TIDMQQ.
RNS Number : 9262P
QinetiQ Group plc
12 June 2015
12 June 2015
QINETIQ GROUP PLC
Availability of Annual Report and Accounts 2015 and Notice of
2015 Annual General Meeting
QinetiQ Group plc has today published the following
documents:
-- QinetiQ 2015 Annual Report and Accounts;
-- Notice of 2015 Annual General Meeting; and
-- Chairman's Letter to Shareholders.
The documents are available to view or download from the
Company's website at www.qinetiq.com/investors.
In compliance with Listing Rule 9.6.1, copies of the above
documents, together with a copy of the Form of Proxy for the 2015
Annual General Meeting, have been submitted to the National Storage
Mechanism and will shortly be available for inspection at
www.morningstar.co.uk/uk/NSM.
These documents are today being posted or otherwise made
available to shareholders.
The 2015 Annual General Meeting will be held at 11.00 am on
Wednesday, 22 July 2015 at Pennyhill Park Hotel, London Road,
Bagshot, Surrey GU19 5EU.
In compliance with paragraph 6.3.5 of the Disclosure and
Transparency Rules, the information in respect of Principal Risks
and Uncertainties, Related Party Transactions and the Directors'
Responsibility Statement, contained in the Appendix, is extracted
from the Annual Report and Accounts and should be read in
conjunction with the Group's preliminary results announcement of 21
May 2015 (the 'Preliminary Results') which can be viewed on the
Company's website at www.qinetiq.com/investors. The information in
the Appendix and the Preliminary Results together constitute the
material required by DTR 6.3.5 to be communicated in unedited full
text through a Regulatory Information Service. This is not a
substitute for reading the full Annual Report and Accounts. Page
and note references in the Appendix refer to page numbers and notes
in the 2015 Annual Report and Accounts.
Enquiries:
Jon Messent - Company Secretary, QinetiQ Group plc
Telephone +44 (0) 1252 392000
Press Office, QinetiQ Group plc
Telephone +44 (0) 1252 393500
David Bishop - Investor Relations, QinetiQ Group plc
Telephone +44 (0) 7920 108675
APPENDIX
PRINCIPAL RISKS AND UNCERTAINTIES
UNDERSTANDING AND MANAGING OUR RISKS
TheBoard recognises that QinetiQ operates in variedbusiness
environments and that risk management must reflectboth the need to
take risk and to avoid harm. Boardlevel oversight is discharged
throughtwo committees, the Audit Committee, which focuseson risks
wherethe primary impactis financial, and the Risk & CSR
Committee, which focuseson risks where the primaryimpact is
non-financial; both committees retain visibility of both the
financial and non-financial risks.
TheBoard agrees and reviews its toleranceof risk through
establishing a clear risk appetiteand setting appropriate
delegations ofauthority to the executive and senior leaders. The
Board'srisk appetite is set to provideboundaries and guidance to
supportexecutives and senior leaders in their decision-making and
allow operational flexibility. Local decision-making is
supportedwithin defined delegationof authority and the Board
requires all employees to abide by relevant legal requirements as a
minimum.
Our Areas of risk:
1 - Risks relating to strategy:
-- Defence and security spending
-- Complex market characteristics and contract profile
-- Trading in a global market
-- Emerging and reputational risk
-- US Foreign ownership regulations
2 - Risks relating to people:
-- Recruitment and retention
-- Breaches of security and IT systems failure
-- Significant breach of relevant laws and regulations
3 - Risks relating to financial management and markets:
-- Defined benefit pension obligations
-- Tax legislation
-- Exchange rates
-- Inflation, credit and interest rates
Risk appetitewithin QinetiQfocuses onthose criticalrisk
areasnecessary to achieve our strategic goals. Three categories of
appetite are defined as follows:
-- Hungry:Willing to consider all delivery options and eager to
be innovative and to choose options offering potentially higher
business rewards, with a mature understanding of inherent risk
-- Balanced:Preference for delivery options that have a low or
moderate degree of residual risk and where successful delivery also
provides an acceptable level of reward and value for money
-- Cautious: Avoidance of risk and uncertainty is the key
objective, a greaterlevel of controland mitigation may be
required.Significantly greaterreturns expectedfor commercial
opportunities to offset risk
Within thecontext ofthe core,'Explore' and'Test forValue'
strategy,the Board'scommercial appetiteis:
-- Hungry for opportunities relating to increased market share
where we have provendelivery, existing and potential new
customers
-- Balanced for opportunities that translate proven deliveryinto
new markets or new capability/delivery into existingcustomers or
that commit QinetiQ to unlimitedor excessive liabilities
-- Cautious for opportunities that involve new capability or
delivery into new markets and any other opportunity into a new
country outside the US and UK
The Boardagrees andreviews itstolerance of risk through
appropriate delegations of authority to the executive and senior
leaders.
The management of risk is key to ensuring QinetiQ is successful
indelivering its objectives, whilst protecting the interests of its
stakeholders. QinetiQ's risk management methods and processes
provide a frameworkwhich allows:
-- Risk identification: identification of risks and
opportunities relevantto the Group'sobjectives
-- Risk analysis: assessment of risks in terms of likelihood and impact
-- Risk evaluation: determine and prioritisewhich risks need treatment
-- Risk treatment: appropriate management strategies put in place
-- Monitor and review: monitoring and oversight ofrisk management
TheGroup Risk Register consists of material risks relating to
effective delivery of our strategy. These risks may emerge as
risksor be presentthrough the aggregation or interlinking of risks.
Our reputation is a highly valuable asset and reputational impact
is considered as a factorin assessing overall risk impact. The
Group Risk Registeris reviewed by the executive and the Board. In
addition the risk owners present an update of current status and
mitigating actions by rotation throughout the year.
Key risk Associated Description and Likelihood/Impact Mitigation Associated Responsibility Risk
strategic impact KPIs appetite
priority
Defence Customers -- The Group's Medium/High -- The Group -- Customer -- Business Hungry
and security revenue is services satisfaction Development
spending predominantly the UK defence Director
derived from domains of Air, -- Strategic
government Land, Maritime Business
customers in the and Joint Forces Director
defence and security as well as - Defence
sector. 70% of adjacent
the Group's revenue sectors. This
comes directly provides a degree
from contracts of portfolio
with the UK diversification.
Government The Group will
and 7% comes continue to
directly monitor
from contracts expenditure
with the US changes
Government. in its traditional
-- Any reduction markets and will
in government adjust business
defence and security activities where
spending in either appropriate.
the UK or the -- The MOD has
US could have made considerable
an adverse impact progress in
on the Group's balancing
financial its equipment
performance. budget. In defence
-- The financial research, where
burden on both QinetiQ is the
UK and US Government private sector
budgets from the market leader,
current economic spending was
downturn may lead stabilising
to reduced spending at about GBP400m
in the markets p.a. due to the
in which the Group 1.2% floor on
operates. R&T spend (pre
-- This could SDSR).
be exacerbated -- QinetiQ
by the Comprehensive monitors
Spending Review and responds to
(CSR) as well potential
as the next opportunities
Strategic arising from the
Defence and Security MOD's actions
Review (SDSR) to deliver
expected to follow improved
the 2015 General value for money
Election. The by making
SDSR is expected proactive
to take place proposals that
in the next 12 deliver the
months. The total desired
amount, and outcome.
subdivision -- QinetiQ expects
of, UK defence that the SDSR
spending post process will
SDSR may be enable
different consultation
to the current between
budget. The Group's Government and
main contracts industry to ensure
are exposed to UK defence
spend on Test priorities
& Evaluation and are properly
Research & considered.
Technology, -- Further
both of which investment
are expected to in the pursuit
be studied in of international
the SDSR. opportunities
-- The Group's assists in the
US products business diversification
(approximately away from the
GBP60m annual dependency on
revenue) has been UK and US
largely funded Government
through overseas spending.
contingency budgets -- US products
which are expected (such as unmanned
to decline as systems) are
the US withdraws targeted
from Afghanistan. to be funded
through
Programs of Record
(i.e. in the US
Base budget) in
approx 2017.
------------ --------------------- ------------------ ------------------- ------------- --------------- ---------
Complex Customers -- The aerospace, Medium/High -- QinetiQ seeks -- Customer -- Business Balanced
market defence and security to focus on areas satisfaction Development
characteris-tics markets are highly within these Director
and contract competitive. The markets -- Strategic
profile Group's performance in which its deep Business
may be adversely customer Director
affected should understanding, - Defence
it not be able domain knowledge,
to compete in technical
the markets in expertise
which it aims and platform
to operate. independence
-- Following the provide a strong
Currie Review, proposition and
the Defence Reform a significant
Act and the Single advantage in
Source Regulations competitive
are now in place. bidding.
The Single Source -- QinetiQ and
Regulations Office defence industry
(SSRO) is partners have
established been fully engaged
with a Chairman with the MOD in
and Board appointed. the development
The 'Yellow Book', of the new 'Orange
a legally binding Book' framework
framework, has and its practical
been replaced application.
by the 'Orange QinetiQ
Book' for how and defence
single sourced industry
work must be partners have
contracted been consulted
to ensure that by the SSRO on
a fair and the draft
reasonable Statutory
price is paid Guidance, due
for goods and to be published
services procured early in 2015.
in the absence -- The contracts
of competition. and orders
-- This could pipeline
have an adverse is regularly
impact on the reviewed
Group's financial by senior
performance. The operational
'Baseline Profit management.
Rate' for single -- The nature
sourced work has of many of the
been set at 10.6% services provided
for 2016 (2015: under fixed-price
10.7%) This arrangements is
percentage often for a
is reviewed defined
annually. amount of effort
The new regulations or resource rather
apply to new single than firm
source contracts deliverables
over GBP5m in and, as a result,
value from April mitigates the
2015. Approximately risk of costs
33% of EMEA Services escalating. The
revenue is derived Group ensures
from single sourced that its
work, excluding fixed-price
the non-tasking bids and projects
element of the are reviewed for
LTPA contract. early detection
-- The ongoing and management
'transformation' of issues which
of the UK MOD's may result in
Defence Equipment cost over-run
and Support (DE&S) or excessive
organisation has delivery
now adopted a risk.
model of 'bespoke
trading entity'
rather than
Government-Owned
Contractor-Operated,
which was the
intended model.
DE&S has hired
'Managed Service
Providers' (MSPs),
companies to help
drive the
transformation
programme to improve
programme delivery
and implement
new systems and
processes as it
looks to reduce
costs.
-- Some of the
Group's revenue
is derived from
contracts that
have a fixed price.
There is a risk
that the costs
required for the
delivery of a
contract could
be higher than
those agreed in
the contract as
a result of the
performance of
new or developed
products,
operational
over-runs or
external
factors. Any
significant
increase in costs
which cannot be
passed on to a
customer may reduce
the profitability
of a contract
or even result
in a contract
becoming loss
making.
-- Many of the
Group's contracts
have terms, not
unusual in defence,
that provide for
unlimited
liabilities
for the Group,
or termination
rights for the
customer, often
without cause.
-- The timing
of orders receipts
could have a
material
impact on the
Group's performance
in a given reporting
period as the
amounts payable
under some
government
contracts can
be significant.
------------ --------------------- ------------------ ------------------- ------------- --------------- ---------
Complex Customers -- Organisational Medium/High -- QinetiQ takes -- Customer -- Strategic Balanced
market Conflicts of proactive steps satisfaction Business
characteris-tics Interest to manage any Director
and contract (OCI) may occur potential OCI - Defence
profile where the Group and maintain its
(continued) provides services ability to provide
to both a defence independent
end-user customer advice.
as well as those QinetiQ operates
within the defence under the MOD's
supply chain. generic formal
compliance regime
and applies a
rigorous
compliance
process.
-- Where QinetiQ
wishes to operate
on both the advice
and supply chain
side of an
opportunity
we do so only
after receiving
approval from
the MOD.
------------ --------------------- ------------------ ------------------- ------------- --------------- ---------
Complex Customers -- The Group is Medium/High -- In February -- Customer -- LTPA Hungry
market reliant on a limited 2013 the Group satisfaction Director
characteris-tics number of major signed the LTPA
and contract customers. A for a third
profile material five-year
(continued) element of the period with the
Group's revenue MOD. The next
is derived from scheduled
one contract. 're-pricing'
The Long Term break point is
Partnering Agreement in 2018.
(LTPA) is a 25-year -- The Group
contract to provide continues
test, evaluation, to achieve strong
and training customer
services performance
to the MOD. The and satisfaction
original contract levels, and
was signed in significantly
2003. The LTPA exceeded the
operates under agreed
five-year periods minimum
with specific performance
programmes, targets rating of 80%
and performance in 2014.
measures set for -- The Group has
each period. achieved
-- In 2015 the significant
LTPA directly cost savings for
contributed 26% the MOD on
of the Group's delivered
revenue and services, and
supported is on track to
a further 17% exceed the GBP700m
through tasking of savings
services using originally
LTPA managed projected to be
facilities. delivered over
the life of the
contract.
-- The Group
expects
to engage with
the MOD regarding
the study of
future
plans for
test and
evaluation
services within
the SDSR.
------------ --------------------- ------------------ ------------------- ------------- --------------- ---------
Recruit-ment Employees -- The Group Low/High -- The Group -- Health -- Business Balanced
and retention operates conducts and Unit
in many specialised regular activities Safety Managing
engineering, to identify key -- Voluntary Directors
technical roles and employee
and scientific personnel. turnover
domains. Succession plans -- Employee
-- The lack of are in place satisfaction
graduates in the looking -- % of
science, technology, internally at graduates
engineering and candidates ready and
mathematics (STEM) now or in need apprentices
domains leads of development
to future skills to fill particular
shortage. roles and
-- Key capabilities externally
and competencies to identify people
may be lost through QinetiQ may wish
failure to recruit to attract.
and retain employees -- QinetiQ has
due to internal made improvements
factors, as well in employee
as macro factors engagement
across the sector and conducts an
affecting the annual
desirability, satisfaction
intake and training survey.
of engineers, -- STEM outreach
scientists and from primary
technicians. school
age through to
work experience
and graduate
opportunities.
-- QinetiQ is
leading industry
in The 5% Club,
a campaign to
increase the
recruitment
of graduates and
apprentices.
------------ --------------------- ------------------ ------------------- ------------- --------------- ---------
Breaches The way -- The Group High/High -- Data security -- -- Business Cautious
of security we work operates is assured through Underlying Unit
and IT in a highly a multi-layered operating Managing
systems regulated approach that profit Directors
failure IT environment. provides a -- Profit -- Functional
-- The data held hardened after Directors
by QinetiQ is environment, tax
confidential and including --
needs to be secure, robust physical Underlying
against a background security EPS
of increasing arrangements --
cyber threat. and data Underlying
-- A breach of resilience operating
data security strategies. cash flow
or IT systems -- Comprehensive
failure could internal and
have an adverse external
impact on our testing of
customers' potential
operations, vulnerabilities
resulting in is conducted along
significant with 24/7
reputational damage, monitoring.
as well as the -- The Group
possibility of engages
exclusion from with US and UK
some types of Government
government contracting
contracts. audit agencies,
-- The Group's to enable them
financial systems to test relevant
are required to financial systems
be adequate to and data, and
support US and implements any
UK Government recommended
contracting improvement
regulations. plans.
-- Information
systems are
designed
with consideration
to single points
of failure and
the removal of
risk of minor
and major system
failures.
-- The Group
maintains
business
continuity
plans that cover
geographical
assets
as well as the
technical
capability
of employees.
These plans cover
a range of
scenarios
(including loss
of access to IT)
and are regularly
tested.
------------ --------------------- ------------------ ------------------- ------------- --------------- ---------
Trading Growth -- QinetiQ operates Low/Medium -- While the Group -- Orders -- Business Cautious
in a orientation internationally. has a growing -- Organic Unit
global Risks include: geographical revenue Managing
market regulation and footprint, growth Directors
administration its traditional --
changes, taxation activities are International
policy, political confined to the Business
instability, civil UK and the US. Development
unrest, and -- Relationships Director
differences or contracts in
in culture. new markets are
-- Negative events assessed for their
could disrupt inherent risks,
some of the Group's using our
operations and International
have a material Business Risk
impact on its Assessment
future financial process,
performance. before being
formally
agreed. This
allows
opportunities
to be reviewed
at different
levels
of management
according to their
inherent risk.
------------ --------------------- ------------------ ------------------- ------------- --------------- ---------
Significant The way -- The Group Low/High -- The Group has -- -- Business Cautious
breach we work operates robust policy, Underlying Unit
of in highly regulated procedures and operating Managing
relevant environments and training in place profit Directors
laws recognises that to ensure that -- Profit -- Functional
and its operations it meets all after Directors
regulations have the potential current tax
to have an impact regulations; for --
on a variety of example Underlying
stakeholders. role-specific EPS
-- Failure to safety training --
comply with and business Underlying
particular ethics operating
regulations could training which cash flow
result in a is mandatory for -- Health
combination Board members and
of fines, penalties, and all employees Safety
civil or criminal across the Group.
action. -- The QinetiQ
-- In addition, Code of Conduct
failure may also defines clear
lead to suspension expectation for
or debarment from the Group and
government its employees;
contracts, for example it
as well as states that the
reputational Group does not
damage to the tolerate bribery
QinetiQ brand. and corruption
-- Key areas of and will comply
focus for the with relevant
Group include international
the following: trade regulations.
-- Safety liability -- The Group
of products, manages
services the effective
and advice. identification,
-- Workplace and measurement and
occupational health, control of
safety and regulatory
environmental risk.
matters. -- Local
-- Bribery and management
ethics. continuously
-- International monitor
trade controls. local laws.
Professional
advice is sought
when engaging
in new territories
to ensure that
the Group complies
with local and
international
regulations.
-- Accreditation
to external
standards;
for example safety
and environmental
systems continue
to be accredited
to international
standards;
external
authorisation
for regulated
design and
maintenance
services in the
aviation sector.
------------ --------------------- ------------------ ------------------- ------------- --------------- ---------
Defined The way -- The Group Medium/High -- Scheme -- Profit -- Group Balanced
benefit we work operates performance after Treasurer
pension a defined benefit is reviewed tax
obligations (DB) pension scheme regularly --
which is closed by Group Underlying
to future accrual. management EPS
-- At the year in conjunction --
end the DB pension with the scheme's Underlying
scheme was a independent operating
liability Trustee. cash flow
of GBP39.4m under -- External
an IAS 19 basis. actuarial
-- The size of and investment
the deficit may advice is
be materially regularly
affected by a taken to ensure
number of factors, the best interests
including inflation, of both the Group
investment returns, and the scheme
changes in interest members.
rates and -- The Group works
improvements in collaboration
in life expectancy with the Trustees
of members. to agree an
-- Any change investment
to the deficit strategy that
may require the progressively
Group to increase de-risks the
the cash scheme
contributions as the funding
to the scheme, level improves.
which would reduce -- The Company
the Group's cash continues to pay
available for the deficit
other purposes. recovery
payments
outstanding
from the 2011
valuation. Company
contributions
to the scheme
are expected to
continue at GBP13m
per annum until
2018.
-- The scheme
was closed to
future accrual
on 31 October
2013.
-- At the year
end 45% of the
inflation risk
is hedged and
20% of interest
rate risk hedged,
measured on a
gilts basis. A
5% inflation cap
protects GBP264m
of pensioner
liabilities
for ten years
to 2025.
------------ --------------------- ------------------ ------------------- ------------- --------------- ---------
Tax legislation The way -- QinetiQ is High/High -- External advice -- Profit -- Group Balanced
we work liable to pay and consultation after Tax
tax in the countries are sought on tax Manager
in which it potential changes --
operates, in tax legislation Underlying
principally the in the UK, the EPS
UK and the US. US and elsewhere
-- Changes in as necessary
tax legislation enabling
in these countries the Group to plan
could have an for and manage
adverse impact potential changes.
on the level of -- The Group is
tax paid on profits currently actively
generated by the engaging with
Group. industry, MOD
-- In the UK, and industry
R&D Expenditure bodies
Credits (RDEC) regarding the
were introduced treatment of RDEC.
from 1 April 2013 -- The Group has
and will be GBP291.6m of UK
mandatory tax losses carried
from 1 April 2016, forward as at
replacing the 31 March 2015
R&D super deduction. (2014: GBP213.9m).
Until that date,
QinetiQ expects
to claim the super
deduction while
the treatment
of RDEC for MOD
single source
contracts remains
under discussion
between industry
and the Government.
------------ --------------------- ------------------ ------------------- ------------- --------------- ---------
RELATED PARTY TRANSACTIONS
This statement is extracted from note 17 in respect of
non-current investments which can be found on page 115 of the
Annual Report and Accounts.
During the year ended 31 March 2015 there were sales to
associates of GBP3.0m (2014: GBP3.3m). At the year end there were
outstanding receivables from associates of GBP0.3m (2014:
GBP0.1m).
DIRECTORS' RESPONSIBILITY STATEMENT
This statement is in compliance with DTR 4.1.12 and relates to
and is extracted from page 89 of the Annual Report and Accounts and
is signed by order of the Board by Jon Messent, Company Secretary.
Details of the Board of Directors of QinetiQ Group plc can be found
on pages 58 and 59 of the Annual Report and Accounts.
Responsibility is for the full Annual Report and Accounts and not
the extracted information presented in this announcement or in the
Preliminary Results.
Responsibility statement of the Directors in respect of the
Annual Report
The Directors in office as at the date of this report confirm
that to the best of their knowledge:
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company, and the undertakings included in the consolidation
taken as a whole; and
-- the Directors' report includes a fair review of the
development and performance of the business, and the position of
the Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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