT) is crucial to improving effectiveness,
encouraging constructive debate, delivering superior
performance and enhancing the success of the Company.
We currently have 37.5% women on the Board and 27% women
on the GLT. We continue to be committed to our gender and
ethnic minority diversity targets on the Board, the GLT and the
Group as a whole.
Restructuring our Committees
In order to simplify the scope and to better align with the evolving
skills and experience profile of the Board and the operational
focus of the GLT, the Board decided that it would be most
appropriate to oversee the very important matters of ESG and
Corporate Responsibility & Sustainability at Board level, by the
Board as whole, by way of a regular and in-depth agenda item.
Through our many discussions, we also agreed that Risk
management and Security are such important matters, as part
of our corporate strategy and our Governance framework, that
these two items would be best overseen by a Committee of
their own. Therefore, during the year, the Risk & CSR Committee
evolved into the Risk & Security Committee.
Remuneration
This year was the first year of the Directors’ Remuneration
Policy that was approved by shareholders at the AGM in 2020
(the Policy). The Board’s Remuneration Committee has focused
during the year on ensuring that the Policy is continuing
to operate as intended to reward, retain and incentivise
appropriately the Executive Directors who are driving the
Company’s success. It has done so by seeking to ensure that
the Company’s remuneration schemes and their outcomes for
Executive Directors continue to be transparent, aligned with the
Company’s strategy and aligned with the interests of, and returns
delivered to, shareholders.
Annual General Meeting
We are delighted this year to for the first time offer shareholders
the opportunity listen to the AGM via a secure telephone line.
Further details will be posted in the Notice of AGM and on www.
QinetiQ.com.
Conclusion
I would like to take this opportunity to express my gratitude to
all employees of QinetiQ, the CEO and his executive team and
my fellow Directors for all their hard work during this challenging
time. All the people of QinetiQ have shown incredible resilience,
coming together to deliver critical outputs to our defence and
security customers against the backdrop of a global pandemic.
Neil Johnson
Non-Executive Chairman
56
QinetiQ Group plc
Board leadership and Company purpose
Governance framework
This is the structure through which the Company is managed. It has evolved over time, and continues to evolve to meet the needs
of the business and the Company’s stakeholders. Boards of large companies invariably delegate day-to-day management and
decision-making to Executive Management. Directors should maintain oversight of a company’s performance and ensure that
management is acting in accordance with the strategy and its delegated authorities. At QinetiQ, the culture, values and standards
that underpin this delegation help to ensure that when decisions are made, their wider impact has been considered. The Board has
reserved certain matters (posted at www.QinetiQ.com) for its own consideration so that it can exercise judgement directly when
making major decisions, and in doing so, promoting the success of the Company. The Company’s success depends on the Board’s
continued commitment to high standards of corporate governance and a strong, positive culture across the business, while managing
effectively the risks and uncertainties of the markets in which it operates.
Shareholders
Chairman
Responsible for the leadership of the Board and for ensuring that it operates effectively through dynamic discussions and challenge.
The Board is responsible for leading the Group, by setting strategic priorities and overseeing the delivery of the strategy in a way
that promotes sustainable long-term growth, while cultivating a balanced approach to risk within a framework of effective controls and
taking into account the interests of a diverse range of stakeholders.
Board of Directors
Committees
Audit Committee
Nominations Committee
Remuneration Committee
Reviews and monitors the Group’s financial
accounting and reporting processes
and the integrity of published financial
statements. Reviews the Group’s system of
internal control, including the effectiveness
of its internal audit function and the
independence and effectiveness of its
external auditor.
Considers the structure, size and composition
of the Board and Committees, and succession
planning. It identifies and proposes individuals
to be Directors and also for Executive
Management, and establishes the criteria for
any new positions.
Determines and recommends to the Board
the framework for the remuneration of the
Company’s Chairman, CEO, CFO and GLT.
Oversees workforce remuneration and
workforce policy.
See pages 85 to 91 for Committee Report
See pages 75 to 82 for Committee Report
See pages 95 to 112 for Committee Report
Risk & Security Committee
Disclosure Committee
To provide scrutiny and assurance to
the Board, that the required standards of
risk management, security, health and
safety within the UK, and internationally,
are achieved.
See pages 92 to 94 for Committee Report
Established in 2016 following the requirements
of the Market Abuse Regulations (MAR). The
Committee comprises all Board members
except for when called on short notice when
it comprises the Chairman, the CEO, the CFO
and any one of the Committee Chairs.
Responsible for the day-to-day running of the Group’s business and performance, and the development and implementation of the Group strategy.
The Chief Executive Officer
The Global Leadership Team (GLT)
The interaction between the Board and the GLT enables the Board to receive information first-hand about the Company and its operations
and to give guidance on strategy and oversight of the business direct to senior management.
The GLT meets twice a month. It is responsible for the day-to-day management of the Group’s activity. The focus of the GLT includes
managing the business, delivering the strategy, managing risk, establishing financial and operational targets and monitoring performance
against those targets.
Annual Report & Accounts 2021
57
Governance
Board Leadership and Company purpose continued
Board of Directors - an experienced and balanced Board
The Chairman considers all of the Directors to contribute valuably, and to continue to be paramount to the Company’s long-term
sustainable success.
Neil Johnson
Chairman
Nationality: British
Steve Wadey
Chief Executive Officer
Nationality: British
David Smith
Chief Financial Officer
Nationality: British
Skills, competence and experience: Neil’s former
CEO experience and current roles as a plc Chairman
and Non-Executive Director brings to the Board
relevant knowledge, challenge and leadership.
Skills, competence and experience: Steve’s proven
track record of driving growth, and his in-depth
experience of defence and technology industries is of
essential importance and benefit to the Board.
Starting his career at Sandhurst and the Army, Neil
spent much of his early career in the automotive and
engineering industries. He was worldwide Sales and
Marketing Director at Jaguar before being seconded
to the UK Ministry of Defence to command 4th
Battalion The Royal Green Jackets. He returned to
the industry with British Aerospace, initially running
Land Rover and then all of its European automotive
operations. Neil was later CEO of the RAC, and former
Director General of the EEF and a Home Office
appointed Independent Member of the Metropolitan
Police Authority. He was previously Chairman of
Motability Operations and Centaur Media plc.
Other appointments: Chairman of Electra Private
Equity plc and Senior Independent Non-Executive
Director of the Business Growth Fund.
Steve is a Fellow of the Institution of Engineering and
Technology, the Royal Aeronautical Society, and the
Royal Academy of Engineering. He was previously
Co-Chair of the UK Defence Growth Partnership, a
member of the Prime Minister’s Business Advisory
Group, Co-Chair of the National Defence Industries
Council Research and Development Group, and a
Non-Executive Director of the UK MOD Research and
Development Board. Steve has held various roles
with MBDA, including as Managing Director, MBDA
UK. Previously he held various roles with Matra BAe
Dynamics and British Aerospace.
Other appointments: Chair of the Defence Industry
Liaison Board of the UK Department for International
Trade, Defence & Security Exports.
Skills, competence and experience: David provides
significant expertise to the Group from his broad and
comprehensive executive experience in blue-chip
companies and work in the aerospace and defence,
technology, and automotive sectors.
David is an Associate of the Chartered Institute
of Management Accountants and a member of
its Advisory Panel. He was previously the CFO of
Rolls-Royce Holdings plc, having joined as CFO of
its Aerospace Division. Prior to that, David was CFO
of Edwards Group and CEO of Jaguar Land Rover,
having previously been its CFO. He has also held a
variety of roles with the Ford Motor Company, and
was previously a Non-Executive Director of Motability
Group plc.
Other appointments: N/A
Michael Harper
Deputy Chairman and Senior
Independent Non-Executive Director
Nationality: British
Skills, competence and experience: Michael brings
to the Board a wealth of operational and corporate
experience from a lengthy career as a business
leader and Board member within, among others, the
engineering and aviation industries. He continues to
provide highly valuable advice to the Board and its
discussions, in particular in his capacity as the Senior
Independent Director.
Michael has served as Chairman of Ricardo plc, Vitec
Group plc, and BBA Aviation plc, having previously
been its CEO. Michael previously served as Senior
Independent Director of Catlin Group Limited, as a Non-
Executive Director of Williams plc and the Aerospace
Technology Institute, and as CEO of Kidde plc.
Other appointments: N/A
Lynn Brubaker
Independent Non-Executive Director
Nationality: American
General Sir Gordon Messenger
Independent Non-Executive Director
Nationality: British
Skills, competence and experience: Lynn’s
experience from a number of senior Board positions
at various US-based companies, in particular in the
aerospace sector, makes her a valuable member
of the Board and enables her to provide insightful
advice on matters such as strategy and customer
stakeholder management.
Lynn has held positions as Non-Executive Director
of Force Protection, Inc., Seabury Group, Graham
Partners, Cordiem, the Nordam Group, the Flight
Safety Foundation (as Chair), the Hexcel Corporation
and as a member of the Management Advisory
Council of the Federal Aviation Administration. Lynn
was also the Vice President and General Manager of
Commercial Aerospace at Honeywell International.
Other appointments: Non-Executive Director of FARO
Technologies Inc.
Skills, competence and experience: Gordon brings
vast experience from the armed forces having
served for 37 years as a Royal Marine. Throughout
his military career he served in key appointments in
various UK and NATO Headquarters, overseeing the
planning and execution of UK and coalition military
and humanitarian relief operations worldwide. He
most recently served as Vice Chief of the Defence
Staff, a position he held for three years until his
retirement in 2019.
His unique experience enables him to provide
invaluable insight in his role as the Chair of the Risk &
Security Committee.
Other appointments: UK Member of the international
Defence Reform Advisory Board for Ukraine.
58
QinetiQ Group plc
Committee Membership Key
Audit
Nominations
Remuneration
Risk and Security
Chairman of Committee
Jon Messent
Company Secretary and Group General Counsel
Nationality: British
Skills, competence and experience: Jon joined QinetiQ
from Chloride Group plc where he held a similar role.
He has a background in legal private practice as well as
General Counsel and Company Secretary.
Susan Searle
Independent Non-Executive Director
Nationality: British
Shonaid Jemmett-Page
Independent Non-Executive Director
Nationality: British
Skills, competence and experience: Susan brings
to the Board essential experience of investing
in growing technology businesses, acquisitions
and exploitation of new technologies. Her
experience as a plc Remuneration Committee
Chair enables her to efficiently and valuably chair
the Remuneration Committee.
Susan was a founder of Touchstone Innovations
plc, and formerly its CEO. She has served on a
variety of private company boards in engineering,
healthcare and advanced materials, and held a
variety of commercial and business development
roles with Shell Chemicals, the Bank of Nova Scotia,
Montech (Australia), and Signet Group plc. Previously
Susan was the Senior Independent Director and
Remuneration Committee Chair of Horizon Discovery
Group plc, and Chair of Mercia Asset Management plc
and Schroder UK Public Private Trust plc.
Other appointments: Senior Independent Non-
Executive Director and Chair of the Remuneration
Committee of Benchmark Holdings plc.
Skills, competence and experience: Shonaid brings
to the Board a wealth of experience from previous
roles as an Executive and Non-Executive Director
from a breadth of sectors, including industrial and
technology based businesses with international
operations. This, combined with her extensive
financial experience, enables her to successfully chair
the Audit Committee.
Previously Shonaid was the Chief Operating Officer
of CDC Group plc, the UK Government’s development
finance institution, having joined from Unilever,
where she was Senior Vice-President Finance and
Information, Home and Personal Care, originally in
Asia and later for the Group as a whole. Her early
career was spent at KPMG, latterly as a partner. Her
Board level experience includes Non-Executive Chair
of Origo Partners plc and MSAmlin plc, and Non-
Executive Director roles at GKN plc, Close Brothers
Group plc and APR Energy plc.
Other appointments: Non-Executive Chair of
Greencoat UK Wind plc and Cordiant Digital
Infrastructure Limited, Senior Independent Director
of ClearBank Ltd and Non-Executive Director of
Caledonia Investments plc.
Annual Report & Accounts 2021
59
Governance
Board Leadership and Company purpose continued
Board activity – the key business and activities of the Board during the year were as follows:
Topic
Key activities
Strategy and
operations
• Reviewed and considered the Company’s purpose, values
and strategy. See more on pages 16 to 17 and page 65
• Approved the FY22 component of the Group’s five year
Integrated Strategic Business Plan (ISBP). See more on
page 16
• Received updates from each of the Group’s Business and
Function Units on their performance vs. strategy and budget,
and their priorities and initiatives
• Received reports and discussed the Group’s Digital and
Transformation strategy and investments
• Approved the Group’s overall five-year ISBP. See more on
• Monitored the economic, legislative and geopolitical
page 16
In-depth reviews of business strategy and performance
In-depth reviews of M&A pipeline and specific opportunities
•
•
• Reviewed and approved material bid, contract and M&A
proposals, divestments and assessed performance
against these
landscape, particularly as regards to the COVID-19 pandemic,
the Brexit negotiations, the U.S. election and change
of administration
Financial
performance
• Approved the Company’s annual budget, business plan and
KPIs, and monitored performance against them. See more
on pages 26 to 29
• Reviewed and confirmed the Group’s viability statement and
going concern status
• Reviewed the Group’s capital, debt and other liquidity
• Reviewed and approved the Group’s full and half year
arrangements
results and interim trading updates
• Decision to postpone and pay the full year dividend, owing
to the COVID-19 pandemic, and approved the payments of
the interim dividends. See more on page 25
• Approved the Company’s Annual Report, including its fair,
balanced and understandable nature
• Approved the Group’s tax strategy and treasury policy
• Considered and approved material bids, acquisitions,
contracts, expenditure and guarantees
Internal control
and risk
management
• Reviewed and approved the Group’s risk appetite and
• Reviewed and validated the effectiveness of the Group’s
reviewed the Group’s principal and emerging risks, and the
processes for identifying, and actions to mitigate these
• Received reports from the Chair of the Risk & Security
Committee on its activities
• Received reports from the Chair of the Audit Committee on
its activities and assessments
system of internal control
• Approved amendments to the Group’s delegated authorities
framework
• Reviewed and approved confidential reporting policies
• Reviewed the reports on confidential reporting (of which the
process is further described on page 84
Leadership,
people and
culture
• Received recommendations from the Nominations
• Received reports from the Chair of the Remuneration
Committee on the appointment of new Directors, the
re-election of Directors and other advice regarding the
structure, size and composition of the Board
• Reviewed and actioned succession plans for the Board
and senior management, having regard to skills, experience
and diversity
•
Committee on its activities, recommendations regarding
remuneration strategy and decisions regarding the Chairman,
Executive Directors and senior management pay, and
reviewed and approved Non-Executive Director fees
Reviewed human capital reports, including updates on talent
development programmes and diversity enhancement initiatives
Engagement,
environment
and community
• Undertook an annual review of the Group’s stakeholders
- who they are, methods of engagement, outcome and
feedback. See more on pages 4, 38 and 67 to 71
• Reviewed feedback from investors and analysts and
the output of engagement with major shareholders and
other stakeholders
• Reviewed workforce engagement activities and outcomes,
including the results of the Peakon surveys and received
reports on the Chairman’s workforce engagement activities
• Reviewed a detailed report on our approach to ESG issues,
and approved a new non-financial ESG KPI, focused on
climate change. See more on pages 26 to 27
• Reviewed the activities of, and approved a financial
commitment to, the Company’s charitable and
community initiatives
• Reviewed and approved the Group Modern Slavery
Statement, published on www.QinetiQ.com
Governance
and Legal
• Approved the Group’s s. 172(1) statement. See more on
• Reviewed the results of the internal Board and Committee
pages 48 to 49 and 61 to 64
• Approved the Notice of the AGM
• Undertook an annual compliance review of the Code
and DTR7
effectiveness evaluations
• Reviewed and approved matters reserved to the Board and
its Committees’ terms of reference
• Approved the Group’s annual Modern Slavery and Human
Trafficking statement
• Received reviews and updates on impact on the business of COVID-19 and on the planning and activities taken to mitigate
COVID-19
pandemic
60
QinetiQ Group plc
Board decision making
In making decisions, the Board of Directors are cognisant of all their legal duties, including their duty under s. 172(1), see pages
48 to 49, in the way that is most likely to promote the success of the Company for the benefit of its members as a whole and to
have regard (among other matters) to the factors set out therein. Examples of some of the most important decisions taken by the
Board during the year of reporting, and an explanation of which factors the Board had regard to when reaching such decisions, are
set out below:
1. Response to COVID-19
At the very beginning of the pandemic, the Board approved a prioritised approach to working through the pandemic, namely: resilience, recovery
and renewal – that centred around:
• Protecting the health and wellbeing of our employees and their families
• Continuing to deliver critical work for our customers, essential for national defence and security
• Sustaining the strength of our company for the long-term
Throughout the pandemic, the Board has focused its strategic response to the pandemic by way of:
• Guidance for Group performance throughout the year
• Robust actions to boost resilience to immediate challenges
• Partnering with our customers to deliver evolving priorities
• Engaging our employees to adapt our ways of working
• Accelerating capabilities to meet the needs of a new world and enable our future growth
•
Investing in our core capabilities and connecting our skills globally
Once these priorities were stable, the Company entered into a renewal phase, as part of its evolved corporate strategy. In addition, fair, balanced
and proportionate measures taken by the Board increased the resilience of our Company, allowing us to maintain a strong position for future
growth while being mindful of the potential risk of further impacts from to the pandemic.
Consideration
Outcome/impact
Employees
• With an 80% “home” and 20% “site” working environment, the Board focused on supporting the business in accelerating
the Group’s digital transformation so that our employees were able to continue to work safely and effectively.
• The Board supported the Company in implementing a range of safeguarding measures including social distancing,
additional cleaning services and the provision of PPE, ensuring that our working environments are safe and clean for
those employees who need to work on our sites to enable delivery of critical defence and national security programmes.
• Due to the uncertainty that the pandemic brought, the Board initially made some difficult choices which impacted our
employees, including leadership salary reductions; cost control measures; the release of contractors; no salary increases;
a requirement to use 40% of holiday by June 2020; and FY20 employee incentives paid in shares. When assessing our
half-year performance, the Board felt confident to approve the release of the majority of our temporary measures in the
second half of the year.
• Our employees rose to the challenge of developing agile ways of working, enabled by our accelerated digital
transformation, and improving our skills and processes to enhance business winning, and deliver quality performance.
• The Board continued to focus on supporting the Company’s core capabilities and connect skills globally, ensure that
critical skills and capabilities were retained within the Company to drive long-term, profitable growth.
Customers
• The Company continued to work closely with customers to enable the delivery of the capabilities of defence, security and
critical national infrastructure, including the emergency services.
• The Company collaborated with customers to understand how their long-term needs would evolve and advise on
upgrading existing capabilities to respond to the latest threats and changing customer requirements to deliver medium
to long-term, profitable growth.
Shareholders
• At the outset of the pandemic, the CEO and CFO volunteered a salary reduction of c. 33% and the wider Board
volunteered a 25% reduction in fees.
• The Board made the appropriate decision to postpone the final dividend as part of the robust short-term actions to boost
resilience and preserve the strength of the balance sheet, however following a strong start to the financial year a deferred
dividend was paid in November 2020.
• The continuation of our All Employee Incentive Scheme, paid to each employee in QinetiQ shares, has been a key enabler
for growth by aligning employee and shareholder interests.
Suppliers
• We have continued to work closely with our suppliers to accelerate our digital transformation strategy and global growth.
• Throughout the pandemic, we have supported our suppliers to help them navigate the challenges of COVID-19, including
prompt payment of invoices, in particular to smaller suppliers.
Annual Report & Accounts 2021
61
Governance Board Leadership and Company purpose continued
2. Postponed the payment of the full year dividend
The Board decided to reinstate the FY20 final dividend at a level that represented the FY20 total by way of an interim dividend equal to the prior
year, as well as an additional dividend of 4.4p per share representing the deferred final dividend from FY20, resulting in a total dividend for the
year ended 31 March 2020 of 6.6p per share. The Board intends to honour the progressive dividend policy for FY21, with the interim and final
dividend in line with the normal financial calendar.
Consideration
Outcome/impact
Shareholders
• The postponement of the full year dividend enabled us to emerge from the crisis in a strong position.
• We have restored the confidence of our shareholders in our resilience as a company and our evolved strategy
going forwards.
3. Supported a new focus on Environment, Social and Governance issues and approved a new associated non-financial KPI
A key aspect of our evolved strategy is a strong and increasing focus on environmental, social and corporate governance (ESG) factors. The
Board seeks to grow the Company in a responsible and sustainable way for the benefit of all stakeholders.
Our Corporate Responsibility and Sustainability (CR&S) strategy is designed to meet stakeholder expectations across ESG themes, aligned with
our business strategy. During FY21 we have been focusing on improving how CR&S is embedded in the strategic planning process and a review
was undertaken during the year, focusing at our core non-financial KPIs.
• The Board fully supported this evolution of approach and the designation of more formal leadership sponsorship, with a Global Leadership
Team owner for each of “E”, “S” and G”.
• The Board approved the addition of a new non-financial KPI, which now ensures that we are considering climate change as part of our
core indicators.
• The Board also fully supported the company to develop a new net zero strategy to address greenhouse gas emissions to replace our
current target.
Consideration
Outcome/impact
Employees
• Our employees have provided feedback that they welcome our commitment to being a responsible and
sustainable business.
• Our employees are continuing to develop services and products to ensure the operational safety of our armed forces,
the security of information for our sovereign nations, and the protection of environment through the use of innovative
technologies and sustainable solutions.
Customers
• We have been working with the UK MOD during FY21 to support the development of their climate change strategy and
have taken on new leadership roles in industry (Aerospace Defence and Security and Defence Suppliers Forum) to drive
the sustainability agenda within our sector and with our peers and customers.
• We have delivered positive solutions for our customers by protecting our troops; developing novel solutions to improve
efficiency and emissions; improving the safety, reliability and accuracy of our solutions; and delivering safe virtual
training resulting in cost savings and reduced emissions.
• We have collaborated with our customers to deliver effective solutions, including developing and providing technology
to solve policing and security threats quickly and efficiently; and safely managing the multi-national Formidable
Shield exercises.
Shareholders
• We have communicated our commitment to ESG to our shareholders in one to one meetings and in the March
investment webinar, which was positively received.
• We are continuing to embed ESG into our strategy, and improve culture and behaviours to further assure our
shareholders that we are building a responsible and sustainable Company.
Suppliers
• We are working closely with our suppliers to ensure our supply chain is diverse, responsible and sustainable. We have
implemented programmes to ensure we are a responsible customer, including our collaborate programme, delivery of our
modern slavery action plan, and being signatories to the prompt payment code.
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QinetiQ Group plc
4. Environment, Health &, Safety strategy
The Board approved an Environment, Health & Safety strategy three years ago. Since then we have achieved significant progress, however, we
recognise that there is still more to be done.
Our enhanced strategy is to take a global approach. We intend to share our expertise across the whole of our Company to strengthen the positive
impact we can have on health, safety and the environment.
By creating a culture focused on a positive commitment to health, safety and environmental matters, we aim to strengthen our brand with
employees, improve retention, attract quality talent and secure new business. The Board will continue its commitment to our people, investors
and regulators, being a priority for our Company when driving improvement in this area.
Consideration
Outcome/impact
Employees
• We continue to put an emphasis on leadership, with the Board and our senior leaders paving the way and role
modelling the behaviours we expect of ourselves and each other.
• We are committed to create a motivated, flexible and committed workforce through the development of a culture and
environment that fosters employee wellbeing and environmental sustainability.
• We continue to build a community of strong, active and visible leaders who have a clear commitment to safety,
employee wellbeing and environmental matters.
• The Health, Safety and Environment strategy has significantly reduced the number of safety incidents and contributed
towards driving a new level of safety culture within QinetiQ.
Customers
• We continue to focus on delivering safely for our customers.
• We continue to be committed to understanding the risks that have the potential to affect customers and visitors and
we have measures in place to protect their safety.
Shareholders
• We have strengthened our reputation with our people, future employees, customers and investors by demonstrating
our commitment to our Health, Safety and Environmental strategy.
Suppliers
• We have worked with our suppliers to ensure we embed our strategy, values and behaviours in our supply chain.
5. Portfolio optimisation: divestments of Boldon James Limited, Commerce Decisions Limited
and OptaSense Limited; and acquisition of Naimuri Limited
The Board approved the divestments of Boldon James, Commerce Decisions and OptaSense, and the acquisition of Naimuri. These portfolio
optimisation decisions were strategy-led choices, generating capital from non-core assets and reinvesting in our core capabilities to drive
profitable growth and building an integrated global defence and security company.
Consideration
Outcome/impact
Employees
• For those businesses which were disposed, the Board considered the interests of employees throughout the sale
process, including the smooth transition of those employees once a sale was agreed in principle.
• As part of the acquisition of Naimuri, the Board considered the Group’s ability to attract and retain talent in that area
as part of the wider investment programme.
Customers
• Following the acquisition of Naimuri, the Board plans to invest and build upon Naimuri’s strong capabilities in data
analytics, data intelligence and agile software development to meet customer requirements for more solutions in
this area.
• We are continuing to put the mission of our customers first and are developing sustainable and innovative solutions
to deliver for our customers’ advantage.
Shareholders
• Our evolved strategy to meet the needs of the changing defence and security world, and accelerate our global growth
will deliver even greater returns for our shareholders.
• The Board intends to ensure that our capabilities are strategically aligned and highly complementary to support long-
term growth and create shareholder value.
Annual Report & Accounts 2021
63
Governance Board Leadership and Company purpose continued
6. Approved the Group’s five-year Integrated Strategic Business Plan (ISBP)
The Board has approved the Group’s five-year ISBP which will inform our investment and business priorities as we seek to grow.
Our customer focused growth strategy requires responsible and sustainable investment in three key areas:
• Global leverage: build an integrated global defence and security Company
• Distinctive offerings: co-create products and services to offer exceptional value
• Disruptive innovation: focus on disruptive business models, digitisation and advanced technologies
Consideration
Outcome/impact
Employees
• Our employees will continue to focus on disruptive innovative solutions for our customers.
• We will continue to harness and retain the best talent and skills to maintain quality and efficient performance for our
customers’ advantage.
Customers
Shareholders
• We are striving for a customer base of c. 50% UK, 25% US and 10% Australia to enable our global growth.
• Our evolved strategy to build an integrated global defence and security Company, delivering continued growth,
will provide greater benefit to all our stakeholders.
Suppliers
• We will work with our supply chain to ensure we obtain the best products and services to enable us to offer distinctive
products and services.
Supplementary information
The Board has seven scheduled meetings, held over two days, for Board and Committee business throughout the year. Additional
Board sub-Committee meetings and conference calls are held between the scheduled meetings as required. The table below sets
out the Board and Committee membership and attendance by members at meetings held in FY21.
Board and Committee attendance – 1 April 2020 to 31 March 2021
Members
Lynn Brubaker
Admiral Sir James Burnell-Nugent1
Michael Harper
Shonaid Jemmett-Page
Neil Johnson
Ian Mason2
General Sir Gordon Messenger3
Paul Murray4
Susan Searle
David Smith
Steve Wadey
Board
Audit
Committee
Nominations
Committee
Remuneration
Committee
Risk & Security
Committee
7/7
5/7
7/7
7/7
7/7
7/7
4/7
2/7
7/7
7/7
7/7
4/4
3/4
4/4
4/4
–
4/4
2/4
1/4
4/4
–
–
5/5
4/5
5/5
5/5
5/5
5/5
2/5
1/5
5/5
–
–
4/4
3/4
4/4
4/4
4/4
4/4
2/4
2/4
4/4
–
–
4/4
3/4
4/4
4/4
4/4
3/4
2/4
4/4
4/4
4/4
4/4
1 James Burnell-Nugent stepped down from the Board on 31 December 2020.
2 Ian Mason was unable to attend the Risk & CSR Committee meeting on 9 November owing to the Company making late meeting date changes, resulting in a conflict
with a prior commitment.
3 Gordon Messenger was appointed to the Board on 12 October 2020.
4 Paul Murray stepped down from the Board on 14 July 2020.
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QinetiQ Group plc
The significance of our purpose, values and culture
The Board has reviewed and articulated the Company’s purpose to ensure it captures the Board’s current view of the Company and
its role in society. Our purpose communicates the Group’s strategic direction and intentions to our employees, occupiers and wider
stakeholders. Owing to its importance, it is reconfirmed on an annual basis to ensure it continues to reflect our strategy, values and
desired culture.
Our Vision
to be the chosen partner around the world for mission-critical
solutions, innovating for our customers’ advantage.
QinetiQ’s ethos is defined
within Our Purpose
to protect lives, defending sovereign capabilities and securing
the vital interests of our customers.
This is demonstrated
through our dedication and
commitment to Our Mission
through responsible and ethical leadership we strive to be a good
employer and partner, while applying our unique technical expertise
across the product lifecycle helping our customer to create, test and
use defence and security capabilities.
Underpinned by
Our Values
Integrity, Collaboration and Performance
Re-imagined through
Our Culture
A high performance and inclusive work environment where
employees are engaged, empowered and clear about how they
can contribute to Our Purpose.
Annual Report & Accounts 2021
65
Governance Board Leadership and Company purpose continued
Our culture
Our Values make clear our priorities and form the foundations of the Company’s culture.
Integrity
Collaboration
Performance
Trusted to do the right thing at all times, we take pride in our decisions, and work to create a sustainable and
responsible business. We are responsible and accountable for all our actions. We take personal responsibility
to do the right thing, demonstrating this individually and as an organisation in our decisions, behaviour and
day-to-day actions. We actively support each other to meet the highest ethical and professional standards.
The chosen partner for customers and industry colleagues, we are a diverse and inclusive community with a
common purpose; every contribution is valued. Delivering value through partnership and teamwork, we actively
collaborate with our colleagues, customers and industry partners to bring together the best thinking, the
smartest talent, breadth and depth in capability to our work. We know that working together is the best way to
meet our customers’ needs.
Customer focused and highly responsive, providing operational excellence and assuring safe and secure
delivery. Our performance is measured by how we deliver for our customers; meeting their needs through
flawless execution and delivery of the mission-critical solutions on which they depend. This includes being
accountable for getting things right the first time, safely, securely and in a cost effective way. Taking an
innovative and responsive approach to create an outstanding customer experience, we try to go the extra mile
and act with courage.
The annual Recognition Gala and Thank Q Awards are strong evidence of how we live by our values:
The Recognition
Gala
An annual event where people from across the global business have nominated their colleagues for
demonstrating behaviours which exemplify our values. The exceptional number and quality of nominations
received each year is a testament to how our people live by our values. The nominations process, award event
and publication of awards winners across the Group also serve to remind people of our values and what they
mean in practice.
Saying Thank Q
Thank Q recognises the efforts of our people that reflect our values, behaviours and capabilities for going
above and beyond and making a difference. This can be done by:
• Saying Thank Q via our Global Portal community group
• A more personal touch through giving someone a Thank Q card
• Nominate someone or a team for a Thank Q award to receive a voucher for going above and beyond
While the Recognition Gala and Thank Q programmes raise
awareness of and recognise and reward the behaviours that
demonstrate our values, there are many other input actions
which contribute to the creation of a healthy corporate culture.
These include:
• Our corporate policies, reviewed and approved by the Board,
which set a clear expectation, and mandate, for every member
of the workforce to perform the Company’s business with
integrity and in accordance with applicable laws, including
anti-bribery and corruption, anti-slavery and human trafficking,
data protection and confidential reporting policies and
procedures
• Fair and transparent employee policies and practices which
ensure that employees’ rights are respected in accordance
with applicable laws and employment contracts, together with
a number of programmes and initiatives which support the
health and wellbeing of our employees, develop talent and
promote diversity
• Supplier protocols and procedures which seek to ensure that
our key suppliers operate their businesses and respect their
employees’ rights in the same way that we do
• The application and monthly assessment by business and
functional executive teams and the Global Leadership Team of
safety and operational KPIs to enable management to monitor
and drive continually improvements in safety, reliability and
efficiency of our services
• The work of Group support functions prepare and advise
upon the Group’s policies, procedures and standards at every
level and location of the business around the world, including
dedicated safety and operational excellence teams, finance,
legal and governance team, procurement, HR function, and the
Group internal audit function
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QinetiQ Group plc
In addition, we as a Board, use a number of other methods to
understand and monitor the Company’s culture and assess
whether our employees reflect our values. These include:
• Reviews, in the Boardroom, of the outcomes of the Peakon
surveys, customer satisfaction scores and updates on
confidential reporting. These gives us insights into what the
Company does well and what could be improved, as well as
any particular areas of concern
• The employee interaction with the Global Employee
Voice (GEV), discussing the issues which matter most
to our employees
Stakeholder engagement
The Board is aware that its actions impact all stakeholders
of the Company and the communities we operate within.
Effective engagement strengthens the business and helps to
deliver a positive result for all stakeholder groups. The Board is
committed to engage closely with the Company’s diverse range
of stakeholders and to take their views into account. During the
year the Board undertook a rigorous review of the Company’s
current stakeholder activities. The review considered:
• Who the Group’s key stakeholders are
• The Board’s engagement activities with each key stakeholder
• Directors’ attendance at various Company events, such as:
and the appropriateness of this engagement
- Quarterly virtual Global Employee Roadshows
- Monthly virtual Global Engagement Network (GEN) events,
delivered by the Global Leadership Team
- The Annual Recognition Gala
Through feedback from all of these monitoring activities, the
Board is satisfied that the Company’s culture is aligned with
our values. Where the Peakon surveys, workforce engagement
events or other interactions between Directors and employees
or other stakeholders have revealed matters that can be
improved upon or have flagged concerns, the Board has
discussed these and is content that management is putting
action plans in place that are designed to drive improvements
or address those concerns.
Safety
Always at the forefront, and particularly so during the pandemic,
safety continues to be our one priority. This year we updated
our Environment, Health and Safety (EHS) strategy, see more on
pages 39 to 47, which is aligned to our Company strategy and
vision. We, as a Board, believe, through the activities we have
undertaken to understand the Company’s culture, that our people
are truly living by this and our values.
• The information the Board receives on the Group’s
stakeholders, including details on the outcome of the
engagement activities
• Whether appropriate stakeholder feedback loops are in place
• Whether there was a need for greater engagement with any
stakeholders at Board level
• The outcome and effect of stakeholder engagement
Employee Engagement
We have experienced, diverse and dedicated employees which
are recognised as a key asset of our business and who drive our
success. The Group has a long-standing commitment to the
importance and value of employee engagement. See more on
pages 42 to 46 and 67 to 69.
The Board recognises the value of engaging directly with
employees to ensure an understanding of their views and inform
its decision-making in considering employee interests. Under
normal circumstances the Board holds a number of its meetings
at different Company sites, both in the UK and globally, to take
the opportunity to meet with the employees in person. However,
this has not been possible during the year due to restrictions
associated with the COVID-19 pandemic. The process on page
68 describes how the Board continued to be able to effectively
gain the views of the employees throughout the year.
Annual Report & Accounts 2021
67
Governance Board Leadership and Company purpose continued
How we engage with our employees
Dedicated Non-Executive
Director
Neil Johnson is the dedicated Non-Executive Director for
gathering the views of the employees
• Two meetings (virtually during the pandemic)
with the Global Employee Voice (GEV)
Global Employee Voice
(GEV)
The GEV is a global forum that acts as the collective voice
of all QinetiQ employees. All businesses and functions each
have a member of the GEV, acting as their own representative.
Australia, Belgium, Canada, Germany and the US also have
their own GEVs, with a direct link to the UK
See more on page 43
• Attends the Global Recognition Gala and also
Global Employee Roadshows (both virtual
during the pandemic)
• Reports back to the Board
• Regular contact with the Chairman
• Two meetings with the Chair of the
Remuneration Committee
• Meets with the Group Function Director Human
Resources, who reports to the Board on culture,
employee and people strategy, and employee
engagement
Global Employee
Roadshows
Delivered quarterly by the Global Leadership Team, the
Global Employee Roadshows give an update on the
progress we’re making against our vision and strategy, and
provide an understanding of our key priorities for the future
• Employees have the opportunity to ask
questions, either in writing, or live during
closing Q&A sessions
• Reported back to the Board by the CEO
Monthly virtual Global
Engagement Network
(GEN) events –
delivered by the Global
Leadership Team
The GEN includes 400 senior leaders from across the Group,
selected for their sphere of influence and critical role within our
Company. The sessions provide a monthly leader’s update and
the opportunity to discuss employees’ wellbeing and topics
critical to driving high performance and growth
• The members of the GEN feed back to their
teams by way of Q–Talks, team meetings and
one-to-one meetings
Monthly virtual Q–Talks
Delivered by Business or Function Global Engagement Network
leaders, with the purpose of keeping employees up-to-date with
what’s currently important across QinetiQ
Peakon Employee
Engagement surveys
Quarterly surveys enabling the Board and the Leadership
team to immediately assess employees’ engagement
throughout the Group
• A mechanism accessible for employees to get
a thorough understanding of what is happening
in the Company and also to provide individual
feedback
• After each survey, the Director of Organisation
Development has a meeting with the CEO
where they discuss the results, trends, and any
matters for concern
• The CEO feeds back to his fellow Board
members at each Board meeting
Global Portal –
our intranet
A platform where all employees can access our polices and be
kept fully informed of the latest Group news
• Enables employees to ask questions and
discuss topics internally
Confidential Reporting
Our confidential reporting includes an anonymous reporting
line for employees to raise any concerns with escalations to
the Board as necessary
• Reported to the Board at each Board meeting
How does it work?
• By using a number of different employee engagement
mechanism ensuring flexibility
• By having a direct link to the Board via the purposefully
designated Non-Executive Director
• By way of a dedicated forum to relay the voice of
the employees
• By regularly reporting to the Board on culture, people
strategy, and employee engagement
• By drawing on each individual Board member’s unique
experience as business leaders
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QinetiQ Group plc
Statement from William Bowers, GEV Chair:
As part of the Group Chairman’s role as the Non-Executive
Director designated for employee engagement, he met
with members of the Global Employee Voice (GEV) on two
occasions during the year. Each time he was accompanied
by Susan Searle, the Remuneration Committee Chair, who
provided engagement on Executive Director remuneration.
The Chairman was interested in how the GEV has become
a global network of individuals who represent employees in
all home countries. The GEV is concentrating on supporting
greater employee engagement through working closely
with the leadership to ensure the employee impact and
perspective. We explained how the proposed sizeable
investment in technology was seen as very positive, in
particular for those at the front end of delivery who need
the functionality to improve collaboration and increase the
customer experience. We talked about the growth targets
in the next round of the Integrated Strategic Business Plan,
and as part of this process, the GEV have been asked to
collaborate with the Group Chairman and the members
of the Board, to ensure that the employees are effectively
represented in any decisions that are made.
Ensuring our employees’ wellbeing throughout
a pandemic
• With so many people working from home, keeping our
employees engaged and passionate about the business for
the long-term has never been more important
• The Board’s number one priority through the pandemic
has been to protect our employees’, and their families,
health and wellbeing
• A Group wide COVID-19 SAFETY STOP was introduced,
providing a flexible mechanism for how to best support
all employees, working from home or at site, regardless
of personal circumstances, during the pandemic
Shareholder Engagement
Approach
The Board is committed to communicating in an open and
transparent manner with all shareholders, and places a clear
importance on shareholder engagement. The Investor Relations
programme is managed by the Investor Relations team, who
provide day-to-day contact with investors. This is complemented
by engagement with the CEO and CFO, who regularly attend
meetings with institutional investors. In addition, the Chairman
and other Non-Executive Directors make themselves available to
discuss matters such as governance, ESG factors, remuneration
and other relevant topics. The Board is also kept up to date on
shareholders’ views and concerns through regular Board papers,
presentations and feedback from the Investor Relations team.
The AGM provides an opportunity for shareholders to engage
directly with the Board and receive an update on business
performance. The Company’s results presentations and other
investor events are also webcast live, and made readily
available on the Company’s website, enabling a wider audience
to access them.
Activities during the year
During FY21 the CEO, CFO and Investor Relations team
collectively met with over 50% of the share register and
hosted a number of meetings with non-shareholders. This
contact was conducted during routine roadshows after results
announcements, ad-hoc roadshows and at various conferences.
The Group’s Chair, Neil Johnson, engaged with a number of
shareholders on governance related matters and the Chair of the
Remuneration Committee, Susan Searle, engaged extensively
with shareholders ahead of the remuneration policy vote in
July 2020.
In March 2021, we hosted a virtual investor seminar, which
was well attended. This seminar provided greater clarity around
the Group’s ESG credentials, our approach to the US market
and the Digital & Data Transformation Programme we are
currently pursuing.
• Continuing these important conversations, both at a Company
level and an individual level, so that looking after our health
and wellbeing, remains the normal way of working
Investors met:
By type
Investors met:
By investor location
40.5%
59.5%
Shareholders
Non-shareholders
9.5%
10.7%
79.8%
UK
Europe (ex. UK)
North America
Annual Report & Accounts 2021
69
Governance Board Leadership and Company purpose continued
Common shareholder topics
Some of the common topics shareholders are asking
questions on include:
Timeline
2020
1.
Growth opportunities
Where the growth opportunities lie and how we will
continue to grow in varying budgetary environments
is a key topic of discussion with shareholders.
2.
Margin performance
Having guided to an operating margin of 12–13% over the
longer-term, shareholders are keen to understand how this will
be achieved and what risks and opportunities may prevent us
from meeting this guidance or allow us to exceed it.
3.
Investment
Shareholders are often keen to understand more about
the currently elevated levels of capital expenditure and
what benefits this will deliver, as well as the Digital & Data
Transformation Programme.
4.
M&A
Our approach to M&A and how this supports the wider
strategy, as well as the integration and performance of
recent acquisitions is commonly discussed.
2021
5.
ESG / sustainability
Our ESG credentials have become increasingly important
to investors over the past year and our shareholders are
eager to understand more.
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QinetiQ Group plc
May
• Full year results announcement
• Analyst briefings
• UK Conference (UBS)
June
• Full year results roadshow (UK & US)
• US conference (Barclays)
July
• Governance meetings ahead of AGM
• Trading update and analyst briefings
• Virtual AGM
August
September
• Pre-close trading update
October
November
• Interim results announcement
• Interim results roadshow (UK & US)
December
• Conferences (Goldman Sachs and Credit
Suisse)
January
• Trading update and analyst briefings
• Conference (Bank of America)
February
March
• Investor seminar (virtual)
Customer Engagement
One of the Group’s key priorities during the year has been to
foster closer relationships with customers at all levels. This
helps QinetiQ provide value for money and high performance
technical solutions to our customers. Customer engagement is
underpinned by related, intelligent and persistent communication
through a variety of means, building a position of mutual
understanding and genuine trust between the Company and its
customers. QinetiQ prides itself on building such relationships,
taking the time to understand our customers’ strategic vision
and needs in order to provide timely, effective and affordable
solutions that tie into their organisational goals. Given that
effective engagement is as much about attitude and behaviour
as it is about delivering messages, QinetiQ’s customer
engagement is affirmed by the timely delivery of programmes,
and acting as a genuine, flexible and helpful partner that
demonstrates the desire to address customer issues as soon
as possible.
Managed by the Strategic Engagement Team, QinetiQ’s
engagement matrix nominates a GLT-level sponsor and business
relationship lead to each customer. The sponsor and business
lead engage with their nominated customer(s) as business
dictates or, as a minimum, at the frequency determined by the
engagement matrix to gain a full understanding of any business
opportunities or issues, and to ensure consistency of the
Company’s messaging.
Community Engagement
At QinetiQ we recognise that it is important that we interact
positively with the wider community and environment in which
we operate. See more on pages 38 and 46.
Constructive use of the Annual General Meeting (AGM)
The Notice of AGM and related papers will, unless otherwise
noted, be sent to shareholders at least 20 working days before
the meeting. For those shareholders who have elected to receive
communications electronically, notice is given of the availability
of the documents via www.QinetiQ.com. This year’s AGM will
be held at 10am on Wednesday, 21 July 2021 at Portsmouth
Technology Park, Southwick Road, Portsmouth PO6 3RU.
The Board encourages shareholders to participate in the AGM
and to ask questions. We are delighted this year to for the first
time offer shareholders the opportunity to listen remotely to the
AGM. Further details of this can be found in the Notice of AGM or
www.QinetiQ.com. Shareholders can still be formally represented
at the AGM by appointing the Chairman as their proxy and giving
instructions on how they wish the Chairman to vote on the
proposed resolution. We strongly encourage shareholders to do
this. See your Notice of AGM for further details.
Shareholders can ask questions in advance of the AGM by
emailing InvestorRelations@QinetiQ.com by no later than 5pm on
Monday 19 July 2021. Any questions posted via this format will
be answered at the AGM.
Any updates to the arrangements for the conduct of the meeting
will be communicated via www.QinetiQ.com.
Annual Report & Accounts 2021
71
Governance Division of responsibilities
Role of the Board
Underpinned by good corporate governance, the Board is focused on delivering an effective and entrepreneurial Board which is:
• Effective in providing challenge, advice and support to management
• Provides checks and balances, and encourages constructive challenge
• Drives informed, collaborative and accountable decision-making
• Creates long-term sustainable success and value for our shareholders, having regard to all interests of our stakeholders
Roles and responsibilities
The Board has agreed a clear division of responsibilities between the Chairman and the CEO. Other Directors and the Company
Secretary’s roles are also clearly defined to assist in enhancing the effectiveness of the Board. A summary is set out below:
Chairman
Neil Johnson
• Provides overall leadership and ensures effectiveness of the Board
• Sets the agenda, character and tone of the Board meetings and discussions
• Maintains an effective working relationship with the CEO
• Leads the annual performance evaluation of the Board, its Committees and ensures that the
each Non-Executive Director makes an effective contribution
Deputy Chairman
Michael Harper
• Maintains a close dialogue with the Chairman and CEO
• Supports and deputises for the Chairman as required
CEO
Steve Wadey
• Develops the Group’s strategy for consideration and approval by the Board and provides
effective leadership of the Global Leadership Team in its delivery of strategy
• Develops the Group’s business model and manages the Group’s operations
• Overseas the development and implementation by the Global Leadership Team’s corporate,
safety and environmental policies and standards
• Establishes and services relationships with key stakeholders
• Reinforces the Group’s values and sets expected employee behaviours
• Communicates (with the CFO) the Group’s financial performance and strategic progress to
investors and analysts
• Ensure the Board is kept fully appraised of the Group’s operational and safety performance, risks
and opportunities that may affect or contribute to the delivery of the strategy
CFO
David Smith
• Responsible for the financial stewardship of the Group’s resources through appropriate
accounting, financial and other internal controls
• Directs and manages the Group’s finance, tax, treasury, risk management, legal & governance,
insurance and internal audit functions
• Communicates (with the CEO) the Group’s financial performance and strategic progress to
investors and analysts
Senior Independent
Non-Executive Director
Michael Harper
• Acts as sounding board for the Chairman and a trusted intermediary for the other Directors
• Available to shareholders to discuss any concerns that cannot be resolved through the normal
Chairman or CEO channels
• Leads the Board in the annual performance evaluation of the Chairman and in developing the
long-term plans for the Chairman succession
• Meets with the Non-Executive Directors without the Chairman present at least annually, and as
required, to discuss Board matters
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QinetiQ Group plc
Independent
Non-Executive Directors
Lynn Brubaker,
Michael Harper, Shonaid
Jemmett-Page,
Gordon Messenger and
Susan Searle
• Monitor and scrutinise the Group’s performance against its strategic goals and financial plans
• Provide an objective perspective on the Board’s deliberations and decision-making, drawing on
their own collective broad experience and individual expertise and insights
• Monitor and assesses the Group’s culture, use appropriate and effective means to engage with
the employees and acquire an understanding of other stakeholders’ views
• Asses the effectiveness, support and constructively challenge the Executive Directors
• Play a lead role in the functioning of the Board’s Committees
Company Secretary
Jon Messent
• Provides advice and support to the Board, its Committees, the Chairman and other Directors
individually as required, primarily in relation to corporate governance matters, and Non-Executive
Directors’ training and development needs
• Responsible with the Chairman for setting the agenda for Board and Committee meetings
and for high quality and timely information and communication between the Board and its
Committees, and between the Directors and senior management as required
• Ensures that Board and Committee procedures are complied with
Composition of the Board
The Board considers that its composition reflects the requisite
balance of skills, experience, challenge and judgement
appropriate for the requirements of the business and full
Board effectiveness. The skills and experience of the Board’s
individual members, particularly in the areas of UK defence
and security, the commercialisation of innovative technologies,
corporate finance and governance, international markets and risk
management, have brought both support and challenge to the
CEO, CFO and the Global Leadership team during the year.
Independence
A majority of the Board is comprised of independent
Non-Executive Directors, as is required by the Code. The
independence of the Non-Executive Directors is considered
annually by the Nominations Committee, using the independence
criteria set out in Provision 10 of the Code. The Chairman was
independent upon his appointment in April 2019 and continues to
use objective judgement in his Chairmanship.
As part of this process, the Board keeps under review the length
of tenure of all Directors, as this is a factor when assessing
independence. The independence of Michael Harper and Susan
Searle, both of whom have served on the Board for more than
six years, was subject to a rigorous review by the Nominations
Committee in March 2021. When making this assessment,
in particular for Michael, who has served on the Board since
November 2011, the Nominations Committee based its decision
on the fact that both continue to demonstrate integrity and
independence in their advice and challenge. Michael and Susan
were not in attendance during the review and the Nominations
Committee remains satisfied that the length of their tenures has
not impacted on their respective levels of independence or their
respective contributions.
Time Commitment
Each Non-Executive Director must be able to devote sufficient
time to their role as a member of the Board in order to discharge
their responsibilities effectively. Prior to undertaking an additional
external role or appointment, the Directors are asked to confirm
that they will continue to have sufficient time to fulfil their
commitments to the Company. This means not only attending
and preparing for formal Board and Committee meetings, but
also making time to understand the business of the Company.
The Non-Executive Directors’ commitment is reviewed as part of
the Board and Director evaluation. See more on pages 80 to 82.
The Chairman is conscious that some shareholders have
concerns regarding Directors taking on too many Non-Executive
roles. Consequently, he has assessed the ability to meet the
commitments required by QinetiQ for those members of the
Board who hold more than one other Board position, and he is
satisfied that all Board members are able to meet the Company’s
time commitment. In addition to their work on the QinetiQ Board
and its Committees, the members of the Board also regularly
make themselves available for Board calls, sub-Committee
meetings and Executive leadership events.
Shonaid Jemmett-Page holds appointments in four other
companies, two of which she is the Chair. Three of these,
Greencoat UK Wind plc, Cordiant Digital Infrastructure Limited
and Caledonia Investments plc, are investment trusts rather than
full operating companies, and ClearBank Limited is a non-listed
company. Therefore by their nature, the time requirements for
these roles are not as significant as at a FTSE 250 operating
company such as QinetiQ. The Chairman confirms that during
the year Shonaid has contributed considerably to QinetiQ’s
Board and Committee meetings, in particular in her role as the
Audit Committee Chair, and she has joined all Board interactions
between the scheduled meetings. He is therefore confident and
satisfied that Shonaid has the time and availability to commit
fully to her role on the QinetiQ Board.
Annual Report & Accounts 2021
73
Governance Division of responsibilities continued
The Board has access to the Company Secretary for support
and advice as required, and the Company operates a policy
which allows Directors to obtain, at the Company’s expense,
independent professional advice where required to enable
them to fulfil their duties effectively. In addition to Board and
Committee meetings, the Non-Executive Directors hold private
meetings without the Executive Directors present, including
to discuss Executive Director performance. There are also
opportunities during the year for Directors to have informal
discussions outside the Boardroom, either between themselves
or with senior management or external advisers.
Conflict of interest
The Board operates a policy to identify and manage situations
declared by the Directors (in accordance with their legal duty to
do so) in which they or their connected persons have, or may
have, an actual or potential conflict of interest with the Company.
In accordance with the Companies Act 2006, and the Articles of
Association, the Board has the authority to authorise conflicts of
interest. This ensures that the influence of third parties does not
compromise the independent judgement of the Board. Directors
are required to declare any potential or actual conflicts of interest
that could interfere with their ability to act in the best interest of
the Group.
The Company Secretary maintains a conflicts register, which
is a record of actual and potential conflicts, together with any
Board authorisation of the conflict. The authorisations are for an
indefinite period and are reviewed annually by the Nominations
Committee, which also considers the effectiveness of the
process for authorising Directors’ conflicts of interest. The Board
reserves the right to vary or terminate these authorisations at
any time. No Director conflict of interest currently exists.
Board and Committee processes
The Board has a formal schedule of matters reserved for its
approval, which include: strategy; risk appetite and review of
Group wide principal and emerging risks; major M&A, contracts
and bids; share capital, debt financing and other liquidity matters;
financial results and budgets; key policies; Board and Committee
membership; and governance. Other matters, responsibilities
and authorities have been delegated by the Board to its standing
Committees, comprising Nominations, Audit, Risk & Security,
Remuneration and Disclosure. Any matters outside of these fall
within the responsibility and authority of the CEO and/or CFO.
The schedule of matters reserved to the Board and the terms of
reference of each Committee, which are reviewed and approved
by the Board annually, can be found on the Company’s website
at www.QinetiQ.com.
The Chairman and the Company Secretary are responsible, in
consultation with the CEO and the Chairs of the Committees,
for maintaining a scheduled 12-month programme of business
for the Board and its Committees, with flexibility for additional
business to be discussed as required. The programme ensures
that all necessary matters are covered and appropriate time
is given for discussion and, if thought fit, approval of relevant
business. At each scheduled Board meeting, the Board rigorously
reviews updates from the Executive Directors on Group and
divisional safety, operating and financial performance, investor
relations and the Group General Counsel & Company Secretary
on legal compliance and corporate governance. Other regular
Board agenda items include strategic proposals (including those
relating to M&A, major contract bids and capital allocation),
transformation and digital programme, risk management
(including reviews of risk appetite and Group-level risks), tax
and treasury updates, pension updates, human capital updates
(including on employee relations, talent development and
diversity promotion), and stakeholder engagement. Senior
management and external advisers regularly attend both Board
and Committee meetings, where detailed discussions on specific
matters on which their input or advice is needed. The Board
also seeks to hear external viewpoints inside and outside the
Boardroom, including from customers, suppliers and experts in
areas relevant to the Company’s strategy.
In advance of each Board and Committee meeting, Directors
receive via a secure web portal high quality briefings, prepared
by the Executive Directors, senior management, the Company
Secretary and/or external advisers where appropriate, on the
agenda items to be discussed. The secure web portal also
gives Directors immediate access to a range of other resources,
including previous meeting papers, minutes, financial reports,
business presentations, investor reports, Company policies and
governance guidelines, and details of Board and Committee
procedures. If a Director is unable to attend a meeting due to
illness or exceptional circumstances, they will still receive all
supporting papers in advance of the meeting and are directed to
discuss with, and provide input, opinion and voting instructions
to, the Chairman or relevant Committee Chair on the business to
be considered at that meeting.
74
QinetiQ Group plc
Composition, succession and evaluation
“ QinetiQ aims to have the
best people governing
our business today and a
competitive and diverse talent
in the pipeline able to govern
the business tomorrow”
Dear fellow shareholder
I am pleased to present the Nominations Committee Report.
The Committee’s ambition is to ensure we have the best people
governing our business today and a competitive diverse talent
in the pipeline able to govern the business tomorrow. The best
people will have the necessary experience and skills to shape
and support the Company’s strategy, including bringing diverse
perspectives on strategic decisions in a way that complements
and reflects the knowledge and skills of the Company’s business.
This was a busy year for the Committee as we continued
implementing the succession plans we have previously
developed to maintain the effectiveness of the Board and its
Committees, having regard to the Company’s strategic priorities.
Nominations Committee report
Key responsibilities:
• Keep under review the structure, size and composition of
the Board
• Succession planning for Directors and other senior Executives
• Keep under review the leadership needs of the organisation,
both Executive and Non-Executive, with a view to ensure the
continued ability of the organisation to compete effectively in
the marketplace
• Be responsible for identifying and nominating, for the approval
of the Board, candidates to fill Board vacancies, as and when
they arise
You can read more further down in this report about the
appointment process of the Directors appointed during the
year and also about the development of our talented senior
management team.
• Review annually the time required from Non-Executive
Directors – the performance evaluation is used to assess
whether the Non-Executive Directors are spending sufficient
time to fulfil their duties
Michael Harper has served on the Board since November 2011.
During the year he has been instrumental to the Board in his
roles as Deputy Chairman and Senior Independent Director.
Given the recent changes to the Board, and the tragic passing
of Ian Mason, I have asked Michael to stay on a little longer to
provide consistency while the new Board members are settling
in. The Nominations Committee will during the year identify
a suitable candidate to succeed Michael. Further information
about Michael’s independence assessment review can be found
on page 73.
I hope you find the information in this report about the
Committee’s work helpful and I will be pleased to answer any
questions you have about it at this year’s AGM.
Neil Johnson
Committee Chairman
• Review the independence of the Non-Executive Directors and
any potential conflict of interest for all Directors
FY21 activity highlights:
• Reviewed the structure, size and composition of the Board and
its Committees, including the skills, experience, independence
and diversity of its members, in anticipation of Non-Executive
Director changes to the Board and its Committees
• Led the process to recruit new Non-Executive Directors with
relevant skills and experience to the Board and certain of its
Committees, thereby enhancing their strength and diversity
• Reviewed the Board and senior management succession
plans, including via a review of potential internal successors
and other high potential talent for executive and senior
management positions
• Reviewed the Board’s Diversity & Inclusion Policy and the
Company’s inclusion initiatives
Annual Report & Accounts 2021
75
Governance Composition, succession and evaluation continued
Skills and experience
Skills and experience
R&D / Technology
Cyber-security
M&A
Transformation
Remuneration
Strategy
Finance and financial reporting
eCommerce
Emerging markets
International business
Armed forces
Aerospace & avaition
Board
Age
25%
38%
50–59
60–69
70–79
Global Leadership Team
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
Gender
Nationality
38%
37.5%
62.5%
Women
Men
US
1
British
US
British
7
Gender
Direct reports to GLT members
27%
24%
73%
Women
Men
76
QinetiQ Group plc
76%
Women
Men
Succession Planning
Board and Committees
The Committee annually reviews the composition of the Board and its Committees and the Nominations Committee expects to continue
to implement its succession plans for the Board and its Committees in 2021, 2022 and beyond. To ensure that we continue to recruit
only the candidates of the highest standard, that we continue to make progress towards our diversity and inclusion targets, and that we
have the right mix of an experienced Board, yet with a fresh perspective, we use the process outlined below. Following this year’s review
the Committee is satisfied that we have an appropriate mix of skills, knowledge and experience to operate effectively.
Process step
Action
Outcome/impact
Identifying current
and future needs
and skills gaps
The Committee maintains and regularly reviews a matrix of the Directors’
experience and skills to ensure that the Board and its Committees are
composed of individuals who have the right experience and skills to enable
them to shape (and, in the case of the Executive Directors, deliver) the
Company’s strategy and to monitor and assess the effectiveness of the
Company’s control environment and management of risk.
The matrix considers the following:
• Diversity, including age, gender and ethnicity (see more on pages
79 to 80)
• Background, professional skills and experience (see more on pages
58 to 59 and 76)
• The number and balance of Executive and Non-Executive Directors
• Length of tenure (see more on page 78)
•
Independence (see more on page 73)
Ensuring that we
get access to the
best candidates
• Regularly reviewing the recruitment agencies that we use and ensure that
they are best placed to find QinetiQ the right mix of candidates capturing
the clear benefits of greater diversity
Ensuring
accountability
and success
of the Board’s
performance
•
Annual Board effectiveness and performance evaluation, using an
external provider every three years. See more on pages 80 to 82
• Annual review of the Chairman’s performance led by the Senior
Independent Director. See more on page 82
• Annual independence review of the Non-Executive Directors.
See more on page 73
• Continued assessment of the Non-Executive Directors’ time
commitment. See more on pages 73
• Policy on Board members’ appointments to other Boards
• Annual performance review of the CEO and CFO, supplemented by the
Chairman’s and Non-Executive Directors’ continual assessment of their
performance. See more on page 80 - 82
• A thorough induction programme for new Directors.
See more on page 82
• Annual training for the Board as a whole and on an individual basis.
See more on page 82
• The appointment of Shonaid Jemmett-
Page maintained the Board’s experience
and knowledge in the financial sector
• The appointment of Gordon Messenger
has brought fresh knowledge and
perspective to the Board’s risk and
security thinking
• MWM Consulting Ltd (who has no other
connection to the Group) was appointed
to assist with the recruitment of the new
Audit Committee Chair, which ultimately
led to the appointment of Shonaid
Jemmett-Page
• The FY21 Board effectiveness review
concluded that the Board has been
effective, engaged with and helpful to the
organisation
A summary of the Board’s decision
making, considering s. 172(1) can be
found on pages 61 to 64.
• The effectiveness of the Committee’s succession plans is demonstrated by the new Non-Executive Director appointments in FY21,
having filled the potential gaps in experience and skills, and increased the Board’s gender diversity from 22% to 37.5%.
Annual Report & Accounts 2021
77
Governance Composition, succession and evaluation continued
The process that the Committee has established, together with the particular considerations it takes into account, in identifying and
nominating Director candidates is set out below.
A sub-Committee of the Nominations Committee is appointed to oversee the recruitment and appointment process
A tender process identifies the most suitable recruitment agency to conduct the search and prepare candidate specifications
The sub-Committee reviews the list of candidates and narrows to a short-list of those who best meet the Company’s
requirements, considering the following:
Background, skills
and experience
Independence and
other commitments
Diversity to complement
the Company’s own
diversity
Other individual attributes
to widen the Board’s
overall knowledge,
providing challenge and
further support
The sub-Committee conducts initial interviews with the candidates on the short-list and identifies preferred candidates
Interviews between other Board members, including the CEO and CFO, and the preferred candidates
Nominations Committee recommends to the Board which of the preferred candidates
best fulfils the Board’s and its Committees’ needs
Non-Executive Directors length of service
Name
Michael Harper
Susan Searle
Lynn Brubaker
Neil Johnson
Shonaid Jemmett–Page
Gordon Messenger
% of Directors
Appointment date
6-year date
22 Nov 2011
14 Mar 2014
27 Jan 2016
2 April 2019
19 May 2020
22 Nov 2017
14 Mar 2020
27 Jan 2022
2 April 2025
19 May 2026
9-year date
22 Nov 2020
14 Mar 2023
27 Jan 2025
2 April 2028
19 May 2029
12 October 2020
12 October 2026
12 October 2029
1 – 3 years: 50%
4 – 6 years: 17%
6 – 9 years: 33%
78
QinetiQ Group plc
Senior management succession planning programme
During the year, the Board, led by the Committee, has also
undertaken its usual programme of senior management
succession planning. Senior management for these purposes
includes the members of the Global Leadership Team
(GLT) who are direct reports to the CEO as well as all those
talented individuals who have demonstrated the potential for
promotion to higher or broader positions in the Group’s senior
management structure.
The programme includes a detailed annual review of such senior
managers’ experience and skills and their progress and notable
achievements during the year to ascertain their potential for
further career progression, including potential succession as
Executive Directors. I and my fellow Non-Executive Directors
also keep the performance of potential successors to Executive
Director roles under regular review throughout the year when
they present to the Board and when we visit the Company’s
operations. This gives us the opportunity to observe senior
managers’ working practices and relationships with their
stakeholders first-hand. Our review complements the Executive
Directors’ assessment of these individuals’ performance in
their employment through a formal process of annual reviews,
and continual feedback and support. This programme enables
the Board to identify any gaps in the senior management
succession pipeline and any requirements for senior managers’
further development.
During the year, the Board’s senior management succession
plans were put into action through the promotion of Vicky Weise
to Group Functional Director of Business & Transformation. Her
promotion was in recognition of her development under the
CEO as Chief of Staff and Group Transformation Director. Mary
Williams was appointed President QinetiQ U.S., heading up the
Company’s North American division, and in addition, Sam Lewis
joined QinetiQ in May 2021 as the Group Function Director of
Business Development.
Board and company commitment to diversity
The Board is committed to ensuring diversity, in all aspects
(including as regards to gender, ethnic and social background),
both at Board and senior management level, and throughout the
Company’s employees. This is because we believe diversity can:
• Improve decision-making at all levels of the business by
ensuring diverse perspectives
• Attract and retain the best talent by developing a culture of
inclusion where all individuals are respected and supported to
reach their full potential
• Better serve our customers, other stakeholders and the
communities in which we operate by ensuring that the
diversity of our workforce demographic is representative
of the diversity of such stakeholders
This commitment is aligned with our values (see more on page
6), which in turn support our strategy of growth by retaining and
winning business through having the best talent delivering the
best service for our customers. Our commitment is confirmed
in the Board’s Diversity & Inclusion Policy, of which the key
points are:
• To achieve and then maintain at least 33% female
representation on the Board
• To ensure that its membership reflects the diversity of the
geographies and customers that the Group serves
• To respect the differences of its members, and value and
encourage the diversity of thought that such differences
can bring in each case within the context of Board members
having, between them, the experience and skills required
to support the development, oversight and delivery of the
Company’s strategy
These initiatives have resulted in improvements in gender
diversity at a number of levels of the business, including:
• Female representation on the Board is currently 37.5%
• Female representation on the GLT has increased from 13% in
2020 to 27% in 2021
• Female representations of the direct reports to the GLT is
currently 24%
While we have been successful in achieving the Board’s objective
of having at least one third female representation on the Board,
we have yet not achieved this for our Global Leadership Team,
currently at 27%, and their direct reports, currently at 24%. In
addition, the Committee continues to be dedicated to accomplish
the targets set by the Parker Review (2024 for FTSE 250
companies) to increase the representation of people from ethnic
minorities to our Board, the GLT, the GLT’s direct reports, and the
Company as a whole. The Committee will continue to keep this
under review and continue to implement our succession plans
in 2021, 2022 and beyond. We believe that our established and
effective process, as outlined above, will help us achieve and
maintain these important targets in the near future.
The Board is committed to progress against the targets as set
out in the Board Diversity Policy. The Company’s mandatory
requirement for a diverse candidate pool ensures that we
continue to have the opportunity to recruit candidates from
all gender, cultural and ethnic backgrounds, while we remain
focused on recruiting the best candidate for any role based
on merit.
Annual Report & Accounts 2021
79
Governance Composition, succession and evaluation continued
The employee Diversity & Inclusions (D&I) policy
Page 45 describes the progress of our Diversity and Inclusion
Programme in relation to employees and other diversity policies
and procedures of the Company.
QinetiQ’s D&I policy can be found on www.QinetiQ.com and
outlines our approach to promoting D&I in the workplace.
The effectiveness of the policy is governed via our assurance
processes and KPI with monthly oversight by our executive, and
is underpinned by our Inclusion Strategy to be delivered by 2025.
To help us reach our goals we have put various tools in place,
including; global employee mandatory training on inclusion, a
collective leadership objective on inclusion, and a D&I champion
and network forum. The D&I champions and network leads meet
regularly and the aim of the forum is:
• Promoting the core themes as well as the wider aspect
of diversity across QinetiQ
• Encouraging education and awareness among our employees
• Providing support for our colleagues
• Creating an environment where we can all be our true
selves at work
• Contributing to and influence policy on D&I
The role of the champions is to:
• To be a focal point and leader on D&I for our Businesses
and functions
• To actively lead the internal D&I Steering Group in our functions
• To be a role model and to promote and raise awareness of the
benefits of D&I in our business or functions
• To promote D&I as an integral element of business planning
• To be the representative from the business or function on the
Group D&I Council
• To engage regularly with the CR&S Director (the Group lead on
D&I) to discuss progress and agree plans
• To support corporate initiatives, e.g. – communicating notable
dates, data gathering and reporting
• To promote the benefits of mandatory and additional D&I training
• To be the contact point for D&I ideas, issues, concerns and to
escalate appropriately
• To identify and challenge any barriers and resistance to
embracing the D&I programme
• To facilitate sharing of best practice both internally
and externally
• To promote and celebrate good behaviours and ideas
During the year we have already seen significant increase in
employee activity and engagement around D&I. We are confident
that this will continue in 2021 and beyond, and have an overall
positive effect on our D&I landscape.
Director effectiveness
A performance evaluation of the Board, its Committees and the
individual Directors is conducted annually within a three-year
cycle, by an external evaluation in the first year of the cycle,
followed by two successive internal evaluations. As illustrated by
the chart below, FY21 was the third year of the cycle so a second
internal evaluation was undertaken ahead of a planned external
evaluation at the commencement of a new cycle in FY22. The
external evaluation in 2019 was undertaken by Duncan Reed of
Condign Board Consulting. Neither has any other connection to
the Group.
Year 1
FY19 – External
Evaluation by selected independent consultants
(specific basis and approach agreed)
Year 2
FY20 – Internal
Evaluation focused on reviewing core
effectiveness and areas identified for
development from the Year 1 external evaluation
(questionnaire based)
Year 3
FY21 Internal
Evaluation focused on reviewing the
effectiveness of new initiatives and progress
on areas identified for development from
the Year 2 internal evaluation
(questionnaire based)
80
QinetiQ Group plc
The Company Secretary, in consultation with the Chairman of
the Board and Chairs of the Committees, analysed the results of
the evaluation by reference to the scores given and the specific
observations made, commendations given or improvements
suggested, following which such results were presented to and
discussed by the Board and its Committees.
The overall outcomes of the evaluations were positive,
demonstrating that the Board and each of its Committees
continue to function effectively with a high level of probity,
integrity and independence, through the mediums of both
open and challenging debate in meetings, and appropriate
engagement outside of meetings. The key strengths and areas
for further attention identified by the FY21 internal Board and
Committee evaluation are shown in below:
In line with the cycle illustrated, this year’s internal evaluation
was conducted by way of the Directors completing anonymous
online questionnaires regarding the Board and those Committees
of which they are members, and was supplemented by one-
to-one discussions between the Chairman and individual
Directors. Regular invitees to the Board and the Committees also
completed the online questionnaires.
The questionnaires surveyed various topics relating to
effectiveness, the leadership and composition of the Board and
its Committees, the quality of information and support provided
to them, how well the Board and its Committees were considered
to have achieved their objectives, how good the opportunity
for debate and challenge in Board and Committee meetings
was, and how well Directors considered that the Board and its
relevant Committees had oversight of the Group’s strategy and
its management of risk. In addition, specific questions addressed
the approach taken by the Board and its Committees during
the year to the 2018 Code, in particular as regards to employee
engagement and understanding stakeholder views, and how
the Directors had managed their responsibilities throughout the
COVID-19 pandemic. Directors’ views were also sought on how
well the Board and its Committees had addressed the areas for
development identified in the previous year’s internal evaluation.
Key Strengths
Areas for further attention
The Board is focused on the long-term strategy, representing the
Company’s shareholders and increasing the Company’s value
By way of using Board briefing meetings to aid understanding and focus
discussion, and constructive challenge during scheduled Board meetings
New Board members have brought fresh thinking and new perspective
to the Board’s thinking and processes
The ESG strategy
Further support to management in its work on the Digital & Data
Transformation Programme
Annual Report & Accounts 2021
81
Governance Composition, succession and evaluation continued
When comparing the outcome of the FY21 evaluation against the principal areas identified for further attention in the FY20
evaluation, the following progress can be noted:
Areas for further attention
Progress during the year
Implementation of the Board’s succession plans and review the
composition and membership of the Committees
On the recommendation of the Nominations Committee, the Board
appointed new independent Non-Executive Directors
Committees to ensure they each comprise the right mix of skills
and experience
Continue to consider and implement the Board’s and Committees’
plans to address the changes introduced by the 2018 Code,
particularly regarding employee engagement and taking account
of stakeholder views in the Board’s decision-making processes
The Board’s and Committees’ plans to respond to the 2018 Code
have been implemented in all areas, particularly regarding employee
engagement and taking account of stakeholder views in the Board’s
decision-making processes
The Chairman’s individual performance
As part of our annual evaluation process, Michael Harper,
as Senior Independent Director, led a review of the Group
Chairman’s performance. At a private meeting, the Non-
Executive Directors, with input from the Executive Directors,
assessed the Chairman ability to fulfil his role as such. It was
concluded that the he showed effective leadership of the Board
and his actions continued to influence the Board and the wider
organisation positively.
The Directors’ individual performances
The Chairman held performance meetings with each Board
member to discuss their individual contribution and performance
over the year, and their future training and development needs.
Following these meetings, the Chairman confirmed to the
Nominations Committee that all Directors, have during the year
demonstrated clear commitment to their roles.
Director induction
On joining the Board, whether in an Executive or Non-Executive
role, each Director undertakes an induction programme
covering subject areas relevant to the requirements of their
role. This programme is designed to fast-track a new Director’s
understanding of the Group’s purpose, values, strategy and
operations, thereby equipping them to perform their role.
Details of the induction programme, organised by the Company
Secretary in conjunction with the Chairman, for the two new
Non-Executive Directors who joined the Board since the last
publication of the last Annual Report, is illustrated by the
diagram below:
Background reading material, including previous Board and Committee books, investor and strategy presentations,
relevant Company procedures and Board policies
Meetings with the Chairman, Executive Directors and members of senior management
Meetings with the Chair of the Committees, external auditors and external remuneration advisers
Guidance on corporate governance arrangements, including the Board and Committee agendas and procedures,
Board succession planning and Board evaluation – provided by the Company Secretary
When safe, visits to Company sites, meeting with senior local management
Ongoing Director training
The Directors have the opportunity to participate in an ongoing
training programme organised by the Company Secretary. This
include the Company Secretary keeping the Board briefed on
relevant regulatory changes, and external training. During the
year PwC briefed the Board twice on forthcoming changes to the
external audit and governance environment.
82
QinetiQ Group plc
Audit, risk and internal control
Accountability
The Board has established processes to ensure that all reports
and information, which it is required to present in accordance
with regulatory requirements, represent a fair, balanced and
understandable assessment of the Company’s performance,
position and prospects. Details of the process for ensuring that
this is the case, are set out on page 89. The Board considers
that the Annual Report 2021, taken as whole, is fair, balanced
and understandable and provides the information necessary
for shareholders to assess the Company’s position, and
performance, business model and strategy.
The going concern statement and viability statement are
included on page 37, and a summary of the statements of
Directors’ responsibilities in respect of the Annual Report and
the financial statements is set out on page 116.
Risk Management and Internal Control
The Board oversees the systems of risk management and
internal control through the Audit Committee and the Risk &
Security Committee in conjunction with the risk management
and assurance processes detailed in this report. These
processes are underpinned by an appropriate mix of techniques
used to obtain the level of assurances required by the Board. All
Board members attend these Committee meetings, either as a
Committee member or as a guest, so as to receive at first-hand
the findings of the Committees. Matters of particular concern are
escalated for presentation at Board meetings.
The internal audit function, which is independent of the
business and has a clear reporting line to the Audit Committee,
provides assurance to the Board and its Committees over the
effectiveness of the internal control environment. The internal
audit function prioritises its work according to risk, including
those risks identified by the Group through its risk management
processes. Additionally, regular discussions are held between
the internal audit function and the external auditor regarding
internal audit reports, internal audit plans and the wider
control environment.
The Board routinely challenges management to ensure that the
systems of internal control are constantly improving in order
to maintain their effectiveness. At its meeting in March 2021,
the Board reviewed the effectiveness of the systems of internal
control that were in operation during the year. Further to this
meeting, the Board confirms that it has carried out a robust
risk assessment of the principal risks facing the Company,
including those that would threaten its business model, future
performance, solvency and liquidity.
The Strategic Report contains details of the Company’s principal
risks and uncertainties (see pages 1 to 51), their impact on the
Company and how they are managed, including the Company’s
Three Lines Model (see page 31).
Three Lines Model
The Company’s system of internal control is based on a three
lines model. The assurance activity under the three lines includes
the following activities:
• Regular Board, Audit Committee and Risk & Security
Committee meetings throughout the year, to consider a
structured programme of agenda items determined by
reference to Board reserved matters and the Committees’
Terms of Reference, and the needs of the business
• Annual strategy review by the Board, performed following
detailed input from the Group and Business functions, and
development and implementation of divisional plans to deliver
against Group strategy
• Annual and monthly budget reviews, performed at Group and
functional levels
• Bi-monthly Global Leadership Team meetings at which
all Group functional Directors report on key successes,
challenges, developments in the months and their
performance to KPIs
• Approved delegated authorities to ensure that all major
decisions relating to business change, M&A and bids, and
significant capital and operating expenditure are taken at the
appropriate level
• Group policies and procedures regarding tax and treasury
compliance, anti-bribery and corruption, modern slavery and
human trafficking, and data usage and protection
• Audits by the Group Internal audit function. The Internal Audit
function is independent of the business and has a direct link to
the Audit Committee
• Group-wide confidential reporting procedures
• Global Safety Policies and Operating Procedures to set high
standards of safety and operation across the Group, and
achieve safe and efficient operating outcomes
Board risk management responsibilities:
• Consider and approve the Group’s risk appetite
• Review and approve the Group’s principal risk register and its
processes (upon recommendation by the Audit Committee
and the Risk & Security Committee) to identify such risks and
actions to manage them appropriately
• Review and approve the Group’s emerging risk register and
its processes risks (upon recommendation by the Audit
Committee and Risk & Security Committee) to identify such
risk and actions to manage them appropriately
Annual Report & Accounts 2021
83
Governance Audit, risk and internal control continued
Audit Committee management responsibilities:
• Overseeing the control of risk – second line
• Review and approve the financial Group risk register and
inform the Board
• Review internal audit reports on the effectiveness of Group
risk management controls
Risk & Security Committee management responsibilities:
• Review and approve the Group risk register and inform the Board
• Risk deep dives
• Overseeing risks and risk processes – second line
Confidential reporting process
QinetiQ has in place a confidential reporting process, which
is detailed on the Company’s intranet and in its Code of
Conduct. If an individual does not feel that they can resolve
any concerns with the Company directly through discussions
with their functional manager, they can use an externally
provided confidential internet and telephone reporting system.
All concerns are passed by the external third party to the Group
Head of Internal Audit, who ensures that they are held in strict
confidence and properly investigated. Reports on confidential
reporting activity and outcome of investigations are reported to
the Board at each of its meetings.
In addition, the Board reviewed the effectiveness of the Group’s
confidential reporting process. The Board assessed the current
process in place, which was presented by the Group CSR
Director and Group Head of Internal Audit. The Board provided
challenge and advice on the matter, and was satisfied that the
process in place is fit for purpose.
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QinetiQ Group plc
Audit Committee Report
Dear Shareholder,
I am pleased to present the report of the Audit Committee on
the work carried out by the Committee during FY21, my first as
the Chair of the QinetiQ Audit Committee. These pages outline
how the Committee discharged the responsibilities delegated to
it by the Board over the course of the year, and the key topics it
considered in doing so.
The Committee continues to operate on the basis of an open
but challenging dialogue with management and with the internal
and external auditors, and the application of an appropriate level
of scrutiny. The Committee fulfils a vital role in the Company’s
governance framework, providing valuable independent
challenge and oversight across the Company’s financial
reporting and internal control procedures. Ultimately, it ensures
that shareholder interests are protected and the Company’s
long-term strategy is supported, which is an ever more crucial
task as we continue to navigate through and move beyond the
COVID-19 pandemic.
I hope you find the information in this report about the
Committee’s work helpful and I will be pleased to answer
any questions you have about it at this year’s AGM.
I am also available for questions in the meantime via
InvestorRelations@QinetiQ.com.
Shonaid Jemmett–Page
Audit Committee Chair
“ The Committee’s focus on
the integrity of the Company’s
financial reporting and robustness
of its internal controls, has been
crucial in giving assurance in the
context of the Company’s control
environment during the COVID-19
pandemic.”
Primary role
To assist the Board in fulfilling its oversight responsibilities by
reviewing and monitoring the integrity of the Group’s published
financial information, the adequacy and robustness of the Group’s
system of internal control and risk management, and the quality
and effectiveness of its internal and external audit processes.
Key responsibilities
• Monitor the integrity of the Group’s published financial
information and review and challenge where appropriate any
significant judgements and estimates made
by management
• Evaluate the adequacy, robustness and effectiveness of the
Group’s internal financial and other controls
• Support the Board in evaluating the adequacy, robustness
and effectiveness of the Group’s risk management systems,
for identifying, managing and mitigating principal risk, and
identifying and mitigating, where possible, emerging risks
• Review the Group’s policies, processes and controls for the
detection and prevention of fraud and for compliance with
applicable laws, regulations and codes of conduct
• Approve the activities, review the findings and assess the
effectiveness of the Group’s internal audit function
• Monitor the activities, review the findings and assess the
independence and effectiveness of the external auditor
• Review the contents of the Company’s Annual Report and
Accounts, and advise the Board whether, taken as a whole, it is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company’s position
and performance, business model and strategy
Annual Report & Accounts 2021
85
Governance Audit Committee Report continued
Audit Committee Structure
The Audit Committee is comprised entirely of independent
Non-Executive Directors and is chaired by Shonaid Jemmett-
Page, who is considered by the Board to fulfil the Code
requirement of recent and relevant experience from the financial
sector. The Board considers the members of the Committee
to be independent and, in accordance with the Code, the
Board concludes that the Committee as a whole possesses
competence relevant to the Company’s sector, having a range
of financial and commercial experience in the industry and
the commercial environment in which QinetiQ operates. The
Group Chairman, CEO, CFO, Group Financial Controller, Group
Head of Internal Audit, Group Director Risk & Governance and
representatives of PwC attended all Committee meetings by
invitation during the year.
The Committee met on four occasions during the year. The
Committee also met with PwC and the Group Head of Internal
Audit on two separate occasions, without Executive Directors
present, to discuss the audit process and assure itself regarding
resourcing, auditor independence and objectivity.
Three Lines Model
The Company’s system of internal control and risk management
is based on a three lines model. The Committee’s key roles in the
three lines model are:
• To oversee, review and challenge the work of the independent
assurance functions, principally internal and external audit,
thereby adding assurance that the three lines are well
designed and operating effectively
• To review and challenge management in relation to the
financial reporting of the Group, ensuring its integrity
and completeness
Financial reporting process
The Committee regularly reviews the effectiveness of the
financial risk management framework, including reviewing key
financial risks and assessing the effectiveness of management’s
remedial action plans.
The Company operates a financial management and control
framework, comprising a system of targets, reporting (external
and internal), and controls, that is embedded throughout the
businesses and on which progress is reported to the Audit
Committee and to the Board. The finance function consists
of various financial reporting teams who report to the CFO.
The Group Finance team comprises qualified and experienced
accountants, and is responsible for the preparation of the half-
year and annual reports, and for internal financial reporting to
senior management and the Board. To ensure consistency of
approach and accuracy in financial reporting, the team provides
advice on accounting and financial reporting issues to QinetiQ’s
businesses and sets the Group’s accounting policies, which are
contained in the Finance Accounting Manual. The team also
liaises with the external auditor.
The internal control and risk management systems described
on pages 83 to 84 apply to the Company’s process of financial
reporting and the preparation of consolidated accounts. The
activities of the internal audit team and auditor, and the reviews
by the Audit Committee and the Board, provide a structured
approach to the review and challenge of financial information
and financial reporting.
Internal controls
The Committee confirms its view that it has received sufficient,
reliable and timely information from management in the last
financial year to enable it to fulfil its responsibilities.
The Committee assists the Board in fulfilling its responsibilities
relating to the adequacy and effectiveness of the control
environment and risk management systems. The Group’s system
of internal control has been in place for the year under review
and up to the date of approval of the Annual Report.
The Committee, on behalf of the Board, undertakes an annual
review of the effectiveness of the Group’s system of internal
control and did so again for the year under review. This system
is consistent with the FRC’s guidance on the internal control
requirements of the Code. The review covered all material
controls, including financial, operational and compliance controls,
and risk management systems. The Committee and Board
receive regular risk management reports and together they
ensure that there are adequate internal controls in place and
that these are functioning effectively. The Directors consider
that the Group’s system of internal financial control provides
reasonable, but not absolute, assurance in the following areas:
that the assets of the Group are safeguarded; that transactions
are authorised and recorded in a correct and timely manner;
and that such controls would prevent or detect, within a timely
period, material errors or irregularities. The system is designed to
mitigate and manage risk, rather than eliminate it, and to address
key business and financial risks.
Management of US subsidiaries
QinetiQ Inc is a wholly owned company within the QinetiQ Group
and manages the Group’s US Global Product business. The US
Global Products business contributed approximately £208.1m to
the Group’s revenue in FY21.
QinetiQ’s US defence and security business interests, through
QinetiQ Inc, are operated in accordance with the terms of a
Special Security Agreement (SSA) as required by the US National
Industry Security Program. The SSA between QinetiQ Group,
QinetiQ Inc. and the US Department of Defence (DoD) (acting
through the US Defence Counterintelligence & Security Agency
(DCSA)), was entered into in July 2020. The prior QinetiQ North
America Proxy agreement, which governed QinetiQ’s US defence
and security business interests, was terminated on the same day
and superseded by the new SSA.
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QinetiQ Group plc
During the year, the framework of internal controls in respect
of QinetiQ Inc, was realigned with the SSA. The Audit
Committee Chair, the Group CEO and the Group CFO regularly
communicated with the Audit Committee Chair of QinetiQ Inc,
who is also the Chairman of the QinetiQ inc Board. In addition,
the internal audit function worked closely with US management
to gain assurance that an effective control environment was in
place. The Committee was satisfied that the Group’s internal
controls were effective and applied as far as possible within the
terms of the SSA.
Work of the Audit Committee during FY21
The Audit Committee has assessed whether suitable accounting
policies have been adopted and whether management has
made appropriate judgements and estimates. Throughout the
year, the Finance team has worked to ensure that the business
is transparent and provides the required level of disclosure
regarding significant issues considered by the Committee in
relation to the financial statements, as well as how these issues
were addressed, while being mindful of matters that may be
business-sensitive.
The preparation of the Consolidated Financial Statements
requires the application of certain judgements and estimates.
This section outlines the main areas of judgement that have
been considered by the Committee, the Committee has reviewed
and challenged these items and the Committee’s conclusion.
Specifically, the SSA ensures effective management of main
facility security clearances; creates an insulation from undue
foreign ownership, control or influence; and sets out how the
rest of the QinetiQ Group interfaces, collaborates and works with
QinetiQ Inc. Under the SSA, the Board of Directors of QinetiQ Inc
is comprised of three types of Directors, all nominated by QinetiQ
Group plc, as the ultimate foreign owner of QinetiQ Inc. The three
types of Directors are Outside Directors, Inside Directors and an
Officer Director. These appointments are approved by the DCSA.
The Inside Directors are the means by which QinetiQ maintains
appropriate visibility of the management and operations of
QinetiQ Inc. These positions are held by Steve Wadey, as the CEO
of QinetiQ Group plc, and David Smith, as the CFO of QinetiQ
Group plc. The Inside Directors serve as a minority representative
of the foreign owner, i.e. QinetiQ Group plc, to ensure there is no
undue control or influence on the actions of QinetiQ Inc. Inside
Directors need not be US citizens and are excluded from access
to US classified and export-controlled information in possession
of QinetiQ Inc.
The Officer Director is responsible for the day-to-day operations
of QinetiQ Inc and serves as a liaison between the wider QinetiQ
Group and QinetiQ Inc. This position is held by Mary Williams,
President of QinetiQ Inc. The Officer Director must ensure that
the procedures and requirements of the SSA are effectively
implemented, and has an obligation to maintain the security
of classified and export-controlled information entrusted
to QinetiQ Inc, as well as QinetiQ Inc’s ability to perform on
classified contracts and participate in classified programmes.
This individual must be a resident US citizen who either has or is
eligible to possess personal US security clearance.
Outside Directors must be resident US citizens who are objective
individuals, have had no prior relationship with QinetiQ that could
cause conflict with their objectivity, and possess personal US
security clearance. The appointed Outside Directors are John
Hillen, Chair of the QinetiQ Inc Board, Pamela Drew and Tom
Mills. The number of Outside Directors must outnumber the
number of Inside Directors. The Outside Directors also form the
Government Security Committee that is in place to ensure US
national security interests are upheld.
Annual Report & Accounts 2021
87
Governance Audit Committee Report continued
Activities during the year
Financial Reporting:
Key uncertainties and judgements/estimates
Specific issues addressed by the Committee for the year ended 31 March 2021 include the following items of significant judgement.
Items of significant judgement
The Committee’s review, challenge and conclusion
Long-term contract accounting
The Group has a large number of contracts which span multiple
periods and are accounted for on a percentage of completion
basis in accordance with IFRS 15. Long-term contract
accounting requires a number of judgements and management
estimates to be made, particularly in calculating the forecast
costs to complete the contract.
Onerous contract provisions are recorded where there is an
expectation that a contract will be loss-making, and judgement
is applied to determine the magnitude of any provision.
Particular focus is given to contracts which are technologically
challenging.
Provisions and contingent liabilities
The Group holds provisions in respect of legal, regulatory and
environmental issues. Judgement is required in determining
whether provisions are required.
Where a provision is not deemed to be required but a contingent
liability exists, judgement is also required in respect of
appropriate narrative disclosure.
Impairment of goodwill and acquired intangibles
The Group has a material amount of goodwill and associated
intangible assets relating to acquisitions. There is a risk
of impairment where the latest view of future business
performance is less optimistic compared to the view as at the
time of recognition of the assets.
An impairment charge has been recognised in the QinetiQ
Germany CGU during the year.
Accounting for tax research and development
expenditure credits
The Group benefits from significant levels of Research and
Development Expenditure Credit (‘RDEC’) in the UK and
accounts for these under IAS 12, rather than as a government
grant within IAS 20.
The Committee received commentary from both management and the external
auditors in respect of the most significant contracts being delivered by the Group and
discussed the main financial assumptions (including level of risk reserves).
The Committee concluded that management’s best estimates were reasonable.
Two specific onerous contracts were discussed in Committee meetings and a further
contract was challenged as to whether or not it is likely to be loss-making and require
a provision to reflect this. Following a robust discussion and review of supporting
evidence, it was agreed that while there was a risk of the contract in question being
onerous that was not the most likely outcome and does not require to be accounted for
as such.
The Committee reviewed a detailed analysis of provisions provided by management
and questioned the completeness and adequacy of such provisions.
During the year, the Committee reviewed and assessed management’s disclosures
in respect of contingent liabilities generally and considered whether any specific
disclosures were required in respect of the incident at the Pendine range (an MOD
site managed by the Group under the LTPA contract). The contingent liabilities note
(excluding any disclosure of potential liabilities that are merely deemed to be remote)
are set out in note 32.
The Committee reviewed the outputs of management’s annual impairment testing
exercise, noting the use of external advisors to prepare the technical assumptions
(discount rates, long-term inflation) which have also been verified as appropriate by
the external auditors.
The Committee had lengthy discussions with management and the external audit
team, specifically challenging the revenue and profit estimated to be delivered from
key opportunities not yet under contract. The Committee acknowledged that there was
a wide range in outcomes to the impairment test which is very sensitive to outer year
cash flows. On challenging management, and review of challenge presented by the
external auditors, the Committee concluded that the £25.4m impairment recorded in
the year was appropriate.
The Committee also assessed the Group’s disclosures regarding sensitivity of the
outcome of the impairment assessment to changes in key assumptions. These were
also deemed to be appropriate.
The Committee reviewed management’s accounting policy for RDEC (page 170) and
disclosure of its impact on the Group’s underlying effective tax rate (page 137). The
Group’s external auditors reassessed the continued application of management’s
judgement that RDEC should be accounted under IAS 12.
The Committee noted that the external auditors deemed the Group’s accounting to be
appropriate (though other companies do adopt an alternative accounting policy).
We have reviewed the disclosures made in respect of tax, in particular around estimates
and uncertainties and are satisfied that the disclosures made are appropriate.
Impact of COVID-19
The COVID-19 pandemic has caused significant global
disruption and economic uncertainty. This could have
potential internal control and financial reporting implications
for the Group (e.g. asset impairments, longer-term viability
assessments).
The Committee received regular reporting throughout the year on the impact of
COVID-19 on the Group and noted the strong resilience shown during the last year
(together with the favourable impact of key management actions to mitigate any
impact). The Committee monitored the continuing effectiveness of the system of
internal control and risk management during this period. The Committee concluded
that COVID-19 no longer merited disclosure as a Principal Risk and there was no impact
on the Directors’ assessment of the longer-term viability of the Group.
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QinetiQ Group plc
Going concern and viability statements
Following review and challenge, the Committee concluded that
the Group will be able to continue in operation and meet its
liabilities as they become due. The Committee also considered
it appropriate that the statement covers a five-year period. In
reaching its conclusion the Committee reviewed the five-year
forecast, the stress tests applied to it and the mitigating actions
available to the Company. The viability statement and the going
concern statement can be found in full on page 37, including the
process on how the process was conducted.
Fair, balanced and understandable
The Board has established processes to ensure all reports
and information, which it is required to present in accordance
with regulatory requirements, represents a fair, balanced and
understandable assessment of the Company’s performance,
position and prospects.
As such, the Audit Committee was requested to provide advice
to the Board on whether the FY21 Annual Report & Accounts,
taken as a whole, provide a fair, balanced and understandable
assessment of the Company’s financial position and future
prospects and provide all information necessary to a shareholder
to assess the Group’s performance, business model and
strategy. Following the process established and reported on
in previous years, and in forming its opinion, the Committee
reflected on the information it had received and its discussions
throughout the year. The review is a well-established and
documented process involving senior management and the core
reporting team. The assessment was assisted by an internal
verification of the factual content by management, a review at
different levels of the Group to ensure consistency and overall
balance, and a comprehensive review by the senior management
team and the external auditors.
Following its review, the Committee was of the opinion that
the FY21 Annual Report & Accounts were representative of
the year and present a fair, balanced and understandable
overview, providing the necessary information for shareholders
to assess the Group’s position and performance, business
model and strategy.
Prevention and detection of fraud
The Committee reviews the effectiveness of the control
environment annually, which includes considering the risk of
fraud. In addition, the Committee discuss with the internal and
external auditors any findings on the quality of the organisation’s
anti-fraud systems and controls. At each Committee meeting
during the year, the Committee members individually confirmed
that they were not aware of any case of fraud within the Group at
that point in time.
Treasury strategy and compliance
The Company maintains a treasury policy which sets the
approved level and nature of the Group’s debt and hedging
facilities, and the headroom to be maintained under them. The
Committee regularly reviews the treasury policy, approved
changes to it where appropriate and monitored the Company’s
compliance with it.
Tax strategy and compliance
The Committee reviewed and approved the Company’s tax strategy
to ensure that it remained appropriate. The Committee also
received updates from management about the Group’s tax affairs,
including the status of any tax audits and tax compliance matters.
Audit Committee Terms of Reference
The Committee reviewed and approved updated Terms of
Reference, which are available at www.QinetiQ.com.
Internal audit
The internal audit function is independent of the business
and has a clear reporting line to the Audit Committee The
Group Head of Internal Audit reported on four occasions to
the Committee on the operation of internal control and risk
management processes. The Committee approved the annual
internal audit plan, providing input to it and ensuring it was
focused on key risk areas and provided appropriate coverage
across Group. The audit plan was formally reviewed during the
year by the Committee to ensure that resources were adequate
and that the plan itself remained risk-based. Any changes to the
plan are approved by the Committee.
The annual plan is structured to ensure that all significant
financial and non-financial risks are reviewed within a rolling
three-year period. The audits cover financial systems,
programmes and projects, as well as reviews of specific risks
identified through the Group’s risk management processes.
During the year, the internal audit function audited the controls in
place over a range of key functions across the Group in line with
the risk-based internal plan for the year. Specific areas of focus
were overseas subsidiaries, internal transformation programmes,
contractor management, project management, and payroll.
Significant issues resulting from the audits completed were
reported to the Committee, who supported the findings and
questioned management over the issues identified. Action
plans were put in place and progress of the agreed actions and
closures thereof were reviewed by the Committee.
The Board Assurance Map continues to provide further assurance
to the Committee, and is based on the three lines model
published by the Institute of Internal Auditors (set out on page
31). It is used to identify relevant compliance and assurance
providers across the Group, and helps highlight potential gaps
in coverage when compared to key business processes and risk
areas. As we look ahead, with anticipated changes within UK
Corporate Governance on the horizon and global transformation
programmes in progress, the Board Assurance Map will be
integral to monitoring Group wide assurance and helping to
inform future plans within the three lines.
The results of the Internal audit activity in the year continued
to indicate that, overall, an effective control environment was in
place, with an open culture of continuous improvement being
demonstrated by regular management requests for internal
audits to be undertaken.
Annual Report & Accounts 2021
89
Governance Audit Committee Report continued
The following auditors’ remuneration has been charged in
arriving at profit before tax:
All figures in £ million
2021
2020
Fees payable to the auditor and its associates
Audit of the Group’s annual accounts
Audit of the accounts of subsidiaries of the
Company
Total audit fees
Audit-related assurance services
Total non-audit services
Total auditor’s remuneration
0.6
0.5
1.1
0.1
0.1
1.2
0.6
0.2
0.8
0.1
0.1
0.9
Review of the effectiveness and the independence of the
external auditor
At its September meeting the Committee reviewed the results
of an effectiveness survey of the previous year’s audit process,
which allowed learnings to be fed into the current year’s planning
process. This took the form of questionnaires completed
by members of the Group and divisional finance teams, and
was supplemented by feedback from the Executive Directors
and members of the Committee, together with consideration
of the FRC’s latest Audit Quality Inspection Report on PwC.
The evaluation confirmed that PwC continues to perform its
audit work to a high standard, in particular as a result of its
comprehension of the Company’s business, control processes
and the matters on which significant accounting judgements or
estimates are required and its appropriate validation or challenge
of management’s views.
Audit appointment and partner succession
PwC was appointed as auditor of the Group at the 2018
AGM following a tender process. The current external audit
engagement partner is Julian Gray, Senior Statutory Auditor,
who has now concluded his fourth year as the Group’s audit
lead partner. The time line for the mandatory appointment
of a new external audit lead partner is five years, and during
FY22, the Committee Chair will be working closely with PwC
and Julian to identify the next PwC lead partner to manage the
external audit team. The external audit contract will be put out
to tender at least every 10 years. The Committee considers that
it would be appropriate to conduct an external audit tender by
no later than 2028.
The Committee and the Board will be recommending PwC’s
reappointment at the 2021 AGM.
External audit
PwC Audit Scope
Reflecting the changing composition of the Group and its
expansion in the US , the FY21 Audit Scope was increased
to also include QinetiQ Inc. (MTEQ). QinetiQ Inc. contributed
£135.5m to the revenue in FY21, as such representing a
significant part of the total revenue of the Group, and the
Committee viewed it appropriate to extend the audit scope
to reflect this.
Non-audit work and auditor independence
The Audit Committee is responsible for QinetiQ’s policy, the Code
of Practice, on non-audit services and the approval of non-audit
services. The Code of Practice is applicable to all employees and
sets out the principles for regulating the award of non-audit work
to the external auditor.
In order to safeguard the auditor’s independence and objectivity,
and in accordance with the FRC’s ethical standard, QinetiQ
does not engage PwC for any non-audit services except where
it is work that they must, or are clearly best-suited to, perform.
Accordingly, the Company’s policy for the engagement of the
auditor to undertake non-audit services broadly limit these to
audit-related services such as reporting to lenders and grant
providers, where there is a requirement by law or regulation to
perform the work. All other non-audit services are considered on
a case-by-case basis in light of the requirements of the ethical
standards and in compliance with the Company’s own policy.
The Audit Committee approves the terms of all audit services
as well as permitted audit-related and non-audit services in
advance. Pursuant to the Code of Practice, any non-audit
services conducted by the external auditor require the prior
consent of the CFO or the Chair of the Audit Committee, and any
services exceeding £50,000 in value require the prior consent of
the Audit Committee as a whole. For work that is permissible by
type, the Audit Committee will take into consideration the size
of the contract in proportion to QinetiQ’s revenue and profit, and
also the total size when aggregated with other contracts with
PwC, noting that some non-auditing services are subject to an
annual regulatory 70% spending cap of the average of the audit
fees billed over the last three year period.
It is also QinetiQ’s policy that no former PwC employee may be
appointed to a senior position within the QinetiQ Group without
the prior approval of the CFO.
Review of non-audit work during the year
The Committee reviews the cost and nature of non-audit work
undertaken by the external auditor at three meetings during
the financial year as a standing item, with a fourth meeting
considering the auditor’s fees as part of the year-end review.
The Committee had concluded, prior to engaging PwC for the
provision of these services, that there had not been any conflict
of interest that might compromise the independence of PwC’s
audit work.
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QinetiQ Group plc
Audit Committee effectiveness review
The evaluation of the effectiveness of the Committee was
conducted alongside the Board effectiveness review and carried
out by way of a questionnaire. See more on pages 60 to 62.
The outcome of the evaluation confirmed that the Committee
continues to operate highly effectively and determined that
Committee members have good oversight of, and are able to raise
appropriate challenges in respect of, important financial matters,
such as management’s significant accounting judgements and the
implementation of new accounting standards.
Looking ahead
Looking ahead, the Committee is cognisant of a number of
key recommendations from the BEIS consultation “Restoring
trust audit and corporate governance for companies, audit
committees and auditors”, noting in particular the strengthening
of the role and responsibilities of Audit Committees, but
also being subject to more regulatory scrutiny and potential
inspection and observation of their activities.
From 2022, all premium listed companies must report in line with
the Task Force on Climate-related Financial Disclosures (TCFD)
Recommended Disclosures on climate-related reporting, on a
comply or explain basis, and include a statement in their annual
report to that effect. The Audit Committee will during the year,
be working closely together with the Board to ensure compliance
with these important areas.
Annual Report & Accounts 2021
91
Governance Risk & Security Committee
“ The safety and wellbeing of
our employees, customers and
partners, have remained the
Company’s number one priority
throughout the pandemic”.
Dear Shareholder,
I am pleased to present our Risk & Security Committee report
for FY21, my first as its Chair, which describes our activities and
areas of focus during the year.
Now more than ever, the Committee understands that emphasis
has to be placed on the need for a robust, international security
capability, which leverages our Group wide capability
and experience.
Risk profile of the Group
The Group has been operating through a period of uncertainty
further to the COVID-19 pandemic and the role of the
Committee during this period has been to assure the Board that
management are proactively preparing for all situations that
may impact the Group. Despite the uncertain times, the Group
has taken several initiatives to reduce its risk profile. The review
of the Group Risk Register, which is described further on pages
30 to 36, continues to be fundamental for the Committee to
undertake its duties. The Risk Register contains details of the
Company’s principal risks and uncertainties, their impact on the
Company and how they are managed.
This year the Committee spent further time ensuring that the
Group Risk Register remains relevant and accurate. “Red” risks
are made the subject of a report to the Committee or become
the subject of a deep-dive review as part of the Company’s risk
management processes.
Security profile of the Group
During the year, the Committee transitioned into a Risk &
Security Committee with one of its core responsibilities now
being to also oversee the Group’s physical and non-physical
security systems. 2020 and 2021 have been extraordinary
with numerous security challenges manifesting themselves
either directly or indirectly as a result of COVID-19, and the Group
has faced an increased number of security challenges as a result.
The Committee members and I have, together with the Group
Functional Director Business Transformation & Services,
Group Director Security and Group Director Risk & Governance,
developed a schedule of security related agenda items, ensuring
that the Committee will be able to oversee this important
subject, as well as the risks facing the Group.
FY22 Action plan
• Continue to monitor progress of the Company’s wider
technology and cyber security transformation
• Continue to increase focus on risk reporting and accountability
for risk throughout the Group, both for its UK businesses as
well as its global businesses
• Publish a Global Security Strategy to emphasise the
importance of security and to drive a culture of heightened
security awareness across the Group
I hope you find the information in this report about the
Committee’s work helpful and I will be pleased to answer any
questions you have about it at this year’s AGM.
General Sir Gordon Messenger
Risk & Security Committee Chair
92
QinetiQ Group plc
Risk management
The Board assumes ultimate responsibility for the effective
management of risk across the Group, determining its risk
appetite and ensuring that each business area implements
appropriate internal controls. The Group’s risk management
systems are designed to manage, rather than eliminate, the
risk of failure to achieve business objectives, and can only
provide reasonable and not absolute assurance against material
misstatement or loss. These systems are also designed to be
sufficiently agile to respond to changes in circumstances, such
as the impact of COVID-19.
To enable the Committee to get a comprehensive understanding
of how risk management processes have been implemented and
to ensure that these are fully embedded within the business’s
day-to-day work, deep-dives are presented to the Committee by
employees who have first-hand knowledge of such matters, i.e.
perform the work on a daily basis.
Risk reporting is incorporated into the management of the
business through the Global Leadership Team and monthly
performance reviews feed into the Group strategy at the
Executive and Board level. The risk management and risk
monitoring processes are divided as following:
Risk
management
• Review risk management structures and reporting
lines (i.e. effectiveness of control environment)
• Effectiveness of risk reporting processes
• Review effectiveness of risk identification
processes
• Consideration of external auditor recommendations
relating to risk management
Risk
monitoring
• Review of risk register and key exposures
• Health, Safety & Environmental Performance
•
•
Internal Audit reports
International business governance
• Anti-bribery and corruption
Security management
The Committee is assured by the progress made by the Group
in the year, although, with the ever-increasing incidence and
sophistication of cyber attacks and the consequent need for
the Group to remain vigilant, the Committee expects security to
remain one of its key areas of focus. A Security Culture Survey,
conducted by the Group Security team covering the whole Group
and aimed at understanding the security maturity levels across
four areas; information, physical, cyber and personnel security,
proved invaluable in identifying areas for focus, both domestically
and internationally.
Risk & Security report
Key highlights FY21
• Reshaping the purpose of the Committee to also focus on
physical and non-physical security
• Approved the updated Terms of Reference and the annual
schedule of agenda items
• Received frequent updates on health and safety matters, in
particular in relation to COVID-19, and the measures put in
place to allow employees’ safe working, from site or at home,
and employees’ wellbeing
• Monitored the impact of the COVID-19 pandemic on our
business and supply chain
• Focused on the risk management processes in the Group’s
international businesses.
Primary role
Alongside the Audit Committee, to provide scrutiny, and
assurance to the Board, that the required standards in risk
management, security, health and safety, within the UK and
internationally, are achieved, including driving continuous
improvement ensuring that the organisation fulfils its statutory
requirements and duty of care.
Key responsibilities
The Committee primary functions are:
• To oversee the sound operation of the Group’s risk
management systems
• The ongoing review of the Group’s principal and emerging
risks (see pages 32 to 36)
• To oversee the Group’s physical and non-physical security
systems, including monitoring security exposures and security
culture, and considering emerging security issues
• Continue to ensure that health and safety risks are being
effectively managed across the Group
• To oversee the Group’s second line assurance activity over the
first line compliance activity taking place across the Group’s
functions and businesses
• To monitor adherence to the generic MOD compliance system
• To review the Group’s policies, processes and controls for
the detection and prevention of bribery and modern slavery
and compliance with applicable laws, regulations and codes
of conduct
Risk & Security structure
All members of the Board are members of the Risk & Security
Committee, which is chaired by Gordon Messenger. The Group
Functional Director Business Transformation & Services, the
Group Director Security, the Group IT Services Director, the
Group Director Risk & Governance and the Group Head of
Internal Audit attend all Committee meetings by invitation.
The Committee met on four occasions during the year.
Annual Report & Accounts 2021
93
Governance Risk & Security Committee continued
Cyber – security
Our cyber security procedures have been strengthened
considerably in recent years in response to the increasing threat
this poses to businesses, and it remains an area that we keep
under continuous review.
FY21 has seen a number of security challenges manifesting
themselves, either directly or indirectly, as result of COVID-19.
Numerous threat actors have taken the pandemic as an
opportunity to target businesses and employees as they adapt to
new ways of working and to exploit the vulnerabilities that working
remotely introduce. This has been overlaid by more aggressive
physical and technical security threats at a strategic level and
increasingly sophisticated cyber attacks. Further emphasis has
therefore been placed on the need for a robust international
security capability, which leverages Group wide capability and
experience, shares global risk and threat information and is
capable of proactively managing across the full security spectrum.
The system is designed to give the MOD customer confidence
that QinetiQ is able to provide impartial advice during any
competitive evaluation of a procurement opportunity where the
Group wishes to operate on both the “buy” and the “supply”
sides. The aim is to achieve a balance between meeting the
needs of the procurement customers in the MOD (principally
Defence Equipment & Support) and the need to allow QinetiQ the
flexibility to commercialise research into the supply chain and
pursue its planned business activities, without compromising
the defence or security interests of the UK. The Board nominates
two senior managers to act as Compliance Implementation
Director (CID) and Compliance Audit Director (CAD).
Health and safety
The Group is committed to providing a safe environment at all
Company sites for the benefit of our employees, contractors,
tenants and visitors. At each Committee meeting, a detailed
update is provided on health and safety matters.
The Committee regularly receives reports from the Cyber
Security team and the Group IT team on the maintenance of
adequate cyber security systems, work undertaken to improve
cyber security capabilities and lessons to be learnt from high-
profile data breaches.
Our IT team is continuously testing the effectiveness of our
ongoing security awareness programme by sending fake
phishing emails to employees and monitoring their response.
Any employee who clicks on the links contained in the test emails,
or enters their credentials, is provided with further training on the
dangers and tips on how to identify phishing emails.
All employees have to complete mandatory information security
training each year, which focus on our policies and procedures,
cyber and personal security. Our Group intranet also includes
a “tips and tricks” section for our employees with guidance
on issues such as cyber security, social media and general
security awareness.
Governance
Self-certification process
An annual process of hierarchical self-certification on the
effectiveness of internal controls has been established.
This process provides a documented and auditable trail of
accountability for the operation of the system of internal control.
It is informed by a rigorous and structured self-assessment
that addresses compliance with Group policy, and provides
for successive assurances to be given at increasingly higher
levels of management and, finally, to the Board. The
self-certification process, which is carried out at the full and
half-year, is reported to the Committee by the Group Director
Risk & Governance.
The self-certification process continues to be a valuable tool in
assessing the effectiveness of internal controls in all functions
and business units across the Group.
Generic MOD compliance system
A key aspect of the Committee’s work is the oversight of the
UK Ministry of Defence’s (MOD) generic compliance system.
This is integral to the work of QinetiQ in its relationship with
the UK Government.
In March 2021 there was an incident at the Pendine range, an
MOD site managed by the Group under the LTPA contract, which
resulted in one of our employees sustaining life-long injuries. Our
focus will remain on supporting our colleague and their family
over the coming months, as well as those who work at Pendine
and anyone across the business who has been affected by
what has happened. We are continuing to support the external
investigations into the incident and we have launched our own, to
better understand what happened and any lessons we can learn
and apply.
Anti-bribery and corruption
The Committee oversees a zero tolerance approach to bribery
and corruption, as confirmed by the Company’s anti-bribery and
corruption policy and the supporting local policies that apply
to members of its Group. The Group also have in place a range
of procedures, including regular training targeted at potentially
risk exposed roles of the employees, Group and local gifts and
hospitality policies, and Group and divisional procurement,
contracting and partnering practices, which are designed to
prevent bribery. See more on page 47.
Data privacy
The Company respects the personal data privacy of its
customers, employees and other individuals in respect
of whom it and members of its Group process personal
information. The Group therefore has in place policies which
mandate the lawful processing and protection of such
personal information in accordance with applicable laws, and
procedures which are designed to achieve the same. A report
on GDPR compliance is presented to the Committee at each
Committee meeting.
Effectiveness review
The evaluation of the effectiveness of the Committee during
FY21 was conducted internally, by way of a questionnaire. See
more on pages 60 and 62. The performance of the Committee
was rated highly overall, and the Committee agreed it would
continue to focus on the COVID-19 pandemic, and cyber risk
and security in FY22.
94
QinetiQ Group plc
Remuneration
“ Excellent progress was made by
the CEO, Global Leadership Team
and our employees to deliver a fifth
year of growth and a 6% organic
increase in FY21 operating profit.”
QinetiQ’s Gender Pay Gap data can be
found on our website at www.QinetiQ.com
Directors’ remuneration report
Dear Shareholder,
As the Group Chairman outlined in his statement on page 6, the
last year has been like no other, with every aspect of our lives
impacted by the COVID-19 pandemic. However, building on a
strong first half of the financial year, the Group has continued
to perform very strongly throughout FY21, despite the impact
of COVID-19. Excellent progress was made by the CEO, Global
Leadership Team and our employees to deliver a fifth year of
growth and a 6% organic increase in FY21 operating profit.
One of the reasons why the company has weathered the storm
so well is the swift and decisive remuneration-related actions
taken by leadership in FY21 to contain costs and conserve
cash. The CEO and CFO both agreed to a temporary base salary
reduction of 34% and 32% respectively, and Non-executive
Directors agreed to a 25% reduction in fees, which were in
place for six months in FY21 and not repaid. The company also
decided to pay all FY20 annual incentive payments (including the
Executive Directors’ FY20 Bonus Banking Plan) in shares to be
held for one year, and agreed that there would be no base salary
increases in FY21.
The annual contribution to the Bonus Banking Plan (BBP) pool
for FY21 for the CEO and CFO is 95.7% of the maximum for both,
recognising their strong performance and an excellent year for
the company.
The FY21 contingent share award under the Deferred Share Plan
(DSP) will be made at 97.3% of the maximum available reflecting
excellent revenue growth in-year. This DSP award will not vest in
full unless the level of underlying operating profit for FY21 (i.e.
£150.0m adjusted for in-year acquisitions) is at least matched
in FY24; if not, as a minimum, 50% of the initial award will lapse.
The Committee has agreed that the FY22 DSP strategic growth
performance measure will remain as Group revenue growth
(excluding in-year acquisitions) to incentivise the delivery of
growth across the whole Group.
The FY21 CEO single figure on page 100 is higher than that for
FY20 as it includes the first award under the DSP based on FY18
performance, which I am pleased to confirm has now ceased to
be contingent as the performance underpin has been met; that
is, our excellent FY21 profit performance of £150.0m exceeded
that delivered in FY18 of £122.5m. The FY18 DSP vests as
shares which must be retained for a further two years and the
value is disclosed in the FY21 single figure.
The business context and incentive
out-turn for FY21
Five years ago we launched a strategy to deliver sustainable,
profitable growth. The strategy focused on leading and
modernising UK test and evaluation, becoming a more
international company and effectively applying commercial
and technological innovation. Since implementing this strategy,
we have turned around five years of revenue decline and
we continued to deliver strong and sustainable organic growth
in FY21.
The FY21 BBP out-turn was 95.7% of the maximum for the CEO
and the CFO which reflects excellent financial and operational
performance by the Company and the Executive Directors.
During the year incentive targets were reviewed in the light of the
impact of COVID-19 on the business; however, the Committee
and executives determined to retain the original targets set pre-
COVID-19, which were considered to be stretching even before
the pandemic.
The Committee considered the FY21 BBP out-turn in detail
from the perspective of our key stakeholders (shareholders,
customers and employees) and agreed that it was appropriate
not to exercise the discretion available to amend the outcome;
that is, no adjustment was made to FY21 incentive targets or
outcomes to reflect the impact of COVID-19 given the exceptional
performance delivered. The 50% due in June 2021 will be paid
in cash and the other 50% is deferred into the BBP pool, where
it will remain at risk of forfeiture. These deferred amounts are
reported as remuneration for the year they were earned.
Annual Report & Accounts 2021
95
Governance Remuneration continued
The FY21 DSP award will be granted at 97.3% of the maximum
based on the achievement of the Group revenue growth target
and the achievement of the FY21 margin underpin. The Award
will remain contingent based on the achievement of the profit
performance underpin. The level of Group profit for FY21
£150.0m must be achieved in FY24 or, at a minimum, 50% of
the FY21 DSP award will lapse.
The Directors’ Remuneration Policy
and pensions
The Directors’ Remuneration Policy was presented for
the triennial binding vote at the AGM in July 2020 and the
Committee noted that we received a 87% vote in favour of
the Policy and an 89% vote in favour of the Annual Report
on Remuneration for FY20.
Implementation for FY22
The Bonus Banking Plan for FY22 is based on the same financial
metrics as in FY21 (orders, profit and cash) with stretch targets
set against the delivery of the Integrated Strategic Business Plan
(ISBP). Financial metrics have a 75% weighting and non-financial
targets have a 25% weighting based on the achievement of
collective and personal goals. Payment for target performance
is 50% of the maximum.
The Committee considered return on investment as an annual
incentive metric and is monitoring it for potential future use. At
this time it is not considered appropriate as it may not drive the
right behaviours at this point in the company investment cycle.
The Policy approved at the 2020 AGM confirmed that incumbent
Executive Directors’ pension allowances would be reduced to
the UK employee level (10.5% of salary) over the three-year
life of the 2023 Policy. This reduction from 20% to 10.5% has
been brought forward for the CEO and CFO to be effective
from 1 January 2023.
The Committee acknowledges that the incentive plans
can appear complex as we have had this feedback from
shareholders. However, the plans are embedded and well
understood by executives; they are delivering alignment, driving
the right behaviours and incentivised the delivery of excellent
performance in FY21.
In support of the ISBP, the FY22 DSP strategic growth
performance measure is revenue growth across the Group
excluding in-year acquisitions, as per FY21. Underpins ensure
that FY22 profit margins are strong and Group operating
profitability must be at least equal to FY22 performance in
FY25 for full vesting, as detailed on page 104. .
Employee engagement and reward
QinetiQ’s employees are key to the delivery of the growth
strategy. Our employees have been outstanding this year,
demonstrating extraordinary agility, focus, commitment and
drive to continue to deliver to our customers.
The CEO and the Group HR Director have held regular
discussions with our Global Employee Voice on reward
matters. The people section on page 42 details our employee
engagement activity.
I met with the Chair and the Deputy Chair of the Global Employee
Voice group during the year and I found the discussions very
helpful in terms of understanding employee views. I understand
that they have also found the meetings helpful to build their
awareness of the Remuneration Committee’s approach to
executive remuneration. It is our intention to continue to meet at
appropriate intervals.
In FY19 the Company introduced an All Employee Incentive
Scheme (AEIS) whereby every eligible employee can earn a
fixed amount if the Company achieves a level of operating profit
within a predetermined range from target to stretch. For FY21,
the maximum payment for stretch performance was increased
from £1,000 to £1,250. I am pleased to confirm that the AEIS
will pay £1,217 to each employee for FY21, a significant increase
from the £740 paid in FY20. The AEIS is an important element
of the company’s Rewarding for Performance strategy and
aligns employees and shareholder interests by incentivising
and rewarding profitable growth. The Company will operate
the AEIS again for FY22 and thereafter.
Conclusion
Implementing the Directors’ Remuneration Policy in the interests
of shareholders and considering the Company’s response to the
COVID-19 pandemic have been the primary areas of focus of the
Remuneration Committee in FY21.
FY21 was an excellent year for QinetiQ delivering growth
in a very challenging environment for the company and its
leadership. The Remuneration Committee carefully scrutinises
financial performance as it relates to incentive payments and is
satisfied that FY21 payments are appropriate and fair, reflecting
performance in this extraordinary year during which our share
price increased by some 5% and our dividend was paid at an
enhanced level to the prior year having initially been deferred in
response to COVID-19.
As we look to FY22, there is still a great deal of uncertainty as
governments manage the impact of the COVID-19 crisis and
global economies hopefully recover swiftly. The Remuneration
Committee will continue to monitor closely the impact of
COVID-19 on the business as it relates to incentives and other
elements of remuneration.
I am very grateful for the time shareholders and their
representative bodies have given us throughout the year and
I hope that we can rely on your vote in support of the Annual
Report on Remuneration at the AGM on 21 July 2021.
I would welcome comments and questions from shareholders
in relation to this Directors’ Remuneration Report and I can be
contacted through companysecretariat@qinetiq.com.
Susan Searle
Remuneration Committee Chair
20 May 2021
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QinetiQ Group plc
Remuneration at a Glance
Components, alignment, application and changes
Annual fixed pay
Link to strategy
Application in FY22
Salary
Executive Directors’ base salaries are set on appointment and
reviewed annually or when there is a change in position or
responsibility. Typically, base salaries will be increased by a
similar percentage to the average pay increase for all employees
of the Group.
Fixed pay is set at a level that enables us to attract
and retain high-quality Executive Directors, who are
capable of successfully leading and executing our
strategy and delivering long-term sustainable growth.
Our Policy aims to ensure that fixed pay remains
attractive and competitive.
Benefits
Benefits include a car allowance, health insurance, life assurance,
income protection and taxable expenses.
Pension
Existing Executive Directors currently receive 20% of base salary
allowance as cash in lieu of pension.
Medium-term variable pay (One to Four Years)
Link to strategy
The Bonus Banking Plan (BBP)
The BBP is a partially deferred annual bonus scheme where
a maximum award of 200% of salary is available. Reward is
75% weighted on financial metrics (for FY21 orders, operating
profit and operating cash flow – equally weighted) and 25%
weighted on non-financial metrics (key strategic, operational
and personal goals).
In the first year of the BBP cycle, 50% of the annual award is paid
as cash with the remainder deferred and held as notional shares
in a deferred pot. Each year the annual award is added to this
notional pot, with 50% of the balance then paid as cash. At the
end of the fourth year the entire residual pot is paid as shares
and a new three year performance cycle initiated.
The BBP rewards strong financial performance
through a 75% weighting to financial metrics. Over
the long-term this financial performance is driven by
the successful implementation of our strategy. The
scheme also rewards non-financial performance in
areas such as implementing safety programmes and
transforming the culture. The BBP therefore supports
our ongoing transformation which is critical to our
long-term success.
The partial deferral of the bonus and exposure to
share price drives a long-term and sustainable focus,
aligning interests with shareholders. Furthermore,
50% of the value of the deferred BBP pot is subject to
forfeiture should minimum performance requirements
not be met.
No change to
current Policy.
No change to
current Policy.
New Executive Directors
will receive 10.5%, as will
existing ones effective
January 2023.
Application in FY22
No change to
current Policy.
Long-term variable pay (One to Six Years)
Link to strategy
The Deferred Share Plan (DSP)
The DSP is a long-term incentive scheme that provides a
contingent share award up to a maximum of 125% of salary for
success against an annual metric aligned with QinetiQ’s long-term
strategic growth plan.
Initial entry in to the DSP is based on an annual growth measure
with a pre-grant margin underpin, to ensure that Executive
Directors are not incentivised to pursue low-margin growth.
The award is then held in contingent shares for a period of three
years. If at this point the level of profit in the year that gave
rise to the award has been maintained, the contingent award is
considered ‘vested’ and is included in the single figure. Shares
are then subject to a further two year holding period.
The DSP enables us to reward Executive Directors for
delivering against key strategic priorities. We retain
the flexibility to select an appropriate strategic growth
metric on an annual basis ensuring that the DSP is
agile and drives the long-term strategic success of
the Group.
With a four year vesting period, and a further two year
holding requirement, the DSP is inherently long-term in
nature with various underpins ensuring growth is both
sustainable and profitable over the long-term.
Application in FY22
No change to
current operation.
Annual Report & Accounts 2021
97
Governance Remuneration continued
Timing
To create strong alignment between executive remuneration and the long-term interests of our shareholders, the annual BBP awards
remain, in part, subject to forfeiture based on performance for three years after the award was earned. Annual DSP awards also have
a similar forfeiture period, after which any vested shares must be retained by the executive for a further two years.
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Fixed pay
Bonus Banking Plan
Deferred Share Plan
Pay at risk, shares held, subject to certain performance conditions
Shares held, not subject to performance conditions
Single Figure FY21 (£’000)
Chief Executive Officer
Chief Financial Officer
Illustration of FY22 potential (£’000)
Chief Executive Officer
Chief Financial Officer
TOTAL
£1,978
TOTAL
£2,593
TOTAL
£1,393
TOTAL
£1,955
TOTAL
£834
TOTAL
£1,885
TOTAL
£2,936
TOTAL
£3,664
TOTAL
£600
TOTAL
£1,376
TOTAL
£2,152
TOTAL
£2,690
£711
£541
£128
£1,069
£1,179
£803
£892
£781
£703
£590
£522
£1,213
£1,617
£809
£1,294
£404
£647
£896
£1,194
£597
£955
£299
£478
£834
£834
£834
£834
£600
£600
£600
£600
FY20
FY21
FY20
FY21
MIN
TARGET
STRETCH
+50%
MIN
TARGET
STRETCH
+50%
Fixed pay
Medium-term variable pay
Long-term variable pay
Remuneration in context
Our remuneration principles
Flexible
The Committee can select
measures and set tough
targets each year to ensure
that executives are incentivised
aligned to the delivery of each
stage of our strategy.
98
QinetiQ Group plc
Fixed pay
Medium-term variable pay
Long-term variable pay
Minimum – Fixed Pay (FY22 base salary,
plus taxable benefits and pension allowance)
Target – Fixed Pay plus BBP at Target
(100% of base salary) and DSP at Target
(62.5% of base salary)
Stretch – Fixed Pay plus BBP at Maximum
(200% of base salary) and DSP at Maximum
(125% of base salary)
+ 50% Share price appreciation –
Stretch plus 50% share price appreciation
(on 50% of BBP and 100% of DSP)
Stretching
Targets are set by the
Committee to ensure executives
are incentivised to outperform,
while delivering sustainable
levels of performance.
Aligned
While our incentive targets are initially assessed on
an annual basis, the BBP has a deferred share-based
element with the risk of forfeiture, and the DSP has
a “meet or exceed” performance underpin, whereby
performance must be met or exceeded pre-grant and
in year three, after which any vested shares must be
retained for a further two years.
Summary Directors’ Remuneration Policy
The Directors’ Remuneration Policy was approved by shareholders at the AGM on 14 July 2020. The full Policy is provided in
the Corporate Governance section on the Company’s website, and it will remain in effect until the 2023 AGM. When developing
the Policy, the Committee was mindful of the six factors as set out in the Code: clarity, simplicity, proportionality, predictability,
alignment of culture and risk. A summary of the Policy is set out below:
Element
Base salary
Pension
Benefits
Incentive Plan
Policy summary description
Maximum opportunity
Typically, the base salaries of Executive Directors in
post at the start of the Policy period and who remain
in the same role throughout the Policy period will
be increased by a similar percentage to the average
annual percentage increase in salaries of all other
employees in the Group. The exceptions to this rule
may be where:
– an individual is below market level and a decision
is taken to increase base pay to reflect proven
competence in the role; or
– there is a material increase in scope or
responsibility to the Executive Director’s role.
Any new Executive Directors will have a maximum
contribution of 10.5% which is the level available to UK
employees. The allowances paid to the CEO and CFO
will reduce to 10.5% effective 1 January 2023.
Benefit values can vary year-on-year depending on
premiums and the maximum is the cost of providing
the relevant benefits.
Maximum 325% of salary (200% of salary under
the Bonus Banking Plan and 125% of salary under
the Deferred Share Plan).
Bonus Banking Plan
Maximum = 200% of salary.
Target = 80%–120% of salary.
Threshold = 0% of salary.
Deferred Share Plan
Maximum = 125% of salary.
Target = 30%–75% of salary.
Threshold = 0% of salary.
When determining an appropriate level of salary,
the Committee considers:
– general salary rises to employees
– remuneration practices within the Group
– any change in scope, role and responsibilities
– the general performance of the Group
– the experience of the relevant Director
– the economic environment
– when the Committee determines a benchmarking
exercise is appropriate, salaries within the ranges paid
by the companies in the comparator groups used for
remuneration benchmarking
The Company provides a non-consolidated pension
contribution allowance in line with practice relative to
its comparators.
Benefits include car allowance, health insurance, life
assurance, income protection and membership of the
Group’s employee Share Incentive Plan which is open
to all UK employees.
The Incentive Plan supports the Company’s objectives by:
– allowing the setting of annual targets based on the
strategic objectives at that time; and
– providing substantial deferral in shares and ongoing
adjustment by requiring a threshold level of performance
to be achieved during the deferral period.
The Incentive Plan consists of two elements:
Bonus Banking Plan (BBP)
Annual contributions are earned based on the satisfaction
of the performance conditions. Contributions are made for
three years with payments made over four years. Half the
value of a participant’s bonus account is paid out annually
for three years with 100% of the residual value paid out
at the end of year four. Half of the unpaid balance of a
participant’s bonus account is at risk of annual forfeiture.
Deferred Share Plan (DSP)
Deferred share-based element earned based on the
satisfaction of pre-grant annual performance assessment,
which is subject to a three-year vesting period and a further
two-year holding period. A minimum 50% of the unvested
award will lapse after three years if a performance underpin,
set annually by the Committee, is not achieved.
Shareholding
requirements
Executives have five years to accumulate the required
shareholding by retaining at least 50% of the post-tax
vested shares from Company incentive plans.
n/a
300% of base salary for the CEO. 200% of base salary for the CFO.
Chairman and Non-executive Directors
Fees
Fees are reviewed annually based on equivalent roles
in the comparator group used to review salaries paid
to the Executive Directors.
The fees for Non-executive Directors and the Group
Chairman are broadly set at a competitive level
against the comparator group.
Annual Report & Accounts 2021
99
Governance Remuneration continued
Annual Report on Remuneration
The following section of this report details how the Directors’ Remuneration Policy
has been implemented for the year ended 31 March 2021.
Audited information
Executive Directors’ single total figure of remuneration
Executive Director
Steve Wadey (CEO)
David Smith (CFO)
Year
2021
2020
2021
2020
Salary
£’000
Benefits
£’000
Pension
£’000
Total
fixed pay
512
610
392
462
68
49
37
36
123
122
93
92
703
781
522
590
Bonus
Banking Plan
£’000
Deferred
Share Plan
£’000
Performance
Share Plan
£’000
Total
variable
pay
Total
remuneration
£’000
1,179
1,069
892
803
711
–
541
–
_
128
–
–
1,890
1,197
1,433
803
2,593
1,978
1,955
1,393
Benefits can include travel and subsistence expenses incurred in relation to the execution of their duties with the Company that are considered by HMRC to be taxable.
Fixed pay
Salary
Salaries are reviewed effective 1 July, which is the same timing for
the rest of the UK employee population. There was no base salary
review in FY21 as part of the response to COVID-19 and both the
CEO and CFO entered into a voluntary salary waiver for six months
of the year of £104,450 and £74,450 respectively.
Benefits
Benefits comprise a car allowance, travel allowance, private
medical expenses insurance, life assurance, income protection,
and taxable expenses.
Pensions
Neither of the Executive Directors participate in the QinetiQ
pension scheme for FY21 or have done so in prior years. The
pension figure consists of cash in lieu of pension equating to
20% of full base salary (i.e. not reduced in-line with base salary).
Bonus Banking Plan
The Bonus Banking Plan operates on a three-year performance
cycle mirroring the financial year, with a four-year payment cycle, i.e.
running from 1 April to 31 March. FY21 represents the first year of
cycle 3 as detailed on page 101.
Each year any incentive award earned is added to the total plan
balance, with 50% of the total plan balance being paid in cash in June
after the FY. The remaining 50% is held in the plan in notional shares.
In year four, the total remaining plan balance is paid in shares.
CEO
CFO
CEO
CFO
CEO
CFO
CEO
CFO
Salary as at
June 2020
£’000
Increase in
the year
Salary as at
July 2020
£’000
FY21
salary
actually paid
£’000
616
466
0.0%
0.0%
616
466
512
392
Taxable
expenses
£’000
Car
allowance
£’000
Insurance
benefit
£’000
Total
benefits
£’000
33
5
19
13
16
19
68
37
Cash in lieu
of pension
£’000
Total in lieu
of pension
£’000
123
93
123
93
BBP cycle
3 balance
brought
forward
£’000
Dividend
equivalent
payment
£’000
–
–
–
–
BBP
award
in year
£’000
1,179
892
June 2021
payment in
cash (50%
value)
£’000
589
446
BBP cycle
3 balance
carried
forward
£’000
590
446
Performance Share Plan (legacy plan)
For FY20 the PSP figure represents the actual vesting of the of the 2017 award replacing the estimate provided last year. The share price at vesting
was 314.7p and the FY20 figure includes £5,092 paid as income in respect of a dividend equivalent payment.
Deferred Share Plan
The FY18 Deferred Share Plan award achieved the performance
underpin based on FY21 profit exceeding that in FY18 (£122.5m) and,
therefore, the shares ceased to be contingent and are disclosed in the
single figure for FY21 above. The 100% vesting refers to the shares
which have passed the underpin of those initially granted based on
FY18 performance, which was 62.5% of the maximum available.
CEO
CFO
FY18 Shares
Awarded
220,785
167,975
Vesting %
100%
100%
Shares
Vesting
220,785
167,975
Value at
321.9p per
share £’000
711
541
100
QinetiQ Group plc
Bonus Banking Plan
FY21 performance measures and operation
For the year ended 31 March 2021 achievement of on-target performance
provides a payment equal to 100% of base salary, rising on a linear scale to
200% of base salary for achievement of stretch performance.
The scheme begins to pay out once threshold performance measures have been
achieved. For the year ended 31 March 2021, the CEO and CFO were measured
against the targets as shown in the chart to the right. The target payment was
50% of maximum for financial and non-financial objectives.
Setting performance targets – the Remuneration Committee takes into account
the budget and the Company’s strategy set in relation to the ISBP, shareholder
expectations and the external environment. The aim is to set stretching targets
which incentivise the Executive Directors to deliver annual results which will
exceed the expectations of investors, but which are also sustainable and do not
create undue risk. Financial performance measures exclude the contribution
from businesses acquired in the year.
% of base salary (%)
25%
1
2
.
5
%
12.5%
25%
%
5
2
Orders
Underlying operating profit
Underlying net cash flow from operations
Collective objectives
Personal objectives
Audited information
FY21 performance outcomes
Weighting
(%) Threshold
Target
Stretch
Actual
% of
maximum
reward
achieved
CEO
contribution
CFO
contribution
CEO/CFO financial performance measures:
Orders1
25% £855.4m £972.0m £1,088.6m £1,147.2m 100.0%
£308,000
£233,000
Underlying operating profit1, 2
25% £127.5m £139.0m £150.5m £150.0m
97.8%
£301,260
£227,901
Underlying net cash flow from operations1, 2
25% £129.3m £141.0m
£152.7m £182.9m
100.0%
£308,000
£233,000
CEO/CFO shared strategic and operational
objectives (as detailed on page 102):
Strategy:
– Performance against key stretching
objectives relating to the UK business,
international and innovation
Operational:
– Performance against stretching
objectives relating to transformation
and organisational development
CEO individual personal objectives:
– Performance against stretching objectives
relating to growth and leadership
CFO individual personal objectives:
– Performance against stretching objectives
relating to business support and operational
performance
CEO overall results3,
CFO overall results3,
12.5%
40%
50%
100%
80%
80%
£123,200
£93,200
40%
50%
100%
12.5%
40%
50%
100%
90%
90%
£138,600
12.5%
40%
50%
100%
90%
90%
£104,850
95.7%
£1,179,060
95.7%
£891,951
1. Performance measures exclude the contribution from businesses acquired during the year and have been adjusted for disposals during the year.
2. Definition of underlying measures and performance can be found in the glossary on page 182.
3. Based on full FY21 base salary, not actual salary paid.
Annual Report & Accounts 2021
101
Governance
Remuneration continued
Bonus Banking Plan continued
Audited information
Financial performance measures (75% award)
The three key measures of orders, underlying
operating profit and underlying net cash flow from
operations are given an equal 25% weighting.
Reconciliation of measures used in determining
remuneration to Group KPIs
The difference is the contribution from businesses acquired
in the year and an adjustment of £13.7m to FY21 cash flow
to reflect the payment of FY20 annual incentives in shares.
Underlying
operating
profit
Underlying
cash flow
Orders
Per KPIs on page 28/29
£1,151.0m
£151.8m
£199.0m
Metric used for BBP
£1,147.2m
£150.0m
£182.9m
Difference
£3.8m
£1.8m
£16.1m
Shared strategic and operational measures (12.5% award)
Measures
Strategic
Safety & Security Culture
– 40% weighting
Employee Engagement
– 30% weighting
FY21 Performance
Outcome
(% maximum)
Stretch performance levels were met to improve the Safety First and security culture
through increased engagement, high visibility safety and security tours including exchanges
between businesses, and leading safety and security engagements. In light of the Pendine
incident, management, with the Remuneration Committee’s agreement, reduced the outturn
for this element.
Employee engagement improved by 6% in FY21 as measured by the independent Peakon
tool, leaders delivered diversity and inclusion events with strong engagement and feedback,
Q-talk and Employee Roadshow attendance improved significantly.
Productivity & Efficiency
– 30% weighting
Leaders simplified processes and drove innovation to improve productive utilisation of our
facilities and resources and reduce our cost base.
Total
Personal objectives (12.5% award)
FY21 Performance
Successfully navigated the impact of COVID-19 to deliver organic profitable growth in
FY21. Delivered RLTPA commitments with improved customer satisfaction. Through active
management of the portfolio, strategic acquisitions and disposals, drove higher margin
businesses and strengthened strategy implementation. Implemented the next phase of the
group transformation programme.
Delivered operational and functional performance targets including the globalisation of the
functions. Matured organisation and people development plans with improved customer
focus, promoting from within and attracting new leadership talent, enabling a high
performance culture.
Developed a global integrated governance and internal control structure.
Drove right decisions on investment plans, disposals and acquisitions.
Delivered key financial metrics through consistent operational performance.
Objectives
CEO
Growth
Leadership
Total
CFO
Strategic
Growth
Operational
Total
102
QinetiQ Group plc
80%
Outcome
(% maximum)
90%
90%
Bonus Banking Plan continued
How the plan operates
• The Plan operates on a fixed three-year performance cycle
with a four-year vesting cycle. FY21 represents year four
of Cycle 2 and year one of Cycle 3. Plan years commence
on 1 April.
• Performance targets are set at the beginning of each
Plan year.
• At the end of each of the first three Plan years the
performance against targets is assessed and the level of the
incentive earned is determined and paid into the Plan account.
• Each year 50% of the account balance is subject to forfeiture.
• At the end of each of the first three Plan years, 50% of the
account balance will be paid and the balance retained and
held in the Plan as notional shares.
• At the end of the fourth year, any remaining balance in the
Plan account is paid out in shares.
BBP payout mechanism
Year 1
Year 2
Year 3
Year 4
Cycle 2
FY18
FY19
FY20
FY21
Cycle 3
FY21
FY22
FY23
FY24
Measurement date at the end of each Plan Year
Contribution or deduction*
Participant’s plan account
50% of closing balance paid out at the end
of each Plan Year. Unpaid balance deferred
in notional shares.
100% of closing
balance in Plan
account paid
in shares.
* Single figure BBP value for a Plan/financial year.
Audited information
Operation during FY21
Cycle 2
Notional
shares on
account at
start of Plan
year 4
(1 April 2020)
30-day
average share
price to 31
March 2021
(p)
Share
value as at
measurement
date (£)
Bonus plan
contribution
for Plan
year 4 (£)
Dividend
equivalent
payment (£)
Bonus
pool total
value as at
measurement
date (£)
Gross
payment in
cash for Plan
year 4 (£)
Bonus
pool total
value after
payment (£)
Notional
shares on
account at
end of Plan
year 4 (31
March 2021)
CEO
CFO
318,006
238,598
321.9
321.9
1,023,661
768,047
–
–
20,988
15,747
1,044,650
783,794
–
–
–
–
324,526
243,489
Cycle 3
Notional
shares on
account at
start of Plan
year 1
(1 April 2020)
30-day
average share
price to 31
March 2021
(p)
Share
value as at
measurement
date (£)
Bonus plan
contribution
for Plan
year 1 (£)
Dividend
equivalent
payment (£)
Bonus
pool total
value as at
measurement
date (£)
Gross
payment in
cash for Plan
year 1 (£)
Bonus pool
total value
after cash
payment (£)
Notional
shares on
account at
end of Plan
year 1 (31
March 2021)
CEO
CFO
–
–
321.9
321.9
–
–
1,179,060
891,951
–
–
1,179,060
(589,530)
891,951
(445,975)
589,530
445,976
183,140
138,544
Forfeiture
For BBP Cycle 2 the CEO and CFO retained notional shares in their Plan accounts of which 50% were subject to forfeiture.
Forfeiture would have been enacted if Group underlying operating profit was less than £110m for FY21. FY21 Group underlying
operating profit was £150m (excluding contribution from acquisitions) therefore no notional shares were forfeited and the Cycle
2 notional shares will vest as actual shares on 30 June 2021. For BBP Cycle 3 a forfeiture level of profit has been set for FY22.
Discretion
For BBP Cycle 3, for the year ended 31 March 2021, targets were achieved or exceeded providing a contribution of 95.7%
of the maximum award for both the CEO and the CFO. £1,179,060 and £891,951 has been reported in the single figure table
which represents the contributions to the plan related to FY21 performance. No discretion was applied to these contributions
as the Committee considers them appropriate reflecting strong performance. In reviewing the BBP outturn the Remuneration
Committee was mindful of the wider stakeholder experience across the financial year.
Annual Report & Accounts 2021
103
Governance Remuneration continued
Deferred Share Plan (DSP)
Scheme interests awarded during the financial year ended 31 March 2021
The Deferred Share Plan was first approved by shareholders at the 2017 AGM and further approved as a key element of the
Directors’ Remuneration Policy at the 2020 AGM. A maximum award of 125% of salary may be made to the CEO and CFO
with the amount contingent on meeting a stretching annual performance target based on QinetiQ’s strategic growth plan.
Once the award has been made, it is deferred for three years and remains subject to a performance underpin; any vested
shares are then subject to a further two-year holding period.
Setting performance targets FY21
The FY21 DSP performance measure was group revenue growth excluding in-year acquisitions. Calibration was set with
a maximum of 125% of salary available for achieving stretch and 50% of the maximum payable at target performance.
The performance targets were set by the Remuneration Committee so as to be stretching.
Audited information
FY21 performance outcome
The FY21 Deferred Share Plan award was measured against Group revenue growth with the following calibration.
Measure
Group Revenue
CEO
CFO
Weighting
Threshold
Target
Stretch
Actual
% Max award
achieved
100%
£1,076m
£1,176m
£1,276m £1,270.6m
97.3%
% Salary
awarded
121.6%
Total
£’000
£749,210
£566,773
The FY21 DSP award was also subject to a pre-grant performance underpin that FY21 profit margins are higher than 10%,
which was achieved. Group revenue growth achieved at £1,270.6m was between the Target and Stretch levels of performance
resulting in a FY21 DSP contingent award of shares at 97.3% of the maximum available.
The FY21 DSP award will be subject to a further performance underpin before vesting:
• Group underlying profit outturn for FY21 must be maintained at the end of the three-year vesting period. If this is not
maintained then, at a minimum, 50% of the award will lapse. For the purposes of the FY21 DSP award, this will be the
actual underlying operating profit (£150.0m) for FY21 which must be achieved in FY24
The FY21 DSP award which vests based on the achievement of the FY24 performance underpin must be held as shares
for a further two years.
The FY18 DSP award achieved the performance underpin based on FY21 profit exceeding that in FY18 (£122.5m) and,
therefore, the shares ceased to be contingent and will be released on 8 June 2021. Had the FY21 profit not been greater than
FY18, 50% of the DSP award would have lapsed. The net shares vesting from the FY18 DSP must be retained for a further
two years. The value of this award is shown in the single figure table, in line with the reporting regulations, calculated as CEO
£710,707 and CFO £540,711 based on the share amounts due to vest of 220,785 and 167,975 respectively and a share price
of 321.9p (30 day average to 31 March 2021). Actual share values at vesting and the cash payment in lieu of dividends will be
reported in the FY22 single figure.
104
QinetiQ Group plc
Audited information
Statement of Directors’ shareholding and share interests
In relation to the shareholding requirement adopted on 1 April 2017 the Company requires Executive Directors to hold shares
equivalent to 300% (CEO) and 200% (CFO) of base salary. Executive Directors have five years from the adoption of the guideline
to achieve the required level through, at a minimum, retaining 50% of the after-tax shares vesting from Company incentive plans.
The CEO is building up to his shareholding requirement and currently holds actual shares equivalent to 276% of base salary using
a share price of 314.6p (three-month average to 31 March 2021).
The CFO does not currently meet the minimum shareholding requirement; with a current holding of actual shares equivalent
to 141% of base salary using a share price of 314.6p (three-month average to 31 March 2021).
In June 2021 the FY18 DSP award will vest as shares, as the performance underpin has been achieved, and the BBP Cycle 2
awards will vest as shares, as the forfeiture level has been passed. The Committee anticipates that these events will increase
the shareholdings of the Executive Directors significantly, and in the case of the CEO he will meet his shareholding requirement,
as the net of tax shares will be retained.
The Remuneration Committee continues to monitor progress towards the shareholding requirement.
Steve Wadey
David Smith
Michael Harper
Admiral Sir James Burnell-Nugent (Resigned 31 December 2020)
Paul Murray (Resigned 14 July 2020)
Susan Searle
Ian Mason
Lynn Brubaker
Neil Johnson
Shonaid Jemmett-Page (Appointed 19 May 2020)
General Sir Gordon Messenger (Appointed 12 October 2020)
Shares
beneficially
owned
Shares subject
to performance
conditions
Shares not subject
to performance
conditions
540,114
208,289
40,000
15,567
83,214
43,300
10,000
12,000
50,000
7,000
–
464,435
352,376
–
–
–
–
–
–
–
–
–
610
610
–
–
–
–
–
–
–
–
–
Total shares
held at
31 Mar 2021
1,005,159
561,275
40,000
15,567
83,214
43,300
10,000
12,000
50,000
7,000
–
Shares beneficially owned comprise shares purchased under the Share Incentive Plan (SIP) and shares owned by the Director
and any connected persons. SIP matching shares are identified as shares not subject to performance conditions.
On 9 April 2021 Steve Wadey and David Smith purchased 75 shares each, then on 10 May 2021 they purchased 60 shares each,
through their participation in the SIP. There have been no other changes to the shares shown above between 31 March 2021 and
20 May 2021.
Shares subject to performance conditions comprise awards made under the Deferred Share Plan which remain contingent
subject to the performance underpin as detailed on page 104.
Notional shares held by the CEO and CFO in the BBP Cycle 2 and Cycle 3 do not appear in the table above as they are not actual
shares at 20 May 2021. However, in reviewing compliance with the shareholding requirement, the net of tax value of notional
shares (i.e. 53% in the UK) of the 50% of the BBP balance which is not subject to forfeiture is included within the calculation.
Annual Report & Accounts 2021
105
Governance Remuneration continued
Audited information
Total scheme interests summary
Total scheme interests, including those awarded during the financial year ended 31 March 2021, are as follows.
Steve Wadey
Plan name
Date of grant
PSP 2017
22 Jun 17
DSP 2018
8 Jun 18
DSP 2019
28 Jun 19
David Smith
Plan name
Date of grant
DSP 2018
8 Jun 18
DSP 2019
28 Jun 19
Number
1 April 2020
102,136
220,785
243,650
566,571
Number
1 April 2020
167,975
184,401
352,376
Granted in year
(maximum potential
of awards)
Vested in year
Lapsed
in year
Number
31 March 2021
–
–
–
–
39,169
62,967
–
–
–
–
39,169
62,967
–
220,785
243,650
464,435
Share price
on date of
grant
281.0
206.0
304.0
Vest date
22 Jun 20
8 Jun 21
28 Jun 22
Granted in year
(maximum potential
of awards)
Vested in year
–
–
–
–
–
–
Lapsed
in year
Number
31 March 2021
–
–
–
167,975
184,401
352,376
Share price
on date of
grant
206.0
304.0
Vest date
8 Jun 21
28 Jun 22
The contingent share award in relation to the FY21 DSP will be granted in June 2021. The Committee estimates that 232,746
contingent shares will be awarded to Steve Wadey and 176,070 to David Smith. This is calculated based on awards of 97.3%
of salary and a share price of 321.9p (based on the 30 day average to 31 March 2021).
The average three month market share price to 31 March 2021 of the FY18 DSP was 314.6p, leading to an estimated gain
of £239,773 and £182,421 for the CEO and CFO respectively based on share price appreciation of the shares due to vest on
8 June 2021.
There have been no other changes to the interests shown above between 31 March 2021 and 20 May 2021.
Payments to past Directors and payment for loss of office
No payments were made to past Directors during the year and no payments were made for loss of office during the year.
Performance review
The ten-year and three-year charts show the Company’s Total Shareholder Return over the period from 31 March 2011 to 31 March
2021 and 31 March 2018 to 31 March 2021 compared with the FTSE 250 (excluding investment trusts) over the same period based
on spot values. The Committee has chosen to demonstrate the Company’s performance against this index as it is the index in which
the Company is listed.
Ten-year comparator chart
Three-year comparator chart
350
300
250
200
150
100
50
0
0
3 / 2
t
n
e
m
t
s
e
v
n
i
t
i
n
u
0
0
1
a
f
o
e
u
a
V
–
R
S
T
l
0
1
0
2
h
c
r
a
M
1
3
n
o
e
d
a
m
1 / 0
3
1
1
3
1 / 0
0
3 / 2
2
1
3
1 / 0
0
3 / 2
3
1 / 0
1
3
0
3 / 2
4
1
3
1 / 0
0
3 / 2
5
1
3
1 / 0
0
3 / 2
6
1
3
1 / 0
0
3 / 2
7
1
3
1 / 0
0
3 / 2
8
1
3
1 / 0
0
3 / 2
9
1 / 0
1
3
0
3 / 2
0
1 / 0
2
3
1
2
0
3 / 2
200
150
100
50
t
n
e
m
t
s
e
v
n
i
t
i
n
u
0
0
1
a
f
o
e
u
a
V
–
R
S
T
l
7
1
0
2
h
c
r
a
M
1
3
n
o
e
d
a
m
0
3 / 2
0
8
1
1 / 0
3
9
1
0
3 / 2
1 / 0
3
0
2
0
3 / 2
1 / 0
3
1
2
0
3 / 2
1 / 0
3
QinetiQ
FTSE 250 (excluding investment trusts)
QinetiQ
FTSE 250 (excluding investment trusts)
Source: Datastream (Thomson Reuters)
Source: Datastream (Thomson Reuters)
106
QinetiQ Group plc
CEO remuneration
The table below shows the CEO’s remuneration over the same performance period as the Total Shareholder Return chart
(31 March 2011 to 31 March 2021):
Year ended 31 March
CEO
Salary/fees
Single figure
Annual bonus
(% of maximum)
Long-term incentives
(% of maximum vesting)
2021
2020
2019
2018
2017 (restated)
2016
2016
2015
2015
2014
2013
2012
2011
Steve Wadey
Steve Wadey
Steve Wadey
Steve Wadey
Steve Wadey
Steve Wadey
David Mellors
David Mellors
Leo Quinn
Leo Quinn
Leo Quinn
Leo Quinn
Leo Quinn
511,550
610,357
596,422
582,167
568,166
520,219
455,885
501,227
469,776
610,844
593,050
580,000
580,000
2,592,523
1,978,247
2,339,474
1,522,460
1,829,470
1,654,546
1,423,382
1,725,960
673,979
2,177,742
3,992,001
1,495,284
1,327,156
95.7%
87.5%
94.4%
66.7%
86.4%
85.4%
82.9%
88.6%
–
77.0%
100.0%
100.0%
100.0%
100.0%
38.4%
31.7%
–
–
–
–
13.9%
–
15.4%
40.3%
–
–
CEO pay ratio
The calculation below is based on the FY21 ‘single figure’ for the CEO of £2,592,523 and similar calculations for the UK workforce
(i.e. ‘Option A’ as defined by the Companies (Miscellaneous Reporting) Regulations 2018). The Remuneration Committee chose
Option A as it is the approach generally favoured by investors and GC100. The calculations for the UK workforce were performed as
at 21 March 2021.
Total remuneration
Ratio of the CEO’s pay to UK employees
Year
FY21
FY20
25th Percentile
70 : 1
56 : 1
Median
52 : 1
41 : 1
75th Percentile
39 : 1
31 : 1
The CEO pay ratios have widened between FY20 and FY21. The primary reason for this is the higher CEO single figure for FY21
which is a result of this being the first year that a DSP award has been included, as well as the higher incentive outturn due to strong
financial and operational performance and share price appreciation. Some of the increase to the FY21 CEO single figure was offset by
the lower fixed pay following the voluntary waiver of base salary for six months, which was not repaid.
Year on year movements in the CEO pay ratio are likely to be volatile due to the wide range of incentive outcomes for the CEO single
figure, but the Remuneration Committee does note the ratio and it will monitor long term trends.
Total pay of UK employees
£
Total pay and benefits
Salary component.
25th Percentile
£36,959
£30,959
Median
£50,147
£43,537
75th Percentile
£65,685
£53,354
The Remuneration Committee welcomes the opportunity to provide this information to shareholders. The Company aims to reward
all employees fairly for the success and growth they create, hence the inception of the All Employee Incentive Scheme in FY19 which
paid a minimum of £1,217 to all eligible employees for the excellent performance delivered in FY21.
Annual Report & Accounts 2021
107
Governance
Remuneration continued
Remuneration policy for all employees
All employees of QinetiQ are entitled to base salary, benefits and pension. UK and Australia-based employees are entitled to
participate in the QinetiQ Share Incentive Plan. The maximum incentive opportunity available is based on the seniority and
responsibility of the role. Participation in the DSP is available to Executive Directors, senior leaders and selected employees
throughout the organisation.
In FY19 the Company introduced an All Employee Incentive Scheme (AEIS) whereby every employee has the opportunity to earn a
cash bonus based on Company and personal performance. For FY21 the Company element of the AEIS achieved a level between
Target and Stretch resulting in a payment of £1,217 to every eligible employee, plus the opportunity to earn an additional payment
based on personal performance. The AEIS will be operated again in FY22 and thereafter.
The Committee reviews (but does not decide) the general reward policy for all employees and any significant changes proposed.
Alignment with the workforce is delivered through the Rewarding for Performance framework, including a transparent and consistent
approach to the annual salary review, the AEIS to drive Company and personal performance, recognition schemes and market
competitive benefits in our countries.
Audited information
Single figure total remuneration for the Chairman and each Non-executive Director
Non-executive Directors’ remuneration is shown as a single figure to provide an annual comparison between the remuneration
awarded during the financial year ended 31 March 2021 and the preceding year. Amounts in brackets were waived in FY21.
Salary/fees
£’000
Benefits
£’000
Committee Chair fees
£’000
US/UK attendance fee
£’000
Single figure
£’000
Non-executive Director
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
Lynn Brubaker
Admiral Sir James Burnell-Nugent
(Resigned 31 December 2020)
Mark Elliott
Michael Harper
Shonaid Jemmett-Page
(Appointed 19 May 2020)
Neil Johnson
Ian Mason
General Sir Gordon Messenger
(Appointed 12 October 2020)
Paul Murray (Resigned 14 July 2020)
Susan Searle
46 (7)
33 (7)
–
46 (7)
41 (3)
51
51
77
51
–
219 (31)
187
46 (7)
25
17 (5)
46 (7)
51
–
51
51
2
–
–
–
–
–
–
–
–
–
9
2
27
–
–
1
1
–
–
1
–
6 (1)
–
9 (1)
7 (1)
–
–
–
2 (1)
9 (1)
–
10
–
12
–
–
–
–
10
8
3
–
–
–
–
–
–
–
–
–
25
–
–
–
–
–
–
–
–
–
51
39
–
55
48
85
63
104
63
–
219
188
46
25
19
55
52
–
61
60
Benefits include travel and subsistence expenses incurred in relation to the execution of their duties with the Company that are
considered by HMRC to be taxable.
Lynn Brubaker is a US resident and is entitled to receive a $4,000 fee for attending UK meetings. UK-based Non-executive
Directors are entitled to receive a £2,500 fee for attending US meetings.
The Committee Chair fees figure for Michael Harper is a payment of £10,000p.a. as Senior Independent Director.
108
QinetiQ Group plc
Percentage change in Directors’ remuneration
The following table compares the percentage change in each of the Director’s salary/fees, bonus and benefits to the average
percentage change in salary, bonus and benefits for a comparison group (4,000 employees) in the UK business in service between 1
April 2020 and 31 March 2021.
Steve Wadey
David Smith
Neil Johnson
Michael Harper
Susan Searle
Ian Mason
Admiral Sir James Burnell-Nugent
Paul Murray
Lynn Brubaker
Average UK employee
Salary / Fees
-16.2%
-15.2%
17.1%
-15.9%
-6.8%
-9.8%
-36.1%
-68.9%
-35.5%
1.2%
Benefits
35.9%
0%
-100%
0%
-100%
-100%
-100%
0%
-77.8%
-1.2%
Annual bonus
10.3%
11.1%
–
–
–
–
–
–
–
62.2%
1
UK employees were chosen in order to avoid the impact of exchange rate movements over the year. QinetiQ Group plc has no employees so QinetiQ Group Ltd employees were used.
The reduction in salary and fees which the Board implemented as a waiver for six months in FY21 impacted the analysis above,
as did the reduced travel and physical meeting attendance as the benefits paid to Non-executive Directors are largely travel
and subsistence expenses incurred in relation to the execution of their duties with the Company that are considered by HMRC
to be taxable.
Relative importance of spend on pay
The graph below shows actual spend on all employee remuneration, shareholder dividends and buybacks and any other significant
use of profit and cash within the previous two financial years.
Total Employee remuneration
2021
2020
£419.8m
£473.5m
Difference:
12.79%
Share-based profit distribution
Other significant profit distribution
2021
2020
£46.6m
£38.7m
Difference:
20.4%
2021
£0.0m
2020
£0.0m
Difference:
0.0%
Gender related pay
QinetiQ is subject to gender pay reporting for UK employees and a copy of our 2021 report is available on the Company’s website.
Annual Report & Accounts 2021
109
Governance
Remuneration continued
Service contracts/letters of appointment
The Company’s policy is that Executive Directors have rolling contracts which are terminable by either party giving 12 months’ notice.
The Group Chairman and the Non-executive Directors do not have service contracts but are appointed under letters of appointment.
All service contracts and letters of appointment are available for viewing at the Company’s registered office and at the AGM. Non-
executive Directors typically serve two three-year terms but may be invited by the Board to serve for an additional period (see table in
the Nominations Committee report on page 78).
Director
Date appointed
Arrangement
Lynn Brubaker
27 January 2016
Initial term of three years from date of appointment, subject to annual reappointment at the AGM.
Michael Harper
22 November 2011 Initial term of three years from date of appointment, subject to annual reappointment at the AGM.
Shonaid
Jemmett-Page
19 May 2020
Initial term of three years from date of appointment, subject to annual reappointment at the AGM.
Neil Johnson
02 April 2019
Initial term of three years from date of appointment, subject to annual reappointment at the AGM.
General
Sir Gordon
Messenger
12 October 2020
Initial term of three years from date of appointment, subject to annual reappointment at the AGM.
Susan Searle
14 March 2014
Initial term of three years from date of appointment, subject to annual reappointment at the AGM.
Notice
period
–
–
–
–
–
–
David Smith
01 March 2017
Service contract
Steve Wadey
27 April 2015
Service contract
12 months
12 months
Implementation of Policy for the year ended 31 March 2021
Fees
Non-executive Directors’ fees were last reviewed effective 1 July 2019 and are as follows -
• Basic fee £52,000
• Committee Chair fee £10,000
• Senior Independent Director fee £10,000
The Non-executive Group Chairman receives a fee of £250,000 per annum.
Fees are reviewed in line with Policy. In FY21 a voluntary fee waiver was implemented for six months as detailed on page 108.
Executive Directors are permitted to accept one external Non-executive Director position with the Board’s approval. Any fees received
in respect of these appointments may be retained by the Executive Director.
The CEO does not hold any Non-executive Directorships in other companies. David Smith served as a Non-executive Director of
Motability Operations Group plc from 1 July 2010 until 30 June 2020. Non-executive Director fees, as reported in the 2020 Motability
Operations Group plc annual report, were £38,000 for the part-year he served which were retained.
Group Chairman
Basic fee for UK Non-executive Director
Additional fee for chairing a Committee
Additional fee to Deputy Chairman/Senior Independent Non-executive Director
Additional fee for attendance at a Board meeting held in US by UK resident Non-executive Director
Additional fee for attendance at a Board meeting held in UK by US resident Non-executive Director
Fees effective
1 July 2019
£
250,000
52,000
10,000
10,000
2,500
$4,000
110
QinetiQ Group plc
Implementation of Policy for the year ending 31 March 2022
At the 11 May 2021 meeting of the Remuneration Committee, base salary increases of 5.0% (to £646,800p.a.) and 2.5% (to
£477,600p.a.) were approved for the CEO and CFO respectively, effective 1 July 2021. Both salary reviews are aligned with the
Rewarding for Performance guidance used for all UK employees and the increase for the CEO reflects the fact that he is low to
market when benchmarked to other UK quoted Aerospace & Defence sector CEOs.
Incentives for Executives
The table below shows the measures and relative weighting for the Bonus Banking Plan for the CEO and CFO:
Performance measure (excluding FY22 acquisitions)
Relative weighting(%)
Bonus Banking Plan
Underlying operating profit
Target performance 100% of base salary
Underlying net cash flow from operations
Stretch performance 200% of base salary
Orders
Collective goals
Personal goals
25.0%
25.0%
25.0%
12.5%
12.5%
For FY22, the Remuneration Committee set the target level of performance at 50% of stretch for the financial measures, collective
and personal goals. Details of specific performance targets for the Bonus Banking Plan have not been provided as they are deemed
commercially sensitive. The targets will be disclosed retrospectively in next year’s Annual Report on Remuneration.
The Deferred Share Plan will award a maximum of 125% of base salary for achieving stretch performance. For FY22 the strategic
growth performance measure is revenue growth (excluding in-year acquisitions) across the Group to incentivise our senior leaders
globally to collaborate across the Group to deliver sustainable profitable growth, as per FY21. There will be a pre-grant margin
underpin to ensure that profit performance remains strong in FY22.
The Remuneration Committee will continue to discuss the impact of the COVID-19 crisis on performance and remuneration.
Performance metrics have been set for FY22 based on the ISBP FY22. At the end of the year the Committee will look back at the
impact on shareholders and the performance of comparators and, if appropriate, will apply discretion. It is important that the rewards
overall to executives are balanced and fair in the context of the shareholder journey.
The FY22 DSP award will be subject to a performance underpin before vesting:
• Group underlying profit outturn for FY22 must be maintained at the end of the three-year vesting period. If this is not maintained
then, at a minimum, 50% of the award will lapse. For the purposes of the FY22 DSP award, this will be the actual underlying
operating profit (£m) for FY22 which must be achieved in FY25
Awards of contingent shares will be made in June 2022 based on FY22 performance. Details of performance targets for the Deferred
Share Plan have not been provided as they are deemed commercially sensitive. They will be disclosed retrospectively in next year’s
Annual Report on Remuneration.
Remuneration Committee meetings, activities and decisions FY21
The following table provides a summary of all the key activities during the year. The attendance at each meeting is detailed on page
64. The membership of the Remuneration Committee in FY21 was Susan Searle (Chair), Michael Harper, Neil Johnson, Lynn Brubaker,
Ian Mason, Paul Murray (resigned 14 July 2020), Admiral Sir James Burnell-Nugent (resigned 31 December 2020), General Sir Gordon
Messenger (joined 12 October 2020) and Shonaid Jemmett-Page (joined 19 May 2020).
During FY21 a sub-committee reviewed a five-year storyboard looking at company performance delivered versus returns to key
stakeholders to review whether targets set were appropriate and returns balanced; it determined this to be the case.
Annual Report & Accounts 2021
111
Governance Remuneration continued
Remuneration Committee meetings, activities and decisions FY21 continued
Base salary
Share awards
Governance
Incentives
Resourcing
May 2020
FY20 final results for BBP
and DSP
2017 PSP vesting (CEO only)
2020 DSP awards (not
granted)
July 2020
Impact of COVID-19 on
incentive targets
November 2020
Trends in executive
remuneration
FY21 half year forecast
FY21 half year forecast
Directors’ Remuneration Policy
preparation for AGM
Approve Directors’
Remuneration Report.
AGM Preparation
Review of Executive Committee
shareholdings
Review of Company
reward practices
March 2021
FY21 provisional results
FY18 DSP provisional vesting
FY22 target setting
Terms of a GLT-level
appointment
Effectiveness review
In 2021, the effectiveness review was conducted in-house via a questionnaire distributed by the Company Secretary. This process
is described further on page 80.
Remuneration consultants
The Committee has appointed FIT Remuneration Consultants LP, an independent firm of remuneration consultants, to provide advice
on market practice, corporate governance and investors’ views. FIT were appointed by the Committee in 2017 after a competitive
tendering exercise. Fees paid during the year for services provided were £75,698.
FIT provided the following additional services during the year:
• Implementation support for the Company on paying FY20 incentives in company shares; and
• TSR performance monitoring for Performance Share Plan awards.
The Committee is satisfied the scale and nature of this work does not impact
on the objectivity and independence of the advice it receives from FIT.
Statement of voting
Annual Report on Remuneration – 2020
Votes for
Votes against
Total votes cast
Abstained
Directors’ Remuneration Policy – 2020
Votes for
Votes against
Total votes cast
Abstained
419,169,261 (89.3%)
50,195,251 (10.7%)
469,403,409 (82.7% of share capital)
2,576,013
393,525,108 (87.0%)
59,006,721 (13.0%)
452,570,726 (79.7% of share capital)
19,408,696
Annual Report on Remuneration
2020 % of votes (%)
89.3%
1
0
.
7
%
Directors’ Remuneration Policy
2020 % of votes (%)
Details on the voting on all resolutions at the 2021 AGM will be announced
via the RNS and posted on the QinetiQ website after the AGM.
87.0%
1
3.0
%
Susan Searle
Remuneration Committee Chair
20 May 2021
112
QinetiQ Group plc
Votes for
Votes against
Directors’ report
Statutory information contained
elsewhere in the Annual Report
Information required to be part of this Directors’ report can be
found elsewhere in the Annual Report as indicated in the table
below, and is incorporated into this report by reference:
Research and development
One of the Group’s principal business streams is the provision
of funded research and development (R&D) for customers.
The Group also invests in the commercialisation of promising
technologies across all areas of business.
Information
Corporate governance statement
Directors’ details
Directors’ conflicts of interest
Directors’ interests in shares
Employees
Financial instruments: Information on the Group’s
financial risk management objectives and policies,
and its exposure to credit risk, liquidity risk, interest
rate risk and foreign currency risk
Greenhouse gas emissions
Likely future developments in the business
of the Company or its subsidiaries
Results
Page
54
58–59
74
105
42–46
150
40
2–51
22–25
Disclosure specifically required pursuant to the Companies
(Miscellaneous Reporting) Regulations 2018 can be found
on the following pages:
Statement in the Directors’ Report summarising how
Directors have engaged with employees and taken
account of their interests
Statement in the Directors’ Report about the corporate
governance arrangements applied by the Company
Publication of the ratio of the CEO’s remuneration to
the median, 25th and 75th quartile pay remuneration
of their UK employees in the Directors’ Remuneration
report
Illustration of the effect of future share price
increases on executive pay outcomes in the
Directors’ Remuneration report
114
114
107
100
Management report
The Strategic report on pages 1 to 51 and the Directors’ report,
as detailed on pages 113 to 116, including information which has
been incorporated into those sections by reference, comprise the
management report specified by rules 4.1.5R (2) and 4.1.8R of
the FCA’s Disclosure Guidance and Transparency Rules (DTRs).
In the financial year, the Group recorded £300.4m (2020:
£292.3m) of total R&D-related expenditure, of which £281.9m
(2020: £270.8m) was customer-funded work and £18.5m (2020:
£21.5m) was internally funded. Additionally, £2.6m (2020: £1.6m)
of late-stage development costs were capitalised and £2.4m
(2020: £1.4m) of capitalised development costs were amortised
in the year.
Political donations
QinetiQ does not make political donations to parties as that term
would be commonly recognised. The legal definition of that term
is, however, quite broad and may have the effect of covering a
number of normal business activities that would not commonly
be perceived to be political donations, such as sponsorship
of events.
These may include legitimate interactions in making MPs
and others in the political world aware of key industry issues
and matters that affect QinetiQ, and that make an important
contribution to their understanding of QinetiQ, the markets in
which it operates and the work of their constituents.
Branches
The Company and its subsidiaries have established branches
in a number of different countries; their results are, however,
not material to the Group’s financial results.
Share capital
As at 31 March 2021, the Company had an allotted and fully paid
up share capital of 574,257,121 ordinary shares of 1p each with
an aggregate nominal value of £5.7m and one Special Share with
a nominal value of £1. The ordinary share total includes 3,191,431
shares held by employee share trusts.
Details of the shares in issue during the financial year are shown
in note 29 on page 160.
Rights of ordinary shareholders
The holders of ordinary shares are entitled to receive the
Company’s Reports and Accounts, to attend and speak at
general meetings of the Company, to exercise voting rights
in person or by appointing a proxy, and to receive a dividend
where declared or paid out of profits available for that purpose.
Annual Report & Accounts 2021
113
Governance Directors’ report continued
Rights of special shareholder
The Special Share is held by HM Government through the
Secretary of State for Defence (the Special Shareholder) and
it may only be held by and transferred to HM Government.
It confers certain rights to protect UK defence and security
interests. These include:
Corporate sponsored nominee
In circumstances where ordinary shares are held by the
corporate sponsored nominee service, Equiniti Corporate
Nominees Limited will vote on all resolutions proposed at general
meetings in accordance with voting instructions received from
shareholders using such corporate nominee service.
• A provisions whereby at least the Non-executive Chairman
Majedie Asset Management
or Chief Executive Officer must be a British citizen.
Investec
• The promotion and reinforcement of the MOD compliance
principles which require QinetiQ to be an impartial, ethical and
responsible contractor by avoiding conflicts of interest in its
dealings with the MOD
• The protection of defined strategic assets of the Group,
such as certain testing facilities, by providing the Special
Shareholder with an option to purchase those assets in
certain circumstances
• The right to require certain persons with a material interest
in QinetiQ to dispose of some or all of their ordinary shares
on the grounds of national security or conflict of interest
The Special Share carries no financial and economic value
and the Special Shareholder is not entitled to vote at a general
meeting of the Company. At any time the Special Shareholder
may require QinetiQ to redeem the share at par and, if wound
up, the Special Shareholder would be entitled to be repaid at its
nominal value before other shareholders. Any variation of the
rights attached to the Special Share requires the written approval
of the MOD. Further details can be found in note 29 on page 160.
Restrictions on the transfer of shares
As detailed above, the special share requires certain persons
with an interest in QinetiQ’s shares that exceed certain
prescribed thresholds to dispose of some or all of their ordinary
shares on the grounds of national security or conflict of interest.
Employee share schemes
The QinetiQ Group plc Employee Benefit Trust (the Trust) holds
shares in connection with QinetiQ’s employee share schemes,
excluding the Share Incentive Plan. As at 31 March 2021, the
Trust held 3,191,431 ordinary shares of 1p each (the Trust
Shares). The Trustees of the Trust have agreed to waive their
entitlement to dividends payable on the Trust Shares. The Trust
holds further ordinary shares in respect of deferred shares held
on behalf of participants in the Company’s Deferred Annual
Bonus Plan. Dividends received by the Trust in respect of the
deferred shares are paid direct to the Plan participants on receipt
and are not retained in the Trust.
Equiniti Share Plan Trustees Limited acts as Trustee in respect
of all ordinary shares held by employees under the QinetiQ Group
plc Share Incentive Plan (the Plan). Equiniti Share Plan Trustees
Limited will vote on all resolutions proposed at general meetings
in accordance with voting instructions received from participants
in the Plan.
114
QinetiQ Group plc
Major shareholdings
In accordance with DTR 5, the Company has been notified of
the following from holders representing 3% or more of the issued
ordinary share capital of the Company:
Name of shareholder
Schroders
BlackRock, Inc
GLG Partners
Standard Life Aberdeen plc
Norges Bank
At 31 March 2021
% of issued
share capital*
At 13 May 2021*
% of issued
share capital
9.62%
6.67%
6.18%
5.03%
4.95%
4.81%
3.99%
9.62%
6.83%
6.18%
5.03%
4.95%
4.81%
3.99%
*
As notified by the shareholder and based on the issued ordinary share capital at the
time of the notification.
Employees
The Group is committed to the fair treatment of people with
disabilities in relation to applications, training, promotion and
career development. If an existing employee becomes disabled,
the Company makes every effort to enable them to continue their
employment and career development, and to arrange appropriate
training, wherever practical.
Directors’ interests in contracts
At the date of this report, there is no contract or arrangement
with the Company or any of its subsidiaries that is significant
in relation to the business of the Group as a whole in which a
Director of the Company is materially interested.
Indemnities
The Company has entered into indemnity deeds with all its
current Directors containing qualifying indemnity provisions, as
defined in Section 234 of the Companies Act 2006, under which
the Company has agreed to indemnify each Director in respect
of certain liabilities, which may be attached to them as Directors
or as former Directors of the Company or any of its subsidiaries.
All such indemnity provisions are in force as at the date of this
Directors’ report. The Directors of QinetiQ Pension Scheme
Trustee Limited, a Group company and the Trustee of the QinetiQ
Pension Scheme (the Scheme), benefit from an indemnity
contained in the rules of the Scheme. The indemnity would be
provided out of the Scheme assets.
Change of control – significant agreements
The following significant agreements contain provisions entitling
the counterparties to require prior approval, exercise termination,
alteration or other similar rights in the event of a change of
control of the Company, or if the Company ceases to be a
UK company:
• The Combined Aerial Target Service contract is a 20-year
contract awarded to QinetiQ by the MOD on 14 December
2006. The terms of this contract require QinetiQ Limited to
remain a UK company which is incorporated under the laws
of any part of the UK, or an overseas company registered in
the UK, and that at least 50% of the Board of Directors are UK
nationals. The terms also contain change of control conditions
and restricted share transfer conditions which require prior
approval from HM Government if there is a material change
in the ownership of QinetiQ Limited’s share capital, unless
the change relates to shares listed on a regulated market;
“material” is defined as being 10% or more of the share capital.
In addition, there are restrictions on transfers of shares to
persons from countries appearing on the restricted list as
issued by HM Government.
• The Long Term Partnering Agreement (LTPA) is a 25-year
contract, which QinetiQ Limited signed on 28 February 2003,
to provide test, evaluation and training services to the MOD.
This contract contains conditions under which the prior
approval of HM Government is required if the contractor,
QinetiQ Limited, ceases to be a subsidiary of the QinetiQ
Group, except where such change in control is permitted under
the Shareholders Agreement to which the MOD is a party.
• The Company is party to a £275m multi-currency revolving
credit facility, provided by a consortium of banks, of which
£65m will mature on 27 September 2024 and £210m will
mature on 27 September 2025. Under the terms of the facility,
in the event of a change of control of the Company, any lender
may give notice to cancel its commitment under the facility
and require all outstanding amounts to be repaid.
The Directors’ contracts contain no provisions for compensation
for loss of office on a change of control of the Company.
Disclosures in accordance with Listing Rule 9.8.4
There are no matters requiring disclosure under the FCA’s Listing
Rule 9.8.4, other than details of long-term incentive schemes,
which are explained further on page 97.
Articles of Association
Changes to the Articles must be submitted to shareholders for
approval. Save in respect of the rights attaching to the Special
Share, the Company has not adopted any special rules relating to
the appointment and replacement of Directors or the amendment
of the Company’s Articles of Association, other than as provided
under UK corporate law.
Appointment and replacement of Directors
According to the Articles of Association, all Directors are subject
to election by shareholders at the first AGM following their
appointment, and to re-election thereafter at intervals of no more
than three years. In line with best practice reflected in the Code,
however, the Company requires each serving member of the
Board to be put forward for election or re-election on an annual
basis at each AGM.
Powers of the Directors: allotment/purchase
of own shares
At the Company’s AGM held in July 2020, the shareholders
passed resolutions which authorised the Directors to allot
relevant securities up to an aggregate nominal value of
£3,786,037 (£1,893,019 pursuant only to a rights issue), to
disapply pre-emption rights (up to 5% of the issued ordinary
share capital) and to purchase ordinary shares (up to 10% of
the issued ordinary share capital). The authorities will remain
valid until the 2021 AGM.
Resolutions in respect of the allotment of relevant securities,
the disapplication of pre-exemption rights and the purchase
of own shares will be laid before the 2021 AGM.
Annual General Meeting
The Company’s AGM will be held on Wednesday 21 July 2021
at 10:00am at Portsdown Technology Park, Southwick Road,
Portsmouth PO6 3RU.
Independent auditor
PwC has expressed its willingness to continue in office as
independent auditor and a resolution to re-appoint them will
be proposed at the AGM.
Annual Report & Accounts 2021
115
Governance Directors’ confirmations
Each of the Directors, whose names and functions are listed on
pages 58 and 59 confirm that, to the best of their knowledge:
• The Group financial statements, which have been prepared
in accordance with international accounting standards in
conformity with the requirements of the Companies Act
2006 and international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union, give a true and fair view of the assets,
liabilities, financial position and profit of the Group
• The Company Financial Statements, which have been
prepared in accordance with United Kingdom Accounting
Standards, comprising FRS 101, give a true and fair view of the
assets, liabilities, financial position and profit of the Company
• The Going concern statement on page 37 includes a fair
review of the development and performance of the business
and the position of the Group and Company, together with
a description of the principal risks and uncertainties that
it faces.
In the case of each Director in office at the date the Directors’
report is approved.
Scope of the reporting in this Annual Report
The Board has prepared a Strategic report which provides an
overview of the development and performance of the Group’s
business in the year ended 31 March 2021.
For the purposes of DTR 4.1.5R(2) and DTR 4.1.8 the Directors’
report, the Directors confirm that, so far as they are aware, there
is no relevant audit information of which the Company’s auditor
is unaware, and that they have taken all steps that they ought
to have taken as Directors to make themselves aware of any
relevant audit information and to establish that the Company’s
auditor is aware of that information.
By order of the Board.
Jon Messent
Company Secretary and Group General Counsel
20 May 2021
Directors’ report continued
Statement of Directors’ responsibilities in
respect of the financial statements
The Directors are responsible for preparing the Annual Report
and the Financial Statements in accordance with applicable law
and regulation.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the Group financial statements in accordance
with International Accounting Standards in conformity with the
requirements of the Companies Act 2006 and the Company
financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom
Accounting Standards, comprising FRS 101 “Reduced Disclosure
Framework”, and applicable law). Additionally, the Financial
Conduct Authority’s Disclosure Guidance and Transparency
Rules require the Directors to prepare the Group Financial
Statements in accordance with International Financial Reporting
Standards adopted pursuant to Regulation (EC) No 1606/2002
as it applies in the European Union.
Under company law, Directors must not approve the Financial
Statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and Company and
of the profit or loss of the Group for that period. In preparing
the financial statements, the Directors are required to:
• Select suitable accounting policies and then apply
them consistently
• State whether applicable international accounting standards
in conformity with the requirements of the Companies Act
2006 and international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union have been followed for the Group financial
statements and United Kingdom Accounting Standards,
comprising FRS 101 have been followed for the Company
financial statements, subject to any material departures
disclosed and explained in the financial statements
• Make judgements and accounting estimates that are
reasonable and prudent
• Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and
Company will continue in business
The Directors are also responsible for safeguarding the assets of
the Group and Company and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s and
Company’s transactions and disclose with reasonable accuracy
at any time the financial position of the Group and Company
and enable them to ensure that the financial statements and
the Directors’ Remuneration Report comply with the Companies
Act 2006.
The Directors are responsible for the maintenance and integrity
of the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
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QinetiQ Group plc
Independent auditors’ report
to the members of QinetiQ Group plc
Report on the audit of the financial statements
Opinion
In our opinion:
• QinetiQ Group plc’s group financial statements and company
financial statements (the “financial statements”) give a true
and fair view of the state of the group’s and of the company’s
affairs as at 31 March 2021 and of the group’s profit and the
group’s cash flows for the year then ended;
• the group financial statements have been properly prepared
in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006;
• the company financial statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting
Standards, comprising FRS 101 “Reduced Disclosure
Framework”, and applicable law); and
• the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the
Annual Report, which comprise: the Consolidated and Company
balance sheets as at 31 March 2021; the Consolidated income
statement and Consolidated comprehensive income statement,
the Consolidated cash flow statement, and the Consolidated
and Company statements of changes in equity for the year then
ended; and the notes to the financial statements, which include
a description of the significant accounting policies.
Our opinion is consistent with our reporting to the
Audit Committee.
Separate opinion in relation to international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002
as it applies in the European Union
As explained in note 36 to the financial statements, the group,
in addition to applying international accounting standards in
conformity with the requirements of the Companies Act 2006,
has also applied international financial reporting standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies
in the European Union.
In our opinion, the group financial statements have been properly
prepared in accordance with international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002
as it applies in the European Union.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities under ISAs (UK) are further described in the
Auditors’ responsibilities for the audit of the financial statements
section of our report. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis
for our opinion.
Independence
We remained independent of the group in accordance with
the ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC’s Ethical
Standard, as applicable to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance with
these requirements.
To the best of our knowledge and belief, we declare that non-
audit services prohibited by the FRC’s Ethical Standard were
not provided.
Other than those disclosed in 8, we have provided no non-audit
services to the company or its controlled undertakings in the
period under audit.
Our audit approach
Overview
Audit scope
• We conducted full scope audit work in the UK over QinetiQ
Limited, and in the US over QinetiQ Inc. (MTEQ). This provides
significant coverage over all financial statement balances,
except inventory.
• We performed a full scope financial statement line item audit
over inventory balances at Foster Miller Inc. (QNA) and QinetiQ
Target Systems Limited.
• Additionally in QNA, we performed full scope financial statement
line item audits over revenue and associated balances.
• We performed procedures over goodwill, intangible assets,
share-based payments, pensions, IFRS 16 lease accounting,
taxation and testing of the consolidation at a Group level.
Key audit matters
• Long-term contract accounting (group)
• Provisions and contingent liabilities (group)
• Impairment of goodwill and acquired intangibles (group)
• Accounting for tax research and development expenditure
credits (group)
• Impact of COVID-19 (group and parent)
• Impairment of investment in subsidiary company (parent)
Materiality
• Overall group materiality: £6,400,000 (2020: £6,200,000)
based on 5% of underlying profit before tax.
• Overall company materiality: £5,000,000 (2020: £4,800,000)
based on 1% of total assets.
• Performance materiality: £4,800,000 (group) and £3,750,000
(company).
The scope of our audit
As part of designing our audit, we determined materiality
and assessed the risks of material misstatement in the
financial statements.
Annual Report & Accounts 2021
117
Governance Independent auditors’ report continued
to the members of QinetiQ Group plc
Our audit approach continued
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not
due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of
resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results
of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Impairment of investment in subsidiary company (parent) is a new key audit matter this year. Acquisition accounting (Group), which
was a key audit matter last year, is no longer included because of reduction in significance and complexity of the acquisitions made
in the year ended 31 March 2021. Otherwise, the key audit matters below are consistent with last year.
Key audit matter
How our audit addressed the key audit matter
Long-term contract accounting (group)
Refer to page 88 (Report of the Audit Committee) and page 167
(note 36, Significant accounting policies - Revenue from contracts
with customers) and page 132 (note 2, Revenue from contracts with
customers and other income).
QinetiQ Group plc has a large number of contracts which span
multiple periods and are accounted for on a percentage of
completion (POC) basis in accordance with IFRS 15.
Long term contract accounting requires a number of judgements
and management estimates to be made, particularly in calculating
the forecast costs to complete the contract. These judgements
drive the revenue and profit recognition, and together with cash paid
by the customer, impact the balance sheet position at the year end.
Onerous contract provisions are recorded where there is an
expectation that a contract will be loss-making, and judgement is
applied to determine the magnitude of any provision. Particular
focus is given to contracts which are technologically challenging.
We evaluated the contract governance policies and controls in place within
the business and tested the design and operating effectiveness of key
controls in place over long-term contracts.
We performed risk assessment procedures over the portfolio of contracts
to identify higher-risk contracts. These higher risk contracts were selected
for detailed contract audits. These detailed contract audits involved meeting
with key financial and non-financial personnel through the year and at
year end to discuss contract performance, as well as obtaining evidence
to support contract financials. Specifically, our procedures included the
following:
• We assessed the basis of revenue recognition to ensure it is in line with
applicable accounting standards.
• We agreed overall anticipated revenue to the underlying contract and
validated a sample of customer invoices through to cash receipt.
• We recalculated revenue recognised and agreed both revenue, costs and
associated balance sheet positions to the underlying general ledger.
• We obtained evidence to corroborate management estimates and
judgements, particularly around forecast costs to complete and risk
contingencies. Where necessary, we obtained correspondence with the
customer to evidence progress made on the contract during the year and
remaining obligations.
• We validated costs incurred and allocated to contracts during the year to
supporting documentation on a company-wide basis.
For remaining untested contracts, we selected a sample and performed
testing over revenue, agreeing to supporting documentation including
customer contracts and validating a sample of customer invoices to
cash receipts.
We agreed contract loss provisions recorded based on the overall outcome
anticipated on the contract through a combination of the procedures above.
Additional testing was performed, where not sufficiently covered by the
above, over contract asset and liability balance sheet positions. These have
been sample tested and agreed to supporting documentation.
No material exceptions were found.
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QinetiQ Group plc
Key audit matter
How our audit addressed the key audit matter
Provisions and contingent liabilities (group)
Refer to page 88 (Report of the Audit Committee) and page 167
(note 36, Significant accounting policies - Provisions), page 147
(note 23, Provisions) and page 164 (note 32, Contingent liabilities
and assets).
QinetiQ Group plc holds provisions in respect of legal, contractual,
regulatory and environmental issues. (Note: Long-term contract
related provisions are covered within the ‘long-term contract
accounting’ matter above).
The Group operates in regulated environments and failure to comply
with particular regulations could result in fines and/or penalties.
There is judgement required in determining the significance of any
instances of potential non-compliance and potential liability based
on management’s assessment of the most likely outcome.
The financial statements should disclose any contingent liabilities
in respect of contractual, regulatory or legal issues which have
not been provided for on the basis that they are not considered to
qualify for recognition as provisions.
Impairment of goodwill and acquired intangibles (group)
Refer to page 88 (Report of the Audit Committee), page 167 (note
36, Significant accounting policies - Impairment of goodwill and
tangible, intangible and held for sale assets, page 140 (note 14,
Goodwill) and page 142 (note 15, intangible assets).
The Group has a material amount of acquired intangible assets
and goodwill, including from recent acquisitions. There is a
risk of impairment where the post-acquisition performance of
businesses acquired is behind expectations from the time of
the original acquisition.
Management performed a discounted cash flow analysis based on
the Board-approved five-year budget to assess whether the goodwill
and intangible assets are supported by future cash flow projections.
An impairment charge of £25.4m has been recognised in the QinetiQ
Germany CGU during the year.
We have assessed management’s processes and controls over legal
regulatory claims and contractual disputes and made enquiries with in-house
legal counsel.
We tested the appropriateness of management’s assumptions by reference
to third party evidence for key provisions recorded at the year end and
movements in the year. In certain cases, we have also discussed matters
directly with external legal counsel. In doing this, we concluded on whether
our understanding of the facts and circumstances gained throughout the
audit process corroborated the provision recorded.
We challenged management’s estimate of the most likely outcomes by
critically evaluating the range of possible outcomes to determine if the
amounts provided are appropriate.
We have considered the completeness of provisions and contingent liabilities
recorded by management with reference to other information obtained
during the course of audit procedures, including the review of board minutes.
We assessed the adequacy of the Group’s financial statement disclosures
and adherence to accounting standards. We found that the judgements
formed by management were within an acceptable range and disclosures
made in the financial statements are materially correct.
We have tested the principles and mathematical integrity of the Group’s
discounted cash flow model used to assess goodwill and indefinite-lived
intangibles assets for potential impairment. With the assistance of our
valuation specialists, we assessed the growth and discount rates used in the
impairment calculation, by comparing the Group’s assumptions to external
data. We concluded that the Group’s assumptions were appropriate.
We have understood the rationale for the model used, the term of which
is consistent with the internal budgeting and forecasting process and the
long-term viability assessment, and agreed that this has been appropriately
approved by the Board.
We challenged the cash flow projections used within the model by reference
to current level of sales and analysis of management’s historic forecasting
accuracy. We have held discussions with financial and non-financial
personnel, corroborating explanations to supporting documentation,
including third party evidence, where possible.
We tested the sensitivity of the impairment calculation to changes in the
underlying assumptions and concluded that no further impairments are
required, and that the sensitivity to key assumptions is sufficiently disclosed.
Where impairment charges have been recognised, we have challenged the
basis and accuracy of the impairment, and have ensured that sufficient and
appropriate disclosure is made within the financial statements.
We assessed whether the Group’s disclosures regarding sensitivity of the
outcome of the impairment assessment to changes in key assumptions
properly reflected the risks inherent in the valuation of goodwill.
Through review of the impairment assessments performed by management
and the disclosure made, we identified revenue cash flows in the forecasts
of the Germany CGU that were reliant on future capital expenditure, which
were revised by management to comply with IAS 36. As a result of the
audit challenge, the impairment recognised against the Germany CGU was
increased from £17.5m to the £25.4m disclosed on page 140.
Annual Report & Accounts 2021
119
Governance Independent auditors’ report continued
to the members of QinetiQ Group plc
Our audit approach continued
Key audit matter
How our audit addressed the key audit matter
Accounting for tax research and development expenditure credits
(group)
Refer to page 167 (note 36, Significant accounting policies -
Taxation), page 137 (note 9, Taxation).
The Group has determined that it is appropriate to account for the
UK’s Research and Development Expenditure Credit (‘RDEC’) under
IAS 12, rather than as a government grant within IAS 20.
Measurement of current tax includes RDEC and requires judgements
as to the probable amount of tax payable after the preparation of tax
filings and potential challenge by relevant tax authorities.
Impact of COVID-19 (group and parent)
Refer to page 88 (Report of the Audit Committee) and page 8 (Chief
Executive Officer’s review) and page 30 (Principal risks).
The COVID-19 pandemic has caused significant global disruption
and economic uncertainty.
Management has assessed the impact of COVID-19 on the
group, including any potential financial reporting implications.
The group has proved resilient throughout the pandemic with no
significant adverse impact on financial performance. Management
implemented a series of temporary measures to respond to the
fast evolving situation, including the temporary closure of sites and
personnel working remotely, a reduction in international travel and
a temporary reduction in senior salaries and Board fees during the
initial outbreak.
The pandemic has resulted in the year end financial close process,
as well as the external audit, having to take place largely remotely.
We have reviewed management’s accounting policy for RDEC and disclosure
of its impact on the Group’s underlying effective tax rate. Management
has made a judgement as to whether RDEC should be accounted for under
IAS 12 or IAS 20 and we consider the disclosures made are sufficient to
enable the user of the accounts to identify and understand the impact of
management’s accounting policy.
We have used our tax specialists to challenge the appropriateness of
management’s assumptions and estimates in relation to tax positions,
including RDEC, by critically assessing the range of possible outcomes.
We obtained the latest correspondence with the relevant tax authorities to
corroborate management’s conclusions.
We found that judgements made by management in regard to RDEC were
within an acceptable range.
We have reviewed the disclosures made in respect of tax, in particular
around estimates and uncertainties and are satisfied that the disclosures
made are appropriate.
We have independently assessed the impact of COVID-19 on the group and
parent through inquiries performed of management at multiple levels across
the group, review of Board minutes, discussions with our component audit
team and consideration of financial performance and evaluation of the
overall audit findings.
Our audit work over long-term contracts described above included obtaining
an understanding of COVID-19 implications on each contract and agreeing
that risk assumptions with the contract accounting were supportable to
corroboratory evidence.
We have assessed the financial performance of the group as a whole and the
performance of individual CGU’s for impairment analysis to respond to any
heightened risk surrounding the going concern of the group or impairment
analysis of assets. We have found that management forecasts appear
reasonable and support management’s conclusion that the going concern
basis is appropriate, and there is no indication of any material impairment in
assets as a result of COVID-19.
Whilst we have undertaken much of our year end audit work remotely, we did
not encounter any significant difficulties in performing our audit testing or in
obtaining the required evidence to support our audit conclusions.
Impairment of investment in subsidiary company (parent)
Refer to page 178 (Accounting policies and note 2, Investments in
subsidiary undertakings).
We have evaluated management’s consideration of impairment triggers
through performing our own independent assessment which has included:
The Company has an investment of £507.4 million in its
subsidiary. Annually, the Directors consider whether any events or
circumstances have occurred that could indicate that the carrying
amount of the investment in subsidiaries may not be recoverable.
If such circumstances are identified, an impairment review is
undertaken to establish whether the carrying amount of the
investment exceeds its recoverable amount, being the higher of fair
value less costs to sell or value in use.
Impairment assessments of this nature require significant
judgement and there is a risk that a potential impairment trigger
may not be identified by management and in the event that there is
an impairment trigger identified, there is a risk that the calculation of
the recoverable amount of the investment is incorrect and therefore
the value of the investment may be misstated.
No such indicators of impairment have been identified.
• Assessing the overall financial performance of the group to identify any
indicators of impairment as a result of poor financial performance.
• Considering other information gathered during the course of our audits
of components and assessing whether there are any other indicators
of impairment, as well as considering other factors that could indicate
increased impairment risk such as regulatory change.
• Considering the market capitalisation of the group at year end and
comparing this to the carrying value of the investment.
We found that management’s conclusion that there are no impairment
triggers in the investment carrying value was reasonable.
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QinetiQ Group plc
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements
as a whole, taking into account the structure of the group and the company, the accounting processes and controls, and the industry
in which they operate.
We conducted full scope audit work over QinetiQ Limited and MTEQ, both components being considered as financially significant
to the group. The audit of QinetiQ Limited is performed in the UK and the audit of MTEQ is performed in the US by our local PwC
component audit team. This provides sufficient coverage over all financial statement balances, except inventory and central balances
audited by the Group team.
We performed additional procedures over inventory balances at two further entities to ensure sufficient coverage over that financial
statement line item. QinetiQ Target Systems Limited is located within the UK and work was performed by the Group audit team. QNA
is located in the US and work was performed by our local PwC component audit team.
We performed additional procedures over revenue and associated financial statement balances at QNA, located in the US, which was
performed by our local PwC component team.
In addition to the above, we performed analytical procedures on the remaining entities to understand key balances and transactions
in the year and performed additional procedures on any unusual balances identified.
The audit procedures performed over the financial information of both full scope components, QinetiQ Limited and MTEQ, accounted
for 77% of total Group revenue and 91% of underlying profit before taxation.
These full scope audits plus the additional audit procedures over inventory in two other locations and revenue and associated balance
sheet accounts within QNA, resulted in coverage of 83% of total Group Revenue and 90% of total Group assets.
The combination of the work referred to above, together with additional procedures performed at Group level, including testing of
significant journals posted within the consolidation, significant adjustments made to the financial statements, goodwill, intangible
assets, share based-payments, pensions, IFRS 16 lease accounting and the taxation, gave us the evidence required for our opinion on
the financial statements as a whole.
Only one component auditor, located in the US, was involved in the audit as all other procedures were performed by the Group audit
team. The US business operates under a Special Security Agreement (SSA), with this being required to carry out business with the
US Department of Defence. The SSA places certain restrictions on access to, and communication of, information outside of US
borders. We planned our audit to ensure US personnel completed the audit work within the US and obtained approvals for transfer of
information in advance of undertaking the audit work. The Group engagement leader discussed and agreed the audit plan with our US
component audit team, in addition to agreeing the format and content of communications. We determined the level of involvement
we needed to have in the audit work at these reporting entities to be able to conclude whether sufficient appropriate evidence had
been obtained as a basis for our opinion on the financial statements as a whole. We maintained regular dialogue throughout the audit
process with our US audit team, through the use of video conferencing. We also supervised the work performed through a review of
the US team’s working papers and we are comfortable that sufficient and appropriate procedures have been performed.
The Company audit was performed by the Group audit team. The parent company is principally a holding company and there are
no branches or other locations to be considered when scoping the audit. There are no financial statement line items in scope for
the group audit. The company is audited on a stand-alone basis, and hence, testing has been performed on all material financial
statement line items.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our
audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both
individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Financial statements - group
Overall materiality
£6,400,000 (2020: £6,200,000).
How we determined it
5% of underlying profit before tax
Financial statements - company
£5,000,000 (2020: £4,800,000).
1% of total assets.
Rationale for
benchmark applied
Based on the benchmarks used in the Annual Report and Accounts,
underlying profit before tax is one of the primary measures used
by the shareholders in assessing the performance of the Group,
and is a generally accepted auditing benchmark. It is considered
appropriate to exclude specific adjusting items due to the nature of
these balances as disclosed in note 4 to the Financial Statements.
We believe that total assets is the primary measure
used by shareholders in assessing the performance
of this entity, and is a generally accepted auditing
benchmark for non-trading entities. This materiality
relates to the audit of the Parent Company only, as
the Company was not in scope for the Group audit.
Annual Report & Accounts 2021
121
Governance
Independent auditors’ report continued
to the members of QinetiQ Group plc
Our audit approach continued
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality.
The range of materiality allocated across components was between £6,080,000 and £4,900,000. Certain components were
audited to a local statutory audit materiality that was also less than our overall group materiality.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of
our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in
determining sample sizes. Our performance materiality was 75% of overall materiality, amounting to £4,800,000 for the group
financial statements and £3,750,000 for the company financial statements.
In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment
and aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range
was appropriate.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £320,000
(group audit) (2020: £300,000) and £250,000 (company audit) (2020: £244,000) as well as misstatements below those amounts
that, in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the Directors’ assessment of the group’s and the company’s ability to continue to adopt the going concern basis
of accounting included:
• We have obtained management’s strategic plan and detailed FY22 budget. We have held discussions with management
to understand the budgeting process and the key assumptions made in the forecasting process;
• Performed a comparison of the going concern assessment to Board-approved forecasts and, where applicable, compared
these forecasts for consistency to those used elsewhere in the business, including for long-term contact accounting and
impairment assessments;
• Assessing whether the stress testing performed by management appropriately considered the principal risks facing the business,
and were adequate;
• Using our own knowledge from the audit and assessment of previous forecasting accuracy we calculated sensitivities to apply
to management’s cash flow forecasts. These procedures confirmed significant head room in management’s forecasts.
• Evaluating the feasibility of management’s mitigating actions in response to the severe stress testing scenarios; and
• We assessed the adequacy of disclosures in the Going Concern statement on page 37, the audit committee report on page 89
and statements in note 36 of the Financial Statements and found these appropriately reflect our understanding of the process
undertaken and the conclusion reached.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the group’s and the company’s ability to continue as a going concern
for a period of at least twelve months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group’s and
the company’s ability to continue as a going concern.
In relation to the Directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material to
add or draw attention to in relation to the Directors’ statement in the financial statements about whether the Directors considered
it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections
of this report.
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Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’
report thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover the
other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this
report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are
required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic report and Directors’ Report, we also considered whether the disclosures required by the UK Companies
Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and
matters as described below.
Strategic report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors’
Report for the year ended 31 March 2021 is consistent with the financial statements and has been prepared in accordance with
applicable legal requirements.
In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit,
we did not identify any material misstatements in the Strategic report and Directors’ Report.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006.
Corporate governance statement
The Listing Rules require us to review the Directors’ statements in relation to going concern, longer-term viability and that part of the
corporate governance statement relating to the company’s compliance with the provisions of the UK Corporate Governance Code
specified for our review. Our additional responsibilities with respect to the corporate governance statement as other information are
described in the Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate
governance statement is materially consistent with the financial statements and our knowledge obtained during the audit,
and we have nothing material to add or draw attention to in relation to:
• The Directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
• The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks
and an explanation of how these are being managed or mitigated;
• The Directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern
basis of accounting in preparing them, and their identification of any material uncertainties to the group’s and company’s ability
to continue to do so over a period of at least twelve months from the date of approval of the financial statements;
• The Directors’ explanation as to their assessment of the group’s and company’s prospects, the period this assessment covers
and why the period is appropriate; and
• The Directors’ statement as to whether they have a reasonable expectation that the company will be able to continue in operation
and meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
Our review of the Directors’ statement regarding the longer-term viability of the group was substantially less in scope than an
audit and only consisted of making inquiries and considering the Directors’ process supporting their statement; checking that the
statement is in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement
is consistent with the financial statements and our knowledge and understanding of the group and company and their environment
obtained in the course of the audit.
Annual Report & Accounts 2021
123
Governance Independent auditors’ report continued
to the members of QinetiQ Group plc
Corporate governance statement continued
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the
corporate governance statement is materially consistent with the financial statements and our knowledge obtained during the audit:
• The Directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable,
and provides the information necessary for the members to assess the group’s and company’s position, performance,
business model and strategy;
• The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and
• The section of the Annual Report describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to report when the Directors’ statement relating to the company’s
compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing
Rules for review by the auditors.
Responsibilities for the financial statements and the audit
Responsibilities of the Directors for the financial statements
As explained more fully in the Statement of Directors’ responsibilities, the Directors are responsible for the preparation of the financial
statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Directors are
also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the group’s and the company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
the Directors either intend to liquidate the group or the company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and
regulations related to relevant tax legislation, Single Source Contracting Regulations, the Health and Safety Executive and anti-
bribery and corruption legislation, and we considered the extent to which non-compliance might have a material effect on the
financial statements. We also considered those laws and regulations that have a direct impact on the financial statements such
as the Companies Act 2006. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial
statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate
journal entries to increase revenue or reduce expenditure, and management bias in accounting estimates. The group engagement
team shared this risk assessment with the component auditors so that they could include appropriate audit procedures in response
to such risks in their work. Audit procedures performed by the group engagement team and/or component auditors included:
• Discussions with management at multiple levels across the business, internal audit and the Group’s legal counsel throughout the
year, as well as at year end. These discussions have included consideration of known or suspected instances of non-compliance
with laws and regulations and fraud;
• Evaluation of management’s controls designed to prevent and detect irregularities, in particular their anti-bribery controls;
• Understanding and evaluating changes in processes and controls as a result of the COVID-19 pandemic;
• Assessment of matters reported on the Group’s whistleblowing helpline and the results of management’s investigation
of such matters;
124
QinetiQ Group plc
• Reviewing correspondence with and reports to relevant regulatory authorities;
• Challenging assumptions and judgements made by management in their significant accounting estimates, in particular in relation
to long-term contract accounting and the impairment of goodwill and acquired intangible fixed assets (see related key audit
matters below);
• Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations or posted
by senior management; and
• Incorporating elements of unpredictability into the audit procedures performed.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-
compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements.
Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error,
as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations.
We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit
sampling to enable us to draw a conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not obtained all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received
from branches not visited by us; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• the company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the members on 22 June 2017 to audit the financial
statements for the year ended 31 March 2018 and subsequent financial periods. The period of total uninterrupted engagement is
4 years, covering the years ended 31 March 2018 to 31 March 2021.
Julian Gray
Senior Statutory Auditor
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Southampton
20 May 2021
Annual Report & Accounts 2021
125
Governance Financial statements
126
QinetiQ Group plc
Consolidated income statement
Consolidated comprehensive income statement
Consolidated statement of changes in equity
Consolidated balance sheet
Consolidated cash flow statement
Reconciliation of movements in net cash
Notes to the financial statements
Company balance sheet
Company statement of changes in equity
Notes to the Company financial statements
128
129
129
130
131
131
132
176
177
178
Annual Report & Accounts 2021
127
Financial Statements Consolidated income statement
Consolidated income statement
Consolidated income statement
For the year ended 31 March
For the year ended 31 March
For the year ended 31 March
2021
2020
Total
Total
Underlying*
Underlying*
Note
2, 3
Note
Note
2, 3
2
2, 3
All figures in £ million
Revenue
All figures in £ million
Other operating costs excluding depreciation and amortisation
All figures in £ million
Revenue
Other income
Revenue
Other operating costs excluding depreciation and amortisation
EBITDA (earnings before interest, tax, depreciation
Other operating costs excluding depreciation and amortisation
2
Other income
and amortisation)
2
Other income
EBITDA (earnings before interest, tax, depreciation
Depreciation and impairment of property, plant and equipment 3, 4, 16
EBITDA (earnings before interest, tax, depreciation
and amortisation)
Impairment of goodwill
4, 14
and amortisation)
Depreciation and impairment of property, plant and equipment 3, 4, 16
3, 4, 15
Amortisation and impairment of intangible assets
Depreciation and impairment of property, plant and equipment 3, 4, 16
4, 14
Impairment of goodwill
Operating profit
3
4, 14
Impairment of goodwill
3, 4, 15
Amortisation and impairment of intangible assets
13
Gain on business divestments
3, 4, 15
Amortisation and impairment of intangible assets
Operating profit
3
Gain on sale of investments
Operating profit
3
13
Gain on business divestments
7
Finance income
13
Gain on business divestments
Gain on sale of investments
Finance expense
7
Gain on sale of investments
7
Finance income
8
Profit/(loss) before tax
7
Finance income
7
Finance expense
9
Taxation (charge)/income
7
Finance expense
8
Profit/(loss) before tax
Profit for the year
8
Profit/(loss) before tax
9
Taxation (charge)/income
9
Taxation (charge)/income
Profit for the year
Profit is attributable to
Profit for the year
Owners of the parent company
Profit is attributable to
Non-controlling interests
Profit is attributable to
Owners of the parent company
Profit for the year
Owners of the parent company
Non-controlling interests
Non-controlling interests
Profit for the year
Profit for the year
Earnings per share for profit attributable to
the owners of the parent company
Earnings per share for profit attributable to
All figures in pence
Earnings per share for profit attributable to
the owners of the parent company
Basic
the owners of the parent company
All figures in pence
Diluted
All figures in pence
Basic
Basic
Diluted
Diluted
* Alternative performance measures are used to supplement the statutory figures. These are additional financial indicators used by management internally to assess the
1,072.9
Underlying*
(903.6)
Underlying*
1,072.9
9.2
1,072.9
(903.6)
(903.6)
9.2
178.5
9.2
(41.0)
178.5
–
178.5
(41.0)
(4.3)
(41.0)
–
133.2
–
(4.3)
–
(4.3)
133.2
–
133.2
–
1.1
–
–
(2.1)
–
1.1
132.2
1.1
(2.1)
(18.5)
(2.1)
132.2
113.7
132.2
(18.5)
(18.5)
113.7
113.7
113.5
0.2
113.5
113.7
113.5
0.2
0.2
113.7
113.7
1,278.2
Underlying*
(1,086.0)
Underlying*
1,278.2
9.9
1,278.2
(1,086.0)
(1,086.0)
9.9
202.1
9.9
(45.6)
202.1
–
202.1
(45.6)
(4.7)
(45.6)
–
151.8
–
(4.7)
–
(4.7)
151.8
–
151.8
–
0.3
–
–
(2.2)
–
0.3
149.9
0.3
(2.2)
(23.8)
(2.2)
149.9
126.1
149.9
(23.8)
(23.8)
126.1
126.1
125.9
0.2
125.9
126.1
125.9
0.2
0.2
126.1
126.1
1,278.2
Total
(1,088.8)
Total
1,278.2
10.0
1,278.2
(1,088.8)
(1,088.8)
10.0
199.4
10.0
(46.1)
199.4
(25.4)
199.4
(46.1)
(15.6)
(46.1)
(25.4)
112.3
(25.4)
(15.6)
28.4
(15.6)
112.3
0.3
112.3
28.4
7.4
28.4
0.3
(2.2)
0.3
7.4
146.2
7.4
(2.2)
(21.5)
(2.2)
146.2
124.7
146.2
(21.5)
(21.5)
124.7
124.7
124.5
0.2
124.5
124.7
124.5
0.2
0.2
124.7
124.7
1,072.9
Total
(911.6)
Total
1,072.9
23.2
1,072.9
(911.6)
(911.6)
23.2
184.5
23.2
(41.0)
184.5
(14.1)
184.5
(41.0)
(11.8)
(41.0)
(14.1)
117.6
(14.1)
(11.8)
–
(11.8)
117.6
–
117.6
–
7.6
–
–
(2.1)
–
7.6
123.1
7.6
(2.1)
(16.6)
(2.1)
123.1
106.5
123.1
(16.6)
(16.6)
106.5
106.5
106.3
0.2
106.3
106.5
106.3
0.2
0.2
106.5
106.5
Underlying*
20.0p
Underlying*
19.8p
Underlying*
20.0p
20.0p
19.8p
19.8p
Underlying*
22.1p
Underlying*
21.9p
Underlying*
22.1p
22.1p
21.9p
21.9p
Total
21.9p
Total
21.6p
Total
21.9p
21.9p
21.6p
21.6p
Total
18.7p
Total
18.6p
Total
18.7p
18.7p
18.6p
18.6p
Specific
2020
adjusting
2020
Items*
Specific
Specific
adjusting
–
adjusting
Items*
(8.0)
Items*
–
14.0
–
(8.0)
(8.0)
14.0
66..00
14.0
–
66..00
(14.1)
66..00
–
(7.5)
–
(14.1)
(15.6)
(14.1)
(7.5)
–
(7.5)
(15.6)
–
(15.6)
–
6.5
–
–
–
–
6.5
(9.1)
6.5
–
1.9
–
(9.1)
(7.2)
(9.1)
1.9
1.9
(7.2)
(7.2)
(7.2)
–
(7.2)
(7.2)
(7.2)
–
–
(7.2)
(7.2)
Specific
2021
adjusting
2021
Items*
Specific
Specific
adjusting
–
adjusting
Items*
(2.8)
Items*
–
0.1
–
(2.8)
(2.8)
0.1
((22..77))
0.1
(0.5)
((22..77))
(25.4)
((22..77))
(0.5)
(10.9)
(0.5)
(25.4)
((3399..55))
(25.4)
(10.9)
28.4
(10.9)
((3399..55))
0.3
((3399..55))
28.4
7.1
28.4
0.3
–
0.3
7.1
(3.7)
7.1
–
2.3
–
(3.7)
(1.4)
(3.7)
2.3
2.3
(1.4)
(1.4)
(1.4)
–
(1.4)
(1.4)
(1.4)
–
–
(1.4)
(1.4)
Note
10
Note
10
Note
10
10
10
10
2020
2020
2021
2021
2020
2021
underlying performance of the Group. Definitions can be found on page 183. Also refer to notes 4 and 36 for details of ‘specific adjusting items’.
* Alternative performance measures are used to supplement the statutory figures. These are additional financial indicators used by management internally to assess the
* Alternative performance measures are used to supplement the statutory figures. These are additional financial indicators used by management internally to assess the
underlying performance of the Group. Definitions can be found on page 183. Also refer to notes 4 and 36 for details of ‘specific adjusting items’.
underlying performance of the Group. Definitions can be found on page 183. Also refer to notes 4 and 36 for details of ‘specific adjusting items’.
128
128
128
128
QinetiQ Group plc
QinetiQ Group plc Annual Report and Accounts 2021
QinetiQ Group plc Annual Report and Accounts 2021
QinetiQ Group plc Annual Report and Accounts 2021
Consolidated comprehensive income statement
Consolidated comprehensive income statement
Consolidated comprehensive income statement
Consolidated comprehensive income statement
For the year ended 31 March
For the year ended 31 March
Financial Statements
Financial Statements
Financial Statements
Financial Statements
For the year ended 31 March
For the year ended 31 March
All figures in £ million
All figures in £ million
Profit for the year
Profit for the year
All figures in £ million
Items that will not be reclassified to profit or loss:
Items that will not be reclassified to profit or loss:
All figures in £ million
Profit for the year
Actuarial (loss)/gain recognised in defined benefit pension schemes
Actuarial (loss)/gain recognised in defined benefit pension schemes
Profit for the year
Items that will not be reclassified to profit or loss:
Tax on items that will not be reclassified to profit and loss
Tax on items that will not be reclassified to profit and loss
Items that will not be reclassified to profit or loss:
Actuarial (loss)/gain recognised in defined benefit pension schemes
Total items that will not be reclassified to profit or loss
Total items that will not be reclassified to profit or loss
Actuarial (loss)/gain recognised in defined benefit pension schemes
Tax on items that will not be reclassified to profit and loss
Items that may be reclassified to profit or loss:
Items that may be reclassified to profit or loss:
Tax on items that will not be reclassified to profit and loss
Total items that will not be reclassified to profit or loss
Foreign currency translation (losses)/gains on foreign operations
Foreign currency translation (losses)/gains on foreign operations
Total items that will not be reclassified to profit or loss
Items that may be reclassified to profit or loss:
Movement in deferred tax on foreign currency translation
Movement in deferred tax on foreign currency translation
Items that may be reclassified to profit or loss:
Foreign currency translation (losses)/gains on foreign operations
(Decrease)/Increase in the fair value of hedging derivatives
(Decrease)/Increase in the fair value of hedging derivatives
Foreign currency translation (losses)/gains on foreign operations
Movement in deferred tax on foreign currency translation
Movement in deferred tax on hedging derivatives
Movement in deferred tax on hedging derivatives
Movement in deferred tax on foreign currency translation
(Decrease)/Increase in the fair value of hedging derivatives
Total items that may be reclassified to profit or loss
Total items that may be reclassified to profit or loss
(Decrease)/Increase in the fair value of hedging derivatives
Movement in deferred tax on hedging derivatives
Other comprehensive (expense)/income for the year, net of tax
Other comprehensive (expense)/income for the year, net of tax
Movement in deferred tax on hedging derivatives
Total items that may be reclassified to profit or loss
Total items that may be reclassified to profit or loss
Other comprehensive (expense)/income for the year, net of tax
Total comprehensive income for the year
Total comprehensive income for the year
Other comprehensive (expense)/income for the year, net of tax
Total comprehensive income for the year
Total comprehensive income is attributable to:
Total comprehensive income is attributable to:
Total comprehensive income for the year
Owners of the parent company
Owners of the parent company
Total comprehensive income is attributable to:
Non-controlling interests
Non-controlling interests
Total comprehensive income is attributable to:
Owners of the parent company
Total comprehensive income for the year
Total comprehensive income for the year
Owners of the parent company
Non-controlling interests
Non-controlling interests
Total comprehensive income for the year
Total comprehensive income for the year
Consolidated statement of changes in equity
Consolidated statement of changes in equity
Consolidated statement of changes in equity
Consolidated statement of changes in equity
For the year ended 31 March
For the year ended 31 March
For the year ended 31 March
For the year ended 31 March
All figures in £ million
All figures in £ million
At 1 April 2020
At 1 April 2020
All figures in £ million
Profit for the year
Profit for the year
All figures in £ million
At 1 April 2020
Other comprehensive expense for the
Other comprehensive expense for the
At 1 April 2020
year, net of tax
Profit for the year
year, net of tax
Profit for the year
Purchase of own shares
Other comprehensive expense for the
Purchase of own shares
Other comprehensive expense for the
Share settled liabilities
year, net of tax
Share settled liabilities
year, net of tax
Share-based payments
Purchase of own shares
Share-based payments
Purchase of own shares
Deferred tax on share options
Share settled liabilities
Deferred tax on share options
Share settled liabilities
Transactions with NCI (note 12)
Share-based payments
Transactions with NCI (note 12)
Share-based payments
Dividends
Deferred tax on share options
Dividends
Deferred tax on share options
Transactions with NCI (note 12)
At 31 March 2021
At 31 March 2021
Transactions with NCI (note 12)
Dividends
Dividends
At 31 March 2021
At 31 March 2019 – previously reported
At 31 March 2019 – previously reported
At 31 March 2021
Restatement in respect of IFRS 16
Restatement in respect of IFRS 16
At 31 March 2019 – previously reported
At 31 March 2019 – restated
At 31 March 2019 – restated
At 31 March 2019 – previously reported
Restatement in respect of IFRS 16
Change in accounting policy – IFRIC 23
Change in accounting policy – IFRIC 23
Restatement in respect of IFRS 16
At 31 March 2019 – restated
At 1 April 2019
At 1 April 2019
At 31 March 2019 – restated
Change in accounting policy – IFRIC 23
Profit for the year
Profit for the year
Change in accounting policy – IFRIC 23
At 1 April 2019
Other comprehensive income for the
Other comprehensive income for the
At 1 April 2019
year, net of tax
Profit for the year
year, net of tax
Profit for the year
Purchase of own shares
Other comprehensive income for the
Purchase of own shares
Other comprehensive income for the
Share-based payments
year, net of tax
Share-based payments
year, net of tax
Deferred tax on share options
Purchase of own shares
Deferred tax on share options
Purchase of own shares
Dividends
Share-based payments
Dividends
Share-based payments
Deferred tax on share options
At 31 March 2020
At 31 March 2020
Deferred tax on share options
.
Dividends
.
Dividends
At 31 March 2020
At 31 March 2020
.
.
Share
Share
capital
capital
5.7
Share
5.7
Share
–
capital
–
capital
5.7
5.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5.7
5.7
–
–
–
5.7
5.7
5.7
5.7
–
–
5.7
5.7
5.7
5.7
–
–
–
–
5.7
5.7
5.7
5.7
–
–
–
–
5.7
5.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5.7
5.7
–
–
–
5.7
5.7
Capital
Capital
redemption
redemption
reserve
reserve
Capital
40.8
Capital
redemption
40.8
redemption
–
reserve
–
reserve
40.8
40.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
40.8
40.8
–
–
–
40.8
40.8
40.8
40.8
–
–
40.8
40.8
40.8
40.8
–
–
–
–
40.8
40.8
40.8
40.8
–
–
–
–
40.8
40.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
40.8
40.8
–
–
–
40.8
40.8
Share
Share
premium
premium
147.6
Share
147.6
Share
–
premium
–
premium
147.6
147.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
147.6
147.6
–
–
–
147.6
147.6
147.6
147.6
–
–
147.6
147.6
147.6
147.6
–
–
–
–
147.6
147.6
147.6
147.6
–
–
–
–
147.6
147.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
147.6
147.6
–
–
–
147.6
147.6
Hedge
Hedge
reserve
reserve
0.4
Hedge
0.4
Hedge
–
reserve
–
reserve
0.4
0.4
(0.8)
–
(0.8)
–
–
–
–
(0.8)
–
(0.8)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.4)
(0.4)
–
–
–
(0.4)
(0.2)
(0.2)
(0.4)
–
–
(0.2)
(0.2)
(0.2)
(0.2)
–
–
–
–
(0.2)
(0.2)
(0.2)
(0.2)
–
–
–
–
(0.2)
(0.2)
0.6
–
0.6
–
–
–
–
0.6
–
0.6
–
–
–
–
–
–
–
–
–
0.4
0.4
–
–
–
0.4
0.4
Retained
Translation
Retained
Translation
reserve
earnings
reserve
earnings
681.9
8.3
Translation
Retained
681.9
8.3
Retained
Translation
–
reserve
earnings
124.5
–
124.5
reserve
earnings
681.9
8.3
681.9
8.3
(84.3)
(11.2)
–
124.5
(84.3)
(11.2)
–
124.5
(9.0)
–
(9.0)
–
13.7
–
(84.3)
(11.2)
13.7
–
(84.3)
(11.2)
10.6
–
(9.0)
–
–
10.6
(9.0)
–
– 0.5
13.7
–
– 0.5
13.7
–
(1.6)
–
10.6
–
(1.6)
–
10.6
–
(37.7)
–
– 0.5
(37.7)
–
– 0.5
(1.6)
–
698.6
(2.9)
698.6
(2.9)
(1.6)
–
(37.7)
–
(37.7)
–
698.6
(2.9)
581.1
3.8
581.1
3.8
698.6
(2.9)
(2.0)
–
–
(2.0)
581.1
3.8
579.1
3.8
579.1
3.8
581.1
3.8
(2.0)
–
2.1
–
–
2.1
(2.0)
–
579.1
3.8
581.2
3.8
581.2
3.8
579.1
3.8
2.1
–
106.3
–
106.3
–
2.1
–
581.2
3.8
581.2
3.8
27.1
4.5
106.3
–
27.1
4.5
106.3
–
(0.7)
–
(0.7)
–
6.8
–
27.1
4.5
6.8
–
27.1
4.5
(0.8)
–
(0.7)
–
–
(0.8)
(0.7)
–
(38.0)
–
6.8
–
(38.0)
–
6.8
–
(0.8)
–
681.9
8.3
681.9
8.3
(0.8)
–
–
(38.0)
(38.0)
–
681.9
8.3
681.9
8.3
Non-
Non-
controlling
controlling
interest
interest
Non-
2.4
Non-
controlling
2.4
controlling
interest
0.2
0.2
interest
2.4
2.4
–
0.2
–
0.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2.3)
–
(2.3)
–
–
–
–
–
(2.3)
0.3
0.3
(2.3)
–
–
0.3
2.2
2.2
0.3
–
–
2.2
2.2
2.2
2.2
–
–
–
–
2.2
2.2
2.2
2.2
–
0.2
0.2
–
2.2
2.2
–
0.2
–
0.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.4
2.4
–
–
–
2.4
2.4
Total
Total
884.7
884.7
Total
124.5
124.5
Total
884.7
884.7
(96.3)
124.5
(96.3)
124.5
(9.0)
(9.0)
13.7
(96.3)
13.7
(96.3)
10.6
(9.0)
10.6
(9.0)
0.5
13.7
0.5
13.7
(1.6)
10.6
(1.6)
10.6
(37.7)
0.5
(37.7)
0.5
(1.6)
889.4
889.4
(1.6)
(37.7)
(37.7)
889.4
778.8
778.8
889.4
(2.0)
(2.0)
778.8
776.8
776.8
778.8
(2.0)
2.1
2.1
(2.0)
776.8
778.9
778.9
776.8
2.1
106.3
106.3
2.1
778.9
778.9
32.2
106.3
32.2
106.3
(0.7)
(0.7)
6.8
32.2
6.8
32.2
(0.8)
(0.7)
(0.8)
(0.7)
(38.0)
6.8
(38.0)
6.8
(0.8)
884.7
884.7
(0.8)
(38.0)
(38.0)
884.7
884.7
2021
2021
124.7
124.7
2021
2021
(104.1)
124.7
(104.1)
124.7
19.8
19.8
(104.1)
(84.3)
(84.3)
(104.1)
19.8
19.8
(12.0)
(84.3)
(12.0)
(84.3)
0.8
0.8
(12.0)
(1.0)
(1.0)
(12.0)
0.8
0.2
0.2
0.8
(1.0)
(12.0)
(12.0)
(1.0)
0.2
(96.3)
(96.3)
0.2
(12.0)
(12.0)
(96.3)
28.4
28.4
(96.3)
28.4
28.4
28.2
28.2
0.2
0.2
28.2
28.4
28.4
28.2
0.2
0.2
28.4
28.4
2020
2020
106.5
106.5
2020
2020
39.8
106.5
39.8
106.5
(12.7)
(12.7)
39.8
27.1
27.1
39.8
(12.7)
(12.7)
5.1
27.1
5.1
27.1
(0.6)
(0.6)
5.1
0.8
0.8
5.1
(0.6)
(0.2)
(0.2)
(0.6)
0.8
5.1
5.1
0.8
(0.2)
32.2
32.2
(0.2)
5.1
5.1
32.2
138.7
138.7
32.2
138.7
138.7
138.5
138.5
0.2
0.2
138.5
138.7
138.7
138.5
0.2
0.2
138.7
138.7
Total
Total
equity
equity
887.1
Total
887.1
Total
equity
124.7
124.7
equity
887.1
887.1
(96.3)
124.7
(96.3)
124.7
(9.0)
(9.0)
13.7
(96.3)
13.7
(96.3)
10.6
(9.0)
10.6
(9.0)
0.5
13.7
0.5
13.7
(3.9)
10.6
(3.9)
10.6
(37.7)
0.5
(37.7)
0.5
(3.9)
889.7
889.7
(3.9)
(37.7)
(37.7)
889.7
781.0
781.0
889.7
(2.0)
(2.0)
781.0
779.0
779.0
781.0
(2.0)
2.1
2.1
(2.0)
779.0
781.1
781.1
779.0
2.1
106.5
106.5
2.1
781.1
781.1
32.2
106.5
32.2
106.5
(0.7)
(0.7)
6.8
32.2
6.8
32.2
(0.8)
(0.7)
(0.8)
(0.7)
(38.0)
6.8
(38.0)
6.8
(0.8)
887.1
887.1
(0.8)
(38.0)
(38.0)
887.1
887.1
129
129
Annual Report & Accounts 2021
129
QinetiQ Group plc
QinetiQ Group plc
Annual Report and Accounts 2021
Annual Report and Accounts 2021
QinetiQ Group plc
QinetiQ Group plc
Annual Report and Accounts 2021
Annual Report and Accounts 2021
129
129
Financial Statements
Consolidated balance sheet
Consolidated balance sheet
Consolidated balance sheet
As at 31 March
As at 31 March
As at 31 March
All figures in £ million
All figures in £ million
All figures in £ million
Non-current assets
Non-current assets
Non-current assets
Goodwill
Goodwill
Goodwill
Intangible assets
Intangible assets
Intangible assets
Property, plant and equipment
Property, plant and equipment
Property, plant and equipment
Other financial assets
Other financial assets
Other financial assets
Financial assets at fair value through profit and loss
Financial assets at fair value through profit and loss
Financial assets at fair value through profit and loss
Equity accounted investments
Equity accounted investments
Equity accounted investments
Retirement benefit surplus
Retirement benefit surplus
Retirement benefit surplus
Deferred tax asset
Deferred tax asset
Deferred tax asset
Current assets
Current assets
Current assets
Inventories
Inventories
Inventories
Other financial assets
Other financial assets
Other financial assets
Trade and other receivables
Trade and other receivables
Trade and other receivables
Current tax asset
Current tax asset
Current tax asset
Cash and cash equivalents
Cash and cash equivalents
Cash and cash equivalents
Total assets
Total assets
Total assets
Current liabilities
Current liabilities
Current liabilities
Trade and other payables
Trade and other payables
Trade and other payables
Current tax payable
Current tax payable
Current tax payable
Provisions
Provisions
Provisions
Other financial liabilities
Other financial liabilities
Other financial liabilities
Non-current liabilities
Non-current liabilities
Non-current liabilities
Deferred tax liability
Deferred tax liability
Deferred tax liability
Provisions
Provisions
Provisions
Other financial liabilities
Other financial liabilities
Other financial liabilities
Other payables
Other payables
Other payables
Total liabilities
Total liabilities
Total liabilities
Net assets
Net assets
Net assets
Equity
Equity
Equity
Ordinary shares
Ordinary shares
Ordinary shares
Capital redemption reserve
Capital redemption reserve
Capital redemption reserve
Share premium account
Share premium account
Share premium account
Hedging reserve
Hedging reserve
Hedging reserve
Translation reserve
Translation reserve
Translation reserve
Retained earnings
Retained earnings
Retained earnings
Capital and reserves attributable to shareholders of the parent company
Capital and reserves attributable to shareholders of the parent company
Capital and reserves attributable to shareholders of the parent company
Non-controlling interest
Non-controlling interest
Non-controlling interest
Total equity
Total equity
Total equity
Note
Note
Note
14
14
14
15
15
15
16
16
16
24
24
24
13
13
13
17
17
17
28
28
28
18
18
18
20
20
20
24
24
24
21
21
21
19
19
19
24
24
24
22
22
22
19
19
19
23
23
23
24
24
24
18
18
18
23
23
23
24
24
24
22
22
22
29
29
29
2021
2021
2021
145.5
145.5
145.5
139.2
139.2
139.2
397.2
397.2
397.2
0.8
0.8
0.8
0.9
0.9
0.9
4.2
4.2
4.2
214.3
214.3
214.3
11.7
11.7
11.7
913.8
913.8
913.8
54.4
54.4
54.4
0.9
0.9
0.9
326.7
326.7
326.7
0.7
0.7
0.7
190.1
190.1
190.1
572.8
572.8
572.8
1,486.6
1,486.6
1,486.6
(411.7)
(411.7)
(411.7)
(3.8)
(3.8)
(3.8)
(4.2)
(4.2)
(4.2)
(7.0)
(7.0)
(7.0)
(426.7)
(426.7)
(426.7)
(89.7)
(89.7)
(89.7)
(7.8)
(7.8)
(7.8)
(20.7)
(20.7)
(20.7)
(52.0)
(52.0)
(52.0)
(170.2)
(170.2)
(170.2)
(596.9)
(596.9)
(596.9)
889.7
889.7
889.7
5.7
5.7
5.7
40.8
40.8
40.8
147.6
147.6
147.6
(0.4)
(0.4)
(0.4)
(2.9)
(2.9)
(2.9)
698.6
698.6
698.6
889.4
889.4
889.4
0.3
0.3
0.3
889.7
889.7
889.7
2020
2020
2020
180.8
180.8
180.8
138.9
138.9
138.9
375.6
375.6
375.6
1.0
1.0
1.0
–
–
–
3.6
3.6
3.6
309.7
309.7
309.7
13.3
13.3
13.3
1,022.9
1,022.9
1,022.9
52.3
52.3
52.3
6.7
6.7
6.7
250.0
250.0
250.0
0.2
0.2
0.2
105.8
105.8
105.8
415.0
415.0
415.0
1,437.9
1,437.9
1,437.9
(379.8)
(379.8)
(379.8)
(4.1)
(4.1)
(4.1)
(1.8)
(1.8)
(1.8)
(8.9)
(8.9)
(8.9)
(394.6)
(394.6)
(394.6)
(101.3)
(101.3)
(101.3)
(9.7)
(9.7)
(9.7)
(19.9)
(19.9)
(19.9)
(25.3)
(25.3)
(25.3)
(156.2)
(156.2)
(156.2)
(550.8)
(550.8)
(550.8)
887.1
887.1
887.1
5.7
5.7
5.7
40.8
40.8
40.8
147.6
147.6
147.6
0.4
0.4
0.4
8.3
8.3
8.3
681.9
681.9
681.9
884.7
884.7
884.7
2.4
2.4
2.4
887.1
887.1
887.1
The financial statements on pages 132 to 179 were approved by the Board of Directors and authorised for issue on 20 May 2021 and were
The financial statements on pages 132 to 179 were approved by the Board of Directors and authorised for issue on 20 May 2021 and were
The financial statements on pages 132 to 179 were approved by the Board of Directors and authorised for issue on 20 May 2021 and were
signed on its behalf by:
signed on its behalf by:
signed on its behalf by:
Steve Wadey
Steve Wadey
Steve Wadey
Chief Executive Officer
Chief Executive Officer
Chief Executive Officer
David Smith
David Smith
David Smith
Chief Financial Officer
Chief Financial Officer
Chief Financial Officer
130
130
130
130
QinetiQ Group plc
QinetiQ Group plc
QinetiQ Group plc
QinetiQ Group plc
Annual Report and Accounts 2021
Annual Report and Accounts 2021
Annual Report and Accounts 2021
Consolidated cash flow statement
Consolidated cash flow statement
Consolidated cash flow statement
For the year ended 31 March
For the year ended 31 March
For the year ended 31 March
All figures in £ million
Underlying net cash inflow from operations
All figures in £ million
Less: specific adjusting items
All figures in £ million
Underlying net cash inflow from operations
Underlying net cash inflow from operations
Net cash inflow from operations
Less: specific adjusting items
Less: specific adjusting items
Tax paid
Net cash inflow from operations
Interest received
Net cash inflow from operations
Tax paid
Interest paid
Tax paid
Interest received
Net cash inflow from operating activities
Interest received
Interest paid
Purchases of intangible assets
Interest paid
Net cash inflow from operating activities
Purchases of property, plant and equipment
Net cash inflow from operating activities
Purchases of intangible assets
Proceeds from disposals of plant and equipment
Purchases of intangible assets
Purchases of property, plant and equipment
Proceeds from sale of property
Purchases of property, plant and equipment
Proceeds from disposals of plant and equipment
Proceeds from disposal of businesses
Proceeds from disposals of plant and equipment
Proceeds from sale of property
Proceeds from disposal of investment
Proceeds from sale of property
Proceeds from disposal of businesses
Acquisition of businesses
Proceeds from disposal of businesses
Proceeds from disposal of investment
Net cash outflow from investing activities
Proceeds from disposal of investment
Acquisition of businesses
Purchase of own shares
Acquisition of businesses
Net cash outflow from investing activities
Dividends paid to shareholders
Net cash outflow from investing activities
Purchase of own shares
Payment of bank facility arrangement fee
Purchase of own shares
Dividends paid to shareholders
Capital element of finance lease payments
Dividends paid to shareholders
Payment of bank facility arrangement fee
Net cash outflow from financing activities
Payment of bank facility arrangement fee
Capital element of finance lease payments
Increase/(decrease) in cash and cash equivalents
Capital element of finance lease payments
Net cash outflow from financing activities
Effect of foreign exchange changes on cash and cash equivalents
Net cash outflow from financing activities
Increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Increase/(decrease) in cash and cash equivalents
Effect of foreign exchange changes on cash and cash equivalents
Cash and cash equivalents at end of the year
Effect of foreign exchange changes on cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
Cash and cash equivalents at end of the year
Reconciliation of movement in net cash for the year ended 31 March
All figures in £ million
Reconciliation of movement in net cash for the year ended 31 March
Reconciliation of movement in net cash for the year ended 31 March
Increase/(decrease) in cash and cash equivalents in the year
All figures in £ million
Add back net cash flows not impacting net cash
All figures in £ million
Increase/(decrease) in cash and cash equivalents in the year
Change in net cash resulting from cash flows
Increase/(decrease) in cash and cash equivalents in the year
Add back net cash flows not impacting net cash
Lease liabilities derecognised on disposal of subsidiaries
Add back net cash flows not impacting net cash
Change in net cash resulting from cash flows
Leases and debt recognised on acquisition
Change in net cash resulting from cash flows
Lease liabilities derecognised on disposal of subsidiaries
Increase in lease obligation
Lease liabilities derecognised on disposal of subsidiaries
Leases and debt recognised on acquisition
Other movements including foreign exchange
Leases and debt recognised on acquisition
Increase in lease obligation
Increase/(decrease) in net cash as defined by the Group
Increase in lease obligation
Other movements including foreign exchange
Net cash as defined by Group at the beginning of the year
Other movements including foreign exchange
Increase/(decrease) in net cash as defined by the Group
Net cash as defined by Group at the end of the year
Increase/(decrease) in net cash as defined by the Group
Net cash as defined by Group at the beginning of the year
Less: non-cash net financial liabilities
Net cash as defined by Group at the beginning of the year
Net cash as defined by Group at the end of the year
Total cash and cash equivalents
Net cash as defined by Group at the end of the year
Less: non-cash net financial liabilities
Less: non-cash net financial liabilities
Total cash and cash equivalents
Total cash and cash equivalents
Financial Statements
Financial Statements
Financial Statements
Note
25
Note
25
Note
25
25
25
25
25
9
25
25
9
9
15
16
15
15
16
16
13
13
12
13
12
12
11
11
11
24
24
24
Note
Note
Note
24
24
24
24
24
24
24
24
24
2021
199.0
2021
(1.0)
2021
199.0
199.0
198.0
(1.0)
(1.0)
(15.0)
198.0
0.3
198.0
(15.0)
(1.7)
(15.0)
0.3
181.6
0.3
(1.7)
(14.5)
(1.7)
181.6
(65.0)
181.6
(14.5)
–
(14.5)
(65.0)
0.1
(65.0)
–
54.4
–
0.1
0.3
0.1
54.4
(28.5)
54.4
0.3
(53.2)
0.3
(28.5)
(9.0)
(28.5)
(53.2)
(37.7)
(53.2)
(9.0)
(0.4)
(9.0)
(37.7)
(8.5)
(37.7)
(0.4)
(55.6)
(0.4)
(8.5)
(8.5)
72.8
(55.6)
11.5
(55.6)
72.8
105.8
72.8
11.5
190.1
11.5
105.8
105.8
190.1
190.1
2021
72.8
2021
8.9
2021
72.8
81.7
72.8
8.9
1.9
8.9
81.7
(1.3)
81.7
1.9
(9.1)
1.9
(1.3)
6.2
(1.3)
(9.1)
79.4
(9.1)
6.2
84.7
6.2
79.4
164.1
79.4
84.7
26.0
84.7
164.1
190.1
164.1
26.0
26.0
190.1
190.1
2020
177.8
2020
(11.3)
2020
177.8
177.8
166.5
(11.3)
(11.3)
(10.0)
166.5
1.2
166.5
(10.0)
(1.7)
(10.0)
1.2
156.0
1.2
(1.7)
(16.7)
(1.7)
156.0
(92.7)
156.0
(16.7)
1.6
(16.7)
(92.7)
12.5
(92.7)
1.6
–
1.6
12.5
–
12.5
–
(90.2)
–
–
(185.5)
–
(90.2)
(0.7)
(90.2)
(185.5)
(38.0)
(185.5)
(0.7)
(0.3)
(0.7)
(38.0)
(9.7)
(38.0)
(0.3)
(48.7)
(0.3)
(9.7)
(9.7)
(78.2)
(48.7)
(6.8)
(48.7)
(78.2)
190.8
(78.2)
(6.8)
105.8
(6.8)
190.8
190.8
105.8
105.8
2020
(78.2)
2020
10.0
2020
(78.2)
(68.2)
(78.2)
10.0
–
10.0
(68.2)
(2.7)
(68.2)
–
(4.0)
–
(2.7)
(0.9)
(2.7)
(4.0)
(75.8)
(4.0)
(0.9)
160.5
(0.9)
(75.8)
84.7
(75.8)
160.5
21.1
160.5
84.7
105.8
84.7
21.1
21.1
105.8
105.8
QinetiQ Group plc
QinetiQ Group plc
QinetiQ Group plc
131
Annual Report & Accounts 2021
131
Annual Report and Accounts 2021
Annual Report and Accounts 2021
Annual Report and Accounts 2021
131
131
Financial Statements
Notes to the Financial Statements
For the year ended 31 March
1. Significant changes in the current reporting period
The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting
period:
1)
2)
3)
The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets
(note 15);
The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13);
An impairment of goodwill in respect of the Germany business (see note 14).
For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51.
2. Revenue from contracts with customers and other income
Revenue and other income is analysed as follows:
Revenue by category and other income
For the year ended 31 March
All figures in £ million
Services contracts with customers
Sale of goods contracts with customers
Royalties and licences
Total revenue
Less: adjust current year for acquired businesses1
Less: adjust prior year for disposed businesses1
Adjust to constant prior year exchange rates
Total revenue on an organic, constant currency basis2
Organic revenue growth at constant currency2
2021
1,189.4
83.0
5.8
1,278.2
(117.2)
–
2.2
1,163.2
10%
2020
945.6
116.8
10.5
1,072.9
–
(17.2)
–
1,055.7
10%
1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for
disposals) by the Group
2 Alternative performance measures are used to supplement the statutory figures. See page 183.
Other income
All figures in £ million
Share of associates’ and joint ventures’ profit/(loss) after tax
Other income
Other income – underlying
Specific adjusting item: gain on sale of property (note 4)
Total other income
2021
0.7
9.2
9.9
0.1
10.0
2020
(0.7)
9.9
9.2
14.0
23.2
Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after
tax of £1.5m). The figures in the table above represent the Group share of this profit after tax.
Other income is in respect of property rentals and the recovery of other related property costs.
Revenue by customer geographic location
For the year ended 31 March
All figures in £ million
US
Australia
Europe
Middle east
Rest of world
International
United Kingdom
Total revenue
International revenue %
Revenue from ‘home countries’ (UK, US and Australia)
Home countries revenue %
132
132
QinetiQ Group plc
QinetiQ Group plc
Annual Report and Accounts 2021
2021
215.6
77.9
88.2
9.8
28.9
420.4
857.8
1,278.2
33%
2020
136.0
60.7
75.9
16.3
44.5
333.4
739.5
1,072.9
31%
1,151.3
90%
936.2
87%
Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87% Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87%
Notes to the Financial Statements continued
Revenue by major customer type
For the year ended 31 March
All figures in £ million
UK government
US government
Other
Total revenue
Financial Statements
2021
794.6
140.8
342.8
1,278.2
2020
667.2
116.2
289.5
1,072.9
‘Other’ does not contain any customers with revenue in excess of 10% of total Group revenue.
The following table shows the aggregate amount of revenue allocated to performance obligations that are unsatisfied (or partially satisfied)
as at the end of the reporting period:
All figures in £ million
Total forecast revenue allocated to unsatisfied performance obligations
2022
800.5
2023
523.9
2024
395.9
2025+
1,223.8
Total
2,944.1
Management expects that 27% (£800.5m) of revenue allocated to unsatisfied contracts as of 31 March 2021 will be recognised as revenue
during the next reporting period.
The following table shows the aggregate amount of revenue allocated to performance obligations that were unsatisfied (or partially
satisfied) as at the end of the prior reporting period:
All figures in £ million
Total forecast revenue allocated to unsatisfied performance obligations
2021
849.3
2022
484.9
2023
375.5
2024+
1,395.2
Total
3,104.9
Revenue of £144m was recognised during the year that was previously unrecognised as at the previous year end and reported as a contract
liability.
3. Segmental analysis
The analysis by business segment is presented in accordance with IFRS 8 Operating Segments, on the basis of those reportable segments
whose operating results are regularly reviewed by the Board (the Chief Operating Decision Maker as defined by IFRS 8) and are aligned with
the Group’s strategic direction, determined with reference to the products and services they provide, as follows:
EMEA Services provides technical assurance, test and evaluation and training services, underpinned by long-term contracts. EMEA Services
comprises the following business units which are not considered reportable segments as defined by IFRS 8: Maritime & Land; Air & Space,
Cyber & Information and the International business.
Global Products combines all other business units not aggregated within EMEA Services, including the QinetiQ US business, Space Products
and EMEA Products (which includes QinetiQ Target Systems). Generally these business units (which are not considered reportable segments
as defined by IFRS 8) deliver innovative solutions and products which includes contract-funded research and development and developing
intellectual property in partnership with key customers and through internal funding with potential for new revenue streams.
Operating segments
All figures in £ million
EMEA Services
Global Products
Total operating segments
Underlying operating margin2
Revenue
from
external
customers
939.9
338.3
1,278.2
2021
2020
Revenue
from
external
customers
797.4
275.5
1,072.9
Underlying
operating
profit1
118.6
33.2
151.8
11.9%
Underlying
operating
profit1
100.6
32.6
133.2
12.4%
1 The measure of profit presented to the Chief Operating Decision Maker is operating profit stated before specific adjusting items (‘underlying operating profit’). The specific
adjusting items are detailed in note 4.
2 Definitions of the Group’s ‘Alternative performance measures’ can be found in the glossary on page 183.
No measure of segmental assets and liabilities is reported as this information is not regularly provided to the Chief Operating Decision
Maker.
Annual Report & Accounts 2021
133
QinetiQ Group plc
133
Annual Report and Accounts 2021
Notes to the Financial Statements continued QinetiQ Group plc Annual Report and Accounts 2021 133 Financial Statements Revenue by major customer type For the year ended 31 March ‘Other’ does not contain any customers with revenue in excess of 10% of total Group revenue. The following table shows the aggregate amount of revenue allocated to performance obligations that are unsatisfied (or partially satisfied) as at the end of the reporting period: Management expects that 27% (£800.5m) of revenue allocated to unsatisfied contracts as of 31 March 2021 will be recognised as revenue during the next reporting period. The following table shows the aggregate amount of revenue allocated to performance obligations that were unsatisfied (or partially satisfied) as at the end of the prior reporting period: Revenue of £144m was recognised during the year that was previously unrecognised as at the previous year end and reported as a contract liability. 3. Segmental analysis The analysis by business segment is presented in accordance with IFRS 8 Operating Segments, on the basis of those reportable segments whose operating results are regularly reviewed by the Board (the Chief Operating Decision Maker as defined by IFRS 8) and are aligned with the Group’s strategic direction, determined with reference to the products and services they provide, as follows: EMEA Services provides technical assurance, test and evaluation and training services, underpinned by long-term contracts. EMEA Services comprises the following business units which are not considered reportable segments as defined by IFRS 8: Maritime & Land; Air & Space, Cyber & Information and the International business. Global Products combines all other business units not aggregated within EMEA Services, including the QinetiQ US business, Space Products and EMEA Products (which includes QinetiQ Target Systems). Generally these business units (which are not considered reportable segments as defined by IFRS 8) deliver innovative solutions and products which includes contract-funded research and development and developing intellectual property in partnership with key customers and through internal funding with potential for new revenue streams. Operating segments 1 The measure of profit presented to the Chief Operating Decision Maker is operating profit stated before specific adjusting items (‘underlying operating profit’). The specific adjusting items are detailed in note 4. 2 Definitions of the Group’s ‘Alternative performance measures’ can be found in the glossary on page 183. No measure of segmental assets and liabilities is reported as this information is not regularly provided to the Chief Operating Decision Maker. All figures in £ million 2021 2020 UK government 794.6 667.2 US government 140.8 116.2 Other 342.8 289.5 Total revenue 1,278.2 1,072.9 All figures in £ million 2022 2023 2024 2025+ Total Total forecast revenue allocated to unsatisfied performance obligations 800.5 523.9 395.9 1,223.8 2,944.1 All figures in £ million 2021 2022 2023 2024+ Total Total forecast revenue allocated to unsatisfied performance obligations 849.3 484.9 375.5 1,395.2 3,104.9 2021 2020 All figures in £ million Revenue from external customers Underlying operating profit1 Revenue from external customers Underlying operating profit1 EMEA Services 939.9 118.6 797.4 100.6 Global Products 338.3 33.2 275.5 32.6 Total operating segments 1,278.2 151.8 1,072.9 133.2 Underlying operating margin2 11.9% 12.4% Financial Statements
Notes to the Financial Statements
For the year ended 31 March
3. Segmental analysis (continued)
Reconciliation of segmental results to total profit
All figures in £ million
Underlying operating profit
Specific adjusting items operating loss
Operating profit
Gain on business divestments
Gain on sale of investments
Net finance income
Profit before tax
Taxation expense
Profit for the year
Non-current assets* by geographic location
All figures in £ million
Year ended 31 March 2021
Year ended 31 March 2020
Note
4
13
7
9
2021
151.8
(39.5)
112.3
28.4
0.3
5.2
146.2
(21.5)
124.7
2020
133.2
(15.6)
117.6
–
–
5.5
123.1
(16.6)
106.5
UK
USA Germany
468.6
442.3
132.2
144.1
41.6
67.7
Rest of
world
39.5
41.2
Total
681.9
695.3
*Excluding deferred tax, financial instruments and retirement benefit surplus.
Depreciation, impairment and amortisation by business segment – excluding specific adjusting items
For the year ended 31 March 2021
All figures in £ million
Depreciation and impairment of property, plant and equipment
Amortisation of purchased or internally developed intangible assets
For the year ended 31 March 2020
All figures in £ million
Depreciation and impairment of property, plant and equipment
Amortisation of purchased or internally developed intangible assets
EMEA
Services
38.7
3.3
42.0
Global
Products
6.9
1.4
8.3
EMEA
Services
35.5
3.4
38.9
Global
Products
5.5
0.9
6.4
Total
45.6
4.7
50.3
Total
41.0
4.3
45.3
134
134
QinetiQ Group plc
QinetiQ Group plc
Annual Report and Accounts 2021
Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87% Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87%
Notes to the Financial Statements continued
Financial Statements
4. Specific adjusting items
In the income statement, the Group presents specific adjusting items separately. In the judgement of the Directors, for the reader to obtain a
proper understanding of the financial information, specific adjusting items need to be disclosed separately because of their size and nature.
Further explanation of this rationale is provided in note 36 (Accounting Policies). Underlying measures of performance exclude specific
adjusting items. The following specific adjusting items have been (charged)/credited in the consolidated income statement:
All figures in £ million
Gain on sale of property
Acquisition transaction costs
Acquisition integration costs
Acquisition related remuneration costs*
Specific adjusting items (loss)/profit before interest, tax, depreciation and amortisation
Impairment of property
Impairment of goodwill
Amortisation of intangible assets arising from acquisitions
Specific adjusting items operating loss
Gain on disposal of businesses
Gain on disposal of investment
Defined benefit pension scheme net finance income
Specific adjusting items loss before tax
Specific adjusting items – tax
Total specific adjusting items loss after tax
Reconciliation of underlying profit for the year to total profit for the year
All figures in £ million
Underlying profit after tax – total Group
Total specific adjusting items loss after tax
Total profit for the year
Note
12
14
13
17
28
9
2021
0.1
(1.0)
–
(1.8)
(2.7)
(0.5)
(25.4)
(10.9)
(39.5)
28.4
0.3
7.1
(3.7)
2.3
(1.4)
2021
126.1
(1.4)
124.7
2020
14.0
(7.4)
(0.1)
(0.5)
6.0
–
(14.1)
(7.5)
(15.6)
–
–
6.5
(9.1)
1.9
(7.2)
2020
113.7
(7.2)
106.5
* Bonuses awarded, on acquisition, to key employees within the MTEQ business acquired in December 2019 are charged to the income statement over a 24-month
retention period.
5. Analysis of employee costs and numbers
The largest component of operating expenses is employee costs. The year-end and average monthly number of persons employed by the
Group, including Executive Directors, analysed by business segment, were:
EMEA Services
Global Products
Total employees
The aggregate payroll costs of these persons were as follows:
All figures in £ million
Wages and salaries
Social security costs
Pension costs
Share-based payments costs
Total employee costs
As at 31 March
2020
Number
5,456
1,331
6,787
2021
Number
5,867
1,023
6,890
Monthly average
2020
Number
5,335
932
6,267
2021
Number
5,673
1,201
6,874
Note
30
2021
381.7
35.1
45.5
11.2
473.5
2020
335.9
33.5
42.9
7.5
419.8
Annual Report & Accounts 2021
135
QinetiQ Group plc
135
Annual Report and Accounts 2021
Notes to the Financial Statements continued QinetiQ Group plc Annual Report and Accounts 2021 133 Financial Statements Revenue by major customer type For the year ended 31 March ‘Other’ does not contain any customers with revenue in excess of 10% of total Group revenue. The following table shows the aggregate amount of revenue allocated to performance obligations that are unsatisfied (or partially satisfied) as at the end of the reporting period: Management expects that 27% (£800.5m) of revenue allocated to unsatisfied contracts as of 31 March 2021 will be recognised as revenue during the next reporting period. The following table shows the aggregate amount of revenue allocated to performance obligations that were unsatisfied (or partially satisfied) as at the end of the prior reporting period: Revenue of £144m was recognised during the year that was previously unrecognised as at the previous year end and reported as a contract liability. 3. Segmental analysis The analysis by business segment is presented in accordance with IFRS 8 Operating Segments, on the basis of those reportable segments whose operating results are regularly reviewed by the Board (the Chief Operating Decision Maker as defined by IFRS 8) and are aligned with the Group’s strategic direction, determined with reference to the products and services they provide, as follows: EMEA Services provides technical assurance, test and evaluation and training services, underpinned by long-term contracts. EMEA Services comprises the following business units which are not considered reportable segments as defined by IFRS 8: Maritime & Land; Air & Space, Cyber & Information and the International business. Global Products combines all other business units not aggregated within EMEA Services, including the QinetiQ US business, Space Products and EMEA Products (which includes QinetiQ Target Systems). Generally these business units (which are not considered reportable segments as defined by IFRS 8) deliver innovative solutions and products which includes contract-funded research and development and developing intellectual property in partnership with key customers and through internal funding with potential for new revenue streams. Operating segments 1 The measure of profit presented to the Chief Operating Decision Maker is operating profit stated before specific adjusting items (‘underlying operating profit’). The specific adjusting items are detailed in note 4. 2 Definitions of the Group’s ‘Alternative performance measures’ can be found in the glossary on page 183. No measure of segmental assets and liabilities is reported as this information is not regularly provided to the Chief Operating Decision Maker. All figures in £ million 2021 2020 UK government 794.6 667.2 US government 140.8 116.2 Other 342.8 289.5 Total revenue 1,278.2 1,072.9 All figures in £ million 2022 2023 2024 2025+ Total Total forecast revenue allocated to unsatisfied performance obligations 800.5 523.9 395.9 1,223.8 2,944.1 All figures in £ million 2021 2022 2023 2024+ Total Total forecast revenue allocated to unsatisfied performance obligations 849.3 484.9 375.5 1,395.2 3,104.9 2021 2020 All figures in £ million Revenue from external customers Underlying operating profit1 Revenue from external customers Underlying operating profit1 EMEA Services 939.9 118.6 797.4 100.6 Global Products 338.3 33.2 275.5 32.6 Total operating segments 1,278.2 151.8 1,072.9 133.2 Underlying operating margin2 11.9% 12.4% Financial Statements
Notes to the Financial Statements
For the year ended 31 March
6. Directors and other senior management personnel
The Directors and other senior management personnel of the Group during the year to 31 March 2021 comprise the Board of Directors and
the Executive Committee. The remuneration and benefits provided to Directors and the Executive Committee are summarised below:
All figures in £ million
Short-term employee remuneration including benefits
Post-employment benefits
Share-based payments costs
Termination benefits
Total
2021
9.4
0.1
2.1
-
11.6
2020
9.8
0.1
1.4
0.2
11.5
Short-term employee remuneration and benefits include salary, bonus and benefits. Post-employment benefits relate to pension amounts.
The highest paid director is the Chief Executive Officer, details of whose remuneration is provided in the Directors’ Remuneration Report.
7. Finance income and expense
For the year ended 31 March
All figures in £ million
Receivable on bank deposits
Finance income before specific adjusting items
Amortisation of deferred financing costs
Bank interest and commitment fees
Lease expense
Unwinding of discount on financial liabilities
Finance expense before specific adjusting items
Underlying net finance expense
Plus: specific adjusting items – defined benefit pension scheme net finance income
Net finance income
8. Profit before tax
The following auditors’ remuneration has been charged in arriving at profit before tax:
All figures in £ million
Fees payable to the auditor and its associates:
Audit of the Group’s annual accounts
Audit of the accounts of subsidiaries of the Company
Total audit fees
Audit-related assurance services
Total non-audit fees
Total auditors’ remuneration
The following items have also been charged in arriving at profit before tax:
All figures in £ million
Cost of inventories expensed
Owned assets: depreciation
Leased assets: depreciation
Foreign exchange loss
Research and development expenditure – customer funded contracts
Research and development expenditure – Group funded
136
136
QinetiQ Group plc
QinetiQ Group plc
Annual Report and Accounts 2021
2021
0.3
0.3
(0.4)
(0.6)
(1.0)
(0.2)
(2.2)
(1.9)
7.1
5.2
2020
1.1
1.1
(0.4)
(0.6)
(1.0)
(0.1)
(2.1)
(1.0)
6.5
5.5
2021
2020
0.6
0.5
1.1
0.1
0.1
1.2
2021
10.2
37.2
8.4
0.5
281.9
18.5
0.6
0.2
0.8
0.1
0.1
0.9
2020
32.6
31.7
9.7
1.4
270.8
21.5
Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87% Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87%
Notes to the Financial Statements continued
Financial Statements
9. Taxation
All figures in £ million
Analysis of charge
Current UK tax expense/(income)
Current UK tax in respect of prior years
Overseas corporation tax
Current year
In respect of prior years
Current tax expense/(income)
Deferred tax expense/(income)
Deferred tax impact of change in rates
Deferred tax in respect of prior years
Deferred tax expense/(income)
Taxation expense/(income)
Factors affecting tax charge/(credit) in year
Principal factors reducing the Group’s current year tax charge
below the UK statutory rate are explained below:
Profit before tax
Tax on profit before tax at 19% (2020: 19%)
Effect of:
Expenses not deductible for tax purposes and non-taxable items
Current tax in respect of prior years
Research and development expenditure credits
Recognition of deferred tax asset
Deferred tax impact of change in rates
Deferred tax in respect of prior years
Different tax rates in overseas jurisdictions
Taxation expense/(income)
Effective tax rate
2021
Specific
adjusting
items
Underlying
Total
Underlying
Specific
adjusting
items
12.3
(1.6)
3.7
(0.4)
14.0
8.7
–
1.1
9.8
23.8
149.9
28.5
0.6
(2.0)
(5.1)
(1.1)
–
1.1
1.8
23.8
15.9%
–
–
–
–
–
(1.9)
–
(0.4)
(2.3)
(2.3)
(3.7)
(0.7)
(0.4)
–
–
–
–
(0.4)
(0.8)
(2.3)
12.3
(1.6)
3.7
(0.4)
14.0
6.8
–
0.7
7.5
21.5
146.2
27.8
0.2
(2.0)
(5.1)
(1.1)
–
0.7
1.0
21.5
14.7%
7.9
(0.3)
2.9
–
10.5
6.5
2.0
(0.5)
8.0
18.5
132.2
25.1
(0.4)
(0.3)
(7.8)
(1.6)
2.0
(0.5)
2.0
18.5
14.0%
(0.8)
–
–
–
(0.8)
(1.8)
0.7
–
(1.1)
(1.9)
(9.1)
(1.7)
3.1
–
–
(3.3)
0.7
–
(0.7)
(1.9)
2020
Total
7.1
(0.3)
2.9
–
9.7
4.7
2.7
(0.5)
6.9
16.6
123.1
23.4
2.7
(0.3)
(7.8)
(4.9)
2.7
(0.5)
1.3
16.6
13.5%
The total tax charge was £21.5m (2020: £16.6m). Deferred tax (see note 18) has been calculated at the rate at which the timing difference
is expected to reverse. The underlying tax charge was £23.8m (2020: £18.5m) with an underlying effective tax rate of 15.9% for the year
ending 31 March 2021 (2020: 14.0%). The effective tax rate continues to be below the UK statutory rate, primarily as a result of the benefit of
research and development expenditure credits (‘RDEC’) in the UK which are accounted under IAS 12 within the tax line. An adjusted effective
tax rate before the impact of RDEC would be 19.4%. The impact of RDEC is shown net of £10.6m (2020: £9.8m) appropriated by the MOD
(see note 36 for details).The effective tax rate is expected to remain below the UK statutory rate in the medium term, subject to any tax
legislation changes, the geographic mix of profits, the recognition of deferred tax assets and while the benefit of net RDEC retained by the
Group remains in the tax line.
In the Spring Budget 2021 the Government announced that from 1 April 2023 the corporation tax rate will increase to 25%. Since the proposal
to increase the rate to 25% had not been substantively enacted at the balance sheet date, its effects are not included in these financial
statements. However, it is likely that the overall effect of the change, had it been substantively enacted by the balance sheet date, would be
to increase the tax expense for the period by £11.0m and to increase the deferred tax liability by £25.8m.
Tax on specific adjusting items
The tax in respect of the pre-tax specific adjusting items of £3.7m (note 4) was a £2.3m net income. The prior year tax in respect of the pre-
tax specific adjusting items of £9.1m was a £1.4m net expense. Together with a £3.3m credit in respect of recognition of tax losses in the
US the total specific adjusting items tax income in the prior year was £1.9m.
Factors affecting future tax charges
The effective tax rate is expected to remain below the UK statutory rate in the medium term, subject to the impact of any tax legislation
changes, the geographic mix of profits and the assumption that the benefits of net R&D expenditure credits retained by the Group remain in
the tax line. Future recognition of deferred tax assets will also affect future tax charges.
Tax risk management and tax cash
For details of the Group’s approach to tax risk management and discussion of tax cash paid in the year see ‘Additional Financial Information’
on page 181.
Annual Report & Accounts 2021
137
QinetiQ Group plc
137
Annual Report and Accounts 2021
Notes to the Financial Statements continued QinetiQ Group plc Annual Report and Accounts 2021 133 Financial Statements Revenue by major customer type For the year ended 31 March ‘Other’ does not contain any customers with revenue in excess of 10% of total Group revenue. The following table shows the aggregate amount of revenue allocated to performance obligations that are unsatisfied (or partially satisfied) as at the end of the reporting period: Management expects that 27% (£800.5m) of revenue allocated to unsatisfied contracts as of 31 March 2021 will be recognised as revenue during the next reporting period. The following table shows the aggregate amount of revenue allocated to performance obligations that were unsatisfied (or partially satisfied) as at the end of the prior reporting period: Revenue of £144m was recognised during the year that was previously unrecognised as at the previous year end and reported as a contract liability. 3. Segmental analysis The analysis by business segment is presented in accordance with IFRS 8 Operating Segments, on the basis of those reportable segments whose operating results are regularly reviewed by the Board (the Chief Operating Decision Maker as defined by IFRS 8) and are aligned with the Group’s strategic direction, determined with reference to the products and services they provide, as follows: EMEA Services provides technical assurance, test and evaluation and training services, underpinned by long-term contracts. EMEA Services comprises the following business units which are not considered reportable segments as defined by IFRS 8: Maritime & Land; Air & Space, Cyber & Information and the International business. Global Products combines all other business units not aggregated within EMEA Services, including the QinetiQ US business, Space Products and EMEA Products (which includes QinetiQ Target Systems). Generally these business units (which are not considered reportable segments as defined by IFRS 8) deliver innovative solutions and products which includes contract-funded research and development and developing intellectual property in partnership with key customers and through internal funding with potential for new revenue streams. Operating segments 1 The measure of profit presented to the Chief Operating Decision Maker is operating profit stated before specific adjusting items (‘underlying operating profit’). The specific adjusting items are detailed in note 4. 2 Definitions of the Group’s ‘Alternative performance measures’ can be found in the glossary on page 183. No measure of segmental assets and liabilities is reported as this information is not regularly provided to the Chief Operating Decision Maker. All figures in £ million 2021 2020 UK government 794.6 667.2 US government 140.8 116.2 Other 342.8 289.5 Total revenue 1,278.2 1,072.9 All figures in £ million 2022 2023 2024 2025+ Total Total forecast revenue allocated to unsatisfied performance obligations 800.5 523.9 395.9 1,223.8 2,944.1 All figures in £ million 2021 2022 2023 2024+ Total Total forecast revenue allocated to unsatisfied performance obligations 849.3 484.9 375.5 1,395.2 3,104.9 2021 2020 All figures in £ million Revenue from external customers Underlying operating profit1 Revenue from external customers Underlying operating profit1 EMEA Services 939.9 118.6 797.4 100.6 Global Products 338.3 33.2 275.5 32.6 Total operating segments 1,278.2 151.8 1,072.9 133.2 Underlying operating margin2 11.9% 12.4% Financial Statements
Notes to the Financial Statements
For the year ended 31 March
10. Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to equity shareholders by the weighted average number of ordinary
shares in issue during the year. The weighted average number of shares used excludes those shares bought by the Group and held as own
shares (see note 29). For diluted earnings per share the weighted average number of shares in issue is adjusted to assume conversion of all
potentially dilutive ordinary shares arising from unvested share-based awards including share options.
Weighted average and diluted number of shares
For the year ended 31 March
Weighted average number of shares
Effect of dilutive securities
Diluted number of shares
Million
Million
Million
2021
569.7
6.1
575.8
2020
567.0
5.4
572.4
Underlying basic earnings per share figures are presented below, in addition to the basic and diluted earnings per share, because the Directors
consider this gives a more relevant indication of underlying business performance and reflects the adjustments to basic earnings per share
for the impact of specific adjusting items (see note 4) and tax thereon.
Underlying EPS
For the year ended 31 March
Profit attributable to the owners of the Company
Remove loss after tax in respect of specific adjusting items
Underlying profit after taxation
Weighted average number of shares
Underlying basic EPS
Diluted number of shares
Underlying diluted EPS
Basic and diluted EPS
For the year ended 31 March
Profit attributable to the owners of the Company
Weighted average number of shares
Basic EPS – total Group
Diluted number of shares
Diluted EPS – total Group
£ million
£ million
£ million
Million
Pence
Million
Pence
£ million
Million
Pence
Million
Pence
2021
124.5
1.4
125.9
569.7
22.1
575.8
21.9
2021
124.5
569.7
21.9
575.8
21.6
2020
106.3
7.2
113.5
567.0
20.0
572.4
19.8
2020
106.3
567.0
18.7
572.4
18.6
11. Dividends
An analysis of the dividends paid and proposed in respect of the years ended 31 March 2021 and 31 March 2020 is provided below:
Interim 2021
Final 2021 (proposed)
Total for the year ended 31 March 2021
Interim 2020
Final 2020
Total for the year ended 31 March 2020
Pence
per share
2.2
4.7
6.9
Date paid/
£m
payable
12.6
Feb 2021
26.8 Aug 2021
39.4
2.2
4.4
6.6
Feb 2020
12.5
25.1 Nov 2020
37.6
The proposed final dividend in respect of the year ending 31 March 2021 will be paid on 26 August 2021. The ex-dividend date is 29 July
2021 and the record date is 30 July 2021.
138
138
QinetiQ Group plc
QinetiQ Group plc
Annual Report and Accounts 2021
Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87% Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87%
Notes to the Financial Statements continued
Financial Statements
12. Business combinations
Acquisitions in the year to 31 March 2021
All figures in £ million
Naimuri Limited
Inzpire Group Limited1
Less: cash acquired within Naimuri Limited
Total current year acquisitions
Prior year acquisitions
Newman & Spurr Consultancy Limited2
Net cash outflow in the year3
Contribution post-acquisition
Fair value
of net assets
acquired
13.6
Goodwill
(14.8)
Revenue
7.6
Operating
profit
1.8
(14.8)
13.6
7.6
1.8
Date
acquired
13 July 2020
Cash
consideration
28.4
3.9
(4.0)
28.3
0.2
28.5
1 Acquisition of remaining 15% of Inzpire Group Limited. An 85% shareholding was obtained in a prior year.
2 Additional consideration paid, due to final working capital adjustments, in respect of the prior year acquisition of Newman & Spurr Consultancy Limited.
3 Acquisition-related costs of £1.0m that were not directly attributable to the issue of shares are included as part of the specific adjusting items in other operating costs
excluding depreciation and amortisation in the statement of comprehensive income and in operating cash flows in the statement of cash flows (note 4).
Naimuri Limited (‘Naimuri’)
On 13 July 2020 the Group acquired 100% of the issued share capital of Naimuri for £28.4m (£24.4m net of cash acquired). Naimuri is a
leading software development and data analytics company, providing agile cloud-based services and technology to the UK Intelligence and
Law Enforcement communities. QinetiQ partners with Naimuri on several critical programmes and delivering mission-led innovation around
data-intensive challenges and will invest and build upon Naimuri’s strong capabilities in data analytics, data intelligence and agile software
development to meet customer needs and drive growth in both the security and defence sectors. Naimuri is reported in EMEA Services, within
the Cyber & Information business. If the acquisition had occurred on the first day of the financial year, Group revenue for the period would
have been £1,281.1m and the Group profit before tax would have been £146.8m.
Identifiable assets acquired and liabilities assumed
The following table summarises the recognised amounts of assets acquired and liabilities assumed at the date of acquisition and the
adjustments required to the book values of the assets and liabilities in order to present the net assets of these businesses at fair value and in
accordance with Group accounting policies. The fair values remain provisional, but will be finalised within 12 months of acquisition.
All figures in £ million
Intangible assets
Property, plant and equipment
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Lease liabilities
Corporation tax
Deferred tax liabilities
Net assets acquired
Goodwill
Total consideration
Note
15
16
18
14
Book
value
–
1.6
2.0
4.0
(1.3)
(1.3)
(0.5)
–
4.5
Fair value
adjustment
11.2
–
–
–
–
–
–
(2.1)
9.1
Fair value at
acquisition
11.2
1.6
2.0
4.0
(1.3)
(1.3)
(0.5)
(2.1)
13.6
14.8
28.4
The consideration of £28.4m was satisfied entirely in cash in the financial period, with no deferred consideration. The fair value adjustments
include £11.2m in relation to the recognition of acquired intangible assets of which £9.3m relates to customer relationships and £1.9m relates
to existing technology. The goodwill is attributable mainly to the skills and technical talent of the Naimuri work force and the synergies
expected to be achieved from integrating the company into the Group’s existing business.
13. Gain on business divestments
All figures in £ million
Boldon James business (comprising Boldon James Limited)
Commerce Decisions business (comprising Commerce Decisions Limited and Commerce Decisions Pty Ltd)
OptaSense business (comprising OptaSense Holdings Limited and subsidiary companies)
Gain on business divestments
2021
19.3
1.6
7.5
28.4
2020
–
–
–
––
The gain on business divestments relates to the sale of the Boldon James, Commerce Decisions and OptaSense businesses for an aggregate
consideration of £60.5m. Proceeds received in the period, net of transaction costs and £14.7m of cash divested, were £54.4m. Deferred
consideration of £1.5m, contingent on performance of the disposed business in the year to 31 March 2022, is receivable as at 31 March 2021
in respect of the Commerce Decisions disposal, the fair value of which has been estimated at £0.9m. All consideration is settled in cash.
Annual Report & Accounts 2021
139
QinetiQ Group plc
139
Annual Report and Accounts 2021
Notes to the Financial Statements continued QinetiQ Group plc Annual Report and Accounts 2021 133 Financial Statements Revenue by major customer type For the year ended 31 March ‘Other’ does not contain any customers with revenue in excess of 10% of total Group revenue. The following table shows the aggregate amount of revenue allocated to performance obligations that are unsatisfied (or partially satisfied) as at the end of the reporting period: Management expects that 27% (£800.5m) of revenue allocated to unsatisfied contracts as of 31 March 2021 will be recognised as revenue during the next reporting period. The following table shows the aggregate amount of revenue allocated to performance obligations that were unsatisfied (or partially satisfied) as at the end of the prior reporting period: Revenue of £144m was recognised during the year that was previously unrecognised as at the previous year end and reported as a contract liability. 3. Segmental analysis The analysis by business segment is presented in accordance with IFRS 8 Operating Segments, on the basis of those reportable segments whose operating results are regularly reviewed by the Board (the Chief Operating Decision Maker as defined by IFRS 8) and are aligned with the Group’s strategic direction, determined with reference to the products and services they provide, as follows: EMEA Services provides technical assurance, test and evaluation and training services, underpinned by long-term contracts. EMEA Services comprises the following business units which are not considered reportable segments as defined by IFRS 8: Maritime & Land; Air & Space, Cyber & Information and the International business. Global Products combines all other business units not aggregated within EMEA Services, including the QinetiQ US business, Space Products and EMEA Products (which includes QinetiQ Target Systems). Generally these business units (which are not considered reportable segments as defined by IFRS 8) deliver innovative solutions and products which includes contract-funded research and development and developing intellectual property in partnership with key customers and through internal funding with potential for new revenue streams. Operating segments 1 The measure of profit presented to the Chief Operating Decision Maker is operating profit stated before specific adjusting items (‘underlying operating profit’). The specific adjusting items are detailed in note 4. 2 Definitions of the Group’s ‘Alternative performance measures’ can be found in the glossary on page 183. No measure of segmental assets and liabilities is reported as this information is not regularly provided to the Chief Operating Decision Maker. All figures in £ million 2021 2020 UK government 794.6 667.2 US government 140.8 116.2 Other 342.8 289.5 Total revenue 1,278.2 1,072.9 All figures in £ million 2022 2023 2024 2025+ Total Total forecast revenue allocated to unsatisfied performance obligations 800.5 523.9 395.9 1,223.8 2,944.1 All figures in £ million 2021 2022 2023 2024+ Total Total forecast revenue allocated to unsatisfied performance obligations 849.3 484.9 375.5 1,395.2 3,104.9 2021 2020 All figures in £ million Revenue from external customers Underlying operating profit1 Revenue from external customers Underlying operating profit1 EMEA Services 939.9 118.6 797.4 100.6 Global Products 338.3 33.2 275.5 32.6 Total operating segments 1,278.2 151.8 1,072.9 133.2 Underlying operating margin2 11.9% 12.4% Financial Statements
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(cid:55)(cid:30)(cid:43)(cid:48)(cid:48)(cid:43)(cid:41)(cid:6)(cid:49)(cid:44)(cid:56)(cid:1)(cid:34)(cid:43)(cid:46)(cid:33)(cid:31)(cid:29)(cid:47)(cid:48)(cid:47)(cid:1)(cid:30)(cid:29)(cid:47)(cid:33)(cid:32)(cid:1)(cid:43)(cid:42)(cid:1)(cid:32)(cid:33)(cid:48)(cid:29)(cid:37)(cid:40)(cid:33)(cid:32)(cid:1)(cid:29)(cid:42)(cid:29)(cid:40)(cid:53)(cid:47)(cid:37)(cid:47)(cid:1)(cid:30)(cid:53)(cid:1)(cid:31)(cid:43)(cid:42)(cid:48)(cid:46)(cid:29)(cid:31)(cid:48)(cid:1)(cid:34)(cid:43)(cid:46)(cid:1)(cid:48)(cid:36)(cid:33)(cid:1)(cid:46)(cid:33)(cid:50)(cid:33)(cid:42)(cid:49)(cid:33)(cid:1)(cid:49)(cid:42)(cid:32)(cid:33)(cid:46)(cid:1)(cid:31)(cid:43)(cid:42)(cid:48)(cid:46)(cid:29)(cid:31)(cid:48)(cid:1)(cid:29)(cid:42)(cid:32)(cid:1)(cid:30)(cid:53)(cid:1)(cid:43)(cid:44)(cid:44)(cid:43)(cid:46)(cid:48)(cid:49)(cid:42)(cid:37)(cid:48)(cid:53)(cid:1)(cid:34)(cid:43)(cid:46)(cid:1)(cid:48)(cid:36)(cid:33)(cid:1)(cid:44)(cid:37)(cid:44)(cid:33)(cid:40)(cid:37)(cid:42)(cid:33)(cid:7)(cid:1)(cid:24)(cid:37)(cid:44)(cid:33)(cid:40)(cid:37)(cid:42)(cid:33)(cid:1)
(cid:43)(cid:44)(cid:44)(cid:43)(cid:46)(cid:48)(cid:49)(cid:42)(cid:37)(cid:48)(cid:37)(cid:33)(cid:47)(cid:1)(cid:29)(cid:46)(cid:33)(cid:1)(cid:31)(cid:29)(cid:48)(cid:33)(cid:35)(cid:43)(cid:46)(cid:37)(cid:47)(cid:33)(cid:32)(cid:1)(cid:29)(cid:47)(cid:1)(cid:55)(cid:30)(cid:29)(cid:47)(cid:33)(cid:1)(cid:31)(cid:29)(cid:47)(cid:33)(cid:56)(cid:1)(cid:29)(cid:42)(cid:32)(cid:1)(cid:55)(cid:36)(cid:37)(cid:35)(cid:36)(cid:1)(cid:31)(cid:29)(cid:47)(cid:33)(cid:56)(cid:1)(cid:30)(cid:53)(cid:1)(cid:41)(cid:29)(cid:42)(cid:29)(cid:35)(cid:33)(cid:41)(cid:33)(cid:42)(cid:48)(cid:1)(cid:29)(cid:42)(cid:32)(cid:1)(cid:43)(cid:42)(cid:40)(cid:53)(cid:1)(cid:55)(cid:30)(cid:29)(cid:47)(cid:33)(cid:1)(cid:31)(cid:29)(cid:47)(cid:33)(cid:56)(cid:1)(cid:43)(cid:44)(cid:44)(cid:43)(cid:46)(cid:48)(cid:49)(cid:42)(cid:37)(cid:48)(cid:37)(cid:33)(cid:47)(cid:1)(cid:29)(cid:46)(cid:33)(cid:1)(cid:37)(cid:42)(cid:31)(cid:40)(cid:49)(cid:32)(cid:33)(cid:32)(cid:1)(cid:37)(cid:42)(cid:1)(cid:48)(cid:36)(cid:33)(cid:1)(cid:34)(cid:37)(cid:42)(cid:29)(cid:42)(cid:31)(cid:37)(cid:29)(cid:40)(cid:1)
(cid:44)(cid:40)(cid:29)(cid:42)(cid:47)(cid:1)(cid:49)(cid:47)(cid:33)(cid:32)(cid:1)(cid:34)(cid:43)(cid:46)(cid:1)(cid:48)(cid:36)(cid:33)(cid:1)(cid:50)(cid:29)(cid:40)(cid:49)(cid:33)(cid:1)(cid:37)(cid:42)(cid:6)(cid:49)(cid:47)(cid:33)(cid:1)(cid:31)(cid:29)(cid:40)(cid:31)(cid:49)(cid:40)(cid:29)(cid:48)(cid:37)(cid:43)(cid:42)(cid:47)(cid:7)(cid:1)(cid:1)
(cid:17)(cid:29)(cid:47)(cid:36)(cid:1)(cid:34)(cid:40)(cid:43)(cid:51)(cid:47)(cid:1)(cid:34)(cid:43)(cid:46)(cid:1)(cid:44)(cid:33)(cid:46)(cid:37)(cid:43)(cid:32)(cid:47)(cid:1)(cid:30)(cid:33)(cid:53)(cid:43)(cid:42)(cid:32)(cid:1)(cid:48)(cid:36)(cid:33)(cid:47)(cid:33)(cid:1)(cid:44)(cid:33)(cid:46)(cid:37)(cid:43)(cid:32)(cid:47)(cid:1)(cid:29)(cid:46)(cid:33)(cid:1)(cid:33)(cid:52)(cid:48)(cid:46)(cid:29)(cid:44)(cid:43)(cid:40)(cid:29)(cid:48)(cid:33)(cid:32)(cid:1)(cid:30)(cid:29)(cid:47)(cid:33)(cid:32)(cid:1)(cid:43)(cid:42)(cid:1)(cid:48)(cid:36)(cid:33)(cid:1)(cid:40)(cid:29)(cid:47)(cid:48)(cid:1)(cid:53)(cid:33)(cid:29)(cid:46)(cid:1)(cid:43)(cid:34)(cid:1)(cid:48)(cid:36)(cid:33)(cid:1)(cid:44)(cid:40)(cid:29)(cid:42)(cid:47)(cid:5)(cid:1)(cid:51)(cid:37)(cid:48)(cid:36)(cid:1)(cid:29)(cid:1)(cid:48)(cid:33)(cid:46)(cid:41)(cid:37)(cid:42)(cid:29)(cid:40)(cid:1)(cid:35)(cid:46)(cid:43)(cid:51)(cid:48)(cid:36)(cid:6)(cid:46)(cid:29)(cid:48)(cid:33)(cid:1)(cid:29)(cid:47)(cid:47)(cid:49)(cid:41)(cid:44)(cid:48)(cid:37)(cid:43)(cid:42)(cid:1)
(cid:29)(cid:44)(cid:44)(cid:40)(cid:37)(cid:33)(cid:32)(cid:7)(cid:1)(cid:1)
(cid:1)
(cid:1)
140
(cid:6)(cid:7)(cid:5)(cid:1)
QinetiQ Group plc
(cid:8)(cid:16)(cid:19)(cid:13)(cid:24)(cid:16)(cid:8)(cid:1)(cid:6)(cid:22)(cid:20)(cid:25)(cid:21)(cid:1)(cid:21)(cid:17)(cid:11)(cid:1)
(cid:1)(cid:5)(cid:19)(cid:19)(cid:25)(cid:10)(cid:17)(cid:1)(cid:9)(cid:13)(cid:21)(cid:20)(cid:22)(cid:24)(cid:1)(cid:10)(cid:19)(cid:12)(cid:1)(cid:5)(cid:11)(cid:11)(cid:20)(cid:25)(cid:19)(cid:24)(cid:23)(cid:1)(cid:4)(cid:2)(cid:4)(cid:3)(cid:1)
Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87% Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87% Financial Statements
Notes to the Financial Statements continued
Terminal growth rates and discount rates
The specific plans for each of the CGUs have been extrapolated using the terminal growth rates as detailed below. Growth rates are based on
management’s estimates which take into consideration the long-term nature of the industry in which the CGUs operate and external forecasts
as to the likely growth of the industry in the longer term. The Group’s weighted average cost of capital was used as a basis in determining the
discount rate to be applied, adjusted for risks specific to the market characteristics of CGUs, as appropriate on a pre-tax basis. This is
considered an appropriate estimate of a market participant discount rate.
All figures %
2021: (2020)
Terminal growth rate
Pre-tax discount rate
QNA
Target
Systems
Space NV
MTEQ
Inzpire
Australia
QinetiQ
Germany
NSC
Naimuri
2.1 (2.1)
1.7 (1.8)
11.3 (11.3) 12.2 (10.2)
1.7 (1.8)
2.1 (2.1)
11.9 (9.8) 11.3 (11.3)
1.7 (1.8)
2.3 (2.3)
12.8 (11.3) 10.0 (10.0)
1.5 (1.5)
1.7 (1.8)
9.3 (8.7) 12.3 (10.3)
1.7 (N/A)
12.2 (N/A)
The value of the terminal year cash flow, the discount rate and the terminal growth rates have a significant impact on the value of the
discounted cash flow. Sensitivities are provided below for each of the significant CGUs.
Significant CGUs
QinetiQ North America (QNA)
The carrying value of the goodwill for the QNA CGU was £39.6m as at 31 March 2021 (2020: £43.9m). The recoverable amount of this CGU
as at 31 March 2021, based on value in use and calculated using the assumptions noted above, is higher than the carrying value of net
operating assets (of £94.3m). The key sensitivity impacting on the value in use calculations is the terminal year cash flows. These cash flows
include certain assumptions around growth of new product lines and the success of winning certain government contracts. An increase in
the discount rate by 1%, a decrease in the terminal growth rate by 1% or a decrease in the terminal year cash flows of £2.0m would not cause
the net operating assets to exceed their recoverable amount.
MTEQ
The carrying value of the goodwill for the MTEQ CGU as at 31 March 2021 was £33.0m (2020: £36.6m). The recoverable amount of this CGU
as at 31 March 2021, based on value in use and calculated using the assumptions noted above, is higher than the carrying value of net
operating assets (of £92.7m). The key sensitivity impacting on the value in use calculations is the terminal year cash flows. An increase in
the discount rate by 1%, a decrease in the terminal growth rate by 1% or a decrease in the terminal year cash flows of £2.0m would not cause
the net operating assets to exceed their recoverable amount.
Target Systems
The carrying value of the goodwill for the Target Systems CGU as at 31 March 2021 was £24.3m (2020: £24.2m). The recoverable amount
of this CGU as at 31 March 2021, based on value in use and calculated using the assumptions noted above, is higher than the carrying value
of net operating assets (of £100.2m). The key sensitivity impacting on the value in use calculations is the terminal year cash flows. An increase
in the discount rate by 1%, a decrease in the terminal growth rate by 1% or a decrease in the terminal year cash flows of £2.0m would not
cause the net operating assets to exceed their recoverable amount. COVID-19 had resulted in temporary closure of this businesses’
manufacturing site. This short-term impact on trading is not considered to have a significant impact on the long-term cash flows of this CGU.
Germany
The carrying value of the goodwill for the Germany CGU as at 31 March 2021 was £2.7m (2020: £28.7m). The reduction results from an
impairment of £25.4m in the year following a reduction in the value in use, calculated using the assumptions noted above. Our German
operations performed below expectations for orders, revenue, profit and cash flow in the year with some key contract losses during the year.
These contract losses have a knock-on impact for future years’ profitability and cash flow and hence a further impairment (following on from
a £4.3m impairment in the prior year) was required. Following a detailed review of the business’s current pipeline and assessing numerous
other variables, an impairment of £25.4m has been recognised in the current year. The key sensitivity impacting on the value in use calculations
is the terminal year cash flows. An increase in the discount rate by 1%, a decrease in the terminal growth rate by 1% or a decrease in the
terminal year cash flows of £2.0m would have increased the impairment charge by £5.1m, £3.9m and £20.4m respectively. Such a level of
incremental impairment would fully erode the residual carrying value of goodwill and require impairment of an element of the Germany CGU’s
£29.5m carrying value of acquisition-related intangible assets.
Inzpire
The carrying value of the goodwill for the Inzpire CGU as at 31 March 2021 was £11.7m (2020: £11.7m). The key sensitivity impacting on the
value in use calculations is the terminal year cash flows. An increase in the discount rate by 1%, a decrease in the terminal growth rate by 1%
or a decrease in the terminal year cash flows of £1.0m would not cause the net operating assets to exceed their recoverable amount.
Naimuri
The carrying value of the goodwill for the Naimuri CGU as at 31 March 2021 was £14.8m (2020: nil). The key sensitivity impacting on the
value in use calculations is the terminal year cash flows. An increase in the discount rate by 1%, a decrease in the terminal growth rate by
1% or a decrease in the terminal year cash flows of £2.0m would not cause the net operating assets to exceed their recoverable amount.
Annual Report & Accounts 2021
141
QinetiQ Group plc
141
Annual Report and Accounts 2021
Notes to the Financial Statements continued QinetiQ Group plc Annual Report and Accounts 2021 133 Financial Statements Revenue by major customer type For the year ended 31 March ‘Other’ does not contain any customers with revenue in excess of 10% of total Group revenue. The following table shows the aggregate amount of revenue allocated to performance obligations that are unsatisfied (or partially satisfied) as at the end of the reporting period: Management expects that 27% (£800.5m) of revenue allocated to unsatisfied contracts as of 31 March 2021 will be recognised as revenue during the next reporting period. The following table shows the aggregate amount of revenue allocated to performance obligations that were unsatisfied (or partially satisfied) as at the end of the prior reporting period: Revenue of £144m was recognised during the year that was previously unrecognised as at the previous year end and reported as a contract liability. 3. Segmental analysis The analysis by business segment is presented in accordance with IFRS 8 Operating Segments, on the basis of those reportable segments whose operating results are regularly reviewed by the Board (the Chief Operating Decision Maker as defined by IFRS 8) and are aligned with the Group’s strategic direction, determined with reference to the products and services they provide, as follows: EMEA Services provides technical assurance, test and evaluation and training services, underpinned by long-term contracts. EMEA Services comprises the following business units which are not considered reportable segments as defined by IFRS 8: Maritime & Land; Air & Space, Cyber & Information and the International business. Global Products combines all other business units not aggregated within EMEA Services, including the QinetiQ US business, Space Products and EMEA Products (which includes QinetiQ Target Systems). Generally these business units (which are not considered reportable segments as defined by IFRS 8) deliver innovative solutions and products which includes contract-funded research and development and developing intellectual property in partnership with key customers and through internal funding with potential for new revenue streams. Operating segments 1 The measure of profit presented to the Chief Operating Decision Maker is operating profit stated before specific adjusting items (‘underlying operating profit’). The specific adjusting items are detailed in note 4. 2 Definitions of the Group’s ‘Alternative performance measures’ can be found in the glossary on page 183. No measure of segmental assets and liabilities is reported as this information is not regularly provided to the Chief Operating Decision Maker. All figures in £ million 2021 2020 UK government 794.6 667.2 US government 140.8 116.2 Other 342.8 289.5 Total revenue 1,278.2 1,072.9 All figures in £ million 2022 2023 2024 2025+ Total Total forecast revenue allocated to unsatisfied performance obligations 800.5 523.9 395.9 1,223.8 2,944.1 All figures in £ million 2021 2022 2023 2024+ Total Total forecast revenue allocated to unsatisfied performance obligations 849.3 484.9 375.5 1,395.2 3,104.9 2021 2020 All figures in £ million Revenue from external customers Underlying operating profit1 Revenue from external customers Underlying operating profit1 EMEA Services 939.9 118.6 797.4 100.6 Global Products 338.3 33.2 275.5 32.6 Total operating segments 1,278.2 151.8 1,072.9 133.2 Underlying operating margin2 11.9% 12.4% Financial Statements
Notes to the Financial Statements
For the year ended 31 March
15. Intangible assets
For the year ended 31 March 2021
All figures in £ million
Cost
At 1 April 2020
Reclassifications from PPE
Reclassifications
Additions – internally developed*
Additions – purchased*
Additions – recognised on acquisition
Business divestments
Foreign exchange
At 31 March 2021
Accumulated amortisation and impairment
At 1 April 2020
Amortisation charge for year
Reclassifications
Business divestments
Foreign exchange
At 31 March 2021
Acquired intangibles
Customer
relationships
Development
costs
Other
intangibles^
Other
117.5
–
–
–
–
9.3
(8.9)
(5.4)
112.5
(44.4)
(7.7)
–
8.9
3.1
(40.1)
98.7
–
(2.5)
–
–
1.9
(9.0)
(6.3)
82.8
(63.8)
(3.2)
0.7
7.7
4.2
(54.4)
27.4
–
8.5
2.5
0.1
–
(10.3)
–
28.2
(21.6)
(2.4)
(0.9)
8.1
–
(16.8)
68.2
0.1
(6.0)
5.3
6.4
–
(12.1)
(0.9)
61.0
(43.1)
(2.3)
0.2
10.9
0.3
(34.0)
Total
311.8
0.1
–
7.8
6.5
11.2
(40.3)
(12.6)
284.5
(172.9)
(15.6)
–
35.6
7.6
(145.3)
Net book value at 31 March 2021
72.4
28.4
11.4
27.0
139.2
^ Includes Assets In Course Of Construction of closing net book value of £12.1m (2020: £14.4m)
* Additions per the table above are lower than the capital expenditure included in the cash flow statement due to the relative timing of cash payments compared to the
recognition of balance sheet assets
‘Other’ consists primarily of intellectual property and existing technology arising on acquisition of businesses. Significant individual assets
include: customer relationships associated with MTEQ, Germany and NSC (£16.6m; £25.5m; £3.7m respectively) with remaining amortisation
period of approximately 8.8 years, 11.2 years, 9.8 years respectively and acquired technology associated with MTEQ, Germany, and NSC
(£14.3m; £4.3m; £2.3m respectively) with remaining amortisation period of approximately 8.8 years, 8.5 years and 8.8 years respectively.
For the year ended 31 March 2020
All figures in £ million
Cost
At 1 April 2019
Reclassifications from PPE
Reclassifications
Additions – internally developed
Additions – purchased
Additions – recognised on acquisition
Foreign exchange
At 31 March 2020
Accumulated amortisation and impairment
At 1 April 2019
Amortisation charge for year
Foreign exchange
At 31 March 2020
Acquired intangibles
Customer
relationships
Development
costs
Other
intangibles^
Other
90.2
–
–
–
–
24.5
2.8
117.5
(38.4)
(5.3)
(0.7)
(44.4)
76.0
–
–
–
–
20.3
2.4
98.7
(59.5)
(2.2)
(2.1)
(63.8)
25.8
0.1
0.4
0.7
0.2
0.7
(0.5)
27.4
(20.6)
(1.4)
0.4
(21.6)
Total
244.3
0.3
–
8.7
5.4
45.5
7.6
311.8
52.3
0.2
(0.4)
8.0
5.2
–
2.9
68.2
(37.3)
(2.9)
(2.9)
(43.1)
(155.8)
(11.8)
(5.3)
(172.9)
Net book value at 31 March 2020
73.1
34.9
5.8
25.1
138.9
^ Includes Assets In Course Of Construction with net book value at 31 March 2020 of £14.4m.
142
142
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QinetiQ Group plc
Annual Report and Accounts 2021
Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87% Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87%
Notes to the Financial Statements continued
Financial Statements
16. Property, plant and equipment
For the year ended 31 March 2021
All figures in £ million
Cost
At 1 April 2020
Reclassifications to intangibles
Reclassifications/transfers
Additions – purchased*
Additions - recognised on acquisition
Disposals
Business divestments
Foreign exchange
At 31 March 2021
Accumulated depreciation and impairment
At 1 April 2020
Charge
Disposals
Business divestments
Impairment
Foreign exchange
At 31 March 2021
Owned assets
Right of use assets
Land and
buildings
Plant,
machinery
and vehicles
Computers
and office
equipment
Assets under
construction
Land and
buildings
Plant,
machinery
and vehicles
Computers
and office
equipment
325.6
–
19.8
11.0
0.1
(1.7)
(0.3)
(0.7)
353.8
(183.9)
(12.0)
1.7
0.3
(0.5)
0.6
(193.8)
264.2
–
10.0
8.9
0.2
(26.7)
(5.6)
(2.1)
248.9
(167.8)
(15.5)
26.2
4.7
–
1.6
(150.8)
70.5
–
13.9
5.8
0.1
(5.0)
(3.1)
(0.3)
81.9
(42.4)
(9.7)
4.9
2.9
–
0.3
(44.0)
84.6
(0.1)
(43.7)
36.7
–
(0.3)
–
(0.3)
76.9
–
–
–
–
–
–
–
Total
819.0
(0.1)
–
73.5
1.6
(39.5)
(13.8)
(7.1)
833.6
(443.4)
(45.6)
37.1
11.0
(0.5)
5.0
(436.4)
0.4
–
–
–
–
–
–
–
0.4
(0.3)
(0.1)
–
–
–
–
(0.4)
56.1
–
–
11.1
1.2
(5.5)
(4.8)
(3.3)
54.8
(36.6)
(5.6)
4.1
3.1
–
2.0
(33.0)
19.5
21.8
17.6
–
–
–
–
(0.3)
–
(0.4)
16.9
(12.4)
(2.7)
0.2
–
–
0.5
(14.4)
5.2
2.5
Opening net book value
141.7
96.4
28.1
84.6
Closing Net Book value
160.0
98.1
37.9
76.9
0.1
375.6
––
397.2
* Additions per the table above are higher than the capital expenditure included in the cash flow statement due to the relative timing of cash payments compared to the
recognition of balance sheet assets
For the year ended 31 March 2020
All figures in £ million
Cost
At 1 April 2019
Additions – purchased
Additions – recognised on acquisition
Reclassifications to intangibles
Reclassifications/transfers
Disposals
Foreign exchange
At 31 March 2020
Accumulated depreciation and impairment
At 1 April 2019
Charge for year
Impairment reversal
Disposals
Foreign exchange
At 31 March 2020
Owned assets
Land and
buildings
Plant,
machinery
and vehicles
Computers
and office
equipment
Assets under
construction
Land and
buildings
Right of use assets
Plant,
machinery
and vehicles
Computers
and office
equipment
306.9
8.1
0.8
–
9.6
–
0.2
325.6
(174.0)
(9.7)
–
–
(0.2)
(183.9)
237.2
16.6
0.7
–
10.3
(1.4)
0.8
264.2
(155.6)
(13.2)
0.4
1.4
(0.8)
(167.8)
62.9
2.1
–
–
7.2
(1.8)
0.1
70.5
(35.3)
(8.8)
–
1.8
(0.1)
(42.4)
53.4
58.6
–
(0.3)
(27.1)
–
–
84.6
–
–
–
–
–
–
56.6
1.0
2.5
–
–
(4.2)
0.2
56.1
(35.7)
(5.1)
–
4.2
–
(36.6)
15.7
3.0
–
–
–
(1.2)
0.1
17.6
(9.1)
(4.5)
–
1.2
–
(12.4)
0.4
–
–
–
–
–
–
0.4
(0.2)
(0.1)
–
–
–
(0.3)
Total
733.1
89.4
4.0
(0.3)
–
(8.6)
1.4
819.0
(409.9)
(41.4)
0.4
8.6
(1.1)
(443.4)
Net book value at 31 March 2020
141.7
96.4
28.1
84.6
19.5
5.2
0.1
375.6
Annual Report & Accounts 2021
143
QinetiQ Group plc
Annual Report and Accounts 2021
143
Notes to the Financial Statements continued QinetiQ Group plc Annual Report and Accounts 2021 133 Financial Statements Revenue by major customer type For the year ended 31 March ‘Other’ does not contain any customers with revenue in excess of 10% of total Group revenue. The following table shows the aggregate amount of revenue allocated to performance obligations that are unsatisfied (or partially satisfied) as at the end of the reporting period: Management expects that 27% (£800.5m) of revenue allocated to unsatisfied contracts as of 31 March 2021 will be recognised as revenue during the next reporting period. The following table shows the aggregate amount of revenue allocated to performance obligations that were unsatisfied (or partially satisfied) as at the end of the prior reporting period: Revenue of £144m was recognised during the year that was previously unrecognised as at the previous year end and reported as a contract liability. 3. Segmental analysis The analysis by business segment is presented in accordance with IFRS 8 Operating Segments, on the basis of those reportable segments whose operating results are regularly reviewed by the Board (the Chief Operating Decision Maker as defined by IFRS 8) and are aligned with the Group’s strategic direction, determined with reference to the products and services they provide, as follows: EMEA Services provides technical assurance, test and evaluation and training services, underpinned by long-term contracts. EMEA Services comprises the following business units which are not considered reportable segments as defined by IFRS 8: Maritime & Land; Air & Space, Cyber & Information and the International business. Global Products combines all other business units not aggregated within EMEA Services, including the QinetiQ US business, Space Products and EMEA Products (which includes QinetiQ Target Systems). Generally these business units (which are not considered reportable segments as defined by IFRS 8) deliver innovative solutions and products which includes contract-funded research and development and developing intellectual property in partnership with key customers and through internal funding with potential for new revenue streams. Operating segments 1 The measure of profit presented to the Chief Operating Decision Maker is operating profit stated before specific adjusting items (‘underlying operating profit’). The specific adjusting items are detailed in note 4. 2 Definitions of the Group’s ‘Alternative performance measures’ can be found in the glossary on page 183. No measure of segmental assets and liabilities is reported as this information is not regularly provided to the Chief Operating Decision Maker. All figures in £ million 2021 2020 UK government 794.6 667.2 US government 140.8 116.2 Other 342.8 289.5 Total revenue 1,278.2 1,072.9 All figures in £ million 2022 2023 2024 2025+ Total Total forecast revenue allocated to unsatisfied performance obligations 800.5 523.9 395.9 1,223.8 2,944.1 All figures in £ million 2021 2022 2023 2024+ Total Total forecast revenue allocated to unsatisfied performance obligations 849.3 484.9 375.5 1,395.2 3,104.9 2021 2020 All figures in £ million Revenue from external customers Underlying operating profit1 Revenue from external customers Underlying operating profit1 EMEA Services 939.9 118.6 797.4 100.6 Global Products 338.3 33.2 275.5 32.6 Total operating segments 1,278.2 151.8 1,072.9 133.2 Underlying operating margin2 11.9% 12.4% Financial Statements Notes to the Financial Statements
For the year ended 31 March
17. Equity accounted investments
As at 31 March
All figures in £ million
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets of joint ventures and associates
Net assets of joint ventures
Net assets of associate
Net assets of joint ventures and associates
JV’s and
associates
financial
results
0.7
12.9
13.6
(4.1)
(1.3)
(5.4)
8.2
2021
Group net
share of
JV’s and
associates
0.3
6.5
6.8
(2.0)
(0.6)
(2.6)
4.2
1.0
3.2
4.2
JV’s and
associates
financial
results
1.4
23.3
24.7
(15.9)
(2.0)
(17.9)
6.8
2020
Group net
share of
JV’s and
associates
0.7
11.3
12.0
(7.4)
(1.0)
(8.4)
3.6
0.8
2.8
3.6
During the year the Group sold a share of an investment in a middle-east joint venture for a gain of £0.3m.
18. Deferred tax
For the year ended 31 March 2021
Deferred tax asset
All figures in £ million
At 1 April 2020
(Charged)/credited to income statement
Credited to other comprehensive income
Credited to equity
Transferred to current tax
Eliminated on disposal of businesses
Reclassification
Foreign exchange
Gross deferred tax asset at 31 March 2021
Less: liability available for offset
Net deferred tax asset at 31 March 2021
Deferred tax liability
All figures in £ million
At 1 April 2020
(Charged)/credited to income statement
Credited to other comprehensive income
Acquired in business combination
Reclassification
Foreign exchange
Gross deferred tax liability at 31 March 2021
Less: asset available for offset
Net deferred tax liability at 31 March 2021
Intellectual
property
0.3
(0.1)
–
–
–
(0.2)
–
–
–
Short-term
timing
differences
15.6
(1.2)
1.0
0.5
(0.3)
–
(1.8)
(1.1)
12.7
Carried
forward
interest
expense
–
–
–
–
–
–
1.4
–
1.4
Lease
liabilities
–
–
–
–
–
–
5.1
–
5.1
Tax
losses
7.8
1.3
–
–
–
–
–
(0.6)
8.5
Owned
property,
plant &
equipment
(26.8)
(6.8)
–
–
–
0.1
(33.5)
Pension
surplus
(63.8)
(1.5)
19.8
–
–
–
(45.5)
Right of use
assets
–
–
–
–
(4.7)
–
(4.7)
Acquisition
intangibles
(21.1)
0.8
–
(2.1)
–
0.4
(22.0)
Total
23.7
–
1.0
0.5
(0.3)
(0.2)
4.7
(1.7)
27.7
(16.0)
11.7
Total
(111.7)
(7.5)
19.8
(2.1)
(4.7)
0.5
(105.7)
16.0
(89.7)
Deferred tax has been calculated at the rate at which the timing difference is expected to reverse using the enacted future statutory rates.
Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and where the
deferred tax balances relate to the same taxation authority. Deferred tax has been calculated using the enacted future statutory tax rates. To
provide additional information at the end of the period, various items have been reclassified out of short term timing differences as shown
above.
At 31 March 2021 the Group had unused tax losses and US carried forward interest expense of £73.2m (2020: £90.3m) which are available
for offset against future taxable profits. Deferred tax assets are recognised on the balance sheet of £8.4m (2020: £7.8m) in respect of £35.9m
(2020: £37.3m) of US net operating losses, £0.1m in respect of £0.5m of Canadian net operating losses and £1.4m (2020: £1.5m) in respect
144
144
QinetiQ Group plc
QinetiQ Group plc
Annual Report and Accounts 2021
Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87% Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87%
Financial Statements
Notes to the Financial Statements continued
of £5.2m (2020: £5.8m) of US carried forward interest expense. No deferred tax asset is recognised in respect of the remaining £31.6m
(2020: £47.2m) of losses/carried forward interest expense due to uncertainty over the timing and extent of their utilisation. Full recognition
of the remaining losses/interest would increase the deferred tax asset by £8.4m (2020: £12.2m). The Group has £29.1m (2020: £33.8m)
of time-limited US net operating losses of which £20.5m (2020: £22.8m) will expire in 2035, £8.6m (2020: £9.5m) in 2036 and £nil
(2020: £1.5m) in 2038.
There are no material temporary differences associated with investments in subsidiaries or interests in joint ventures for which deferred tax
liabilities have not been recognised.
For the year ended 31 March 2020
Deferred tax asset
All figures in £ million
At 1 April 2019
Adjustment for change in accounting policy
Restated opening balance
(Charged)/credited to income statement
Charged to equity
Charged to other comprehensive income
Transferred to current tax
Acquired in business combinations
Foreign exchange
Gross deferred tax asset at 31 March 2020
Less: liability available for offset
Net deferred tax asset at 31 March 2020
Deferred tax liability
All figures in £ million
At 1 April 2019
(Charged)/credited to income statement
Charged to other comprehensive income
Acquired in business combination
Foreign exchange
Gross deferred tax liability at 31 March 2020
Less: asset available for offset
Net deferred tax liability at 31 March 2020
19. Current tax
As at 31 March
All figures in £ million
Current tax receivable
Current tax payable
Net current tax payable
20. Inventories
As at 31 March
All figures in £ million
Raw materials
Work in progress
Finished goods
Total inventory
Intellectual
property
0.4
–
0.4
(0.1)
–
–
–
–
–
0.3
Short-term
timing
differences
14.0
0.4
14.4
3.7
(0.8)
(0.8)
(1.2)
0.1
0.2
15.6
Tax
losses
4.9
–
4.9
2.8
–
–
–
–
0.1
7.8
Owned
property,
plant and
equipment
(16.1)
(11.0)
–
–
0.3
(26.8)
Pension
surplus
(48.6)
(2.5)
(12.7)
–
–
(63.8)
Acquired
intangibles
(19.9)
0.2
–
(1.3)
(0.1)
(21.1)
Total
19.3
0.4
19.7
6.4
(0.8)
(0.8)
(1.2)
0.1
0.3
23.7
(10.4)
13.3
Total
(84.6)
(13.3)
(12.7)
(1.3)
0.2
(111.7)
10.4
(101.3)
2021
0.7
(3.8)
(3.1)
2020
0.2
(4.1)
(3.9)
2021
36.0
5.6
12.8
54.4
2020
27.7
9.0
15.6
52.3
The Naimuri business acquired in the year and the three businesses disposed in the year contributed a net £9.4m decrease in inventory
compared to prior year, with organic performance contributing to a more than offsetting increase.
Annual Report & Accounts 2021
145
QinetiQ Group plc
Annual Report and Accounts 2021
145
Notes to the Financial Statements continued QinetiQ Group plc Annual Report and Accounts 2021 133 Financial Statements Revenue by major customer type For the year ended 31 March ‘Other’ does not contain any customers with revenue in excess of 10% of total Group revenue. The following table shows the aggregate amount of revenue allocated to performance obligations that are unsatisfied (or partially satisfied) as at the end of the reporting period: Management expects that 27% (£800.5m) of revenue allocated to unsatisfied contracts as of 31 March 2021 will be recognised as revenue during the next reporting period. The following table shows the aggregate amount of revenue allocated to performance obligations that were unsatisfied (or partially satisfied) as at the end of the prior reporting period: Revenue of £144m was recognised during the year that was previously unrecognised as at the previous year end and reported as a contract liability. 3. Segmental analysis The analysis by business segment is presented in accordance with IFRS 8 Operating Segments, on the basis of those reportable segments whose operating results are regularly reviewed by the Board (the Chief Operating Decision Maker as defined by IFRS 8) and are aligned with the Group’s strategic direction, determined with reference to the products and services they provide, as follows: EMEA Services provides technical assurance, test and evaluation and training services, underpinned by long-term contracts. EMEA Services comprises the following business units which are not considered reportable segments as defined by IFRS 8: Maritime & Land; Air & Space, Cyber & Information and the International business. Global Products combines all other business units not aggregated within EMEA Services, including the QinetiQ US business, Space Products and EMEA Products (which includes QinetiQ Target Systems). Generally these business units (which are not considered reportable segments as defined by IFRS 8) deliver innovative solutions and products which includes contract-funded research and development and developing intellectual property in partnership with key customers and through internal funding with potential for new revenue streams. Operating segments 1 The measure of profit presented to the Chief Operating Decision Maker is operating profit stated before specific adjusting items (‘underlying operating profit’). The specific adjusting items are detailed in note 4. 2 Definitions of the Group’s ‘Alternative performance measures’ can be found in the glossary on page 183. No measure of segmental assets and liabilities is reported as this information is not regularly provided to the Chief Operating Decision Maker. All figures in £ million 2021 2020 UK government 794.6 667.2 US government 140.8 116.2 Other 342.8 289.5 Total revenue 1,278.2 1,072.9 All figures in £ million 2022 2023 2024 2025+ Total Total forecast revenue allocated to unsatisfied performance obligations 800.5 523.9 395.9 1,223.8 2,944.1 All figures in £ million 2021 2022 2023 2024+ Total Total forecast revenue allocated to unsatisfied performance obligations 849.3 484.9 375.5 1,395.2 3,104.9 2021 2020 All figures in £ million Revenue from external customers Underlying operating profit1 Revenue from external customers Underlying operating profit1 EMEA Services 939.9 118.6 797.4 100.6 Global Products 338.3 33.2 275.5 32.6 Total operating segments 1,278.2 151.8 1,072.9 133.2 Underlying operating margin2 11.9% 12.4% Financial Statements Notes to the Financial Statements
For the year ended 31 March
21. Trade and other receivables
As at 31 March
All figures in £ million
Trade receivables
Contract assets
Other receivables
Prepayments
Total trade and other receivables
2021
120.5
161.1
7.8
37.3
326.7
2020
105.0
103.8
11.3
29.9
250.0
Trade and other receivables includes assets that are realised as part of the business’s normal operating cycle, including amounts of £11.2m
that are not expected to be realised within 12 months of the year end. In determining the recoverability of trade receivables, the Group considers
any change in the credit quality of the trade receivable from the date credit was granted to the reporting date. Credit risk is limited as a result
of the high percentage of revenue derived from UK and US government agencies. Accordingly, the Directors believe that no credit provision in
excess of the allowance for doubtful debts is required. As at 31 March 2021 the Group carried a loss allowance in respect of expected credit
risk of £3.6m (2020: £3.1m).
Contract assets represents unbilled amounts recoverable under customer contracts (refer to accounting policies note 36). The Naimuri
business acquired in the year and the three businesses disposed in the year contributed a net £8.1m decrease in trade and other receivables
compared to prior year, with organic performance contributing to a more than offsetting increase.
Ageing of receivables and associated loss allowance for expected credit risk
As at 31 March 2021
Gross carrying amount - trade receivables (£m)
Gross carrying amount - contract assets (£m)
Expected loss rate (%)
Loss allowance (£m)
Movements in the provision for expected credit loss
All figures in £ million
At 1 April
Increase in loss allowance recognised in income statement
Unutilised amount reversed through income statement
Utilised (receivables written off)
Divestments
Foreign exchange
At 31 March
Current Up to 30 days
past due
10.7
–
–
–
98.5
161.1
0.7%
1.9
30-120 days
past due
11.9
–
0.8%
0.1
>120 days
past due
3.0
–
53.3%
1.6
Trade
receivables
3.1
1.4
(2.3)
(0.1)
(0.2)
(0.1)
1.8
2021
Contract
assets
–
1.8
–
–
–
–
1.8
Trade
receivables
1.2
2.2
(0.3)
–
–
–
3.1
Total
124.1
161.1
1.3%
3.6
2020
Contract
assets
–
–
–
–
–
–
–
The maximum exposure to credit risk in relation to trade and other receivables at the reporting date is the fair value of trade and other
receivables. The Group does not hold any collateral as security.
22. Trade and other payables
As at 31 March
All figures in £ million
Trade payables
Other tax and social security
Contract liabilities
Accrued expenses and other payables
Total current trade and other payables
Contract liabilities
Other payables
Total non-current trade and other payables
Total trade and other payables
146
146
QinetiQ Group plc
QinetiQ Group plc
Annual Report and Accounts 2021
2021
77.3
43.7
157.3
133.4
411.7
36.3
15.7
52.0
463.7
2020
65.0
37.6
143.9
133.3
379.8
2.7
22.6
25.3
405.1
Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87% Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87% Notes to the Financial Statements continued
The Naimuri business acquired in the year and the three businesses disposed in the year contributed a net £13.4m decrease in trade and
other payables compared to prior year, with organic performance contributing to a more than offsetting increase.
Financial Statements
23. Provisions
For the year ended 31 March 2021
All figures in £ million
At 1 April 2020
Created in year
Released in year
Unwind of discount
Utilised in year
At 31 March 2021
Current liability
Non-current liability
At 31 March 2021
Property
Other
8.1
1.8
(0.7)
0.2
(1.4)
8.0
1.6
6.4
8.0
3.4
2.1
(1.4)
–
(0.1)
4.0
2.6
1.4
4.0
Total
11.5
3.9
(2.1)
0.2
(1.5)
12.0
4.2
7.8
12.0
Property provisions relate to under-utilised properties in the UK. The extent of the provision is affected by the timing of when properties can
be sub-let and the proportion of space that can be sub-let. Based on current assessment the provision will be utilised within 7 years.
Other provisions relate to a variety of liabilities, the magnitude and timing of utilisation of which are determined by a variety of factors.
24. Net cash
As at 31 March
All figures in £ million
Current financial assets/(liabilities)
Deferred financing costs
Lease liabilities
Derivative financial instruments
Total current financial assets/(liabilities)
Non-current assets/(liabilities)
Deferred financing costs
Lease liabilities
Derivative financial instruments
Total non-current financial assets/(liabilities)
Total financial assets/(liabilities)
Cash
Cash equivalents
Total cash and cash equivalents
Total net cash as defined by the Group
Assets
Liabilities
Assets
Liabilities
2021
Net
0.4
(6.9)
0.4
(6.1)
0.8
(19.8)
(0.9)
(19.9)
–
(6.9)
(0.1)
(7.0)
–
(19.8)
(0.9)
(20.7)
0.4
–
0.5
0.9
0.8
–
–
0.8
1.7
2020
Net
0.4
(8.6)
6.0
(2.2)
0.9
(19.3)
(0.5)
(18.9)
–
(8.6)
(0.3)
(8.9)
–
(19.3)
(0.6)
(19.9)
0.4
–
6.3
6.7
0.9
–
0.1
1.0
7.7
(27.7)
(26.0)
(28.8)
(21.1)
57.0
133.1
190.1
–
–
–
57.0
133.1
190.1
164.1
48.8
57.0
105.8
–
–
–
48.8
57.0
105.8
84.7
At 31 March 2021 the Group held £5.6m (2020: £3.7m) of cash which is restricted in its use.
Annual Report & Accounts 2021
147
QinetiQ Group plc
147
Annual Report and Accounts 2021
Notes to the Financial Statements continued QinetiQ Group plc Annual Report and Accounts 2021 133 Financial Statements Revenue by major customer type For the year ended 31 March ‘Other’ does not contain any customers with revenue in excess of 10% of total Group revenue. The following table shows the aggregate amount of revenue allocated to performance obligations that are unsatisfied (or partially satisfied) as at the end of the reporting period: Management expects that 27% (£800.5m) of revenue allocated to unsatisfied contracts as of 31 March 2021 will be recognised as revenue during the next reporting period. The following table shows the aggregate amount of revenue allocated to performance obligations that were unsatisfied (or partially satisfied) as at the end of the prior reporting period: Revenue of £144m was recognised during the year that was previously unrecognised as at the previous year end and reported as a contract liability. 3. Segmental analysis The analysis by business segment is presented in accordance with IFRS 8 Operating Segments, on the basis of those reportable segments whose operating results are regularly reviewed by the Board (the Chief Operating Decision Maker as defined by IFRS 8) and are aligned with the Group’s strategic direction, determined with reference to the products and services they provide, as follows: EMEA Services provides technical assurance, test and evaluation and training services, underpinned by long-term contracts. EMEA Services comprises the following business units which are not considered reportable segments as defined by IFRS 8: Maritime & Land; Air & Space, Cyber & Information and the International business. Global Products combines all other business units not aggregated within EMEA Services, including the QinetiQ US business, Space Products and EMEA Products (which includes QinetiQ Target Systems). Generally these business units (which are not considered reportable segments as defined by IFRS 8) deliver innovative solutions and products which includes contract-funded research and development and developing intellectual property in partnership with key customers and through internal funding with potential for new revenue streams. Operating segments 1 The measure of profit presented to the Chief Operating Decision Maker is operating profit stated before specific adjusting items (‘underlying operating profit’). The specific adjusting items are detailed in note 4. 2 Definitions of the Group’s ‘Alternative performance measures’ can be found in the glossary on page 183. No measure of segmental assets and liabilities is reported as this information is not regularly provided to the Chief Operating Decision Maker. All figures in £ million 2021 2020 UK government 794.6 667.2 US government 140.8 116.2 Other 342.8 289.5 Total revenue 1,278.2 1,072.9 All figures in £ million 2022 2023 2024 2025+ Total Total forecast revenue allocated to unsatisfied performance obligations 800.5 523.9 395.9 1,223.8 2,944.1 All figures in £ million 2021 2022 2023 2024+ Total Total forecast revenue allocated to unsatisfied performance obligations 849.3 484.9 375.5 1,395.2 3,104.9 2021 2020 All figures in £ million Revenue from external customers Underlying operating profit1 Revenue from external customers Underlying operating profit1 EMEA Services 939.9 118.6 797.4 100.6 Global Products 338.3 33.2 275.5 32.6 Total operating segments 1,278.2 151.8 1,072.9 133.2 Underlying operating margin2 11.9% 12.4% Financial Statements
Notes to the Financial Statements
For the year ended 31 March
25. Cash flows from operations
For the year ended 31 March
All figures in £ million
Profit after tax for the year
Adjustments for:
Taxation expense
Net finance income
Gain on disposal of businesses
Gain on disposal of investment
Gain on sale of property
Impairment charge/(reversal) in respect of property, plant and equipment
Impairment of goodwill
Acquisition related remuneration costs not paid as at year end
Amortisation of purchased or internally developed intangible assets
Amortisation of intangible assets arising from acquisitions
Depreciation of property, plant and equipment
Loss/(profit) on disposal of plant and equipment
Share of post-tax (profit)/loss of equity accounted entities
Share-based payments charge
Retirement benefit contributions in excess of income statement expense
Net movement in provisions
Increase in inventories
Increase in receivables
Increase in payables
Changes in working capital
Net cash flow from operations
Reconciliation of net cash flow from operations to underlying net cash flow from operations to free cash flow
All figures in £ million
Net cash flow from operations
Add back specific adjusting item: acquisition integration costs
Add back specific adjusting item: acquisition transaction costs
Underlying net cash flow from operations
Add: proceeds from disposal of plant and equipment
Less: tax and net interest payments
Less: purchases of intangible assets and property, plant and equipment
Free cash flow
Underlying cash conversion ratio
All figures in £ million
Underlying operating profit – £ million
Underlying net cash flow from operations – £ million
Underlying cash conversion ratio – %
2021
124.7
21.5
(5.2)
(28.4)
(0.3)
(0.1)
0.5
25.4
1.8
4.7
10.9
45.6
1.0
(0.7)
10.6
(1.6)
0.3
210.7
(4.6)
(97.3)
89.2
((1122..77))
2020
106.5
16.6
(5.5)
–
–
(14.0)
(0.4)
14.1
0.5
4.3
7.5
41.4
(1.6)
0.7
7.4
(4.3)
(5.4)
167.8
(11.3)
(25.5)
35.5
((11..33))
198.0
166.5
2021
198.0
–
1.0
199.0
–
(16.4)
(79.5)
103.1
2021
151.8
199.0
131%
2020
166.5
3.8
7.5
177.8
1.6
(10.5)
(109.4)
59.5
2020
133.2
177.8
133%
148
148
QinetiQ Group plc
QinetiQ Group plc
Annual Report and Accounts 2021
Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87% Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87%
Notes to the Financial Statements continued
Financial Statements
26. Leases
Group as a lessor
The Group receives rental income on certain properties. Primarily these are properties partially occupied by Group companies, with vacant
space sub-let to third-party tenants. The Group had contracted with tenants for the following future minimum lease payments:
All figures in £ million
Within one year
In the second to fifth years inclusive
Greater than five years
Total future minimum lease payments
Group as a lessee
Amounts recognised in the balance sheet
The balance sheet shows the following amounts relating to leases:
Right-of-use assets (included within Property, Plant & Equipment – see note 16)
All figures in £ million
Land and buildings
Plant, machinery and vehicles
Computers and office equipment
Total right of use assets net book value
Lease liabilities (included within Net cash – see note 24)
All figures in £ million
Current
Non-current
Total lease liabilities
2021
5.7
9.3
2.4
17.4
2021
21.8
2.5
–
24.3
2021
6.9
19.8
2266..77
2020
5.2
10.2
2.7
18.1
2020
19.5
5.2
0.1
24.8
2020
8.6
19.3
27.9
Additions to the right-of-use assets during the 2021 financial year were £12.3m, including assets recognised on acquisition of £1.2m. The
total cash outflow for leases in 2021 was £9.5m.
Amounts recognised in the consolidated income statement
The consolidated income statement includes the following amounts relating to leases:
All figures in £ million
Depreciation charge
Land and buildings
Plant, machinery and vehicles
Computers and office equipment
Total depreciation charge
Interest expense (included in finance cost)
Expense relating to short-term leases (included in operating costs)
Expense relating to low value leases (included in operating costs)
Total lease and sub-lease expense charged to profit before tax
Minimum lease payment commitments
The Group has the following total future minimum lease payment commitments:
All figures in £ million
Within one year
In the second to fifth years inclusive
Greater than five years
Total future minimum lease payment commitments
2021
2020
5.6
2.7
0.1
8.4
1.0
1.1
0.2
10.7
2021
6.9
15.6
4.2
26.7
5.1
4.5
0.1
9.7
1.0
1.6
–
12.3
2020
8.6
17.8
1.5
27.9
Lease payments represent capital and interest payable by the Group on certain property, plant and equipment. Principal leases are negotiated
for a term of approximately 10 years.
Annual Report & Accounts 2021
149
QinetiQ Group plc
149
Annual Report and Accounts 2021
Notes to the Financial Statements continued QinetiQ Group plc Annual Report and Accounts 2021 133 Financial Statements Revenue by major customer type For the year ended 31 March ‘Other’ does not contain any customers with revenue in excess of 10% of total Group revenue. The following table shows the aggregate amount of revenue allocated to performance obligations that are unsatisfied (or partially satisfied) as at the end of the reporting period: Management expects that 27% (£800.5m) of revenue allocated to unsatisfied contracts as of 31 March 2021 will be recognised as revenue during the next reporting period. The following table shows the aggregate amount of revenue allocated to performance obligations that were unsatisfied (or partially satisfied) as at the end of the prior reporting period: Revenue of £144m was recognised during the year that was previously unrecognised as at the previous year end and reported as a contract liability. 3. Segmental analysis The analysis by business segment is presented in accordance with IFRS 8 Operating Segments, on the basis of those reportable segments whose operating results are regularly reviewed by the Board (the Chief Operating Decision Maker as defined by IFRS 8) and are aligned with the Group’s strategic direction, determined with reference to the products and services they provide, as follows: EMEA Services provides technical assurance, test and evaluation and training services, underpinned by long-term contracts. EMEA Services comprises the following business units which are not considered reportable segments as defined by IFRS 8: Maritime & Land; Air & Space, Cyber & Information and the International business. Global Products combines all other business units not aggregated within EMEA Services, including the QinetiQ US business, Space Products and EMEA Products (which includes QinetiQ Target Systems). Generally these business units (which are not considered reportable segments as defined by IFRS 8) deliver innovative solutions and products which includes contract-funded research and development and developing intellectual property in partnership with key customers and through internal funding with potential for new revenue streams. Operating segments 1 The measure of profit presented to the Chief Operating Decision Maker is operating profit stated before specific adjusting items (‘underlying operating profit’). The specific adjusting items are detailed in note 4. 2 Definitions of the Group’s ‘Alternative performance measures’ can be found in the glossary on page 183. No measure of segmental assets and liabilities is reported as this information is not regularly provided to the Chief Operating Decision Maker. All figures in £ million 2021 2020 UK government 794.6 667.2 US government 140.8 116.2 Other 342.8 289.5 Total revenue 1,278.2 1,072.9 All figures in £ million 2022 2023 2024 2025+ Total Total forecast revenue allocated to unsatisfied performance obligations 800.5 523.9 395.9 1,223.8 2,944.1 All figures in £ million 2021 2022 2023 2024+ Total Total forecast revenue allocated to unsatisfied performance obligations 849.3 484.9 375.5 1,395.2 3,104.9 2021 2020 All figures in £ million Revenue from external customers Underlying operating profit1 Revenue from external customers Underlying operating profit1 EMEA Services 939.9 118.6 797.4 100.6 Global Products 338.3 33.2 275.5 32.6 Total operating segments 1,278.2 151.8 1,072.9 133.2 Underlying operating margin2 11.9% 12.4% Financial Statements
Notes to the Financial Statements
For the year ended 31 March
27. Financial risk management
The Group’s international operations expose it to financial risks that include the effects of changes in foreign exchange rates, interest rates,
credit risks and liquidity risks.
Treasury and risk management policies, which are set by the Board, specify guidelines on financial risks and the use of financial instruments
to manage risk. The instruments and techniques used to manage exposures include foreign currency derivatives. Group treasury monitors
financial risks and compliance with risk management policies during the year. There have been no changes in any risk management policies
during the year or since the year end. For details of the Group’s Treasury policy and management of financial instruments see ‘Additional
Financial Information’ on page 181.
A) Fair values of financial instruments
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
Level 1 – measured using quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 – measured using inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices). Level 2 derivatives comprise forward foreign exchange contracts which have been fair
valued using forward exchange rates that are quoted in an active market;
Level 3 – measured using inputs for the assets or liability that are not based on observable market data (i.e. unobservable inputs).
The following table presents the Group’s assets and liabilities that are measured at fair value as at 31 March 2021:
All figures in £ million
Assets
Current derivative financial instruments
Non-current derivative financial instruments
Financial instruments at fair value through profit or loss
Liabilities
Current derivative financial instruments
Non-current derivative financial instruments
Total
Note
Level 1
Level 2
Level 3
Total
24
24
13
24
24
–
–
–
–
–
–
0.5
–
–
(0.1)
(0.9)
(0.5)
–
–
0.9
–
–
0.9
0.5
–
0.9
(0.1)
(0.9)
0.4
The following table presents the Group’s assets and liabilities that are measured at fair value as at 31 March 2020:
All figures in £ million
Assets
Current derivative financial instruments
Non-current derivative financial instruments
Financial instruments at fair value through profit or loss
Liabilities
Current derivative financial instruments
Non-current derivative financial instruments
Total
Note
Level 1
Level 2
Level 3
Total
24
24
13
24
24
–
–
–
–
–
–
6.3
0.1
–
(0.3)
(0.6)
5.5
–
–
–
–
–
–
6.3
0.1
–
(0.3)
(0.6)
5.5
For cash and cash equivalents, trade and other receivables and bank and current borrowings, the fair value of the financial instruments
approximate to their carrying value as a result of the short maturity periods of these financial instruments. For trade and other receivables,
allowances are made within the carrying value for credit risk. For other financial instruments, the fair value is based on market value, where
available. Where market values are not available, the fair values have been calculated by discounting cash flows to net present value using
prevailing market-based interest rates translated at the year-end rates, except for unlisted fixed asset investments where fair value equals
carrying value. There have been no transfers between levels.
150
150
QinetiQ Group plc
QinetiQ Group plc
Annual Report and Accounts 2021
Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87% Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87%
Financial Statements
Notes to the Financial Statements continued
All financial assets and liabilities had a fair value that is identical to book value at 31 March 2021 and 31 March 2020. Detailed analysis is
provided in the following tables:
As at 31 March 2021
All figures in £ million
Financial assets
Non-current
Derivative financial instruments
Deferred financing costs
Current
Trade and other receivables (excluding prepayments)
Derivative financial instruments
Deferred financing costs
Cash and cash equivalents
Total financial assets
Financial liabilities
Non-current
Trade and other payables (excluding contract liabilities)
Derivative financial instruments
Lease liabilities
Current
Trade and other payables (excluding contract liabilities)
Derivative financial instruments
Lease liabilities
Total financial liabilities
Financial
assets at fair
value profit
and loss
Financial
assets at
amortised
cost
Financial
liabilities at
amortised
cost
Note
Derivatives
used as
hedges
Total
carrying
value
Total fair
value
24
24
21
24
24
24
22
24
22
24
–
–
–
–
–
190.1
190.1
–
–
–
–
–
–
–
–
0.8
289.4
–
0.4
–
290.6
–
–
–
–
–
–
–
–
–
–
–
–
–
––
(15.7)
–
(19.8)
(254.4)
–
(6.9)
(296.8)
–
–
–
0.5
–
–
0.5
–
(0.9)
–
–
(0.1)
–
(1.0)
–
0.8
289.4
0.5
0.4
190.1
481.2
(15.7)
(0.9)
(19.8)
(254.4)
(0.1)
(6.9)
(297.8)
–
0.8
289.4
0.5
0.4
190.1
481.2
(15.7)
(0.9)
(19.8)
(254.4)
(0.1)
(6.9)
(297.8)
Total
190.1
290.6
(296.8)
(0.5)
183.4
183.4
As at 31 March 2020
All figures in £ million
Financial assets
Non-current
Derivative financial instruments
Deferred financing costs
Current
Trade and other receivables (excluding prepayments)
Derivative financial instruments
Deferred financing costs
Cash and cash equivalents
Total financial assets
Financial liabilities
Non-current
Trade and other payables (excluding contract liabilities)
Derivative financial instruments
Lease liabilities
Current
Trade and other payables (excluding contract liabilities)
Derivative financial instruments
Lease liabilities
Total financial liabilities
Financial
assets at fair
value profit
and loss
Financial
assets at
amortised
cost
Financial
liabilities at
amortised
cost
Note
Derivatives
used as
hedges
Total
carrying
value
Total fair
value
24
24
21
24
24
24
22
24
22
24
–
–
–
–
–
105.8
105.8
–
–
–
–
–
–
–
–
0.9
220.1
–
0.4
–
221.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(22.6)
–
(19.3)
(235.9)
–
(8.6)
(286.4)
0.1
–
–
6.3
–
–
6.4
–
(0.6)
–
–
(0.3)
–
(0.9)
0.1
0.9
220.1
6.3
0.4
105.8
333.6
(22.6)
(0.6)
(19.3)
(235.9)
(0.3)
(8.6)
(287.3)
0.1
0.9
220.1
6.3
0.4
105.8
333.6
(22.6)
(0.6)
(19.3)
(235.9)
(0.3)
(8.6)
(287.3)
Total
105.8
221.4
(286.4)
5.5
46.3
46.3
Annual Report & Accounts 2021
151
QinetiQ Group plc
151
Annual Report and Accounts 2021
Notes to the Financial Statements continued QinetiQ Group plc Annual Report and Accounts 2021 133 Financial Statements Revenue by major customer type For the year ended 31 March ‘Other’ does not contain any customers with revenue in excess of 10% of total Group revenue. The following table shows the aggregate amount of revenue allocated to performance obligations that are unsatisfied (or partially satisfied) as at the end of the reporting period: Management expects that 27% (£800.5m) of revenue allocated to unsatisfied contracts as of 31 March 2021 will be recognised as revenue during the next reporting period. The following table shows the aggregate amount of revenue allocated to performance obligations that were unsatisfied (or partially satisfied) as at the end of the prior reporting period: Revenue of £144m was recognised during the year that was previously unrecognised as at the previous year end and reported as a contract liability. 3. Segmental analysis The analysis by business segment is presented in accordance with IFRS 8 Operating Segments, on the basis of those reportable segments whose operating results are regularly reviewed by the Board (the Chief Operating Decision Maker as defined by IFRS 8) and are aligned with the Group’s strategic direction, determined with reference to the products and services they provide, as follows: EMEA Services provides technical assurance, test and evaluation and training services, underpinned by long-term contracts. EMEA Services comprises the following business units which are not considered reportable segments as defined by IFRS 8: Maritime & Land; Air & Space, Cyber & Information and the International business. Global Products combines all other business units not aggregated within EMEA Services, including the QinetiQ US business, Space Products and EMEA Products (which includes QinetiQ Target Systems). Generally these business units (which are not considered reportable segments as defined by IFRS 8) deliver innovative solutions and products which includes contract-funded research and development and developing intellectual property in partnership with key customers and through internal funding with potential for new revenue streams. Operating segments 1 The measure of profit presented to the Chief Operating Decision Maker is operating profit stated before specific adjusting items (‘underlying operating profit’). The specific adjusting items are detailed in note 4. 2 Definitions of the Group’s ‘Alternative performance measures’ can be found in the glossary on page 183. No measure of segmental assets and liabilities is reported as this information is not regularly provided to the Chief Operating Decision Maker. All figures in £ million 2021 2020 UK government 794.6 667.2 US government 140.8 116.2 Other 342.8 289.5 Total revenue 1,278.2 1,072.9 All figures in £ million 2022 2023 2024 2025+ Total Total forecast revenue allocated to unsatisfied performance obligations 800.5 523.9 395.9 1,223.8 2,944.1 All figures in £ million 2021 2022 2023 2024+ Total Total forecast revenue allocated to unsatisfied performance obligations 849.3 484.9 375.5 1,395.2 3,104.9 2021 2020 All figures in £ million Revenue from external customers Underlying operating profit1 Revenue from external customers Underlying operating profit1 EMEA Services 939.9 118.6 797.4 100.6 Global Products 338.3 33.2 275.5 32.6 Total operating segments 1,278.2 151.8 1,072.9 133.2 Underlying operating margin2 11.9% 12.4% Financial Statements
Notes to the Financial Statements
For the year ended 31 March
27. Financial risk management (continued)
B) Interest rate risk
The Group operates an interest rate policy designed to optimise interest costs and to reduce volatility in reported earnings. The Group’s current
policy is to require rates to be fixed for 30%–80% of the level of borrowings, which is achieved primarily through fixed-rate borrowings. Where
there are significant changes in the level and/or structure of debt, policy permits borrowings to be 100% fixed, with regular Board reviews of
the appropriateness of this fixed percentage. At 31 March 2021 and 31 March 2020 the Group had no borrowings.
Financial assets/(liabilities)
As at 31 March 2021
All figures in £ million
Sterling
US dollar
Euro
Australian dollar
Other
Total
As at 31 March 2020
All figures in £ million
Sterling
US dollar
Euro
Australian dollar
Other
Total
Financial assets
Non-interest
bearing
0.5
–
–
–
–
0.5
Floating
155.4
14.7
6.6
9.3
4.1
190.1
Financial liabilities
Non-interest
bearing
(1.0)
–
–
–
–
(1.0)
Fixed or
capped
(7.8)
(15.2)
(2.1)
(1.3)
(0.3)
(26.7)
Financial assets
Financial liabilities
Floating
70.5
21.4
4.0
4.6
5.3
105.8
Non-interest
bearing
6.4
–
–
–
–
6.4
Fixed or
capped
(restated)*
(9.6)
(12.3)
(3.7)
(1.7)
(0.6)
(27.9)
Non-interest
bearing
(0.8)
–
–
–
–
(0.8)
* Amounts categorised under fixed or capped financial liabilities as Euro only has been restated to show a revised split across the currencies.
Floating-rate financial assets attract interest based on the relevant national LIBID equivalent. Floating-rate financial liabilities bear interest at
the relevant national LIBOR equivalent. Trade and other receivables/payables and deferred finance costs are excluded from this analysis.
Interest rate risk management
The revolving credit facility (note 27E) is floating-rate and undrawn as at 31 March 2021.
C) Currency risk
Transactional currency exposure
The Group is exposed to foreign currency risks arising from sales or purchases by businesses in currencies other than their functional currency.
It is Group policy that when such a sale or purchase is certain, the net foreign exchange exposure is hedged using forward foreign exchange
contracts. Hedge accounting documentation and effectiveness testing are undertaken for all the Group’s transactional hedge contracts.
The table below shows the Group’s currency exposures, being exposures on currency transactions that give rise to net currency gains and
losses recognised in the income statement. Such exposures comprise the monetary assets and liabilities of the Group that are not
denominated in the functional currency of the operating company involved.
Functional currency of the operating company
All figures in £ millions
31 March 2021 – Sterling
31 March 2020– Sterling
Net foreign currency monetary assets/(liabilities)
US$
7.1
(52.8)
Euro
3.3
(8.3)
A$
00..88
00..33
Other
23.8
(58.5)
Total
35.0
(119.3)
The amounts shown in the table take into account the effect of the forward contracts entered into to manage these currency exposures. The
Group enters into forward foreign currency contracts to hedge the currency exposures that arise on sales and purchases denominated in
foreign currencies, as the transaction occurs. The principal contract amounts of the outstanding forward currency contracts as at 31 March
2021 against Sterling are net US dollars sold of £67.3m (US$92.2m), net Euros bought £4.5m (€4.2m), net Canadian dollars sold £21.3m
(C$36.6m), net United Arab Emirate dirhams sold £3.4m (AED 17.0m), net Swiss Francs bought of £1.4m (CHF 1.7m), net Swedish Krona
bought of £6.0m (SEK 68.9m), net Norwegian Krona bought £0.2m (NOK 2.8m) and net Australian dollars bought £1.0m (A$ 1.8m).
152
152
QinetiQ Group plc
QinetiQ Group plc
Annual Report and Accounts 2021
Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87% Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87%
Financial Statements
Notes to the Financial Statements continued
Translational currency exposure
The Group has significant investments in overseas operations, particularly in the US. As a result, the Sterling value of the Group’s balance
sheet can be affected by movement in exchange rates. The Group does not hedge against translational currency exposure to overseas net
assets.
D) Financial credit risk
The Group is exposed to credit-related losses in the event of non-performance by counterparties to financial instruments, but does not currently
expect any counterparties to fail to meet their obligations. Credit risk is mitigated by a Board-approved policy of only selecting counterparties
with a strong investment grade long-term credit rating for cash deposits. In the normal course of business the Group operates notional cash
pooling systems, where a legal right of set-off applies.
The maximum credit-risk exposure in the event of other parties failing to perform their obligations under financial assets, excluding trade and
other receivables, totals £163.9m (2020: £112.2m). The Group held cash and cash equivalents of £190.1m at 31 March 2021 (2020:
£105.8m), which represents the maximum credit exposure on these assets. The cash and cash equivalents were held with different financial
institutions which were rated single A or better. Cash equivalents comprise £133.1m (2020: £56.9m) invested in AAA-rated money market
funds.
E) Liquidity risk
Borrowing facilities
As at 31 March 2021 the Group had a revolving credit facility (RCF) of £275.0m (2020: £275.0m). This facility, which is unutilised, has an
initial term of five years of which £65.0m will mature on 27 September 2024 and £210.0m will mature on 27 September 2025. Total available
funds, comprising the RCF and the Group’s freely available cash and cash equivalents, are shown in the table below:
As at 31 March 2021
Committed facilities
Freely available cash and cash equivalents
Available funds 31 March 2021
As at 31 March 2020
Committed facilities
Freely available cash and cash equivalents
Available funds 31 March 2020
Interest rate:
LIBOR plus
Total
£m
Drawn
£m
Undrawn
£m
0.53%
275.0
0.53%
275.0
–
–
275.0
184.5
459.5
275.0
102.1
377.1
Gross contractual cash flows for borrowings and other financial liabilities
The following are the contractual maturities of financial liabilities, including interest payments. The cash flows associated with derivatives that
are cash flow hedges are expected to have an impact on profit or loss in the periods shown.
As at 31 March 2021
All figures in £ million
Non-derivative financial liabilities
Trade and other payables (excluding contract liabilities)
Leases
Derivative financial liabilities
Forward foreign currency contracts – cash flow hedges
Total
As at 31 March 2020
All figures in £ million
Non-derivative financial liabilities
Trade and other payables (excluding contract liabilities)
Leases
Derivative financial liabilities
Forward foreign currency contracts – cash flow hedges
Total
Book value
Contractual
cash flows
1 year
or less
1–2 years
2–5 years
More than
5 years
(270.1)
(26.7)
(270.1)
(30.7)
(254.4)
(7.9)
(1.0)
(297.8)
(1.0)
(301.8)
(0.1)
(262.4)
(15.7)
(6.1)
(0.3)
(22.1)
–
(11.5)
(0.6)
(12.1)
–
(5.2)
–
(5.2)
Book value
Contractual
cash flows
1 year
or less
1–2 years
2–5 years
More than
5 years
(258.5)
(27.9)
(258.5)
(29.9)
(235.9)
(9.2)
(0.9)
(287.3)
(0.9)
(289.3)
(0.3)
(245.4)
(22.6)
(7.2)
(0.3)
(30.1)
–
(11.7)
(0.3)
(12.0)
–
(1.8)
–
(1.8)
Annual Report & Accounts 2021
153
QinetiQ Group plc
153
Annual Report and Accounts 2021
Notes to the Financial Statements continued QinetiQ Group plc Annual Report and Accounts 2021 133 Financial Statements Revenue by major customer type For the year ended 31 March ‘Other’ does not contain any customers with revenue in excess of 10% of total Group revenue. The following table shows the aggregate amount of revenue allocated to performance obligations that are unsatisfied (or partially satisfied) as at the end of the reporting period: Management expects that 27% (£800.5m) of revenue allocated to unsatisfied contracts as of 31 March 2021 will be recognised as revenue during the next reporting period. The following table shows the aggregate amount of revenue allocated to performance obligations that were unsatisfied (or partially satisfied) as at the end of the prior reporting period: Revenue of £144m was recognised during the year that was previously unrecognised as at the previous year end and reported as a contract liability. 3. Segmental analysis The analysis by business segment is presented in accordance with IFRS 8 Operating Segments, on the basis of those reportable segments whose operating results are regularly reviewed by the Board (the Chief Operating Decision Maker as defined by IFRS 8) and are aligned with the Group’s strategic direction, determined with reference to the products and services they provide, as follows: EMEA Services provides technical assurance, test and evaluation and training services, underpinned by long-term contracts. EMEA Services comprises the following business units which are not considered reportable segments as defined by IFRS 8: Maritime & Land; Air & Space, Cyber & Information and the International business. Global Products combines all other business units not aggregated within EMEA Services, including the QinetiQ US business, Space Products and EMEA Products (which includes QinetiQ Target Systems). Generally these business units (which are not considered reportable segments as defined by IFRS 8) deliver innovative solutions and products which includes contract-funded research and development and developing intellectual property in partnership with key customers and through internal funding with potential for new revenue streams. Operating segments 1 The measure of profit presented to the Chief Operating Decision Maker is operating profit stated before specific adjusting items (‘underlying operating profit’). The specific adjusting items are detailed in note 4. 2 Definitions of the Group’s ‘Alternative performance measures’ can be found in the glossary on page 183. No measure of segmental assets and liabilities is reported as this information is not regularly provided to the Chief Operating Decision Maker. All figures in £ million 2021 2020 UK government 794.6 667.2 US government 140.8 116.2 Other 342.8 289.5 Total revenue 1,278.2 1,072.9 All figures in £ million 2022 2023 2024 2025+ Total Total forecast revenue allocated to unsatisfied performance obligations 800.5 523.9 395.9 1,223.8 2,944.1 All figures in £ million 2021 2022 2023 2024+ Total Total forecast revenue allocated to unsatisfied performance obligations 849.3 484.9 375.5 1,395.2 3,104.9 2021 2020 All figures in £ million Revenue from external customers Underlying operating profit1 Revenue from external customers Underlying operating profit1 EMEA Services 939.9 118.6 797.4 100.6 Global Products 338.3 33.2 275.5 32.6 Total operating segments 1,278.2 151.8 1,072.9 133.2 Underlying operating margin2 11.9% 12.4% Financial Statements
Notes to the Financial Statements
For the year ended 31 March
27. Financial risk management (continued)
F) Derivative financial instruments
The Group has the following derivative financial instruments on the balance sheet, reported within the ‘Other financial assets’ line items.
As at 31 March
All figures in £ million
Forward foreign currency contracts – cash flow hedges
Derivative assets/(liabilities) at the end of the year
The maturity of these derivative financial instruments is as follows:
As at 31 March
All figures in £ million
Expected to be recognised:
In one year or less
Between one and two years
More than two years
Derivative assets/(liabilities) at the end of the year
G) Maturity of financial liabilities
The contractual maturity of the Group’s financial liabilities is shown below:
As at 31 March 2021
Asset
gains
0.5
0.5
Liability
losses
(1.0)
(1.0)
Asset
gains
Liability
losses
0.5
–
–
0.5
(0.1)
(0.3)
(0.6)
(1.0)
2021
Net
(0.5)
(0.5)
2021
Net
0.4
(0.3)
(0.6)
(0.5)
Asset
gains
6.4
6.4
Liability
losses
(0.9)
(0.9)
Asset
gains
Liability
losses
6.3
0.1
–
6.4
(0.3)
(0.3)
(0.3)
(0.9)
2020
Net
5.5
5.5
2020
Net
6.0
(0.2)
(0.3)
5.5
All figures in £ million
Due in one year or less
Due in more than one year but not more than two years
Due in more than two years but not more than five years
Due in five years or more
Total
1 Excluding contract liabilities
As at 31 March 2020
All figures in £ million
Due in one year or less
Due in more than one year but not more than two years
Due in more than two years but not more than five years
Due in five years or more
Total
Derivative
financial
instruments
and lease
liabilities
7.0
5.7
10.8
4.1
27.6
Trade and
other
payables1
254.4
15.7
–
–
270.1
Total
261.4
21.4
10.8
4.1
297.7
Derivative
financial
instruments
and lease
liabilities
(restated)^
8.9
7.0
11.3
1.5
28.7
Trade and
other
payables1
235.9
22.6
–
–
258.5
Total
(restated)^
244.8
29.6
11.3
1.5
287.2
1 Excluding contract liabilities
^ The lease liabilities have been restated to reflect an amended maturity split whereby £11.0m has been reclassified from the 1-2yrs category into the 2-5yrs category and
>5yrs category.
154
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QinetiQ Group plc
Annual Report and Accounts 2021
Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87% Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87%
Financial Statements
Notes to the Financial Statements continued
H) Sensitivity analysis
The Group’s sensitivity to changes in foreign exchange rates and interest rates on financial assets and liabilities as at 31 March 2021 is set
out in the following table. The impact of a weakening in Sterling on the Group’s financial assets and liabilities would be more than offset
in equity and income by its impact on the Group’s overseas net assets and earnings respectively. Sensitivity on Group’s assets other than
financial assets and liabilities is not included in this analysis.
As at 31 March 2021
All figures in £ million
Sterling
US dollar
Other
All figures in £ million
Sterling
US dollar
Other
1% decrease in
interest rates
10% weakening
in Sterling
Profit before
tax
(1.6)
(0.1)
(0.2)
Equity1
–
–
–
Profit before
tax
–
–
–
Equity
–
4.4
10.2
1% increase in
interest rates
10% strengthening
in Sterling
Profit before
tax
1.6
0.1
0.2
Equity1
–
–
–
Profit before
tax
–
–
–
Equity
–
(3.7)
5.8
1 This relates to the impact on items charged directly to equity and excludes the impact on profit/loss for the year flowing into equity.
As at 31 March 2020
All figures in £ million
Sterling
US dollar
Other
All figures in £ million
Sterling
US dollar
Other
1% decrease in
interest rates
10% weakening
in Sterling
Profit before
tax
(0.7)
(0.2)
(0.1)
Equity1
–
–
–
Profit before
tax
–
–
–
Equity
–
2.9
11.6
1% increase in
interest rates
10% strengthening
in Sterling
Profit before
tax
0.7
0.2
0.1
Equity1
–
–
–
Profit before
tax
–
–
–
Equity
–
(2.4)
8.6
1 This relates to the impact on items charged directly to equity and excludes the impact on profit/loss for the year flowing into equity.
The amounts generated from the sensitivity analysis are forward-looking estimates of market risk assuming that certain market conditions
occur. Actual results in the future may differ materially from those projected as a result of developments in global financial markets that may
cause fluctuations in interest and exchange rates to vary from the hypothetical amounts disclosed in the previous tables, which should not,
therefore, be considered to be a projection of likely future events and losses.
The estimated changes for interest rate movements are based on an instantaneous decrease or increase of 1% (100 basis points) in the
specific rate of interest applicable to each class of financial instruments from the levels effective at 31 March 2021, with all other variables
remaining constant. The estimated changes for foreign exchange rates are based on an instantaneous 10% weakening or strengthening in
Sterling against all other currencies from the levels applicable at 31 March 2021, with all other variables remaining constant. Such analysis is
for illustrative purposes only – in practice market rates rarely change in isolation.
The impact of transactional risk on the Group’s monetary assets/liabilities that are not held in the functional currency of the entity holding
those assets/liabilities is minimal.
Annual Report & Accounts 2021
155
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155
Annual Report and Accounts 2021
Notes to the Financial Statements continued QinetiQ Group plc Annual Report and Accounts 2021 133 Financial Statements Revenue by major customer type For the year ended 31 March ‘Other’ does not contain any customers with revenue in excess of 10% of total Group revenue. The following table shows the aggregate amount of revenue allocated to performance obligations that are unsatisfied (or partially satisfied) as at the end of the reporting period: Management expects that 27% (£800.5m) of revenue allocated to unsatisfied contracts as of 31 March 2021 will be recognised as revenue during the next reporting period. The following table shows the aggregate amount of revenue allocated to performance obligations that were unsatisfied (or partially satisfied) as at the end of the prior reporting period: Revenue of £144m was recognised during the year that was previously unrecognised as at the previous year end and reported as a contract liability. 3. Segmental analysis The analysis by business segment is presented in accordance with IFRS 8 Operating Segments, on the basis of those reportable segments whose operating results are regularly reviewed by the Board (the Chief Operating Decision Maker as defined by IFRS 8) and are aligned with the Group’s strategic direction, determined with reference to the products and services they provide, as follows: EMEA Services provides technical assurance, test and evaluation and training services, underpinned by long-term contracts. EMEA Services comprises the following business units which are not considered reportable segments as defined by IFRS 8: Maritime & Land; Air & Space, Cyber & Information and the International business. Global Products combines all other business units not aggregated within EMEA Services, including the QinetiQ US business, Space Products and EMEA Products (which includes QinetiQ Target Systems). Generally these business units (which are not considered reportable segments as defined by IFRS 8) deliver innovative solutions and products which includes contract-funded research and development and developing intellectual property in partnership with key customers and through internal funding with potential for new revenue streams. Operating segments 1 The measure of profit presented to the Chief Operating Decision Maker is operating profit stated before specific adjusting items (‘underlying operating profit’). The specific adjusting items are detailed in note 4. 2 Definitions of the Group’s ‘Alternative performance measures’ can be found in the glossary on page 183. No measure of segmental assets and liabilities is reported as this information is not regularly provided to the Chief Operating Decision Maker. All figures in £ million 2021 2020 UK government 794.6 667.2 US government 140.8 116.2 Other 342.8 289.5 Total revenue 1,278.2 1,072.9 All figures in £ million 2022 2023 2024 2025+ Total Total forecast revenue allocated to unsatisfied performance obligations 800.5 523.9 395.9 1,223.8 2,944.1 All figures in £ million 2021 2022 2023 2024+ Total Total forecast revenue allocated to unsatisfied performance obligations 849.3 484.9 375.5 1,395.2 3,104.9 2021 2020 All figures in £ million Revenue from external customers Underlying operating profit1 Revenue from external customers Underlying operating profit1 EMEA Services 939.9 118.6 797.4 100.6 Global Products 338.3 33.2 275.5 32.6 Total operating segments 1,278.2 151.8 1,072.9 133.2 Underlying operating margin2 11.9% 12.4% Financial Statements
Notes to the Financial Statements
For the year ended 31 March
28. Post-retirement benefits
Defined contribution plans
In the UK the Group operates two defined contribution pension plans for the majority of its UK employees: a Group Personal Pension Plan
(GPP) and a defined contribution section of the QinetiQ Pension Scheme in accordance with auto-enrolment regulations. These are both
defined contribution schemes managed by Scottish Widows. With effect from 1st March 2021 contributions for both plans have been directed
to a new DC arrangement provided by the Mercer Master Trust. A defined contribution plan is a pension plan under which the Group and
employees pay fixed contributions to a third-party financial provider. The Group has no legal or constructive obligations to pay further
contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior
periods. The contributions are recognised as an employee benefit expense when they are due. The expense incurred during the year was
£45.5m (2020: £42.9m). Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future
payments is available.
Defined benefit pension plan
In the UK the Group operates the QinetiQ Pension Scheme (the Scheme) for approximately one quarter of its UK employees. The Scheme closed
to future accrual on 31 October 2013 and there is no on-going service cost. After this date, defined benefit members transferred to a defined
contribution section of the Scheme. The Scheme is a final salary plan, which provides benefits to members in the form of a guaranteed level of
pension payable for life.
The level of benefits provided depends on the members’ length of service and their final pensionable earnings at closure to future accrual. In
the Scheme, pensions in payment are generally updated in line with the Consumer Price Index (CPI). The benefit payments are made from
Trustee-administered funds.
Plan assets held in trusts are governed by UK regulations as is the nature of the relationship between the Group and the Trustees and their
composition. Responsibility for the governance of the Scheme – including investment decisions and contribution schedules – lies jointly with
the Company and the Board of Trustees. The Board of Trustees must be composed of representatives of the Company and plan participants
in accordance with the Scheme’s rules.
The asset recognised in the balance sheet in respect of the defined benefit pension plan is the fair value of plan assets less the present value
of the defined benefit obligation at the end of the reporting period. The defined benefit obligation is calculated bi-annually by independent
actuaries using the projected unit credit method. Future cash flows of the Scheme which are subject to inflation are calculated using a CPI
inflation assumption for the majority of the cash flows, with a small proportion of cash flows linked to RPI. IAS 19 requires the inflation
assumptions to be market-based assumptions, as opposed to being based on economic forecasts. A logical approach to setting the CPI
inflation assumption would be to simply use the Bank of England long-term CPI inflation target of 2.0%. However, this is not acceptable under
accounting standards and the current market data suggests that long-term CPI is significantly in excess of the Bank of England long-term
target. Hence, the liability calculated for recording on the balance sheet at year end is based on a higher market expectation of CPI. Additional
disclosure is provided (see following pages) to highlight the value of the liability (and the net surplus) if calculated using the Bank of England
long term target rate of inflation.
The present value of the defined benefit obligation is determined by discounting the estimated, inflated future cash outflows using interest
rates of high quality corporate bonds and that have terms to maturity approximating to the terms of the related pension obligation.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in
other comprehensive income in the period in which they arise.
The Group has no further payment obligations once the agreed contributions have been paid. The expected employer cash contribution to the
Scheme for the year ending 31 March 2022 is £2.9m.
Triennial funding valuation
The most recent completed full actuarial valuation of the Scheme was undertaken as at 30 June 2020 and resulted in an actuarially assessed
surplus of £176.5m (relative to the technical provisions i.e. the level of assets agreed by the Trustee and the Company as being appropriate
to meet member benefits, assuming the Scheme continues as a going concern). The next triennial valuation will be performed as at 30 June
2023. The agreed recovery plan requires £2.8m per annum (at 2021 prices) distributions to the Scheme until 31 March 2032, indexed by
reference to CPI. Such distributions are from the Group’s Pension Funding Limited Partnership.
QinetiQ’s Pension Funding Partnership (PFP) structure
On 26 March 2012 QinetiQ established the QinetiQ PFP Limited Partnership (the ‘Partnership’) with the Scheme. Under this arrangement,
properties to the capitalised value of £32.3m were transferred to the Partnership. The transfers were effected through a 20-year sale and
leaseback agreement. The Scheme’s interest in the Partnership entitles it to an annual distribution of approximately £2.5m (from 2012) for
20 years, indexed with reference to CPI. The Scheme’s interest in the Partnership will revert back to QinetiQ Limited in 2032.
The Partnership is controlled by QinetiQ and its results are consolidated by the Group. Under IAS 19, the interest held by the Scheme in the
Partnership does not qualify as a plan asset for the purposes of the Group’s consolidated financial statements and is, therefore, not included
within the fair value of plan assets. As a result, the Group’s consolidated financial statements are unchanged by the Partnership. In addition,
the value of the property transferred to the Partnership and leased back to QinetiQ remains on the balance sheet. QinetiQ retains the operational
156
156
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QinetiQ Group plc
Annual Report and Accounts 2021
Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87% Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87%
Financial Statements
Notes to the Financial Statements continued
flexibility to substitute properties of equivalent value within the Partnership and has the option to settle outstanding amounts due under the
interest before 2032 if it so chooses.
Other UK schemes
In the UK the Group has a small number of employees for whom benefits are secured through the Prudential Platinum Scheme (‘PPS’). The
PPS scheme is always fully funded and has a very small surplus at year end. QinetiQ also offers employees access to a Group Self Invested
Personal Pension Plan, but no Company contributions are paid to this arrangement.
Defined benefit pension plan (‘Scheme’) net pension asset
The Scheme is in a net asset position with the market value of assets in excess of the present value of Scheme liabilities. These have the
values set out below as at 31 March of each year end.
All figures in £ million
Total market value of assets – see table below for analysis by category of asset
Present value of Scheme liabilities
Net pension asset before deferred tax
Deferred tax liability
Net pension asset after deferred tax
2021
2,071.8
(1,857.5)
214.3
(45.5)
168.8
2020
1,912.3
(1,602.6)
309.7
(63.8)
245.9
The balance sheet net pension asset is a snapshot view which can be significantly influenced by short-term market factors. The calculation
of the net asset depends on factors which are beyond the control of the Group – principally the value at the balance sheet date of the various
categories of assets in which the Scheme has invested and long-term interest rates and inflation rates used to value the Scheme’s liabilities.
This is particularly pertinent during the COVID-19 pandemic whilst markets are extremely volatile. Sensitivities and risks are described on
pages 159 and 160.
Post year end pension buy-in transaction
Post year end (effective 30 April) the Scheme completed a bulk annuity insurance buy-in at a cost of £132.3m. This transaction has removed
longevity risk, interest rate risk, and inflation risk for approximately 8% of the Scheme and is in line with the Group's strategy of de-risking the
pension liabilities. This buy-in follows the Scheme’s first buy-in in 2019 which had already removed risk for approximately one-third of the
Scheme. As a result of the transaction, the accounting pension surplus recorded on the Group's balance sheet will reduce by an estimated
£25m with no related cash impact.
Total expense recognised in the income statement
All figures in £ million
Net finance income
Administrative expenses
Total net income recognised in the income statement (gross of deferred tax)
Movement in the net pension asset
The movement in the net pension asset (before deferred tax) is set out below:
All figures in £ million
Opening net pension asset
Net finance income
Net actuarial (loss)/gain
Administrative expenses
Contributions by the employer
Closing net pension asset
2021
7.1
(1.3)
5.8
2020
6.5
(1.2)
5.3
2021
309.7
7.1
(104.1)
(1.3)
2.9
214.3
2020
259.1
6.5
39.8
(1.2)
5.5
309.7
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Notes to the Financial Statements continued QinetiQ Group plc Annual Report and Accounts 2021 133 Financial Statements Revenue by major customer type For the year ended 31 March ‘Other’ does not contain any customers with revenue in excess of 10% of total Group revenue. The following table shows the aggregate amount of revenue allocated to performance obligations that are unsatisfied (or partially satisfied) as at the end of the reporting period: Management expects that 27% (£800.5m) of revenue allocated to unsatisfied contracts as of 31 March 2021 will be recognised as revenue during the next reporting period. The following table shows the aggregate amount of revenue allocated to performance obligations that were unsatisfied (or partially satisfied) as at the end of the prior reporting period: Revenue of £144m was recognised during the year that was previously unrecognised as at the previous year end and reported as a contract liability. 3. Segmental analysis The analysis by business segment is presented in accordance with IFRS 8 Operating Segments, on the basis of those reportable segments whose operating results are regularly reviewed by the Board (the Chief Operating Decision Maker as defined by IFRS 8) and are aligned with the Group’s strategic direction, determined with reference to the products and services they provide, as follows: EMEA Services provides technical assurance, test and evaluation and training services, underpinned by long-term contracts. EMEA Services comprises the following business units which are not considered reportable segments as defined by IFRS 8: Maritime & Land; Air & Space, Cyber & Information and the International business. Global Products combines all other business units not aggregated within EMEA Services, including the QinetiQ US business, Space Products and EMEA Products (which includes QinetiQ Target Systems). Generally these business units (which are not considered reportable segments as defined by IFRS 8) deliver innovative solutions and products which includes contract-funded research and development and developing intellectual property in partnership with key customers and through internal funding with potential for new revenue streams. Operating segments 1 The measure of profit presented to the Chief Operating Decision Maker is operating profit stated before specific adjusting items (‘underlying operating profit’). The specific adjusting items are detailed in note 4. 2 Definitions of the Group’s ‘Alternative performance measures’ can be found in the glossary on page 183. No measure of segmental assets and liabilities is reported as this information is not regularly provided to the Chief Operating Decision Maker. All figures in £ million 2021 2020 UK government 794.6 667.2 US government 140.8 116.2 Other 342.8 289.5 Total revenue 1,278.2 1,072.9 All figures in £ million 2022 2023 2024 2025+ Total Total forecast revenue allocated to unsatisfied performance obligations 800.5 523.9 395.9 1,223.8 2,944.1 All figures in £ million 2021 2022 2023 2024+ Total Total forecast revenue allocated to unsatisfied performance obligations 849.3 484.9 375.5 1,395.2 3,104.9 2021 2020 All figures in £ million Revenue from external customers Underlying operating profit1 Revenue from external customers Underlying operating profit1 EMEA Services 939.9 118.6 797.4 100.6 Global Products 338.3 33.2 275.5 32.6 Total operating segments 1,278.2 151.8 1,072.9 133.2 Underlying operating margin2 11.9% 12.4% Financial Statements
Notes to the Financial Statements
For the year ended 31 March
28. Post-retirement benefits (continued)
Fair value of Scheme assets by type of asset
The fair value of the QinetiQ Pension Scheme assets, which are not intended to be realised in the short term and may be subject to
significant changes before they are realised, were:
All figures in £ million
Equities
LDI investment
Asset backed security investments
Alternative bonds1
Corporate bonds2
Property funds3
Cash and cash equivalents
Insurance buy-in policy
Derivatives
Total market value of assets
Not quoted in
an active
market
47.4
–
–
–
98.0
76.6
49.3
588.0
(0.4)
858.9
Quoted
140.2
362.3
455.6
254.8
–
–
–
–
–
1,212.9
2021
Total
187.6
362.3
455.6
254.8
98.0
76.6
49.3
588.0
(0.4)
2,071.8
Not quoted in
an active
market
47.3
–
–
–
40.5
126.5
15.8
546.0
(5.1)
771.0
Quoted
113.5
347.5
465.0
215.3
–
–
–
–
–
1,141.3
2020
Total
160.8
347.5
465.0
215.3
40.5
126.5
15.8
546.0
(5.1)
1,912.3
1 Primarily private market debt investments
2 Unlisted corporate bonds with commercial property held as security
3 Valued by comparing with equivalent properties that have recently been transacted in the market
The Scheme’s assets do not include any of the Group’s own transferable financial instruments, property occupied by, or other assets used
by the Group.
The insurance policy obtained by the pension scheme can only be used to pay or fund employee benefits under the Company’s defined benefit
plan. It is not available to the Company’s own creditors and cannot be paid to another entity. These are the requirements of IAS 19 paragraph
7 and hence our determination is that the insurance policy is a qualifying insurance policy and requires classification as a plan asset. The
policy was issued by an insurer that is not a related party.
Per the Scheme rules the Company has an unconditional right to a refund of any surplus, assuming gradual settlement of all liabilities over
time. Such surplus may arise on cessation of the Scheme in the context of IFRIC 14 paragraphs 11(b) and 12 and therefore the full net
pension asset can be recognised on the Group’s balance sheet and the Group’s minimum funding commitments to the Scheme do not give
rise to an additional balance sheet liability.
Changes to the fair value of Scheme assets
All figures in £ million
Opening fair value of Scheme assets
Interest income on Scheme assets
Re-measurement gain/(loss) on Scheme assets
Contributions by the employer
Net benefits paid out and transfers
Administrative expenses
Closing fair value of Scheme assets
2021
1,912.3
43.5
158.8
2.9
(44.4)
(1.3)
2,071.8
2020
1,963.6
47.7
(61.2)
5.5
(42.1)
(1.2)
1,912.3
Changes to the present value of Scheme liabilities
The present value of the Scheme’s liabilities, which are derived from cash flow projections over long periods, and thus inherently uncertain,
were:
All figures in £ million
Opening present value of Scheme liabilities
Interest cost
Actuarial gain/(loss) on Scheme liabilities based on:
Change in demographic assumptions
Change in financial assumptions
Experience (losses)/gains
Net benefits paid out and transfers
Closing present value of Scheme liabilities
2021
2020
(1,602.6)
(36.4)
(1,704.5)
(41.2)
30.0
(269.6)
(23.3)
44.4
(1,857.5)
(2.3)
97.2
6.1
42.1
(1,602.6)
The net actuarial losses are primarily due to an increase in value of the financial assumption for inflation (see Assumptions section on the
following page).
158
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Annual Report and Accounts 2021
Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87% Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87% Notes to the Financial Statements continued
Assumptions
The major assumptions used in the IAS 19 valuation of the Scheme’s liabilities were:
All figures in £ million
Discount rate applied to Scheme liabilities
CPI inflation assumption
Assumed life expectancies in years:
Future male pensioners (currently aged 60)
Future female pensioners (currently aged 60)
Future male pensioners (currently aged 40)
Future female pensioners (currently aged 40)
Financial Statements
2021
2.10%
2.60%
2020
2.30%
1.90%
86.7
88.6
88.4
90.7
87.4
89.5
88.9
91.0
The assumptions used by the actuary are the best estimates chosen from a range of possible actuarial assumptions which, because of the
timescale covered, may not necessarily be borne out in practice. It is important to note that these assumptions are long term and, in the case
of the discount rate and the inflation rate, are measured by reference to external market indicators. The discount rate is based on observable
yields on corporate bonds but there is no direct, observable market rate for CPI. A ‘market approach’ to deriving CPI involves adjusting a
market-based RPI rate downward by an ‘inflation risk premium’ and an RPI-CPI adjustment factor (determined from relevant market yield
curves). This market-based approach is required by IAS 19 and results in a CPI inflation rate significantly in excess of the Bank of England
long term target and also in excess of a consensus view of CPI (based on surveys of economists). However, adopting an economic consensus
approach to setting CPI inflation is not acceptable under accounting standards. Noting that an economic consensus view may be a more
likely outcome than a market-based approach (which is currently impacted by significant uncertainty in respect of the UK Government’s RPI
reform) the table below sets out what the Scheme liability and net surplus would be if calculated using CPI inflation rates of 2.0% and 2.2%.
Present value of Scheme liabilities and net pension asset if calculated using different CPI inflation assumptions
All figures in £ million
Total market value of assets
Present value of Scheme liabilities
Net pension asset (before deferred tax)
CPI of 2.0%
CPI of 2.2%
2,071.8
(1,662.6)
409.2
2,071.8
(1,726.6)
345.2
The sensitivity of the Scheme liabilities to higher or lower inflation rate assumptions, along with sensitivities to the discount rate and life
expectancy assumptions is shown below.
The mortality assumptions as at 31 March 2021 were based on the S3 Normal Lives base tables, with various scaling factors based on sex
and status. Allowance was made for improvements in mortality in line with CMI_2020 Core Projections and a long-term rate of improvement
of 1.25% per annum.
The mortality assumptions as at 31 March 2020 were 90% of S2PMA for males and 90% of S2PFA for females, based on year of birth making
allowance for improvements in mortality in line with CMI_2019 Core Projections and a long-term rate of improvement of 1.5% per annum.
The funding of the Scheme is based on long-term trends and assumptions relating to market growth, as advised by qualified actuaries and
investment advisors. The weighted average duration of the defined benefit obligation is approximately 20 years.
Sensitivity analysis of the principal assumptions
Assumption
Discount rate
Rate of inflation
Life expectancy
Change in assumption
Increase/decrease by 0.1%
Increase/decrease by 0.1%
Increase by 1 year
Indicative impact on Scheme
liabilities (before deferred tax)
Decrease/increase by £33m
Increase/decrease by £32m
Increase by £62m
Indicative impact on
net pension asset
Decrease/increase by £11m
Increase/decrease by £8m
Decrease by £42m
The impact of movements in Scheme liabilities will, to an extent, be offset by movements in the value of Scheme assets as the Scheme has
assets invested in a Liability Driven Investment portfolio. As at 31 March 2021 this hedges against approximately 90% of the interest rate risk
and also 90% of the inflation rate risk, as measured on the Trustees’ gilt-funded basis.
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this
is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit
obligation to significant actuarial assumptions the same method (projected unit credit method) has been applied as when calculating
the pension liability recognised within the statement of financial position. The methods and types of assumption did not change.
Annual Report & Accounts 2021
159
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159
Annual Report and Accounts 2021
Notes to the Financial Statements continued QinetiQ Group plc Annual Report and Accounts 2021 133 Financial Statements Revenue by major customer type For the year ended 31 March ‘Other’ does not contain any customers with revenue in excess of 10% of total Group revenue. The following table shows the aggregate amount of revenue allocated to performance obligations that are unsatisfied (or partially satisfied) as at the end of the reporting period: Management expects that 27% (£800.5m) of revenue allocated to unsatisfied contracts as of 31 March 2021 will be recognised as revenue during the next reporting period. The following table shows the aggregate amount of revenue allocated to performance obligations that were unsatisfied (or partially satisfied) as at the end of the prior reporting period: Revenue of £144m was recognised during the year that was previously unrecognised as at the previous year end and reported as a contract liability. 3. Segmental analysis The analysis by business segment is presented in accordance with IFRS 8 Operating Segments, on the basis of those reportable segments whose operating results are regularly reviewed by the Board (the Chief Operating Decision Maker as defined by IFRS 8) and are aligned with the Group’s strategic direction, determined with reference to the products and services they provide, as follows: EMEA Services provides technical assurance, test and evaluation and training services, underpinned by long-term contracts. EMEA Services comprises the following business units which are not considered reportable segments as defined by IFRS 8: Maritime & Land; Air & Space, Cyber & Information and the International business. Global Products combines all other business units not aggregated within EMEA Services, including the QinetiQ US business, Space Products and EMEA Products (which includes QinetiQ Target Systems). Generally these business units (which are not considered reportable segments as defined by IFRS 8) deliver innovative solutions and products which includes contract-funded research and development and developing intellectual property in partnership with key customers and through internal funding with potential for new revenue streams. Operating segments 1 The measure of profit presented to the Chief Operating Decision Maker is operating profit stated before specific adjusting items (‘underlying operating profit’). The specific adjusting items are detailed in note 4. 2 Definitions of the Group’s ‘Alternative performance measures’ can be found in the glossary on page 183. No measure of segmental assets and liabilities is reported as this information is not regularly provided to the Chief Operating Decision Maker. All figures in £ million 2021 2020 UK government 794.6 667.2 US government 140.8 116.2 Other 342.8 289.5 Total revenue 1,278.2 1,072.9 All figures in £ million 2022 2023 2024 2025+ Total Total forecast revenue allocated to unsatisfied performance obligations 800.5 523.9 395.9 1,223.8 2,944.1 All figures in £ million 2021 2022 2023 2024+ Total Total forecast revenue allocated to unsatisfied performance obligations 849.3 484.9 375.5 1,395.2 3,104.9 2021 2020 All figures in £ million Revenue from external customers Underlying operating profit1 Revenue from external customers Underlying operating profit1 EMEA Services 939.9 118.6 797.4 100.6 Global Products 338.3 33.2 275.5 32.6 Total operating segments 1,278.2 151.8 1,072.9 133.2 Underlying operating margin2 11.9% 12.4% Financial Statements
Notes to the Financial Statements
For the year ended 31 March
28. Post-retirement benefits (continued)
In addition to the sensitivity of the liability side of the net pension asset (which will impact the value of the net pension asset) the net pension
asset is also exposed to significant variation due to changes in the fair value of Scheme assets. A specific sensitivity on assets has not been
included in the above table but any change in valuation of assets flows straight through to the value of the net pension asset e.g. if equities
fall by £10m then the net pension asset falls by £10m. The values of unquoted assets assume that an available buyer is willing to purchase
those assets at that value. For the Group’s portfolio of assets, the property portfolio of £76.6m, the unquoted corporate bonds of £98.0m and
the unquoted equities of £47.4m are the assets with most uncertainty as to valuation as at 31 March 2021.
Risks
Through its defined benefit pension plan, the Group is exposed to a number of risks, the most significant of which are detailed below:
Volatility in market conditions Results under IAS 19 can change dramatically depending on market conditions. The present value of Scheme liabilities
is linked to yields on AA-rated corporate bonds, while many of the assets of the Scheme are invested in various forms
of assets subject to fluctuating valuations. Changing markets in conjunction with discount rate volatility will lead to
volatility in the net pension asset on the Group’s balance sheet and in other comprehensive income. To a lesser extent
this will also lead to volatility in the IAS 19 pension net finance income in the Group’s income statement.
The calculation of the present value of Scheme liabilities involves projecting future cash flows from the Scheme many
years into the future. This means that the assumptions used can have a material impact on the balance sheet position
and profit and loss charge. In practice future experience within the Scheme may not be in line with the assumptions
adopted. For example, members could live longer than foreseen or inflation could be higher or lower than allowed for in
the calculation of the liabilities.
Choice of accounting
assumptions
The accounting assumptions noted above are used to calculate the year end net pension asset in accordance with the relevant accounting
standard, IAS 19 (revised) ‘Employee Benefits’. Changes in these assumptions have no impact on the Group’s cash payments into the
Scheme. The payments into the Scheme are reassessed after every triennial valuation. The triennial valuations are calculated on a funding
basis and use a different set of assumptions, as agreed with the pension Trustees. The key assumption that varies between the two methods
of valuation is the discount rate. The funding basis valuation uses the risk-free rate from UK gilts as the base for calculating the discount rate,
whilst the IAS 19 accounting basis valuation uses corporate bond yields as the base.
29. Share capital and other reserves
Shares allotted, called up and fully paid:
As at 1 April 2020
Issue of new shares
At 31 March 2021
Ordinary shares
of 1p each (equity)
Special Share
of £1 (non-equity)
Total
£
Number
5,717,571 571,757,121
2,500,000
5,742,571 574,257,121
25,000
£
1
–
1
Number
Number
£
571,757,122
1 5,717,572
–
2,500,000
25,000
1 5,742,572 574,257,122
Except as noted below all shares in issue at 31 March 2021 rank pari-passu in all respects.
Rights attaching to the Special Share
QinetiQ carries out activities which are important to UK defence and security interests. To protect these interests in the context of the ongoing
commercial relationship between the MOD and QinetiQ, and to promote and reinforce the Compliance Principles, the MOD holds a Special
Share in QinetiQ. QinetiQ obtained MOD consent to changes in its Special Shareholder rights, which were approved by shareholders at the
2012 AGM. The changes to the Special Share were disclosed in the 2012 Annual Report. Subsequent to the changes approved at the 2012
AGM the Special Share confers certain rights on the holder:
a)
b)
c)
to require the Group to implement and maintain the Compliance System (as defined in the Articles of Association) so as to make at all
times effective its and each member of QinetiQ Controlled Group’s application of the Compliance Principles, in a manner acceptable to
the Special Shareholder
to refer matters to the Board for its consideration in relation to the application of the Compliance Principles
to require the Board to obtain Special Shareholder’s consent:
i)
if at any time when the chairman is not a British citizen, it is proposed to appoint any person to the office of chief executive, who is
not a British citizen
if at any time when the chief executive is not a British citizen, it is proposed to appoint any person to the office of chairman, who is
not a British citizen
ii)
d)
e)
to require the Board to take action to rectify any omission in the application of the Compliance Principles, if the Special Shareholder is of
the opinion that such steps are necessary to protect the defence or security interests of the United Kingdom
to demand a poll at any of QinetiQ’s meetings (even though it may have no voting rights except those specifically set out in the Articles).
The Special Shareholder has an option to purchase defined Strategic Assets of the Group in certain circumstances. The Special Shareholder
has, inter alia, the right to purchase any Strategic Assets which the Group wishes to sell. Strategic Assets are normally testing and research
facilities (see note 31 for further details).
160
160
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QinetiQ Group plc
Annual Report and Accounts 2021
Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87% Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87%
Financial Statements
Notes to the Financial Statements continued
The Special Share may only be issued to, held by and transferred to HM Government (or as it directs). At any time the Special Shareholder
may require QinetiQ to redeem the Special Share at par. If QinetiQ is wound up the Special Shareholder will be entitled to be repaid the capital
paid up on the Special Share before other shareholders receive any payment. The Special Shareholder has no other right to share in the capital
or profits of QinetiQ.
The Special Shareholder must give consent to a general meeting held on short notice.
The Special Share entitles the Special Shareholder to require certain persons who hold (together with any person acting in concert with them)
a material interest in QinetiQ to dispose of some or all of their ordinary shares in certain prescribed circumstances on the grounds of national
security or conflict of interest.
The Directors must register any transfer of the Special Share within seven days.
Other reserves
The translation reserve includes the cumulative foreign exchange difference arising on translation since the Group transitioned to IFRS.
Movements on hedge instruments, where the hedge is effective, are recorded in the hedge reserve until the hedge ceases.
The capital redemption reserve, which was created following the redemption of preference share capital and the bonus issue of shares, cannot
be distributed.
Own shares
Own shares represent shares in the Company that are held by independent trusts and include treasury shares and shares held by the employee
share ownership plan. Included in retained earnings at 31 March 2021 are 5,020,832 shares (2020: 6,123,406 shares).
30. Share-based payments
The Group operates a number of share-based payment plans for employees. The total share-based payment expense in the year was £11.2m,
of which £11.2m related to equity-settled schemes and nil related to cash-settled schemes (2020: £7.5m, of which £7.5m related to equity-
settled schemes and nil to cash-settled schemes). The share-based payment charged to equity is £10.6m consisting of the £11.2m charge
to the income statement offset by a £0.4m charge to equity in respect of dividends accruing on unvested awards and £0.2m in respect of
cash payment of the Bonus Banking Plan (BBP).
Performance Share Plan (PSP)
During the year there were no further grants of PSP awards to employees as this scheme has been phased out. The awards vest after three
years with 50% of the awards subject to TSR conditions and 50% subject to EPS conditions as detailed in the Report from the Remuneration
Committee.
Outstanding at start of the year
Exercised during the year
Forfeited/lapsed during the year
Outstanding at end of the year
2021
2020
Number
Number
of shares
of shares
2,915,111
103,314
(40,347)
(800,356)
(62,967) (2,011,441)
103,314
–
PSP awards are equity-settled awards and have vested on 22 June 2020. There is no exercise price for these PSP awards. Monte Carlo
modelling was used to fair value the TSR element of the awards at grant date.
Group Share Incentive Plan (SIP)
Under the QinetiQ SIP the Group offers UK employees the opportunity of purchasing up to £150 worth of shares a month at the prevailing
market rate. The Group will make a matching share award of a third of the employee’s payment. The Group’s matching shares may be
forfeited if the employee ceases to be employed by QinetiQ within three years of the award of the shares. There is no exercise price for these
SIP awards.
Outstanding at start of the year
Awarded during the year
Exercised during the year
Forfeited during the year
Outstanding at end of the year
2021
Number of
matching
shares
746,645
300,420
(291,851)
(20,812)
734,402
2020
Number of
matching
shares
782,362
259,317
(251,278)
(43,756)
746,645
SIP matching shares are equity-settled awards; those outstanding at 31 March 2021 had an average remaining life of 1.5 years (2020: 1.5
years). There is no exercise price for these SIP awards. Of the shares outstanding at the end of the year nil were exercisable (2020: nil).
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161
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Annual Report and Accounts 2021
Notes to the Financial Statements continued QinetiQ Group plc Annual Report and Accounts 2021 133 Financial Statements Revenue by major customer type For the year ended 31 March ‘Other’ does not contain any customers with revenue in excess of 10% of total Group revenue. The following table shows the aggregate amount of revenue allocated to performance obligations that are unsatisfied (or partially satisfied) as at the end of the reporting period: Management expects that 27% (£800.5m) of revenue allocated to unsatisfied contracts as of 31 March 2021 will be recognised as revenue during the next reporting period. The following table shows the aggregate amount of revenue allocated to performance obligations that were unsatisfied (or partially satisfied) as at the end of the prior reporting period: Revenue of £144m was recognised during the year that was previously unrecognised as at the previous year end and reported as a contract liability. 3. Segmental analysis The analysis by business segment is presented in accordance with IFRS 8 Operating Segments, on the basis of those reportable segments whose operating results are regularly reviewed by the Board (the Chief Operating Decision Maker as defined by IFRS 8) and are aligned with the Group’s strategic direction, determined with reference to the products and services they provide, as follows: EMEA Services provides technical assurance, test and evaluation and training services, underpinned by long-term contracts. EMEA Services comprises the following business units which are not considered reportable segments as defined by IFRS 8: Maritime & Land; Air & Space, Cyber & Information and the International business. Global Products combines all other business units not aggregated within EMEA Services, including the QinetiQ US business, Space Products and EMEA Products (which includes QinetiQ Target Systems). Generally these business units (which are not considered reportable segments as defined by IFRS 8) deliver innovative solutions and products which includes contract-funded research and development and developing intellectual property in partnership with key customers and through internal funding with potential for new revenue streams. Operating segments 1 The measure of profit presented to the Chief Operating Decision Maker is operating profit stated before specific adjusting items (‘underlying operating profit’). The specific adjusting items are detailed in note 4. 2 Definitions of the Group’s ‘Alternative performance measures’ can be found in the glossary on page 183. No measure of segmental assets and liabilities is reported as this information is not regularly provided to the Chief Operating Decision Maker. All figures in £ million 2021 2020 UK government 794.6 667.2 US government 140.8 116.2 Other 342.8 289.5 Total revenue 1,278.2 1,072.9 All figures in £ million 2022 2023 2024 2025+ Total Total forecast revenue allocated to unsatisfied performance obligations 800.5 523.9 395.9 1,223.8 2,944.1 All figures in £ million 2021 2022 2023 2024+ Total Total forecast revenue allocated to unsatisfied performance obligations 849.3 484.9 375.5 1,395.2 3,104.9 2021 2020 All figures in £ million Revenue from external customers Underlying operating profit1 Revenue from external customers Underlying operating profit1 EMEA Services 939.9 118.6 797.4 100.6 Global Products 338.3 33.2 275.5 32.6 Total operating segments 1,278.2 151.8 1,072.9 133.2 Underlying operating margin2 11.9% 12.4% Financial Statements
Notes to the Financial Statements
For the year ended 31 March
30. Share-based payments (continued)
Bonus Banking Plan (BBP)
During the year the Group granted BBP awards to certain senior executives in the UK and US.
Outstanding at start of the year
Granted during the year
Exercised during the year
Forfeited/lapsed during the year
Outstanding at end of the year
2021
Number of
matching
shares
1,811,792
764,822
(595,978)
(37,781)
2020
Number of
matching
shares
1,431,672
679,920
(299,800)
–
1,942,855 1,811,792
The BBP is a remuneration scheme that runs in three-year performance cycles, with each cycle vesting over a four-year period. Under the BBP
a contribution will be made by the Company into the participant’s Plan account following the end of each Plan year. 50% of the value of a
participant’s Plan account will be paid out annually for three years with 100% of the residual value paid out at the end of year four. 50% of the
unpaid balance of a participant’s bonus account will be at risk of forfeiture. Refer to the Directors’ Remuneration Report for further details.
At 31 March 2021 the awards had an average remaining life of 1.2 years (2020: 1.2 years). There is no exercise price for these awards. The
fair value of the awards at 31 March 2021 was £3.22 (2020: £3.22) being the Group’s 30 day average on 31 March. Of the awards outstanding
at the end of the year nil were exercisable.
Deferred Share Plan (DSP)
During the year the Group granted DSP awards to certain employees.
Outstanding at start of the year
Difference between actual awards in year and amount provisionally awarded in prior year
Lapsed during the year
Exercised during the year
Provisionally awarded during the year
Outstanding at end of the year
Provisional awards outstanding
Awards outstanding
Outstanding at end of the year
2021
2020
Number of
Number of
awards
awards
4,758,085
4,881,077
368,558
–
(245,566)
(275,534)
–
(545,582)
2,701,401
–
6,761,362 4,881,077
2,701,401
–
4,881,077
4,059,961
6,761,362 4,881,077
Early in the financial year QinetiQ’s top 200 leaders are provisionally awarded contingent shares in the Company. The number of awards is
dependent on the Group’s performance during the year (specifically with respect to the level of non-UK revenue growth). This is provisionally
quantified at year end based on Group performance and also the number of eligible employees in employment as at 31 March. Actual awards
are made in the following June and the final number awarded will be slightly different to the number provisionally calculated. Awards are then
subject to a three-year vesting period and a further two-year holding period. Vesting of the awards is contingent upon Group operating profit
in the year prior to vesting being maintained at the level reported during the year prior to award. Refer to the Directors’ Remuneration Report
for further details.
At 31 March 2021 the awards had an average remaining life of 1.8 years (2020: 1.7 years). There is no exercise price for these awards. The
fair value of the DSP’s provisionally awarded at 31 March 2021 was £3.22 being the Group’s 30 day average on 31 March. The weighted
average share price at date of exercise was £3.09 (2020: nil). Of the awards outstanding at the end of the year nil were exercisable.
Restricted share plan (RSP)
During the year the Group granted RSP awards to certain senior executives in the UK.
Outstanding at start of the year
Granted during the year
Exercised during the year
Lapsed during the year
Outstanding at end of the year
2021
Number of
awards
71,355
145,257
(47,424)
(20,331)
148,857
2020
Number of
awards
44,014
47,291
(14,908)
(5,042)
71,355
At 31 March 2021 the awards had an average remaining life of 1.4 years (2020: 0.7 years). There is no exercise price for these awards. The
weighted average fair value of grants made during the year was £2.60 (2020: £3.03). The weighted average share price at date of exercise
was £2.90 (2020: £2.86). Of the options outstanding at the end of the year nil were exercisable (2020: nil).
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Annual Report and Accounts 2021
Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87% Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87%
Notes to the Financial Statements continued
Value Creation Plan (VCP)
During the year the Group granted awards under a new Value Creation Plan to certain senior executives in the US.
Outstanding at start of the year
Granted during the year
Exercised during the year
Lapsed during the year
Outstanding at end of the year
Financial Statements
2021
Number of
awards
–
335,848
–
–
335,848
2020
Number of
awards
–
–
–
–
––
At 31 March 2021 the awards had an average remaining life of 2.2 years. There is no exercise price for these awards. The weighted average
fair value of grants made during the year was £2.99. Of the options outstanding at the end of the year nil were exercisable.
High Performance Share Award (HPSA)
During the year, as one of eight initial measures in response to the COVID-19 pandemic, the senior leaders agreed to, on average, a temporary
base salary reduction of 15%. To both recognise the senior leaders for their sacrifice and to incentivise them to lead the Group through the
crisis as quickly and effectively as possible, the Group adopted a new award called High Performance Share Award (HPSA). The HPSA was
awarded in November 2020 as a ‘Thank Q’ to senior leaders for their sacrifice and enormous efforts to lead their teams out of unprecedented
crisis. The fair value of QinetiQ shares on grant date was £2.70 and the awards vest in June 2023. At 31 March 2021 the awards had an
average remaining life of 2.3 years. Of the awards outstanding at the end of the year nil were exercisable.
Outstanding at start of the year
Granted during the year
Exercised during the year
Lapsed during the year
Outstanding at end of the year
2021
Number of
awards
–
1,336,372
–
–
1,336,372
2020
Number of
awards
–
–
–
–
–
Inzpire acquisition incentives
During the year ended 31 March 2019, the Group granted 399,708 shares to 136 employees of Inzpire Limited as part of the acquisition deal.
The Group issued share-based payment awards to all Inzpire employees on 30 November 2018 which is the grant date. The fair value of
QinetiQ shares on grant date was £2.97 and the awards vested after two years on 30 November 2020 subject to continued employment at
the date of vesting.
Outstanding at start of the year
Granted during the year
Lapsed during the year
Exercised during the year
Outstanding at end of the year
2021
Number of
awards
343,265
–
(25,701)
(317,564)
–
2020
Number of
awards
399,708
–
(56,443)
–
343,265
Other performance incentives
During the year, as part of the Group’s COVID-19 response measures, the Group elected to settle the prior year outstanding bonuses via an
award of shares rather than the previously anticipated cash settlement. The fair value of QinetiQ shares on grant date was £3.07 and the
awards vested immediately on award.
Outstanding at start of the year
Granted during the year
Exercised during the year
Outstanding at end of the year
2021
Number of
awards
–
4,796,981
(4,796,981)
–
2020
Number of
awards
–
–
–
–
Valuation of share-based awards
Share-based awards that vest based on non-market performance conditions have been valued at the share price at grant date and are
equity-settled.
Annual Report & Accounts 2021
163
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163
Annual Report and Accounts 2021
Notes to the Financial Statements continued QinetiQ Group plc Annual Report and Accounts 2021 133 Financial Statements Revenue by major customer type For the year ended 31 March ‘Other’ does not contain any customers with revenue in excess of 10% of total Group revenue. The following table shows the aggregate amount of revenue allocated to performance obligations that are unsatisfied (or partially satisfied) as at the end of the reporting period: Management expects that 27% (£800.5m) of revenue allocated to unsatisfied contracts as of 31 March 2021 will be recognised as revenue during the next reporting period. The following table shows the aggregate amount of revenue allocated to performance obligations that were unsatisfied (or partially satisfied) as at the end of the prior reporting period: Revenue of £144m was recognised during the year that was previously unrecognised as at the previous year end and reported as a contract liability. 3. Segmental analysis The analysis by business segment is presented in accordance with IFRS 8 Operating Segments, on the basis of those reportable segments whose operating results are regularly reviewed by the Board (the Chief Operating Decision Maker as defined by IFRS 8) and are aligned with the Group’s strategic direction, determined with reference to the products and services they provide, as follows: EMEA Services provides technical assurance, test and evaluation and training services, underpinned by long-term contracts. EMEA Services comprises the following business units which are not considered reportable segments as defined by IFRS 8: Maritime & Land; Air & Space, Cyber & Information and the International business. Global Products combines all other business units not aggregated within EMEA Services, including the QinetiQ US business, Space Products and EMEA Products (which includes QinetiQ Target Systems). Generally these business units (which are not considered reportable segments as defined by IFRS 8) deliver innovative solutions and products which includes contract-funded research and development and developing intellectual property in partnership with key customers and through internal funding with potential for new revenue streams. Operating segments 1 The measure of profit presented to the Chief Operating Decision Maker is operating profit stated before specific adjusting items (‘underlying operating profit’). The specific adjusting items are detailed in note 4. 2 Definitions of the Group’s ‘Alternative performance measures’ can be found in the glossary on page 183. No measure of segmental assets and liabilities is reported as this information is not regularly provided to the Chief Operating Decision Maker. All figures in £ million 2021 2020 UK government 794.6 667.2 US government 140.8 116.2 Other 342.8 289.5 Total revenue 1,278.2 1,072.9 All figures in £ million 2022 2023 2024 2025+ Total Total forecast revenue allocated to unsatisfied performance obligations 800.5 523.9 395.9 1,223.8 2,944.1 All figures in £ million 2021 2022 2023 2024+ Total Total forecast revenue allocated to unsatisfied performance obligations 849.3 484.9 375.5 1,395.2 3,104.9 2021 2020 All figures in £ million Revenue from external customers Underlying operating profit1 Revenue from external customers Underlying operating profit1 EMEA Services 939.9 118.6 797.4 100.6 Global Products 338.3 33.2 275.5 32.6 Total operating segments 1,278.2 151.8 1,072.9 133.2 Underlying operating margin2 11.9% 12.4% Financial Statements
Notes to the Financial Statements
For the year ended 31 March
31. Transactions with the Ministry of Defence (MOD)
The MOD continues to own its Special Share in QinetiQ which conveys certain rights as set out in note 29. Transactions between the Group
and the MOD are disclosed as follows:
Freehold land and buildings and surplus properties
Under the terms of the Group’s acquisition of part of the business and certain assets of DERA from the MOD on 1 July 2001, the MOD
retained certain rights in respect of the freehold land and buildings transferred.
Restrictions on transfer of title
The title deeds of those properties with strategic assets (see below) include a clause that prevents their transfer without the approval of the
MOD. The MOD also has the right to purchase any strategic assets in certain circumstances.
MOD’s generic compliance regime
Adherence to the generic compliance system is monitored by the Risk & Security Committee. Refer to the Committee’s report within the
Corporate Governance Statement on page 94.
Strategic assets
Under the Principal Agreement with the MOD, the QinetiQ controlled Group is not permitted without the written consent of the MOD, to:
i)
ii)
dispose of or destroy all or any part of a strategic asset; or
voluntarily undertake any closure of, or cease to provide a strategic capability by means of, all or any part of a strategic asset.
The net book value of assets identified as being strategic assets as at 31 March 2021 was £3.0m (2020: £3.8m).
Long Term Partnering Agreement
On 27 February 2003 QinetiQ Limited entered into a Long Term Partnering Agreement (LTPA) to provide test and evaluation (T&E) facilities
and training support services to the MOD. This is a 25-year contract with a total revenue value of up to £5.6bn, dependent on the level of usage
by the MOD, under which QinetiQ Limited is committed to providing T&E services with increasing efficiencies through cost saving and
innovative service delivery. Following an amendment to the LTPA contract on 5 April 2019 this contract is no longer subject to re-pricing every
five years and is now contracted at a fixed price to 31 March 2028.
Other contracts with MOD
The LTPA is the most significant contract QinetiQ has with the MOD. In total approximately 57% (2020: 57%) of the Group’s revenue comes
directly from contracts with the MOD.
32. Contingent liabilities and assets
Subsidiary undertakings within the Group have given unsecured guarantees of £31.6m at 31 March 2021 (2020: £40.4m) in the ordinary
course of business, typically in respect of performance bonds and rental guarantees.
The Company has on occasion been required to take legal action to protect its intellectual property rights, to enforce commercial contracts
or otherwise and similarly to defend itself against proceedings brought by other parties, including in respect of environmental and regulatory
issues. Provisions are made for the expected costs associated with such matters, based on past experience of similar items and other known
factors, taking into account professional advice received, and represent management’s best estimate of the likely outcome. The timing of
utilisation of these provisions is uncertain pending the outcome of various court proceedings, ongoing investigations and negotiations.
However, no provision is made for proceedings which have been or might be brought by other parties unless management, taking into account
professional advice received, assesses that it is more likely than not that such proceedings may be successful. Contingent liabilities associated
with such proceedings have been identified but the Directors are of the opinion that any associated claims that might be brought can be
resisted successfully and therefore the possibility of any outflow in settlement is assessed as remote.
33. Capital commitments
The Group had the following capital commitments for which no provision has been made:
All figures in £ million
Total contracted
2021
33.0
2020
32.0
Capital commitments at 31 March 2021 include £25.3m (2020: £19.1m) in relation to property, plant and equipment that will be wholly funded
by a third-party customer under long-term contract arrangements. These primarily relate to investments under the LTPA contract.
34. Related parties
During the year ended 31 March 2021 there were sales to associates and joint ventures of £6.0m (2020: £5.7m). At the year-end there were
outstanding receivables from associates and joint ventures of £1.4m (2020: £2.1m).
164
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Annual Report and Accounts 2021
Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87% Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87%
Notes to the Financial Statements continued
Financial Statements
35. Subsidiaries and other related undertakings
In accordance with section 409 of the Companies Act 2006, a full list of subsidiaries and other related undertakings as at 31 March 2021 is
detailed below. Unless stated otherwise, the Group’s holding comprises ordinary shares which are held indirectly by QinetiQ Group plc, with
the exception of QinetiQ Group Holdings Limited which is held directly by QinetiQ Group plc.
Country of incorporation
Registered office
Name of company
Subsidiaries1
BJ Trustee Limited
cueSim Limited
Foster-Miller Canada Limited
Foster-Miller Inc2
Graphics Research Corporation Limited
Gyldan 11 Limited
Inzpire Group Limited1
Inzpire Holdings Limited1
Inzpire Limited1
Leading Technology Limited
Metrix UK Limited
Naimuri Limited
Newman & Spurr Consultancy Ltd
Precis (2187) Limited
Precis (2188) Limited
Qinetic Limited
QinetiQ Aerostructures Pty Ltd
QinetiQ Australia Pty Ltd
QinetiQ Consulting Pty Ltd
QinetiQ Estates Limited
QinetiQ GmbH
QinetiQ GP Limited
QinetiQ Group Canada Inc.2
QinetiQ Group Holdings Limited
QinetiQ Holdings Limited
QinetiQ Inc2,
QinetiQ Insurance PCC Limited
QinetiQ Limited
QinetiQ Novare Pty Ltd
QinetiQ Overseas Holdings Limited
QinetiQ Overseas Trading Limited
QinetiQ Pension Scheme Trustee Limited
QinetiQ PFP Limited Partnership5
QinetiQ Philippines Company, Inc
QinetiQ Space N.V.
QinetiQ Special Projects Inc
QinetiQ Sweden AB
QinetiQ Target Services Limited
QinetiQ Target Systems Limited
QinetiQ US Holdings, Inc.
Redu Operational Services S.A1
RubiKon Group Pty Limited
Sensoptics Limited
TSG International LLC
Associates3
Redu Space Services S.A
England & Wales
England & Wales
Canada
US
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Australia
Australia
Australia
England & Wales
Germany
Scotland
Canada
England & Wales
England & Wales
US
Guernsey
England & Wales
Australia
England & Wales
England & Wales
England & Wales
Scotland
Philippines
Belgium
US
Sweden
England & Wales
England & Wales
US
Belgium
Australia
England & Wales
US
QinetiQ Pty Ltd
QinetiQ Services Holdings Pty Ltd
QinetiQ Solutions Sdn. Bhd.
Australia
Australia
Malaysia
Farnborough4
Farnborough4
318 Roxton Drive, Waterloo, Ontario, N2T 1R6, Canada
350 2nd Avenue, Waltham, Massachusetts, MA 02451, USA
Farnborough4
Farnborough4
Farnborough4
Landmark House West, Unit 1b, Alpha Court, Kingsley Road, Lincoln,
Lincolnshire, LN6 3TA
Landmark House West, Unit 1b, Alpha Court, Kingsley Road, Lincoln,
Lincolnshire, LN6 3TA
Farnborough4
Farnborough4
Farnborough4
2 Meadows Business Park, Station Approach, Blackwater, Camberley,
Surrey GU17 9AB
Farnborough4
Farnborough4
Farnborough4
Level 3, 210 Kings Way, South Melbourne, VIC 3205, Australia
Level 3, 210 Kings Way, South Melbourne, VIC 3205, Australia
Level 3, 12 Brindabella Court, Brindabella Business Park, Majura ACT
2609.
Farnborough4
Flughafenstraße 65, 41066, Mönchengladbach, Germany
50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ, Scotland
5300 Commerce Court West, 199 Bay Street, Toronto ON M5L 1A9,
Canada
Farnborough4
Farnborough4
10440 Furnace Road, Suite 204, Lorton, VA 22079,, USA
Mill Court, La Charroterie, St Peter Port, GY1 4ET Guernsey
Farnborough4
Petrie House, level 6, 80 Petrie Terrace, Brisbane QLD 400, Australia
Farnborough4
Farnborough4
Farnborough4
50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ, Scotland
22nd Floor Corporate Centre, 139 Valero Street, Salcedo Village,
Makati City, Philippines
Level 33, 101 Collins Street, Melbourne, VIC 3000, Australia
Level 33, 101 Collins Street, Melbourne, Victoria 3000, Australia
Suite 6.01, 6th Floor, Plaza See Hoy Chan, Jalan Raja Chulan 50200,
Kuala Lumpur, W.P. Kuala Lumpur, Malaysia
Hogenakkerhoekstraat, 9, 9150 Kruibeke, Belgium
5885 Trinity Parkway, Suite 130, Centreville, Virginia 20120-1969, USA
Advokatfirman Delphi, Box 1432, Stockholm, Sweden
Farnborough4
Farnborough4
5885 Trinity Parkway, Suite 130, Centreville, Virginia 20120-1969, USA
Rue Devant les Hetres, 2B, 6890 Transinne, Belgium
Level 33, 101 Collins Street, Melbourne, Victoria 3000, Australia
Farnborough4
350 2nd Avenue, Waltham, Massachusetts 02451, USA
Belgium
Rue Devant les Hetres, 2B, 6890 Transinne, Belgium
Annual Report & Accounts 2021
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Notes to the Financial Statements continued QinetiQ Group plc Annual Report and Accounts 2021 133 Financial Statements Revenue by major customer type For the year ended 31 March ‘Other’ does not contain any customers with revenue in excess of 10% of total Group revenue. The following table shows the aggregate amount of revenue allocated to performance obligations that are unsatisfied (or partially satisfied) as at the end of the reporting period: Management expects that 27% (£800.5m) of revenue allocated to unsatisfied contracts as of 31 March 2021 will be recognised as revenue during the next reporting period. The following table shows the aggregate amount of revenue allocated to performance obligations that were unsatisfied (or partially satisfied) as at the end of the prior reporting period: Revenue of £144m was recognised during the year that was previously unrecognised as at the previous year end and reported as a contract liability. 3. Segmental analysis The analysis by business segment is presented in accordance with IFRS 8 Operating Segments, on the basis of those reportable segments whose operating results are regularly reviewed by the Board (the Chief Operating Decision Maker as defined by IFRS 8) and are aligned with the Group’s strategic direction, determined with reference to the products and services they provide, as follows: EMEA Services provides technical assurance, test and evaluation and training services, underpinned by long-term contracts. EMEA Services comprises the following business units which are not considered reportable segments as defined by IFRS 8: Maritime & Land; Air & Space, Cyber & Information and the International business. Global Products combines all other business units not aggregated within EMEA Services, including the QinetiQ US business, Space Products and EMEA Products (which includes QinetiQ Target Systems). Generally these business units (which are not considered reportable segments as defined by IFRS 8) deliver innovative solutions and products which includes contract-funded research and development and developing intellectual property in partnership with key customers and through internal funding with potential for new revenue streams. Operating segments 1 The measure of profit presented to the Chief Operating Decision Maker is operating profit stated before specific adjusting items (‘underlying operating profit’). The specific adjusting items are detailed in note 4. 2 Definitions of the Group’s ‘Alternative performance measures’ can be found in the glossary on page 183. No measure of segmental assets and liabilities is reported as this information is not regularly provided to the Chief Operating Decision Maker. All figures in £ million 2021 2020 UK government 794.6 667.2 US government 140.8 116.2 Other 342.8 289.5 Total revenue 1,278.2 1,072.9 All figures in £ million 2022 2023 2024 2025+ Total Total forecast revenue allocated to unsatisfied performance obligations 800.5 523.9 395.9 1,223.8 2,944.1 All figures in £ million 2021 2022 2023 2024+ Total Total forecast revenue allocated to unsatisfied performance obligations 849.3 484.9 375.5 1,395.2 3,104.9 2021 2020 All figures in £ million Revenue from external customers Underlying operating profit1 Revenue from external customers Underlying operating profit1 EMEA Services 939.9 118.6 797.4 100.6 Global Products 338.3 33.2 275.5 32.6 Total operating segments 1,278.2 151.8 1,072.9 133.2 Underlying operating margin2 11.9% 12.4% Financial Statements
Notes to the Financial Statements
For the year ended 31 March
35. Subsidiaries and other related undertakings (continued)
Name of company
Joint ventures6
Houbara Defence & Security LLC6
United Arab Emirates
Country of incorporation
Registered office
QinetiQ Dar Massader QDM Limited6
Saudi Arabia
Unit 3, Zone 4, Tawazun Industrial Park, Abu Dhabi, United Arab
Emirates, PO Box 128220
Al Nakhla Tower, 3026-Prince Saud Bin Mohamed Bin Muqin Road, PO
Box 2985, Riyadh 13321, Kingdom of Saudi Arabia
1 As at 31 March 2021 the Group owned 100% of the ordinary shares of these subsidiary undertakings except for Redu Operational Services S.A. (52%)
2 The class of shares is ‘common share’
3 As at 31 March 2021 the Group owned 48% of Redu Space Services S.A.
4 Cody Technology Park, Ively Road, Farnborough, Hampshire, GU14 OLX
5 Limited partnership. The partners are all wholly-owned Group companies
6 As at 31 March 2021 the Group owned 49% of Houbara Defence & Security LLC and 49% of QinetiQ Dar Massader QDM Limited.
7 The financial year end of each undertaking is 31 March other than Houbara Defence & Security LLC (31 December) and QinetiQ Dar Massader QDM Limited
(31 December)
36. Basis of preparation and significant accounting policies
QinetiQ Group plc (‘the Company’) is a public limited company, which is listed on the London Stock Exchange and is incorporated and
domiciled in United Kingdom. The consolidated financial statements of the Group comprise statements for the Company and its subsidiaries,
together referred to as ‘the Group’.
Accounting policies
The following accounting policies have been applied consistently to all periods presented in dealing with items that are considered material in
relation to the Group’s financial statements. In the income statement, the Group presents ‘specific adjusting items’ separately. In the
judgement of the Directors, for the reader to obtain a proper understanding of business performance, specific adjusting items need to be
disclosed separately. Underlying measures of performance exclude specific adjusting items.
Specific adjusting items
Specific adjusting items include the following:
Item
Amortisation of intangible assets arising from acquisitions
Pension net finance income
Gains/losses on disposal of property and investments
Transaction & integration costs in respect of business acquisitions
Impairment of property and goodwill
The tax impact of the above
Other significant non-recurring deferred tax movements
Distorting due to
irregular nature
year on year
Distorting due to
fluctuating nature
(size and sign)
Does not reflect in-year
operational performance
of continuing business
P
P
P
P
P
P
P
P
P
P
P
P
P
P
P
The financial impact of each item is reported in note 4 to these financial statements.
These ‘specific adjusting items’ are of a ‘non-operational’ nature and do not include all significant, irregular items that are of an operational
nature, for example contract risk provisions, cost of redundancy exercises and gains/losses on disposal of plant and equipment.
Basis of preparation
The Group’s financial statements, approved by the Directors, have been prepared on a going concern basis as discussed in the Directors’
report on page 113. In accordance with the Companies Act 2006 and European Union (EU) regulations, the Consolidated Financial Statements
have been prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006
and International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the EU. The Company
has elected to prepare its parent company financial statements in accordance with UK GAAP (FRS 101); these are presented on page 176.
The financial statements have been prepared under the historical cost convention, as modified by the revaluation of relevant financial
assets and liabilities. The Group’s reporting currency is Sterling and unless otherwise stated the financial statements are rounded to the
nearest £100,000.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiary undertakings to 31 March 2021.
The purchase method of accounting has been adopted. Those subsidiary undertakings acquired or disposed of in the period are included in
the consolidated income statement from the date control is obtained to the date that control is lost (usually on acquisition and disposal
respectively). An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and
has the ability to affect those returns through its power over the investee. This is the IFRS 10 definition of ‘control’.
166
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Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87% Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87%
Financial Statements
Notes to the Financial Statements continued
The Group comprises certain entities that are operated within the terms of a Special Security Arrangement (‘SSA’). Details of the SSA and
QinetiQ’s management of US subsidiaries are set out in the Corporate Governance section of this Annual Report. IFRS 10 is the accounting
standard applicable in respect of consolidation of entities. This does not specifically deal with SSA’s. However, having considered the terms
of the SSA, the Directors consider that the Group meets the requirements of IFRS 10 in respect of control over such affected entities and,
therefore, consolidates these entities in the consolidated accounts. The impact of this specific judgement is full consolidation as opposed to
treatment as a 100% associated undertaking.
An associate is an undertaking over which the Group exercises significant influence, usually from 20%–50% of the equity voting rights, in
respect of financial and operating policy. A joint venture is an undertaking over which the Group exercises joint control. Associates and joint
ventures are accounted for using the equity method from the date of acquisition to the date of disposal. The Group’s investments in associates
and joint ventures are held at cost including goodwill on acquisition and any post-acquisition changes in the Group’s share of the net assets
of the associate less any impairment to the recoverable amount. Where an associate or joint venture has net liabilities, full provision is made
for the Group’s share of liabilities where there is a constructive or legal obligation to provide additional funding to the associate or joint venture.
The financial statements of subsidiaries, joint ventures and associates are adjusted where necessary to ensure compliance with Group
accounting policies.
Recent accounting developments
Developments adopted by the Group in 2021 with no material impact on the Group’s financial statements
The following IFRS and endorsed standards and amendments, improvements and interpretations of published standards are effective for
accounting periods beginning on or after 1 January 2020 and have been adopted with no material impact on the Group’s financial
statements:
– Amendment to IFRS 3 ‘Business combinations’ (definition of a business): The amendment will help improve the definition of a business
and help companies determine whether an acquisition made is of a business or a group of assets. The amended definition emphasises
that the output of a business is to provide goods and services to customers, whereas the previous definition focused on returns in form
of dividends, lower costs or other economic benefits to investors and others.
– Amendments to IFRS 9, IAS 39 and IFRS 7 ‘Interest rate benchmark reform phase 1’: These amendments considers reliefs to hedge
accounting in the period before the reform. The reliefs have the effect that IBOR reform should not generally cause hedge accounting to
terminate. The relief provided by the amendments requires an entity to assume that the interest rate on which the hedge cash flows are
based does not change as a result of the reform.
– Amendments to IFRS 16 ‘Leases’ COVID-19 related rent concessions: The amendment will make it easier for lessees to account for
COVID-19 related rent concessions such as rent holidays and temporary rent reductions. The amendment exempts lessees from having
to consider individual lease contracts to determine whether rent concessions occurring as a direct consequence of the COVID-19 related
rent concessions that reduce lease payments due on or before 30 June 2021.
Developments expected in future periods of which the impact on the Group’s financial statements is still being assessed
The Directors anticipate that the adoption of the following new, revised, amended and improved published standards and interpretations,
which were in issue at the date of authorisation of these financial statements, will have no material impact on the financial statements of the
Group when they become applicable in future periods:
– Amendments to IFRS 3 ‘Business combinations’, on clarifying whether an acquisition is that of a business or a group of assets;
– Amendments to IFRS 9, IAS 39 and IFRS 7, all in respect of interest rate benchmark reform.
Significant accounting policies
Revenue from contracts with customers
The Group recognises revenue primarily from the following major sources:
– Through combining world-leading expertise with unique facilities to provide technical assurance, test and evaluation and training services
underpinned by long-term contracts;
– Through delivering innovative solutions and products to meet customer requirements by undertaking contract-funded research and
development, developing intellectual property and by internal funding with potential for new revenue streams.
Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third
parties. The Group recognises revenue when it transfers control of a product or service to a customer. The Group’s revenue contracts are
accounted for under IFRS 15 ‘Revenue from Contracts with Customers’ taking into account the requirement to distinguish between the various
performance obligations within a contract and treating these separately. The Group’s methodology applies IFRS 15 on a contract-by-contract
basis which includes considerations for contract modifications, variable consideration, the determination of distinct performance obligations,
determination of agency and principal relationships and licences.
Annual Report & Accounts 2021
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Notes to the Financial Statements continued QinetiQ Group plc Annual Report and Accounts 2021 133 Financial Statements Revenue by major customer type For the year ended 31 March ‘Other’ does not contain any customers with revenue in excess of 10% of total Group revenue. The following table shows the aggregate amount of revenue allocated to performance obligations that are unsatisfied (or partially satisfied) as at the end of the reporting period: Management expects that 27% (£800.5m) of revenue allocated to unsatisfied contracts as of 31 March 2021 will be recognised as revenue during the next reporting period. The following table shows the aggregate amount of revenue allocated to performance obligations that were unsatisfied (or partially satisfied) as at the end of the prior reporting period: Revenue of £144m was recognised during the year that was previously unrecognised as at the previous year end and reported as a contract liability. 3. Segmental analysis The analysis by business segment is presented in accordance with IFRS 8 Operating Segments, on the basis of those reportable segments whose operating results are regularly reviewed by the Board (the Chief Operating Decision Maker as defined by IFRS 8) and are aligned with the Group’s strategic direction, determined with reference to the products and services they provide, as follows: EMEA Services provides technical assurance, test and evaluation and training services, underpinned by long-term contracts. EMEA Services comprises the following business units which are not considered reportable segments as defined by IFRS 8: Maritime & Land; Air & Space, Cyber & Information and the International business. Global Products combines all other business units not aggregated within EMEA Services, including the QinetiQ US business, Space Products and EMEA Products (which includes QinetiQ Target Systems). Generally these business units (which are not considered reportable segments as defined by IFRS 8) deliver innovative solutions and products which includes contract-funded research and development and developing intellectual property in partnership with key customers and through internal funding with potential for new revenue streams. Operating segments 1 The measure of profit presented to the Chief Operating Decision Maker is operating profit stated before specific adjusting items (‘underlying operating profit’). The specific adjusting items are detailed in note 4. 2 Definitions of the Group’s ‘Alternative performance measures’ can be found in the glossary on page 183. No measure of segmental assets and liabilities is reported as this information is not regularly provided to the Chief Operating Decision Maker. All figures in £ million 2021 2020 UK government 794.6 667.2 US government 140.8 116.2 Other 342.8 289.5 Total revenue 1,278.2 1,072.9 All figures in £ million 2022 2023 2024 2025+ Total Total forecast revenue allocated to unsatisfied performance obligations 800.5 523.9 395.9 1,223.8 2,944.1 All figures in £ million 2021 2022 2023 2024+ Total Total forecast revenue allocated to unsatisfied performance obligations 849.3 484.9 375.5 1,395.2 3,104.9 2021 2020 All figures in £ million Revenue from external customers Underlying operating profit1 Revenue from external customers Underlying operating profit1 EMEA Services 939.9 118.6 797.4 100.6 Global Products 338.3 33.2 275.5 32.6 Total operating segments 1,278.2 151.8 1,072.9 133.2 Underlying operating margin2 11.9% 12.4% Financial Statements
Notes to the Financial Statements
For the year ended 31 March
36. Basis of preparation and significant accounting policies (continued)
Service contracts
The Group’s long-term service contracts are generally ‘test and evaluation’ or advice-based contracts where control of the service is
transferred over a period of time as the Group performs. At contract inception the Group undertakes an assessment to determine how many
distinct performance obligations exists within a contract. As part of the assessment the Group obtains an understanding of the overall
deliverable to the customer through discussions with business units and project leads. Each individual deliverable in the contract is then
assessed to determine if it is an input into the overall deliverable, and therefore part of a single performance obligation, or if it is a stand-alone
separable deliverable with its own transaction price and therefore a distinct performance obligation in its own right. Each distinct performance
obligation identified within a contract is accounted for separately.
Certain service contracts have a similar pattern of transfer of control to the customer where each year is effectively the same from a
performance obligation perspective. The Group has applied the series guidance as permitted within the Standard to these contracts and
accounts for these as a series of distinct service performance obligations satisfied annually over the contract term. The transaction price for
a contract is determined at contract inception based on a fixed-margin applied to the total forecast costs to complete the deliverable. Some
long-term contracts include an excess profit clause which is a variable consideration factor that could impact the transaction price. Excess
profits are estimated at contract inception and at the end of each reporting period to ensure that the transaction price is not under or over
stated. Any required adjustment will be made against the transaction price in the period in which it occurred. The Group does not offer any
right of return or refunds which could impact transaction price at inception. Certain contracts attract bonuses and/or penalties which are
variable and will have an impact on transaction price at contract inception. The Group assesses variable consideration in relation to bonuses
and penalties at contract inception using the most-likely method and this forms part of the transaction price and recognised over time as
costs are incurred. The Group only includes bonuses and penalties into the transaction price to the extent that it is highly probable that a
significant reversal of revenue will not occur in future periods. Historical evidence and experience shows that even where a reduction has been
required, that reduction has been immaterial to the Group.
The transaction price is allocated between each distinct performance obligation identified in a contract based on the stand-alone selling price
of each performance obligation. Each performance obligation will be costed and the transaction price will be cost plus margin. This amount
would be the stand-alone selling price of each performance obligation if contracted with a customer separately.
Long-term service contracts allow for modifications to the original order. If a contract modification is determined to be distinct and the price
of the contract increases by an amount of consideration that reflects the entity's stand-alone selling prices for the additional promised goods
or services, the Group accounts for this as a separate contract. If a contract modification is not distinct, the Group accounts for this as if it
were part of the existing contract. A cumulative catch-up adjustment to revenue is then recognised to disclose the effect that the contract
modification has on the transaction price and the Group’s measure of progress towards complete satisfaction of the performance obligation.
Long-term service contracts also sometimes allow for extensions to the original order. A contract extension is determined to include either
additional goods or services or no additional goods or service. If a contract extension with additional goods or services is determined to be
distinct and the price of the contract increases by an amount of consideration that reflects the entity’s stand-alone selling prices for the
additional promised goods or services, the Group accounts for this as a separate performance obligation.
If a contract extension with additional goods or services is not distinct, the Group accounts for this as if it were part of the existing contract.
A cumulative catch-up adjustment to revenue is then recognised to disclose the effect that the contract extension has on the transaction
price and the Group’s measure of progress towards complete satisfaction of the performance obligation.
When the outcome of a distinct performance obligation in delivering services can be reliably estimated, revenue associated with the
performance obligation is recognised over time using the input method. The input method recognises revenue over time on the basis of costs
incurred to date to the satisfaction of a performance obligation relative to the total forecast costs to complete the performance obligation.
The Group has determined the input method to be appropriate as it best depicts the Group’s performance in transferring control of the service
to the customer as it incurs costs on a particular contract.
No profit is recognised on contracts until the outcome of the contract can be reliably estimated. When it is probable that total contract costs
will exceed total contract revenue, the expected loss is recognised immediately as an expense.
Goods sold
The Group recognises revenue on the sale of products at a point in time once control has been transferred to the customer. Control is generally
transferred to customers on delivery of products or when the customer has the significant risks and rewards of ownership of the product.
Payment is typically due within 30 days of invoice (within the UK) and customers typically do not have a right of return or refund. The
transaction price for sale of products is agreed at contract inception. When the Group develops a bespoke product for a customer with no
alternative use to the Group, revenue is recognised over time using the input method.
Licence revenue
Licence revenue is attributed to either ‘right to use’ or ‘right to access’ licences. ‘Right to use’ licence revenue is recognised at a point in time
when the Group sells a licence to a customer and does not undertake significant further activities or involvement in developing the licence
after the sale. ‘Right to access’ licence revenue is recognised over time when the Group maintains a significant level of involvement in
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Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87% Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87%
Financial Statements
Notes to the Financial Statements continued
developing and enhancing the licence after the sale. The level of involvement goes beyond general support, bug-fixing and upgrades which
generally only maintain the current operating level. The transaction price for intellectual property is agreed at contract inception. The Group
does not offer any right of return or refunds which could impact transaction price at inception.
The Group recognises licence revenue through the supply of a range of security, messaging and connectivity software products. A licence fee
is paid for each computer that uses the software and the customer can also purchase a support service contract for a fixed period. The sale
of these types of licences is recognised at a point in time as a distinct performance obligation because the Group does not undertake any
further activities in developing the licence after the sale. The support service contract is recognised over time as a separate performance
obligation as this is an optional extra and is not integral into the functionality of the licence. The support service contract offers general support
and maintenance of the licence to the customer over a fixed period.
Contract assets
Contract assets is a term used in adopting IFRS 15 and effectively represents amounts recoverable under contracts as previously reported.
Contract assets represent revenue recognised in excess of amounts invoiced. Revenue is recognised on service contracts by using a
‘percentage complete’ method, applying the proportion of contract costs incurred for work performed to date relative to the estimated total
contract cost, after making suitable allowances for technical and other risks related to performance milestones yet to be achieved, and
applying that proportion to total contract price. Payment for service contracts are not always due from the customer until certain milestones
have been reached and, therefore, a contract asset is recognised over the period in which the services are performed representing the Group’s
right to consideration for services performed to date, to the extent that the customer has not yet been invoiced for those services.
Contract liabilities
Contract liabilities is a term used in adopting IFRS 15 and effectively represents deferred income as previously reported. The Group, on
occasion, bills customers in advance of performing certain types of work which results in the Group recognising contract liabilities. Once the
work has been performed these amounts will be reduced and recognised as revenue. For sale of goods, revenue is recognised in the income
statement when control of the goods has been transferred to the customer; being at the point when the goods are delivered. Any transaction
price received by the Group prior to that point is recognised as a contract liability.
Principal-agent arrangements
The Group enters into certain arrangements which involve a consortium of service providers. The Group acts as a ‘Prime’ contractor in certain
contracts with customers and utilises sub-contractors to undertake the work. Under these contracts the Group is considered to be primarily
responsible for fulfilling the service to the customer. The Group performs a technical assessment of the work before it is delivered to the
customer and is responsible for quality and performance of the sub-contractor. As such the Group is considered to be the principal to the
arrangement with the customer and includes sub-contractor costs within revenue. However, where the Group is merely acting as an agent of
a sub-contractor then no revenue is recognised in respect of sub-contractor costs.
All consortium arrangements are assessed by the Group to determine if it is the principal or agent.
Contract bidding costs
The Group recognises the ‘incremental costs of obtaining a contract’ with a customer as an asset if the Group expects to recover those costs.
The ‘incremental costs of obtaining a contract’ are those costs that the Group incurs to obtain a contract with a customer that it would not
have incurred if the contract had not been won. Costs to obtain a contract that would have been incurred regardless of whether the contract
was won or lost shall be recognised as an expense when incurred, unless those costs are explicitly chargeable to the customer.
Segmental information
Segmental information is presented according to the Group’s internal management reporting structure and the markets in which
it operates. Segmental results represent the contribution of the different segments to the profit of the Group. Corporate expenses are allocated
to the corresponding segments. Unallocated items mainly comprise specific adjusting items. Specific adjusting items are referred to in note
4. Segmental assets and liabilities information is not regularly provided to the Chief Operating Decision Maker.
Research and development expenditure
R&D costs incurred in respect of specific contracts placed by customers are recognised within operating costs and revenue is recognised in
respect of the R&D services performed. Internally funded development expenditure is capitalised in the balance sheet where there is a clearly
defined project, the expenditures are separately identifiable, the project is technically and commercially feasible, all costs are recoverable by
future revenue and the resources are committed to complete the project. Such capitalised costs are amortised over the forecast period of
sales resulting from the development. All other R&D costs are expensed to the income statement in the period in which they are incurred. If
the research phase cannot be clearly distinguished from the development phase, the respective project-related costs are treated as if they
were incurred in the research phase only and expensed.
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Notes to the Financial Statements continued QinetiQ Group plc Annual Report and Accounts 2021 133 Financial Statements Revenue by major customer type For the year ended 31 March ‘Other’ does not contain any customers with revenue in excess of 10% of total Group revenue. The following table shows the aggregate amount of revenue allocated to performance obligations that are unsatisfied (or partially satisfied) as at the end of the reporting period: Management expects that 27% (£800.5m) of revenue allocated to unsatisfied contracts as of 31 March 2021 will be recognised as revenue during the next reporting period. The following table shows the aggregate amount of revenue allocated to performance obligations that were unsatisfied (or partially satisfied) as at the end of the prior reporting period: Revenue of £144m was recognised during the year that was previously unrecognised as at the previous year end and reported as a contract liability. 3. Segmental analysis The analysis by business segment is presented in accordance with IFRS 8 Operating Segments, on the basis of those reportable segments whose operating results are regularly reviewed by the Board (the Chief Operating Decision Maker as defined by IFRS 8) and are aligned with the Group’s strategic direction, determined with reference to the products and services they provide, as follows: EMEA Services provides technical assurance, test and evaluation and training services, underpinned by long-term contracts. EMEA Services comprises the following business units which are not considered reportable segments as defined by IFRS 8: Maritime & Land; Air & Space, Cyber & Information and the International business. Global Products combines all other business units not aggregated within EMEA Services, including the QinetiQ US business, Space Products and EMEA Products (which includes QinetiQ Target Systems). Generally these business units (which are not considered reportable segments as defined by IFRS 8) deliver innovative solutions and products which includes contract-funded research and development and developing intellectual property in partnership with key customers and through internal funding with potential for new revenue streams. Operating segments 1 The measure of profit presented to the Chief Operating Decision Maker is operating profit stated before specific adjusting items (‘underlying operating profit’). The specific adjusting items are detailed in note 4. 2 Definitions of the Group’s ‘Alternative performance measures’ can be found in the glossary on page 183. No measure of segmental assets and liabilities is reported as this information is not regularly provided to the Chief Operating Decision Maker. All figures in £ million 2021 2020 UK government 794.6 667.2 US government 140.8 116.2 Other 342.8 289.5 Total revenue 1,278.2 1,072.9 All figures in £ million 2022 2023 2024 2025+ Total Total forecast revenue allocated to unsatisfied performance obligations 800.5 523.9 395.9 1,223.8 2,944.1 All figures in £ million 2021 2022 2023 2024+ Total Total forecast revenue allocated to unsatisfied performance obligations 849.3 484.9 375.5 1,395.2 3,104.9 2021 2020 All figures in £ million Revenue from external customers Underlying operating profit1 Revenue from external customers Underlying operating profit1 EMEA Services 939.9 118.6 797.4 100.6 Global Products 338.3 33.2 275.5 32.6 Total operating segments 1,278.2 151.8 1,072.9 133.2 Underlying operating margin2 11.9% 12.4% Financial Statements
Notes to the Financial Statements
For the year ended 31 March
36. Basis of preparation and significant accounting policies (continued)
Financing
The Group holds no external borrowings but does have access to a revolving credit facility, fees for which are reported within finance costs.
Costs of letters of credit are also charged to finance expense. Income earned on funds invested is reported within finance income. Exchange
differences on financial assets and liabilities and the income or expense from interest hedging instruments that are recognised in the income
statement are included within finance income and finance expense. Financing also includes the net finance income or expense in respect of
defined benefit pension schemes. The Group pays in advance finance costs in relation to the multi-currency facility which are recognised as
a deferred finance cost asset.
Taxation
The income tax expense or credit for the period is the tax payable on the current period’s taxable income, based on the applicable income tax
rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax
losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting
period in the countries where the company and its subsidiaries and associates operate and generate taxable income.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to
interpretation and considers whether it is probable that a taxation authority will accept an uncertain tax treatment. The Group measures its
tax balances either based on the most likely amount or the expected value, depending on which method provides a better prediction of the
resolution of the uncertainty.
The Group’s accounting policy is to include the impact of research and development expenditure credits (‘RDEC’) within the tax charge. An
element of the Group’s RDEC claim relates to activities on MOD contracts. Commercial negotiations with the MOD do not take RDEC into
consideration; instead both parties have agreed that the amount collected by QinetiQ on certain contracts will be passed through as a lump
sum to the MOD, akin to QinetiQ collecting the RDEC on behalf of the MOD. As such, the MOD-appropriated element of the RDEC receivable
from HMRC is netted off against the gross receivable within the tax line, as opposed to being recognised as a reduction to revenue or as an
expense above the tax line.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise
from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability
in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable profit or loss.
Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the reporting
period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences
and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of
investments in foreign operations where the company is able to control the timing of the reversal of the temporary differences and it is
probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset where there is a legally
enforceable right to offset current tax assets and liabilities and where the deferred tax balances relate to the same taxation authority. Current
tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or
to realise the asset and settle the liability simultaneously.
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive
income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
Non-current assets held for sale
Non-current assets are classified as held for sale if their carrying amount will be recovered primarily through a sales transaction rather than
through continuing use. This condition is regarded as met only when the sale is highly probable and expected to be completed within a year
of the balance sheet date. The assets should be available for immediate sale in their present condition and actively marketed at a price that
is reasonable in relation to their current fair value.
Non-current assets classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Any write-down
to fair value less costs to sell shall be recognised directly through profit and loss as an impairment loss. No further depreciation is charged in
respect of assets classified as held for sale.
Goodwill
Goodwill on acquisitions of subsidiaries is included in non-current assets. Goodwill on acquisitions of joint ventures and associates is included
in the carrying value of equity accounted investments. Goodwill is tested annually for impairment and carried at cost less accumulated
impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill related to the entity sold.
Intangible assets
Intangible assets arising from business combinations are recognised at fair value and are amortised over their expected useful lives, typically
between 1 and 16 years. Internally generated intangible assets are recorded at cost, including labour, directly attributable costs and any third-
party expenses.
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Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87% Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87%
Financial Statements
Notes to the Financial Statements continued
The ‘multi-period excess earnings’ method and the ‘relief-from-royalty’ method are both used for fair valuing intangible assets arising from
acquisitions. The multi-period excess earnings method considers the present value of net cash flows expected to be generated by customer
relationships, by excluding any cash flows related to contributory assets. The relief-from-royalty method considers the discounted estimated
royalty payments that are expected to be avoided as a result of the patents or trademarks being owned.
Purchased intangible assets are recognised at cost less amortisation. Intangible assets are amortised over their respective useful lives on a
straight-line basis as follows:
Intellectual property rights
Customer relationships
Development costs
Other
2–10 years
1–16 years
1–4 years
1–14 years
Property, plant and equipment
Property, plant and equipment are stated at cost less depreciation. Freehold land is not depreciated. Other tangible non-current assets are
depreciated on a straight-line basis over their useful economic lives to their estimated residual value as follows:
Freehold buildings
Leasehold land and buildings
Plant and machinery
Fixtures and fittings / office equipment
Computers
Motor vehicles
20–25 years
Shorter of useful economic life and the period of the lease
3–15 years
5–10 years
3–5 years
3–5 years
Assets under construction are included in property, plant and equipment on the basis of expenditure incurred at the balance sheet date. In the
case of assets constructed by the Group, the value includes the cost of own work completed, including directly attributable costs and interest.
The useful lives, depreciation methods and residual values applied to property, plant and equipment are reviewed annually and, if appropriate,
adjusted accordingly.
Impairment of goodwill and tangible, intangible and held for sale assets
At each reporting date the Group assesses whether there is an indication that an asset may be impaired. If the carrying amount of any asset
exceeds its recoverable amount an impairment loss is recognised immediately in the income statement. In addition, goodwill is tested for
impairment annually irrespective of any indication of impairment. If the carrying amount exceeds the recoverable amount, the respective asset
or the assets in the cash-generating unit (CGU) are written down to their recoverable amounts. The recoverable amount of an asset or CGU
is the higher of its fair value less costs to sell and its value in use. The value in use is the present value of the future cash flows expected to
be derived from an asset or CGU calculated using an appropriate pre-tax discount rate. Impairment losses are expensed to the income
statement.
Leases
Leases – as a lessor
Lease income from operating leases where the Group is a lessor is recognised in income on a straight-line basis over the lease term (note
26). Initial direct costs incurred in obtaining an operating leases are added to the carrying amount of the underlying asset and recognised as
expense over the lease term on the same basis as lease income. The respective leased assets are included in the balance sheet based on
their nature. The Group did not need to make any adjustments to the accounting for assets held as lessor as a result of adopting the new
leasing standard.
Leases – as a lessee
The Group leases various offices, aircrafts, forklifts, equipment and vehicles. Rental contracts are typically made for fixed periods of 6 months
to 25 years, but may have extension options as described below.
Contracts may contain both lease and non-lease components. The Group allocates the consideration in the contract to the lease and non-
lease components based on their relative stand-alone process. Lease terms are negotiated on an individual basis and contain a wide range
of different terms and conditions. The lease agreements do not impose any covenants other than the security interests in the leases assets
that are held by the lessor. Leased assets may not be used as security for borrowing purposes.
Leases are recognised as a right-of-use asset and corresponding liability at the date at which the leases asset is available for use by the Group.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the
following lease payments:
fixed payments (including in-substance fixed payments), less any lease incentives receivable;
variable lease payments based on an index or a rate, initially measured using the index or rate as at the commencement date;
amounts expected to be payable by the Group under residual value guarantees;
the exercise price of a purchase option if the Group is reasonably certain to exercise that option, and
payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.
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Notes to the Financial Statements continued QinetiQ Group plc Annual Report and Accounts 2021 133 Financial Statements Revenue by major customer type For the year ended 31 March ‘Other’ does not contain any customers with revenue in excess of 10% of total Group revenue. The following table shows the aggregate amount of revenue allocated to performance obligations that are unsatisfied (or partially satisfied) as at the end of the reporting period: Management expects that 27% (£800.5m) of revenue allocated to unsatisfied contracts as of 31 March 2021 will be recognised as revenue during the next reporting period. The following table shows the aggregate amount of revenue allocated to performance obligations that were unsatisfied (or partially satisfied) as at the end of the prior reporting period: Revenue of £144m was recognised during the year that was previously unrecognised as at the previous year end and reported as a contract liability. 3. Segmental analysis The analysis by business segment is presented in accordance with IFRS 8 Operating Segments, on the basis of those reportable segments whose operating results are regularly reviewed by the Board (the Chief Operating Decision Maker as defined by IFRS 8) and are aligned with the Group’s strategic direction, determined with reference to the products and services they provide, as follows: EMEA Services provides technical assurance, test and evaluation and training services, underpinned by long-term contracts. EMEA Services comprises the following business units which are not considered reportable segments as defined by IFRS 8: Maritime & Land; Air & Space, Cyber & Information and the International business. Global Products combines all other business units not aggregated within EMEA Services, including the QinetiQ US business, Space Products and EMEA Products (which includes QinetiQ Target Systems). Generally these business units (which are not considered reportable segments as defined by IFRS 8) deliver innovative solutions and products which includes contract-funded research and development and developing intellectual property in partnership with key customers and through internal funding with potential for new revenue streams. Operating segments 1 The measure of profit presented to the Chief Operating Decision Maker is operating profit stated before specific adjusting items (‘underlying operating profit’). The specific adjusting items are detailed in note 4. 2 Definitions of the Group’s ‘Alternative performance measures’ can be found in the glossary on page 183. No measure of segmental assets and liabilities is reported as this information is not regularly provided to the Chief Operating Decision Maker. All figures in £ million 2021 2020 UK government 794.6 667.2 US government 140.8 116.2 Other 342.8 289.5 Total revenue 1,278.2 1,072.9 All figures in £ million 2022 2023 2024 2025+ Total Total forecast revenue allocated to unsatisfied performance obligations 800.5 523.9 395.9 1,223.8 2,944.1 All figures in £ million 2021 2022 2023 2024+ Total Total forecast revenue allocated to unsatisfied performance obligations 849.3 484.9 375.5 1,395.2 3,104.9 2021 2020 All figures in £ million Revenue from external customers Underlying operating profit1 Revenue from external customers Underlying operating profit1 EMEA Services 939.9 118.6 797.4 100.6 Global Products 338.3 33.2 275.5 32.6 Total operating segments 1,278.2 151.8 1,072.9 133.2 Underlying operating margin2 11.9% 12.4% Financial Statements
Notes to the Financial Statements
For the year ended 31 March
36. Basis of preparation and significant accounting policies (continued)
Lease payments to be made under reasonably certain options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the lease. If the rate cannot be readily determined, which is generally the
case for leases in the Group, the lessee’s incremental borrowing rate is used, being the rate the individual lessee would have to pay to borrow
the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security
and conditions.
To determine the incremental borrowing rate, the Group:
where possible, uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in
financing conditions since third party financing was received;
uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk for leases held by QinetiQ Plc, which does
not have recent third party financing, and
makes adjustments specific to the lease, example, term country, currency and security.
The Group is not exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the
lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed
and adjusted against the right-of-use asset. Lease payments are allocated between principal and finance cost. The finance cost is charged to
profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Right-of-use assets are measured at cost comprising the following:
the amount of the initial measurement of lease liability;
any lease payments made at or before the commencement date less any lease incentives received;
any initial direct costs, and
restoration costs.
Right-of-use assets are generally depreciated over the shorter of the asset’s useful life and lease term on a straight-line basis. If the Group is
reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s useful life. The Group does
not revalue its land and buildings that are presented within property, plant and equipment and has chosen to do same for right-of-use buildings
by the Group. Payments associated with short-term leases of offices, equipment and vehicles and all leases of low-value assets are recognised
on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets
comprise lease assets under £5,000.
Lease extension and termination options
Extension and termination options are included in a number of property and equipment leases across the Group. These are used to maximise
operational flexibility in terms of managing the assets used in the Group’s operations. The majority of extension and termination options held
are exercisable only by the Group and not by the respective lessor.
Judgements in determining the lease term
In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension
option or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the
lease is reasonably certain to be extended (or not terminated).
For leases of offices and equipment, the following factors are normally the most relevant:
if there are significant penalties to terminate (or extend), the group is typically reasonably certain to end (or not to terminate);
if any leasehold improvements are expected to have a significant remaining value, the Group is typically reasonably certain to extend
(or not terminate);
Otherwise, the Group considers other factors including historical lease durations and the costs and business disruptions required
to replace the leased asset.
Most extension options in office and vehicles leases have not been included in the lease liability, because the Group could replace the assets
without significant cost or business disruption.
As at 31 March 2021 no (undiscounted) potential future cash outflows have been included in the lease liability for extension or termination.
The lease term is reassessed if an option is actually exercised (or not exercised) or the Group becomes obliged to exercise (or not exercise)
it. The assessment of reasonable certainty is only revised if a significant event of significant change in circumstance occurs, which affects
this assessment, and that is within the control of the lessee. During the current financial year, the financial effect of revising lease terms to
reflect the effect of exercising extension or termination options was nil (2020: £0.1m increase) in recognised lease liabilities and right-of-use
assets.
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Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87% Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87%
Financial Statements
Notes to the Financial Statements continued
Investments in debt and equity securities
Investments held by the Group are classified as either a current asset or as a non-current asset. These are investments in debt and equity
instruments that are classified as at fair value through other comprehensive income. When these investments are derecognised, the
cumulative gain or loss previously recognised directly in equity is recognised in the income statement.
The fair value of quoted financial instruments is their bid price at the balance sheet date. The fair value of unquoted equity investments is
based on the price of the most recent investment by the Group or a third party, if available, or derived from the present value of forecast future
cash flows.
Inventories
Inventory and work-in-progress are stated at the lower of cost and net realisable value. Work-in-progress and manufactured finished goods
are valued at production cost. Production cost includes direct production costs and an appropriate proportion of production overheads. A
provision is established when the net realisable value of any inventory item is lower than its cost. A ‘market comparison’ technique is used to
fair value inventories acquired through a business combination. The fair value is determined based on the estimated selling price in the
ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to
complete and sell the inventories.
Trade and other receivables
Trade and other receivables are measured at amortised cost less any impairment losses. Amounts recoverable on contracts are included in
trade and other receivables and represent revenue recognised in excess of amounts invoiced. Other receivables will also include insurance
recoveries where we are virtually certain of recovery.
Impairment of trade and other receivables
The Group applies the simplified approach when using the expected credit loss (ECL) impairment model for trade and other receivables.
Under the simplified approach the Group always measures the loss allowance at an amount equal to the lifetime expected credit losses for
trade receivables. The Group measures the expected credit losses of trade and other receivables in a way that reflects a probability-weighted
amount that is determined by evaluating a range of possible outcomes, the time value of money and supportable information that is readily
available at each reporting date about past events, current condition and forecasts of future economic conditions. The ECL’s are updated
each reporting period to reflect changes in credit risk since initial recognition.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and short-term, highly liquid investments that are readily convertible into a known amount
of cash and which are subject to an insignificant risk of changes in value. The Group holds various short-maturity money market funds (see
note 24) across numerous financial institutions which meet the IAS 7 criteria to be classified as cash equivalents. In the cash flow statement
overdraft balances are included in cash and equivalents. Cash and cash equivalents includes an element that is restricted in use (note 24).
Current and non-current liabilities
Current liabilities include amounts due within the normal operating cycle of the Group. Deferred income, or ‘contract liabilities’, is included in
trade and other payables and represents amounts invoiced in excess of revenue recognised. Interest-bearing current and non-current liabilities
are initially recognised at fair value and then stated at amortised cost with any difference between the cost and redemption value being
recognised in the income statement over the period of the borrowings on an effective interest rate basis. Costs associated with the
arrangement of bank facilities or the issue of loans are held net of the associated liability presented in the balance sheet. Capitalised issue
costs are released over the estimated life of the facility or instrument to which they relate using the effective interest rate method. If it becomes
clear that the facility or instrument will be redeemed early, the amortisation of the issue costs will be accelerated.
Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event which
can be reliably estimated, and it is probable that an outflow of economic benefits will be required to settle the obligation. Where appropriate,
provisions are determined by discounting the expected cash flows at an appropriate discount rate reflecting the level of risk and the time value
of money. Where an exposure is highly likely to be covered by insurance no provision is recorded.
Financial instruments
Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual
provisions of the instrument. The de-recognition of a financial instrument takes place when the Group no longer controls the contractual right
that comprise the financial instrument, when the instrument expires, or when the instrument is sold, terminated or exercised.
Financial assets
Financial assets are classified on the Group’s balance sheet as subsequently measured at amortised cost, fair value through other
comprehensive income or fair value through profit or loss. This classification is made on the basis of both the Group’s business model for
managing the financial assets and the contractual cash flow characteristics of the financial asset.
Financial liabilities
Financial liabilities are classified on the Group’s balance sheet as subsequently measured at amortised cost except for financial liabilities at
fair value through profit and loss. The Group may at initial recognition irrevocably designate a financial liability as measured at fair value
through profit or loss if a contract contains one or more embedded derivatives and the host is not an asset within the scope of IFRS 9, or
when doing so results in more relevant information.
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Notes to the Financial Statements continued QinetiQ Group plc Annual Report and Accounts 2021 133 Financial Statements Revenue by major customer type For the year ended 31 March ‘Other’ does not contain any customers with revenue in excess of 10% of total Group revenue. The following table shows the aggregate amount of revenue allocated to performance obligations that are unsatisfied (or partially satisfied) as at the end of the reporting period: Management expects that 27% (£800.5m) of revenue allocated to unsatisfied contracts as of 31 March 2021 will be recognised as revenue during the next reporting period. The following table shows the aggregate amount of revenue allocated to performance obligations that were unsatisfied (or partially satisfied) as at the end of the prior reporting period: Revenue of £144m was recognised during the year that was previously unrecognised as at the previous year end and reported as a contract liability. 3. Segmental analysis The analysis by business segment is presented in accordance with IFRS 8 Operating Segments, on the basis of those reportable segments whose operating results are regularly reviewed by the Board (the Chief Operating Decision Maker as defined by IFRS 8) and are aligned with the Group’s strategic direction, determined with reference to the products and services they provide, as follows: EMEA Services provides technical assurance, test and evaluation and training services, underpinned by long-term contracts. EMEA Services comprises the following business units which are not considered reportable segments as defined by IFRS 8: Maritime & Land; Air & Space, Cyber & Information and the International business. Global Products combines all other business units not aggregated within EMEA Services, including the QinetiQ US business, Space Products and EMEA Products (which includes QinetiQ Target Systems). Generally these business units (which are not considered reportable segments as defined by IFRS 8) deliver innovative solutions and products which includes contract-funded research and development and developing intellectual property in partnership with key customers and through internal funding with potential for new revenue streams. Operating segments 1 The measure of profit presented to the Chief Operating Decision Maker is operating profit stated before specific adjusting items (‘underlying operating profit’). The specific adjusting items are detailed in note 4. 2 Definitions of the Group’s ‘Alternative performance measures’ can be found in the glossary on page 183. No measure of segmental assets and liabilities is reported as this information is not regularly provided to the Chief Operating Decision Maker. All figures in £ million 2021 2020 UK government 794.6 667.2 US government 140.8 116.2 Other 342.8 289.5 Total revenue 1,278.2 1,072.9 All figures in £ million 2022 2023 2024 2025+ Total Total forecast revenue allocated to unsatisfied performance obligations 800.5 523.9 395.9 1,223.8 2,944.1 All figures in £ million 2021 2022 2023 2024+ Total Total forecast revenue allocated to unsatisfied performance obligations 849.3 484.9 375.5 1,395.2 3,104.9 2021 2020 All figures in £ million Revenue from external customers Underlying operating profit1 Revenue from external customers Underlying operating profit1 EMEA Services 939.9 118.6 797.4 100.6 Global Products 338.3 33.2 275.5 32.6 Total operating segments 1,278.2 151.8 1,072.9 133.2 Underlying operating margin2 11.9% 12.4% Financial Statements
Notes to the Financial Statements
For the year ended 31 March
36. Basis of preparation and significant accounting policies (continued)
Derivative financial instruments
Derivative financial instruments are initially recognised and thereafter held at fair value, being the market value for quoted instruments or
valuation based on models and discounted cash flow calculations for unlisted instruments.
Fair value hedging
Changes in the fair value of derivatives designated as fair value hedges of currency risk or interest rate risk are recognised in the income
statement. The hedged item is held at fair value with respect to the hedged risk with any gain or loss recognised in the income statement.
Cash flow hedging
Changes in the fair value of derivatives designated as a cash flow hedge that are regarded as highly effective are recognised in equity. The
ineffective portion is recognised immediately in the income statement. Where a hedged item results in an asset or a liability, gains and losses
previously recognised in equity are included in the cost of the asset or liability. Gains and losses previously recognised in equity are removed
and recognised in the income statement at the same time as the hedged transaction.
Foreign currencies
Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities
in foreign currencies are translated at period-end rates. Any resulting exchange differences are taken to the income statement. Gains and
losses on designated forward foreign exchange hedging contracts are matched against the foreign exchange movements on the underlying
transaction.
The individual financial statements of each Group company are presented in its functional currency. On consolidation, assets and liabilities of
overseas subsidiaries, associated undertakings and joint ventures, including any related goodwill, are translated to Sterling at the rate of
exchange at the balance sheet date. The results and cash flows of overseas subsidiaries, associated undertakings and joint ventures are
translated to Sterling using the average rates of exchange during the period. Exchange adjustments arising from the re-translation of the
opening net investment and the results for the period to the period-end rate are taken directly to equity and reported in the statement of
comprehensive income.
Post-retirement benefits
The Group provides both defined contribution and defined benefit pension arrangements. The liabilities of the Group arising from defined
benefit obligations are determined using the projected unit credit method. Valuations for accounting purposes are carried out bi-annually.
Actuarial advice is provided by external consultants. For the funded defined benefit plans, the excess or deficit of the fair value of plan assets
less the present value of the defined benefit obligation are recognised as an asset or a liability respectively.
Per the Scheme rules, the Company has an unconditional right to a refund of any surplus that may arise on cessation of the Scheme in the
context of IFRIC 14 paragraphs 11(b) and 12 and therefore the full net pension asset can be recognised on the Group’s balance sheet and
the Group’s minimum funding commitments to the Scheme do not give rise to an additional balance sheet liability.
For defined benefit plans, the cost charged to the income statement consists of administrative expenses and the net interest income. There
is no service cost due to the fact the plans are closed to future accrual. The net interest income is reported within finance income and the
administration cost element is charged as a component of operating costs in the income statement. Actuarial gains and losses and re-
measurement gains and losses are recognised immediately in full through the statement of comprehensive income. Contributions to defined
contribution plans are charged to the income statement as incurred.
Share-based payments
The Group operates share-based payment arrangements with employees. The fair value of equity-settled awards for share-based payments
is determined on grant and expensed straight line over the period from grant to the date of earliest unconditional exercise. The valuation
methodology for TSR awards is based on Monte Carlo model to allow for the impact of market related performance criteria and taking into
account all non-vesting conditions. The value is expensed straight line over the period from grant to the date of earliest unconditional exercise.
The charges for equity settled share-based payments are updated annually for non-market-based vesting conditions.
Share capital
Ordinary share capital of the Company is recorded as the proceeds received, less issue costs. Company shares held by the employee benefit
trusts are held at the consideration paid. They are classified as own shares within equity. Any gain or loss on the purchase, sale or issue of
Company shares is recorded in equity.
Non-controlling interests
The Group recognises non-controlling interest in an acquired entity either at fair value or at the non-controlling interest’s proportionate share
of the acquired entity’s net identifiable assets. This decision is made on an acquisition-by-acquisition basis. For non-controlling interests that
the Group holds, the Group elected to recognise the non-controlling interests at its proportionate share of the acquired net identifiable assets.
174
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Annual Report and Accounts 2021
Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87% Notes to the Financial Statements For the year ended 31 March QinetiQ Group plc Annual Report and Accounts 2021 132 1. Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 1)The acquisition of Naimuri Limited (see note 12) which resulted in an increase in goodwill (note 14) and other intangible assets (note 15); 2)The divestment of the Boldon James, Commerce Decisions and OptaSense businesses (see note 13); 3)An impairment of goodwill in respect of the Germany business (see note 14). For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 2 to 51. 2. Revenue from contracts with customers and other income Revenue and other income is analysed as follows: Revenue by category and other income For the year ended 31 March 1 For the period of which there was no contribution in the equivalent period in the comparator year which was pre-ownership (for acquisitions) or post-ownership (for disposals) by the Group 2 Alternative performance measures are used to supplement the statutory figures. See page 183. Other income Revenue and profit after tax of associates and joint ventures was £12.6m and £1.1m respectively (2020: revenue of £18.1m and loss after tax of £1.5m). The figures in the table above represent the Group share of this profit after tax. Other income is in respect of property rentals and the recovery of other related property costs. Revenue by customer geographic location For the year ended 31 March All figures in £ million 2021 2020 Services contracts with customers 1,189.4 945.6 Sale of goods contracts with customers 83.0 116.8 Royalties and licences 5.8 10.5 Total revenue 1,278.2 1,072.9 Less: adjust current year for acquired businesses1 (117.2)– Less: adjust prior year for disposed businesses1 – (17.2)Adjust to constant prior year exchange rates 2.2 – Total revenue on an organic, constant currency basis2 1,163.2 1,055.7 Organic revenue growth at constant currency2 10% 10% All figures in £ million 2021 2020 Share of associates’ and joint ventures’ profit/(loss) after tax 0.7 (0.7)Other income 9.2 9.9 Other income – underlying 9.9 9.2 Specific adjusting item: gain on sale of property (note 4) 0.1 14.0 Total other income 10.0 23.2 All figures in £ million 2021 2020 US 215.6 136.0 Australia 77.9 60.7 Europe 88.2 75.9 Middle east 9.8 16.3 Rest of world 28.9 44.5 International 420.4 333.4 United Kingdom 857.8 739.5 Total revenue 1,278.2 1,072.9 International revenue % 33% 31% Revenue from ‘home countries’ (UK, US and Australia) 1,151.3 936.2 Home countries revenue % 90% 87%
Notes to the Financial Statements continued
Financial Statements
37. Critical accounting estimates and judgements in applying accounting policies
Critical accounting estimates
The following commentary is intended to highlight key sources of estimation uncertainty that have a significant risk of resulting in a material
adjustment to the financial statements in the next financial year.
Estimated goodwill impairment
The Group tests annually whether goodwill has suffered any impairment. This process relies on the use of estimates of the future profitability
and cash flows of its cash generating units which may differ from the actual results delivered. In addition, the Group reviews whether identified
intangible assets have suffered any impairment. Further details on the sensitivity of the carrying value of goodwill to changes in the key
assumptions are set out in note 14.
Estimation of the Group’s defined benefit pension net surplus
The Group’s defined benefit pension obligations (and hence the net surplus) are based on key assumptions, including discount rates, mortality
and inflation. Management exercises its best judgement, in consultation with actuarial advisors, in selecting the values for these assumptions
that are the most appropriate to the Group. Small changes in these assumptions at the balance sheet date, individually or collectively, may
result in significant changes in the size of the net surplus/deficit. Further details of these assumptions and the sensitivity of the net pension
surplus to changes in these assumptions are set out in note 28.
In addition to the sensitivity of the liability side of the net pension surplus (which will impact the value of the net pension surplus) the net
pension surplus is also exposed to significant variation due to changes in the fair value of Scheme assets. A specific sensitivity on assets has
not been included in note 28 but any change in valuation of assets flows straight through to the value of the net pension surplus e.g. if equities
fall by £10m then the net pension surplus falls by £10m. The values of unquoted assets assume that an available buyer is willing to purchase
those assets at that value. For the Group’s portfolio of assets, the property portfolio of £76.6m, the unquoted corporate bonds of £98.0m and
the unquoted equities of £47.4m are the assets with most uncertainty as to valuation as at 31 March 2021 as a consequence of the economic
uncertainty caused by the COVID-19 pandemic.
Estimated value of tax assets and liabilities
The Group has significant levels of unused tax losses and US carried forward interest expense, of which £1.4m has been recognised as a
deferred tax asset at 31 March 2021, as set out in note 18. When estimating the appropriate amount that should be recognised, management
consider sources of taxable profits including the reversal of deferred tax liabilities and forecast future profits. This estimate is sensitive to
similar factors as goodwill, as set out in note 14. Within the current tax payable of £3.8m as at 31 March 2021, management include an
estimate of the impact of technical uncertainties associated with tax positions. To the extent that the outcome of a tax audit differs from the
tax that has been provided, a material adjustment could arise in a future period. Considering reasonably possible changes in forecast taxable
profits and developments with tax authorities, management consider the potential impact of changes in these tax estimates over the next 12
months could range between a £9m increase to a £1m decrease in net assets.
Critical accounting judgements
Specific, material judgements made by the Directors in applying the Group’s accounting policies are set out below:
Basis of consolidation
The Group comprises certain entities that are operated within the terms of a Special Security Arrangement (‘SSA’). Details of the SSA and
QinetiQ’s management of US subsidiaries are set out in the Corporate Governance section of this Annual Report. IFRS 10 is the accounting
standard applicable in respect of consolidation of entities. This does not specifically deal with SSA’s. However, having considered the terms
of the SSA, the Directors consider that the Group meets the requirements of IFRS 10 in respect of control over such affected entities and,
therefore, consolidates these entities in the consolidated accounts. The impact of this specific judgement is full consolidation as opposed to
treatment as a 100% associated undertaking. This would reduce Group revenue by a material amount (~£100m per annum) but would have
no impact on reported profit, which would include an equivalent amount of profit reported within Other Income as ‘Share of profits of joint
ventures and associates’.
Service delivery on a long-term contract
The Group is currently party to a specific contract with a customer that required certain activities to be performed within a specified duration.
Due to technical issues such activities can no longer reasonably be expected to complete within the currently contracted duration and QinetiQ
management have made the judgement that an extra period of one year will be granted by the customer to enable delivery of the currently
estimated volume of operations. Should such extension not be granted (and there are no indications that it won’t) and/or the expected level
of services not be delivered then a reduction in contract value would be expected. This could have a material revenue impact although the
profit impact would be partly mitigated by recourse to insurers and suppliers.
Annual Report & Accounts 2021
175
QinetiQ Group plc
175
Annual Report and Accounts 2021
Notes to the Financial Statements continued QinetiQ Group plc Annual Report and Accounts 2021 133 Financial Statements Revenue by major customer type For the year ended 31 March ‘Other’ does not contain any customers with revenue in excess of 10% of total Group revenue. The following table shows the aggregate amount of revenue allocated to performance obligations that are unsatisfied (or partially satisfied) as at the end of the reporting period: Management expects that 27% (£800.5m) of revenue allocated to unsatisfied contracts as of 31 March 2021 will be recognised as revenue during the next reporting period. The following table shows the aggregate amount of revenue allocated to performance obligations that were unsatisfied (or partially satisfied) as at the end of the prior reporting period: Revenue of £144m was recognised during the year that was previously unrecognised as at the previous year end and reported as a contract liability. 3. Segmental analysis The analysis by business segment is presented in accordance with IFRS 8 Operating Segments, on the basis of those reportable segments whose operating results are regularly reviewed by the Board (the Chief Operating Decision Maker as defined by IFRS 8) and are aligned with the Group’s strategic direction, determined with reference to the products and services they provide, as follows: EMEA Services provides technical assurance, test and evaluation and training services, underpinned by long-term contracts. EMEA Services comprises the following business units which are not considered reportable segments as defined by IFRS 8: Maritime & Land; Air & Space, Cyber & Information and the International business. Global Products combines all other business units not aggregated within EMEA Services, including the QinetiQ US business, Space Products and EMEA Products (which includes QinetiQ Target Systems). Generally these business units (which are not considered reportable segments as defined by IFRS 8) deliver innovative solutions and products which includes contract-funded research and development and developing intellectual property in partnership with key customers and through internal funding with potential for new revenue streams. Operating segments 1 The measure of profit presented to the Chief Operating Decision Maker is operating profit stated before specific adjusting items (‘underlying operating profit’). The specific adjusting items are detailed in note 4. 2 Definitions of the Group’s ‘Alternative performance measures’ can be found in the glossary on page 183. No measure of segmental assets and liabilities is reported as this information is not regularly provided to the Chief Operating Decision Maker. All figures in £ million 2021 2020 UK government 794.6 667.2 US government 140.8 116.2 Other 342.8 289.5 Total revenue 1,278.2 1,072.9 All figures in £ million 2022 2023 2024 2025+ Total Total forecast revenue allocated to unsatisfied performance obligations 800.5 523.9 395.9 1,223.8 2,944.1 All figures in £ million 2021 2022 2023 2024+ Total Total forecast revenue allocated to unsatisfied performance obligations 849.3 484.9 375.5 1,395.2 3,104.9 2021 2020 All figures in £ million Revenue from external customers Underlying operating profit1 Revenue from external customers Underlying operating profit1 EMEA Services 939.9 118.6 797.4 100.6 Global Products 338.3 33.2 275.5 32.6 Total operating segments 1,278.2 151.8 1,072.9 133.2 Underlying operating margin2 11.9% 12.4% Financial Statements
Company balance sheet
Company balance sheet
Company balance sheet
As at 31 March
As at 31 March
As at 31 March
All figures in £ million
Fixed assets
All figures in £ million
Investments in subsidiary undertaking
All figures in £ million
Fixed assets
Fixed assets
Investments in subsidiary undertaking
Current liabilities
Investments in subsidiary undertaking
Creditors: amounts falling due within one year
Current liabilities
Net current liabilities
Current liabilities
Creditors: amounts falling due within one year
Total assets less current liabilities
Creditors: amounts falling due within one year
Net current liabilities
Net current liabilities
Total assets less current liabilities
Net assets
Total assets less current liabilities
Net assets
Equity
Net assets
Share capital
Equity
Capital redemption reserve
Equity
Share capital
Share premium
Share capital
Capital redemption reserve
Retained earnings
Capital redemption reserve
Share premium
Total equity
Share premium
Retained earnings
Retained earnings
Total equity
The profit for the year ended 31 March 2021 was £45.0m (2020: profit of £47.4m).
Total equity
Note
Note
2
Note
2
2
3
3
3
4
4
4
2021
2020
2021
507.4
2021
507.4
507.4
507.4
507.4
(72.9)
507.4
(72.9)
(72.9)
434.5
(72.9)
(72.9)
(72.9)
434.5
434.5
434.5
434.5
434.5
5.7
40.8
5.7
147.6
5.7
40.8
240.4
40.8
147.6
434.5
147.6
240.4
240.4
434.5
434.5
2020
482.5
2020
482.5
482.5
482.5
482.5
(70.6)
482.5
(70.6)
(70.6)
411.9
(70.6)
(70.6)
(70.6)
411.9
411.9
411.9
411.9
411.9
5.7
40.8
5.7
147.6
5.7
40.8
217.8
40.8
147.6
411.9
147.6
217.8
217.8
411.9
411.9
The profit for the year ended 31 March 2021 was £45.0m (2020: profit of £47.4m).
The financial statements of QinetiQ Group plc (company number 4586941) were approved by the Board of Directors and authorised for
The profit for the year ended 31 March 2021 was £45.0m (2020: profit of £47.4m).
issue on 20 May 2021 and were signed on its behalf by:
The financial statements of QinetiQ Group plc (company number 4586941) were approved by the Board of Directors and authorised for
The financial statements of QinetiQ Group plc (company number 4586941) were approved by the Board of Directors and authorised for
issue on 20 May 2021 and were signed on its behalf by:
issue on 20 May 2021 and were signed on its behalf by:
Steve Wadey
Chief Executive Officer
Steve Wadey
Steve Wadey
Chief Executive Officer
Chief Executive Officer
David Smith
Chief Financial Officer
David Smith
David Smith
Chief Financial Officer
Chief Financial Officer
176
176
176
176
QinetiQ Group plc
QinetiQ Group plc
Annual Report and Accounts 2021
QinetiQ Group plc
QinetiQ Group plc
Annual Report and Accounts 2021
Annual Report and Accounts 2021
Company statement of changes in equity
Company statement of changes in equity
Company statement of changes in equity
For the year ended 31 March
For the year ended 31 March
For the year ended 31 March
Financial Statements
Financial Statements
Financial Statements
All figures in £ million
All figures in £ million
All figures in £ million
At 1 April 2020
At 1 April 2020
At 1 April 2020
Profit for the year
Profit for the year
Profit for the year
Purchase of own shares
Purchase of own shares
Purchase of own shares
Shares settled liabilities
Shares settled liabilities
Shares settled liabilities
Dividend paid
Dividend paid
Dividend paid
Share-based payments
Share-based payments
Share-based payments
At 31 March 2021
At 31 March 2021
At 31 March 2021
Share
Share
capital
Share
capital
capital
5.7
5.7
5.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
55..77
55..77
55..77
Capital
Capital
redemption
Capital
redemption
reserve
redemption
reserve
reserve
40.8
40.8
40.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4400..88
4400..88
4400..88
Share
Share
premium
Share
premium
premium
147.6
147.6
147.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
114477..66
114477..66
114477..66
147.6
At 1 April 2019
147.6
At 1 April 2019
147.6
At 1 April 2019
–
Profit for the year
–
Profit for the year
–
Profit for the year
–
Purchase of own shares
–
Purchase of own shares
–
Purchase of own shares
–
Dividend paid
–
Dividend paid
–
Dividend paid
–
Share-based payments
–
Share-based payments
–
Share-based payments
At 31 March 2020
147.6
At 31 March 2020
147.6
At 31 March 2020
147.6
The capital redemption reserve is not distributable and was created following redemption of preference share capital.
The capital redemption reserve is not distributable and was created following redemption of preference share capital.
The capital redemption reserve is not distributable and was created following redemption of preference share capital.
40.8
40.8
40.8
–
–
–
–
–
–
–
–
–
–
–
–
40.8
40.8
40.8
5.7
5.7
5.7
–
–
–
–
–
–
–
–
–
–
–
–
5.7
5.7
5.7
Retained
Retained
earnings
Retained
earnings
earnings
217.8
217.8
217.8
45.0
45.0
45.0
(9.0)
(9.0)
(9.0)
13.7
13.7
13.7
(37.7)
(37.7)
(37.7)
10.6
10.6
10.6
240.4
240.4
240.4
202.3
202.3
202.3
47.4
47.4
47.4
(0.7)
(0.7)
(0.7)
(38.0)
(38.0)
(38.0)
6.8
6.8
6.8
217.8
217.8
217.8
Total
Total
equity
Total
equity
equity
411.9
411.9
411.9
45.0
45.0
45.0
(9.0)
(9.0)
(9.0)
13.7
13.7
13.7
(37.7)
(37.7)
(37.7)
10.6
10.6
10.6
434.5
434.5
434.5
396.4
396.4
396.4
47.4
47.4
47.4
(0.7)
(0.7)
(0.7)
(38.0)
(38.0)
(38.0)
6.8
6.8
6.8
411.9
411.9
411.9
QinetiQ Group plc
QinetiQ Group plc
QinetiQ Group plc
177
177
Annual Report & Accounts 2021
177
Annual Report and Accounts 2020
Annual Report and Accounts 2020
Annual Report and Accounts 2020
177
Financial Statements
Notes to the Company Financial Statements
Notes to the Company Financial Statements
1. Accounting policies
The Company is a public limited company and is incorporated and domiciled in United Kingdom.
1. Accounting policies
The Company is a public limited company and is incorporated and domiciled in United Kingdom.
The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the
Company’s financial statements.
The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the
Company’s financial statements.
Basis of preparation
The financial statements have been prepared on a going concern basis under the historical cost convention and in accordance with applicable
Basis of preparation
UK Accounting Standards. As permitted by section 408(4) of the Companies Act 2006, a separate profit and loss account dealing with the
The financial statements have been prepared on a going concern basis under the historical cost convention and in accordance with applicable
results of the Company has not been presented.
UK Accounting Standards. As permitted by section 408(4) of the Companies Act 2006, a separate profit and loss account dealing with the
results of the Company has not been presented.
These financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework. In preparing
these financial statements, the Company is in accordance with International Accounting Standards in conformity with the requirements of
These financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework. In preparing
the Companies Ace 2006 and the International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies
these financial statements, the Company is in accordance with International Accounting Standards in conformity with the requirements of
in the EU but makes amendments where necessary in order to comply with Companies Act 2006 and has set out below where advantage of
the Companies Ace 2006 and the International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies
the FRS 101 disclosure exemptions has been taken.
in the EU but makes amendments where necessary in order to comply with Companies Act 2006 and has set out below where advantage of
the FRS 101 disclosure exemptions has been taken.
– A cash flow statement and related notes
– Disclosures in respect of capital management
– A cash flow statement and related notes
– The effects of new but not yet effective IFRSs
– Disclosures in respect of capital management
– Disclosures in respect of the compensation of key management personnel
– The effects of new but not yet effective IFRSs
– IAS 24 in respect of related party transactions entered into between two or more members of a group
– Disclosures in respect of the compensation of key management personnel
– IFRS 2 Share Based Payments in respect of Group-settled share-based payments
– IAS 24 in respect of related party transactions entered into between two or more members of a group
– Certain disclosures required by IFRS 13 Fair Value Measurement and the disclosures required by IFRS 7.
– IFRS 2 Share Based Payments in respect of Group-settled share-based payments
– Certain disclosures required by IFRS 13 Fair Value Measurement and the disclosures required by IFRS 7.
Investments
In the Company’s financial statements, investments in subsidiary undertakings are stated at cost less any impairment in value.
Investments
In the Company’s financial statements, investments in subsidiary undertakings are stated at cost less any impairment in value.
Share-based payments
The cost of share-based payments in respect of employees of Group subsidiaries is charged to those subsidiary undertakings. In the Company
Share-based payments
financial statements the recoverable from subsidiaries is credited directly to equity as a capital contribution. The fair value of equity-settled
The cost of share-based payments in respect of employees of Group subsidiaries is charged to those subsidiary undertakings. In the Company
awards for share-based payments is determined on grant and expensed in subsidiary undertakings (and credited to equity in the Company)
financial statements the recoverable from subsidiaries is credited directly to equity as a capital contribution. The fair value of equity-settled
on a straight line basis over the period from grant to the date of earliest unconditional exercise. The charges for equity-settled share-based
awards for share-based payments is determined on grant and expensed in subsidiary undertakings (and credited to equity in the Company)
payments are updated annually for non-market-based vesting conditions. Further details of the Group’s share-based payment charge are
on a straight line basis over the period from grant to the date of earliest unconditional exercise. The charges for equity-settled share-based
disclosed in note 30 to the Group financial statements.
payments are updated annually for non-market-based vesting conditions. Further details of the Group’s share-based payment charge are
disclosed in note 30 to the Group financial statements.
2. Investments in subsidiary undertakings
As at 31 March
2. Investments in subsidiary undertakings
As at 31 March
2020
All figures in £ million
424.3
Subsidiary undertaking – 100% of ordinary share capital of QinetiQ Group Holdings Limited
2020
All figures in £ million
58.2
Capital contributions arising from share-based payments to employees of subsidiaries
424.3
Subsidiary undertaking – 100% of ordinary share capital of QinetiQ Group Holdings Limited
–
Capital contributions arising from share-settled liabilities
58.2
Capital contributions arising from share-based payments to employees of subsidiaries
Total investment in subsidiary undertakings
482.5
–
Capital contributions arising from share-settled liabilities
Total investment in subsidiary undertakings
482.5
The increase in investments in subsidiary undertakings in 2021 relates to £11.2m of equity-settled schemes during the year and share settled
liabilities of £13.7m in relation to 2020 settlement of bonus incentives in shares.
The increase in investments in subsidiary undertakings in 2021 relates to £11.2m of equity-settled schemes during the year and share settled
liabilities of £13.7m in relation to 2020 settlement of bonus incentives in shares.
A list of all subsidiary undertakings of QinetiQ Group plc is disclosed in note 35 to the Group financial statements.
2021
424.3
2021
69.4
424.3
13.7
69.4
507.4
13.7
507.4
A list of all subsidiary undertakings of QinetiQ Group plc is disclosed in note 35 to the Group financial statements.
3. Creditors: amounts falling due within one year
As at 31 March
3. Creditors: amounts falling due within one year
As at 31 March
All figures in £ million
Amounts owed to Group undertakings
All figures in £ million
Amounts owed to Group undertakings
Amounts owed to Group undertakings are unsecured, repayable on demand and bear no interest.
Amounts owed to Group undertakings are unsecured, repayable on demand and bear no interest.
2021
72.9
2021
72.9
2020
70.6
2020
70.6
178
178
178
QinetiQ Group plc
QinetiQ Group plc
Annual Report and Accounts 2021
QinetiQ Group plc
Annual Report and Accounts 2021
Financial Statements
Financial Statements
Notes to the Company Financial Statements
Notes to the Company Financial Statements
4. Share capital
4. Share capital
The Company’s share capital is disclosed in note 29 to the Group financial statements.
The Company’s share capital is disclosed in note 29 to the Group financial statements.
5. Share-based payments
5. Share-based payments
The Company’s share-based payment arrangements are set out in note 30 to the Group financial statements.
The Company’s share-based payment arrangements are set out in note 30 to the Group financial statements.
6. Parent company guarantees
6. Parent company guarantees
The Company has provided guarantees to various customers of subsidiaries to the value of £21.0m (2020: £21.0m) in the ordinary course
The Company has provided guarantees to various customers of subsidiaries to the value of £21.0m (2020: £21.0m) in the ordinary course
of business.
of business.
7. Other information
7. Other information
Directors’ emoluments, excluding Company pension contributions, were £5.9m (2020: £4.4m). These emoluments were all in relation to
Directors’ emoluments, excluding Company pension contributions, were £5.9m (2020: £4.4m). These emoluments were all in relation to
services provided on behalf of the QinetiQ Group with no amount specifically relating to their work for the Company. Details of the Directors’
services provided on behalf of the QinetiQ Group with no amount specifically relating to their work for the Company. Details of the Directors’
emoluments, share schemes and entitlements under money purchase pension schemes are disclosed on page 99 in the Remuneration Report.
emoluments, share schemes and entitlements under money purchase pension schemes are disclosed on page 99 in the Remuneration Report.
The remuneration of the Company’s auditor for the year to 31 March 2021 was £0.4m (2020: £0.4m), which was for audit of the Group
The remuneration of the Company’s auditor for the year to 31 March 2021 was £0.4m (2020: £0.4m), which was for audit of the Group
financial statements and Company financial statements and audit related assurance services. No other services were provided by the auditors
financial statements and Company financial statements and audit related assurance services. No other services were provided by the auditors
to the Company.
to the Company.
The monthly average number of employees for the year to 31 March 2021 was nil (2020: nil).
The monthly average number of employees for the year to 31 March 2021 was nil (2020: nil).
QinetiQ Group plc
QinetiQ Group plc
179
Annual Report & Accounts 2021
179
Annual Report and Accounts 2020
Annual Report and Accounts 2020
179
Financial Statements
Five Year Record
Five Year Record
For the years ended 31 March (unaudited)
For the years ended 31 March (unaudited)
EMEA Services
EMEA Services
Global Products
Global Products
Revenue
Revenue
EMEA Services
EMEA Services
Global Products
Global Products
Underlying operating profit1
Underlying operating profit1
Underlying operating margin1
Underlying operating margin1
2021
2021
939.9
939.9
338.3
338.3
1,278.2
1,278.2
118.6
118.6
33.2
33.2
151.8
151.8
11.9
11.9
2020
2020
797.4
797.4
275.5
275.5
1,072.9
1,072.9
100.6
100.6
32.6
32.6
133.2
133.2
12.4
12.4
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
%
%
2019
2019
687.7
687.7
223.4
223.4
911.1
911.1
96.8
96.8
28.1
28.1
124.9
124.9
13.7
13.7
2018
2018
651.4
651.4
181.6
181.6
833.0
833.0
94.3
94.3
28.2
28.2
122.5
122.5
14.7
14.7
Operating profit
Operating profit
Underlying profit before tax1
Underlying profit before tax1
Profit before tax
Profit before tax
Profit attributable to owners of the Company
Profit attributable to owners of the Company
Underlying basic EPS1 attributable to owners of the Company
Underlying basic EPS1 attributable to owners of the Company
Basic EPS attributable to owners of the Company
Basic EPS attributable to owners of the Company
Diluted EPS attributable to owners of the Company
Diluted EPS attributable to owners of the Company
Dividend per share
Dividend per share
Underlying net cash flow from operations 1
Underlying net cash flow from operations 1
Net cash as defined by the Group
Net cash as defined by the Group
Average number of employees
Average number of employees
Orders excluding LTPA amendments
Orders excluding LTPA amendments
1 Underlying measures are stated before specific adjusting items. Definitions of underlying measures of performance are provided on page 183. Underlying financial
1 Underlying measures are stated before specific adjusting items. Definitions of underlying measures of performance are provided on page 183. Underlying financial
112.3
112.3
149.9
149.9
146.2
146.2
124.5
124.5
22.1
22.1
21.9
21.9
21.6
21.6
6.9
6.9
199.0
199.0
164.1
164.1
6,874
6,874
1,151.0
1,151.0
114.8
114.8
124.0
124.0
123.2
123.2
113.9
113.9
19.7
19.7
20.1
20.1
20.0
20.0
6.6
6.6
135.3
135.3
160.5
160.5
5,994
5,994
776.4
776.4
117.6
117.6
132.2
132.2
123.1
123.1
106.3
106.3
20.0
20.0
18.7
18.7
18.6
18.6
6.6
6.6
177.8
177.8
84.7
84.7
6,267
6,267
972.1
972.1
141.0
141.0
122.1
122.1
144.8
144.8
138.1
138.1
19.3
19.3
24.4
24.4
24.3
24.3
6.3
6.3
126.5
126.5
266.8
266.8
6,143
6,143
587.2
587.2
£m
£m
£m
£m
£m
£m
£m
£m
Pence
Pence
Pence
Pence
Pence
Pence
Pence
Pence
£m
£m
£m
£m
measures are presented because the Board believes these provide a better representation of the Group’s long-term performance trend. For details of specific adjusting
measures are presented because the Board believes these provide a better representation of the Group’s long-term performance trend. For details of specific adjusting
items refer to note 4 and note 36 of the financial statements.
items refer to note 4 and note 36 of the financial statements.
£m
£m
2017
2017
613.5
613.5
169.6
169.6
783.1
783.1
92.7
92.7
23.6
23.6
116.3
116.3
14.9
14.9
132.7
132.7
116.1
116.1
131.5
131.5
123.3
123.3
18.1
18.1
21.5
21.5
21.3
21.3
6.0
6.0
111.9
111.9
221.9
221.9
6,114
6,114
675.3
675.3
180
180
180
QinetiQ Group plc
QinetiQ Group plc
QinetiQ Group plc
Annual Report and Accounts 2021
Annual Report and Accounts 2021
Additional Financial Information
Foreign exchange
The principal exchange rates affecting the Group were the Sterling
to US Dollar exchange rate and the Sterling to Australian Dollar rate.
£/US$ – opening
£/US$ – average
£/US$ – closing
£/A$ – opening
£/A$ – average
£/A$ – closing
12 months to
31 March 2021
12 months to
31 March 2020
1.24
1.31
1.38
2.03
1.84
1.81
1.30
1.27
1.24
1.83
1.86
2.03
Treasury policy
The Group treasury department works within a framework of
policies and procedures approved by the Audit Committee. There
is a structured approach to financial risk management, mitigating
exposures to currency, liquidity, counterparty and credit risks
as outlined in note 27. The policy supports the use of financial
instruments to manage and hedge business operations risks that
arise on movements in financial, credit or money markets. As
part of these policies and procedures, there is strict control on
the use of financial instruments. Speculative trading in financial
instruments is not permitted.
• Currency risk – The Group’s income and expenditure is largely
settled in the functional currency of the relevant Group entity.
However, where cash flows are denominated in currencies other
than the functional currency of the relevant trading entity, the
Group has a policy in place to hedge all material transaction
exposure at the point of commitment to the underlying
transaction. Uncommitted future transactions are not routinely
hedged. Where the timing of cash flows differ from the original
expectation, the Group will enter into currency swaps to realign
the hedge maturity. The maximum permitted hedge period
is 5 years. The Group does not hedge translation exposures
arising from the consolidation of overseas subsidiaries in foreign
currencies.
• Financial credit and liquidity risk – The Group manages liquidity
risk to ensure funds are available to meet business needs and
maximise return while managing counterparty and credit risks.
Investments are permitted with institutions on an Approved
Counterparty list and not to exceed the counterparty credit limit.
Investments must be held in the currency of the reporting entity
except currency deposits or borrowings specifically placed to
hedge assets or liabilities with related hedge documentation.
Group funding is established to meet the Group’s medium and
long-term financing requirements. Facilities are agreed with a
number of financial institutions such that no single institution
exerts undue influence on the Group. At the year end the Group
had an undrawn revolving credit facility of £275m of which £65m
matures on 27 September 2024 and £210m matures on 27
September 2025.
The policies are established to manage and control risk in the
treasury environment and to align the treasury goals, objectives
and philosophy of the Group.
Tax risk management
QinetiQ’s tax strategy, as published on its corporate website, is to
ensure compliance with all relevant tax legislation, wherever we
do business, whilst managing our effective tax rates and tax cash
flows. Tax is managed in alignment with our corporate responsibility
strategy in that we strive to be responsible in all our business
dealings with a zero tolerance of tax evasion. These principles are
applied in a consistent and transparent manner in pursuing the tax
strategy and in all dealings with tax authorities around the world.
• Tax planning – QinetiQ manages both effective tax rate
(ETR) and cash tax impacts in line with the Board-endorsed
tax strategy. External advice and consultation are sought
on potential changes in tax legislation in the UK, the US and
elsewhere as necessary, enabling the Group to plan for and
mitigate potential changes. QinetiQ does not make use of
‘off-shore’ entities or tax structures to focus taxable profits in
jurisdictions that legislate for low tax rates.
• Relationships with tax authorities – QinetiQ is committed to
building constructive working relationships with tax authorities
based on a policy of full disclosure in order to remove uncertainty
in its business transactions and allow the authorities to
review possible risks. In the UK, QinetiQ seeks to be open and
transparent in its engagement with the tax authorities by sharing
with HMRC the methodologies adopted in its tax returns.
• Transfer pricing – QinetiQ does not have a significant level of
cross-border activity but this will increase as it pursues its policy
of expanding around the globe. Where there is cross-border
activity, controls are in place to ensure pricing reflects ‘arm’s
length’ principles in compliance with the OECD Transfer Pricing
Guidelines and the laws of the relevant jurisdictions. The Group
does not, therefore, have a significant exposure to transfer
pricing legislation. QinetiQ submits its ‘Country by Country’
report to the UK tax authorities in line with the OECD rules
providing insight for tax authorities into its global tax affairs.
• Governance – The Board has approved this approach. The Audit
Committee oversees the tax affairs and risks through periodic
reviews. The governance framework is used to manage tax
risks, establish controls and monitor their effectiveness. The
Head of Tax is responsible for ensuring that appropriate policies,
processes and systems are in place and that the tax team has
the required skills and support to implement this approach.
QinetiQ’s corporate tax contribution – QinetiQ is liable to pay tax
in the countries in which it operates, principally the UK, the US,
Australia, Canada, Germany and Belgium. Changes in tax legislation
in these countries could have an adverse impact on the level of tax
paid on profits generated by the Group. A significant majority of the
Group’s profit before tax is generated in the UK. This reflects the
fact that the majority of the Group’s business is undertaken, and
employees are based, in the UK. Total corporation tax payments in
the year to 31 March 2021 were £15.0m (2020: £10.0m).
The differential between the taxation expense and the tax paid in
the year relates primarily to the timing of the recovery of research
and development expenditure credits for which the cash is
recovered in the year following the year of account. There is also an
impact of deferred tax movements, whereby the income statement
bears charges and credits (e.g. in respect of property, plant and
equipment) but for which there is no corporation tax paid in the
year. Together, these result in the cash paid being £6.5m less than
the total expense charged to the income statement.
Annual Report & Accounts 2021
181
Other Information
Glossary
AGM
BBP
Annual General Meeting
Bonus Banking Plan
CAGR
Compound Annual Growth Rate
C4ISR
Command, control, communications, computers,
intelligence, surveillance and reconnaissance
COTS
Commercial off the shelf
CPI
CR
CRC
CSR
Consumer Price Index
Corporate Responsibility
Carbon Reduction Commitment
Corporate Social Responsibility
DE&S MOD’s Defence, Equipment and Support organisation
DHS
DSP
DoD
US Department of Homeland Security
Deferred Share Plan
US Department of Defense
EBITDA
Earnings before interest, tax, depreciation and
amortisation
LTPA
MDP
MOD
Long Term Partnering Agreement – 25-year contract
established in 2003 to manage the MOD’s Test and
Evaluation ranges
Modernising Defence Programme
UK Ministry of Defence
MSCA Maritime Strategic Capability Agreement
NCSISS Naval Combat System Integration Support Services
OHSAS Occupational Health and Safety Advisory Services
PDR
PBT
PSP
QNA
Performance development review
Profit before tax
Performance Share Plan
QinetiQ North America
QSOS
QinetiQ Share Option Scheme
QTS
R&D
QinetiQ Target Systems
Research and development
RDEC
Research and development expenditure credit
ED&I
EDP
Equality, diversity and inclusion
Engineering Delivery Partner
SE
SPA
Strategic Enterprise
Special protection area
EMEA
Europe, Middle East and Australasia
SSRO
Single Source Regulations Office
SSSI
Site of Special Scientific Interest
STEM
Science, Technology, Engineering and Maths
T&E
T&R
TSR
UAV
Test and Evaluation
Training and Rehearsal
Total shareholder return
Unmanned aerial vehicle
UK Corporate Governance Code
Guidelines of the Financial Reporting Council to
address the principal aspects of corporate governance
in the UK
UK GAAP
UK Generally Accepted Accounting Practice
EPS
ESA
Earnings per share
European Space Agency
ESOS
Energy Savings Opportunity Scheme
EST
FAR
FCA
FMI
Engineering, Science and Technical
Federal Acquisition Regulations
Financial Conduct Authority
Foster-Miller, Inc. – the legal entity through which the
QNA business operates
Funded order backlog
The expected future value of revenue from
contractually committed and funded customer orders
GEV Global Employee Voice
GHG
IAS
Greenhouse gas
International Accounting Standards
IBDM
International Berthing and Docking Mechanism
IFRS
IRAD
KPI
LDP
International Financial Reporting Standards
Internal research and development
Key Performance Indicator
Leadership development programme
LIBID
London inter-bank bid rate
LIBOR
London inter-bank offered rate
LTI
Lost time incident
182
QinetiQ Group plc
Alternative performance measures (APMs)
The Group uses various non-statutory measures of performance, or APMs. Such APMs are used by management internally to monitor
and manage the Group’s performance and also allow the reader to obtain a proper understanding of performance (in conjunction
with statutory financial measures of performance). The APMs used by QinetiQ are set out below:
Measure
Organic growth
Underlying
operating profit
Underlying
operating margin
Underlying net finance
income/expense
Underlying profit before/
after tax
Underlying effective
tax rate
Underlying basic and
diluted EPS
Orders
Backlog, funded backlog
or order book
Book to bill ratio
Underlying net cash flow
from operations
Underlying operating
cash conversion or cash
conversion ratio
Free cash flow
Explanation
The level of year-on-year growth, expressed as a percentage, calculated at constant prior year foreign
exchange rates, adjusting for business acquisitions and disposals to reflect equivalent composition of
the Group
Operating profit as adjusted to exclude ‘specific adjusting items’
Underlying operating profit expressed as a percentage of revenue
Net finance income/expense as adjusted to exclude ‘specific adjusting items’
Profit before/after tax as adjusted to exclude ‘specific adjusting items’
The tax charge for the year excluding the tax impact of ‘specific adjusting items’ expressed as a
percentage of underlying profit before tax
Note
Note 2
Note 3
Note 3
Note 7
Note 4
Note 9
Basic and diluted earnings per share as adjusted to exclude ‘specific adjusting items’
Note 10
The level of new orders (and amendments to existing orders) booked in the year. Includes share of
orders won by joint ventures.
The expected future value of revenue from contractually committed and funded customer orders
Ratio of funded orders received in the year to revenue for the year, adjusted to exclude revenue from
the 25-year LTPA contract due to significant size and timing differences of LTPA order and revenue
recognition which may distort the ratio calculation
Net cash flow from operations before cash flows of specific adjusting items.
The ratio of underlying net cash from operations to underlying operating profit
Underlying net cash flow from operations less net tax and interest payments less purchases of
intangible assets and property, plant and equipment. Plus proceeds from disposal of plant and
equipment.
Net cash
Net cash as defined by the Group combines cash and cash equivalents with other financial assets and
liabilities, primarily available for sale investments, derivative financial instruments and finance lease
assets/liabilities.
Specific adjusting items
Amortisation of intangible assets arising from acquisitions; impairment of property; gains/losses on
disposal of property and investments; net pension finance income; transaction and integration costs
in respect of business acquisitions; tax impact of the preceding items and significant non-recurring
deferred tax movements.
N/A
N/A
N/A
Note 25
Note 25
Note 25
Note 24
Note 4
Annual Report & Accounts 2021
183
Other Information Shareholder Information
Registrar: Equiniti Limited
www.shareview.co.uk
Tel: 0371 384 2021
Shareholding enquiries
The Company’s registrar is Equiniti. Enquiries regarding your
shareholding, including the following administrative matters,
should be addressed to Equiniti:
• Change of personal details such as change of name
or address
• Lost share certificates
• Dividend payment enquiries
• Direct dividend payments. You can have your dividends
paid directly into a UK bank or building society account by
completing a dividend mandate form. The associated dividend
confirmation will still be sent to your registered address. If you
live outside the UK, Equiniti offers a global payments service
which is available in certain countries and could enable you to
receive your dividends direct into your bank account in your
local currency
Contact details for registrar
By post:
Equiniti Limited, Aspect House, Spencer Road Lancing,
West Sussex BN99 6DA
By telephone:
0371 384 2021* for UK calls,
+44 (0)121 415 7576 for calls from outside the UK.
* Lines are open 8.30am to 5.30pm (UK time), Monday to Friday
(excluding public holidays in England and Wales).
By email:
You can send an email enquiry securely from Equiniti’s website,
at help.shareview.co.uk
Analysis of share register at 31 March 2021
Online:
Equiniti’s website at help.shareview.co.uk (Shareview) includes
answers to frequently asked questions and provides key forms
for download. Shareview also offers online access to your
shareholding where you can manage your account, register for
electronic communications, see details of balance movements
and complete certain amendments online, such as changes
to dividend mandate instructions. You can register at
www.shareview.co.uk, click on ‘Register’ and follow the steps.
Electronic communications
Following the latest guidance from the Department for Business,
Energy & Industrial Strategy (BEIS) in assisting companies to
meet their statutory obligations during the COVID-19 pandemic,
the Company will this year only make documentation and
communication available electronically via the Company’s
website. In addition, communications electronically, via the
wider use of electronic communications enables fast receipt
of documents, reduces the Company’s printing, paper and
postal costs and reduces the Company’s environmental impact.
Shareholders can register for electronic communications at
www.shareview.co.uk and may also cast their vote for the 2021
Annual General Meeting online quickly and easily using the
Sharevote service by visiting www.sharevote.co.uk
Donating shares to charity – ShareGift
Small parcels of shares, which may be uneconomic to sell on
their own, can be donated to ShareGift, the share donation
charity (registered charity no. 1052686). ShareGift transfers
these holdings into their name, aggregates them, and uses the
proceeds to support a wide range of UK charities based on donor
suggestion. If you would like further details about ShareGift,
please visit www.sharegift.org, email help@sharegift.org or
telephone them on 020 7930 3737.
Share price
Details of current and historical share prices can be found on the
Company’s website at www.QinetiQ.com/investors
By type of holder
Individual
Institutions and others
Total
By size of holding
1–500
501–1,000
1,001–2,500
2,501–5,000
5,001–10,000
10,001–100,000
Over 100,000
Total
184
QinetiQ Group plc
Total number of holdings
Percentage of holders
Total number of shares
Percentage issued
capital
5,299
695
5,994
3,915
528
606
343
171
213
218
5,994
88.41%
11.59%
100%
65.32%
8.81%
10.11%
5.72%
2.85%
3.55%
3.64%
100%
5,262,650
568,994,471
574,257,121
760,907
423,993
1,058,364
1,241,341
1,259,368
7,239,900
562,273,248
574,257,121
0.92%
99.08%
100%
0.13%
0.07%
0.18%
0.22%
0.22%
1.26%
97.92%
100%
Share fraud reporting: www.fca.org.uk/scams
FCA Consumer Helpline: 0800 111 6768
Beware of share fraud
Fraudsters use persuasive and high-pressure tactics to lure
investors into scams. They may offer to sell shares that turn out
to be worthless or non-existent, or to buy shares at an inflated
price in return for an upfront payment. While high profits are
promised, if you buy or sell shares in this way you will probably
lose your money.
How to avoid share fraud
1. Keep in mind that firms authorised by the FCA are unlikely
to contact you out of the blue with an offer to buy or
sell shares.
2. Do not get into a conversation, note the name of the person
and firm contacting you and then end the call.
3. Check the Financial Services Register from www.fca.org.uk
to see if the person and firm contacting you is authorised
by the FCA.
4. Beware of fraudsters claiming to be from an authorised firm,
copying its website or giving you false contact details.
5. Use the firm’s contact details listed on the Register if you
want to call it back.
6. Call the FCA on 0800 111 6768 if the firm does not have
contact details on the Register or you are told they are
out of date.
7. Search the list of unauthorised firms to avoid at
www.fca.org.uk/scams.
8. Consider that if you buy or sell shares from an unauthorised
firm you will not have access to the Financial Ombudsman
Service or Financial Services Compensation Scheme.
9. Think about getting independent financial and professional
advice before you hand over any money.
10. Remember: if it sounds too good to be true, it probably is!
Report a scam
If you are approached by fraudsters please tell the FCA using the
share fraud reporting form at www.fca.org.uk/scams, where you
can find out more about investment scams. You can also call the
FCA Consumer Helpline on 0800 111 6768.
If you have already paid money to share fraudsters you should
contact Action Fraud on 0300 123 2040.
Other Information
Key dates
21 July 2021
21 July 2021
Trading update
Annual General Meeting
30 September 2021
Half-year financial period end
11 November 2021
Half-year results announcement
January 2022
31 March 2022
19 May 2022
Trading update (provisional date)
Financial year end
Preliminary results announcement
Cautionary statement
All statements other than statements of historical fact included in
this Annual Report, including, without limitation, those regarding
the financial condition, results, operations and businesses of
QinetiQ and its strategy, plans and objectives and the markets and
economies in which it operates, are forward-looking statements.
Such forward-looking statements, which reflect management’s
assumptions made on the basis of information available to it at
this time, involve known and unknown risks, uncertainties and
other important factors which could cause the actual results,
performance or achievements of QinetiQ or the markets and
economies in which QinetiQ operates to be materially different
from future results, performance or achievements expressed
or implied by such forward-looking statements. Nothing in this
Annual Report should be regarded as a profit forecast.
This Annual Report is intended to provide information to
shareholders and is not designed to be relied upon by any
other party. The Company and its Directors accept no liability
to any other person other than under English law.
Company Information
and Advisors
Registered office
Cody Technology Park,
Ively Road, Farnborough,
Hampshire, GU14 0LX
Tel: +44 (0) 1252 392000
Company Registration
Number: 4586941
Corporate brokers
Barclays, 1 Churchill Place,
London, EC14 5HP
Numis, 10 Paternoster Square
London, EC4M 7LT
Independent auditors
PricewaterhouseCoopers LLP,
Savannah House, 3 Ocean Way,
Southampton, SO14 3TJ
Principal legal advisor
Ashurst LLP, London Fruit and
Wool Exchange, 1 Duval Square,
London, E1 6PW
Registrar
Equiniti, Aspect House,
Spencer Road, Lancing,
West Sussex, BN99 6DA
Printer paper stock detail:
Printed to the EMAS standard and its Environmental Management System is certified to ISO 14001. This publication has been manufactured using 100% offshore
wind electricity sourced from UK wind. 100% of the inks used are vegetable oil based, 95% of press chemicals are recycled for further use and, on average
99% of any waste associated with this production will be recycled and the remaining 1% used to generate energy. This document is printed on Revive
100% Offset paper containing 100% recycled fibre. The FSC® label on this product ensures responsible use of the world’s forest resources.
Annual Report & Accounts 2021
185
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Cody Technology Park
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Tel: +44 (0) 1252 392000
Company Registration Number: 4586941