Restoring Strength, Building Value
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Restoring Strength, Building Value QinetiQ Group plc Annual Report and Accounts 2011 Group overview Revenue by business The Group operates three divisions: US Services, 29% UK Services and Global Products; to ensure efficient 35% leverage of expertise, technology, customer relationships and business development skills. Our services businesses which account for more 36% than 70% of total sales, are focused on providing 2011 2010 expertise and knowledge in national markets. Our £m £m products business provides the platform to bring US Services 588.2 628.0 valuable intellectual property into the commercial UK Services 611.6 693.9 markets on a global basis. Global Products 502.8 303.5 Total 1,702.6 1,625.4 Division Revenue Employees US Services £588.2m 4,500 (2010: £628.0m) (2010: 5,369) Underlying operating profit* £44.3m (2010: £52.6m) Division Revenue Employees UK Services £611.6m 5,045 (2010: £693.9m) (2010: 5,707) Underlying operating profit* £48.7m (2010: £59.1m) Division Revenue Employees Global £502.8m 1,663 Products (2010: £303.5m) (2010: 2,002) Underlying operating profit* £52.4m (2010: £8.6m) * Definitions of underlying measures of performance are in the glossary on page 107. Underlying operang profit* by business Revenue by major customer type Revenue by geography 7% 17% 36% 31% 52% 37% 56% 31% 33% 2011 2010 2011 2010 2011 2010 £m £m £m £m £m £m US Services 44.3 52.6 US Government 894.3 754.1 North America 949.2 825.3 UK Services 48.7 59.1 UK Government 526.5 614.5 United Kingdom 623.7 720.0 Global Products 52.4 8.6 Other 281.8 256.8 Other 129.7 80.1 Total 145.4 120.3 Total 1,702.6 1,625.4 Total 1,702.6 1,625.4 Capabilities Developments during year Customers Building value • Custom software • Award to provide • NASA A strong position in growing • C4ISR engineering services at NASA • US Department of Homeland market segments: C4ISR, • Cyber security Kennedy Space Center Security (DHS) engineering services, • IT infrastructure • Five year contract for • US Department of Defense training and simulation • Program management training development and (DoD) and cyber security • Research & development delivery services to the • US Department of State • Training and simulation US Navy’s Space and (DoS) Naval Warfare System Center Atlantic • Sale of S&IS Capabilities Developments during year Customers Building value • Air engineering • Award of the £9m managed • Ministry of Defence (MOD) A strong position in test • C4ISR services contract to operate • DSTL and evaluation, cyber • Cyber security flight physiological centre • The Highways Agency security, C4ISR, acquisition • Technical information in Sweden • UK security agencies and programme advice, services • Increased test and • Australian Department engineering services • Test and evaluation evaluation capability of Defence and training and • Training and simulation demand from simulation markets • Programme and overseas customers procurement support Capabilities Developments during year Customers Building value • Survivability • Significant contribution • US Department of Defense Through international • Unmanned systems from Q-NET vehicle (DoD) expansion while capitalising • Energy from waste survivability products • UK Ministry of Defence on opportunities in • Vehicle power management • Award of OptaSense® (MOD) adjacent markets, • Sensor networks £26.5m contract with Shell • UK and North American such as oil and gas • Award of £12m security agencies contract for light protected • Shell patrol vehicle • Merck • Acquisition of • Astrium Sensoptics Ltd Who we are QinetiQ comprises teams of dedicated people; experts in defence, aerospace, security and related markets. We draw on our extensive technical knowledge and intellectual property to provide the know-how and support to solve some of the world’s most challenging problems. What we do Our customers face challenges that define the modern world. They know that we understand the increasingly global nature of science, technology and engineering and they trust us to work alongside them to ensure the success of their mission. We support space programmes; we provide trusted technical services to the UK Ministry of Defence and the US Department of Defense; we carry out secure monitoring services for a range of commercial and government customers globally – all vital support solutions requiring trust and integrity. How we create value Our people make the critical difference to customers by providing unique approaches to problem solving. They supply answers requiring innovation, deep domain knowledge, rigorous independent thinking and technical expertise – answers which save lives, protect assets and critical infrastructure, reduce costs, ensure competitive advantage – answers which make tomorrow work today. Directors’ report: Business review Directors’ report: Corporate governance Financial statements 1 Performance highlights 26 Board of Directors 49 Independent auditor’s report 2 Chairman’s statement 28 Corporate governance report 50 Consolidated income statement 3 Chief Executive Officer’s review 36 Remuneration report 51 Consolidated statement of 6 Operations overview 45 Other statutory information comprehensive income 12 Chief Financial Officer’s review 48 Statement of Directors’ responsibilities Consolidated statement of 18 Key performance indicators changes in equity 20 Risks and uncertainties 52 Consolidated balance sheet 24 Corporate responsibility review 53 Consolidated cash flow statement 54 Reconciliation of movement in net debt 55 Notes to the financial statements 103 Company balance sheet 104 Notes to the Company financial statements 106 Five-year record for the years ended 31 March 107 Glossary 108 Additional information 109 Where can you learn more? Performance highlights Revenue Net debt £1,702.6m £260.9m 2011 £1,702.6m 2011 £260.9m 2010 £1,625.4m 2010 £457.4m Underlying operang profit* Underlying earnings per share* £145.4m 14.2p 2011 £145.4m 2011 14.2p 2010 £120.3m 2010 11.1p Underlying operang cash Gearing rao† conversion* 183% 1.4x 2011 183% 2011 1.4x 2010 145% 2010 2.5x 2009 107% 2009 2.2x Underlying operang margin* Dividend 8.5% 1.60p 2011 8.5% 2011 1.60p 2010 7.4% 2010 1.58p * Definitions of underlying measures of performance are in the glossary on page 107. † The gearing ratio is net debt to adjusted EBITDA and the definition is in the glossary on page 107. QinetiQ Group plc Annual Report and Accounts 2011 1 Business review Chairman’s statement Mark Elliott Chairman Dear shareholder deeply engaged in the self-help plan that we are implementing. I write this report having completed my first full year as Chairman Our teams embody a strong ethos of public service, which provides of QinetiQ. I am pleased to report that, against a backdrop of a vital bond with our customers in delivery of their priorities. challenging markets, QinetiQ’s performance in the last financial May I take this opportunity to extend my thanks to our employees year was impressive. who have played such a vital role in our progress during the year. These results were delivered in significant part because we took The Board charge of our destiny and implemented a 24 month self-help Just as our business is evolving so is the shape of the Board. During programme to restore the business to strength and build value the course of the year, Nick Luff and David Langstaff both left the for the future. Our markets on both sides of the Atlantic were Board due to growing executive management commitments outside under significant budgetary pressures as our customers responded of the Group. I thank them for their service to the Company and to their need to reduce national deficits. Given, however, the wish them both well for the future. In October 2010, Paul Murray increased global risks and threats, our key markets of defence joined as a Non-executive Director, bringing a broad range of and security remain a priority for governments. We have made experience in finance and corporate governance from a cross rapid progress in reshaping our business. This, together, with the section of industries. I would like to welcome Paul to the Board reduction and refinancing of our debt contributed to a more and, on behalf of my Board colleagues, look forward to working agile and competitive QinetiQ. with him. Admiral Ed Giambastiani will step down as a Non- Results executive Director at this year’s Annual General Meeting. I would Group revenues were £1,702.6m (2010: £1,625.4m) and underlying like to thank him for his contribution to QinetiQ over the past three operating profit* increased to £145.4m (2010: £120.3m), up 21%, years. We will continue to review the structure of the Board as resulting in an underlying profit before tax* for the Group of QinetiQ transitions and adapts to changing markets. £114.6m, up 34% on the previous year (2010: £85.7m). The rigorous Outlook Group-wide focus on debt reduction resulted in a strong underlying We are making significant progress in restoring QinetiQ to strength. * operating cash conversion of 183% (2010: 145%) as underlying Our reshaping of the businesses, together with the reduction * cash flow from operations increased to £265.8m (2010: £174.3m). and refinancing of the debt, all contribute to a leaner and more Closing net debt at 31 March 2011 was £260.9m (2010: £457.4m), agile Group. With a stronger balance sheet, we are now able to an improvement of £196.5m. Full year underlying earnings per fund future growth and reinstate the dividend for shareholders. * share were 14.2p (2010: 11.1p). Internally, we have made significant changes which we will embed Dividend and extend this year, to ensure that over the medium term we In May 2010, the Board recommended a suspension of dividend maximise value from both QinetiQ’s inherent capabilities and payments during the first 12 months of the Group’s programme emerging opportunities. Externally, by working closely with its US to restore QinetiQ to strength.