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QinetiQ Group plc Annual Report and Accounts 2013 Accounts Report and Annual plc Group QinetiQ Committed to delivering value QinetiQ Group plc Annual Report and Accounts 2013 Performance highlights Robust Group performance in tough markets Revenue Net cash/(debt) £1,327.8m £74.0m 2013 £1,327.8m 2013 £74.0m 2012 £1,469.6m 2012 (£122.2m) Underlying operating profit* Underlying operating margin* £168.7m 12.7% 2013 £168.7m 2013 12.7% 2012 £159.6m^ 2012 10.9%^ Underlying operating cash conversion* Underlying earnings per share* 104% 18.9p 2013 104% 2013 18.9p 2012 148%^ 2012 13.6p^ Total dividend (Loss)/profit after tax 3.80p (£133.2m) 2013 3.80p 2013 (£133.2m) 2012 2.90p 2012 £246.3m^ 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. Note: Year references (2013 and 2012) relate to the year ended 31 March. * Definitions of underlying measures of performance can be found in the glossary on page 116. ˄ IAS 19 (revised) ‘Employee benefits’ has been adopted for 2013 and the 2012 comparatives have been restated accordingly. Overview Who we are Overview 1 Introduction We are experts in defence, aerospace and security. 2 Group overview We employ more than 9,000 people worldwide, 4 Chairman’s statement and our scientists and engineers solve some of Business review 5 Chief Executive’s review the world’s most important problems. review Business 8 Strategy and business model 12 Key performance indicators What we do 14 Operations review – UK Services We offer high-end technical knowledge underpinned by 18 Operations review – US Services 22 Operations review – Global Products world-class research and innovation. We supply advice, 24 Chief Financial Officer’s review assurance, test and evaluation, engineering solutions 30 Risks and uncertainties governance Corporate 34 Corporate responsibility and training. and sustainability review Corporate governance Why we are different 38 Board of directors Our customers face challenges that define the modern 40 Corporate governance report 50 Remuneration report world. They know that we are uniquely placed to statementsFinancial 62 Other statutory information understand these issues and work with them to ensure 64 Statement of Directors’ responsibilities the success of their mission. Financial statements 65 Independent auditor’s report Our people make the critical difference to customers 66 Consolidated income statement 67 Consolidated statement of by providing unique answers which combine technical comprehensive income information Additional 67 Consolidated statement of expertise, deep domain knowledge and rigorous changes in equity independent thinking. 68 Consolidated balance sheet 69 Consolidated cash flow statement 69 Reconciliation of movement in net How we build confidence cash/debt Our prized possession is trust. Customers around the 70 Notes to the financial statements 112 Company balance sheet world rely on the drive and dedication of our people 113 Notes to the Company to help them meet their goals – often in environments financial statements where there is no second chance for failure. We aim 115 Five-year record to deliver solutions that work first time, every time. Additional information 116 Glossary 117 Shareholder information 118 Additional information Download our Investor Relations App You can view this Annual Report and Accounts and other results materials at QinetiQ.com. In addition, the QinetiQ Investor Relations App gives you all the latest investor and financial media information. The App allows you to get the latest share price information and corporate news, as well as review financial reports. www.QinetiQ.com QinetiQ Group plc Annual Report and Accounts 2013 1 Group overview Understanding our business QinetiQ Group plc is a global business, listed on the London Stock Exchange. It employs over 9,000 employees principally in the UK and North America. Our services offerings, which account for more than 80% of total sales, are focused on providing expertise and knowledge in national markets. Our products business focuses on the provision of technology-based solutions to meet customer requirements, complemented by contract-funded research and development on a global basis. Under the QinetiQ brand we operate numerous businesses across multiple platforms, as illustrated below. This diversified portfolio is underpinned by a selection of long-term contracts. Reporting structure UK Services US Services Global Products Read more on pages 14-23 Markets Defence Air Weapons Maritime Australia Services Simulation & Training C4ISR Services Acquisition Security Cyveillance® Solutions Mission Systems Operations & Aerospace Engineering Systems Software & Solutions Lifecycle Survivability Systems Unmanned Transportation Maritime & OptaSense® Space Technologies New Revenue streams Research Relationship-based value selling at a fixed price or cost plus project consultancy contracts. l l l l l l l l l l l l l l l Advice Contracts based on the provision of advice and specific facility services including manpower services. l l l l l l l l l l l l l l l Test & Evaluation Long-term fixed price contracts with additional ad-hoc testing and evaluation projects. l l l l l l l Advanced technology solutions Low volume, defence focused, bespoke requirements with incremental revenue from software, services and after l l l l l l l l l l l l l l l l l l sales support. Intellectual property exploitation and licensing Royalties and licence fees from third-party exploitation of intellectual property. l l l l l l l l l l l l l l l l l l l 2 QinetiQ Group plc Annual Report and Accounts 2013 Overview Revenue by division (£m) Revenue by major customer type (£m) 2013 2012 2013 2012 £m £m £m £m 19% 17% UK Services 597.3 610.1 UK Government 480.3 482.8 45% 36% US Services 475.6 534.5 US Government 620.8 730.5 36% Global Products 254.9 325.0 47% Other 226.7 256.3 Total 1,327.8 1,469.6 Total 1,327.8 1,469.6 review Business Underlying operating profit* by division (£m) Revenue by geography (£m) 2013 2012^ 2013 2012 £m £m 7% £m £m UK Services 85.8 61.3 United Kingdom 560.4 570.1 36% governance Corporate 51% US Services 21.9 32.1 42% North America 672.7 788.7 51% Global Products 61.0 66.2 Other 94.7 110.8 13% Total 168.7 159.6 Total 1,327.8 1,469.6 Financial statementsFinancial Reporting structure UK Services US Services Global Products Read more on pages 14-23 Markets Security Government Defence Other Additional information Additional Air Weapons Maritime Australia Services Simulation & Training C4ISR Services Acquisition Security Cyveillance® Solutions Mission Systems Operations & Aerospace Engineering Systems Software & Solutions Lifecycle Survivability Systems Unmanned Transportation Maritime & OptaSense® Space Technologies New Revenue streams Research Relationship-based value selling at a fixed price or cost plus project consultancy contracts. l l l l l l l l l l l l l l l Advice Contracts based on the provision of advice and specific facility services including manpower services. l l l l l l l l l l l l l l l Test & Evaluation Long-term fixed price contracts with additional ad-hoc testing and evaluation projects. l l l l l l l Advanced technology solutions Low volume, defence focused, bespoke requirements with incremental revenue from software, services and after l l l l l l l l l l l l l l l l l l sales support. Intellectual property exploitation and licensing Royalties and licence fees from third-party exploitation of intellectual property. l l l l l l l l l l l l l l l l l l l * Definitions of underlying measures of performance can be found in the glossary on page 116. ^ IAS 19 (revised) ‘Employee benefits’ has been adopted for FY13 and the FY12 comparatives have been restated accordingly. QinetiQ Group plc Annual Report and Accounts 2013 3 Chairman’s statement Recognising the importance of shareholder returns core businesses, well positioned for growth once markets stabilise, and to explore a number of potentially scalable growth opportunities, while constantly testing emerging technologies for commercialisation. Our people QinetiQ’s success lies in its ability to recruit, retain and develop the skills of its employees. We have a track record of attracting some of the most talented scientific and technically minded individuals in the marketplace including Mark Elliott apprentices and graduates, giving them the opportunity to use their skills Chairman on the most challenging problems in today’s world. We constantly strive to ensure we attract and develop the most diverse workforce in order that The Results we can leverage this to solve customer challenges. Customer feedback The Group delivered a robust performance with underlying operating recognises the unique skillset of our people and their ability to apply their profit* increasing 6% to £168.7m (2012: £159.6m^).