TIDMQQ.
RNS Number : 8278P
QinetiQ Group plc
12 June 2020
QINETIQ GROUP PLC
12 June 2020
Availability of Annual Report and Accounts 2020 and Notice of
2020 Annual General Meeting
QinetiQ Group plc (the 'Company') has today published the
following documents:
-- QinetiQ 2020 Annual Report and Accounts;
-- Notice of 2020 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 2020
Annual General Meeting, have been submitted to the National Storage
Mechanism and will shortly be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
These documents are today being posted or otherwise made
available to shareholders.
The 2020 Annual General Meeting will be held at 11.00 am on
Tuesday 14 July 2020 at the offices of the Company, Cody Technology
Park, Ively Road, Farnborough, Hampshire GU14 0LX .
In compliance with paragraph 6.3.5 of the Disclosure Guidance
and Transparency Rules, the information in respect of Principal
Risks, 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 2020 (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
2020 Annual Report and Accounts.
Enquiries:
Jon Messent - Company Secretary +44 (0) 1252 392000
John Haworth - Group Head of Investor
Relations +44 (0) 447920545841
Press Office +44 (0) 1252 393500
APPIX
PRINCIPAL RISKS
How we protect our business
Successful management of current and emerging risks is critical
to achieving our company goals. Our Group Head of Enterprise Risk
Management is responsible for designing and facilitating the risk
management processes across the organisation, provides risk
expertise and support to the businesses and reports risk
information across the Group including to the Global Leadership
Team, Audit and Risk & CSR Committees and the Board.
We utilise the Group-wide risk management framework to inform
our decision-making at both the strategic and operational levels,
adopting a top-down/bottom-up process. This enables us to fully
leverage its benefits and subsequently support the long-term
success of our business. Our application of risk management
continues to evolve with our customers' approach to risk, the
rapidly changing external environment in which we operate and
internal changes, thus ensuring we are best placed to pursue
opportunities and deliver results, whilst simultaneously innovating
for our customers' advantage. Over the past 12 months, risk and
opportunity management has been extensively supported by the
roll-out of a new risk management tool.
Risk management and assurance activity
Three lines of defence model
Our risk management and assurance activity is formed of three
lines of defence, each reporting to the Global Leadership Team and
to the relevant Board Committees. The first line of defence is
performed by our businesses and functions, through managing
activities in accordance with established operating principles; the
second line is performed by the assurance functions, including the
enterprise risk management and safety and governance teams; and the
third line is performed by the internal audit team and external
providers.
Board
Responsible for effective risk management across the QinetiQ
Group. Sets risk appetite and assesses principal and emerging
risks
Audit Committee and Risk & CSR 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
Identifies and monitors the principal and emerging risks, as
well as the material risks (including operational) reported
from the businesses and Group functions
Risk owners Enterprise risk management Independent
* Managers identify and evaluate risks * Risk Management and other assurance functions with risk assurance
limited independence * Internal Audit and independent assurance providers
* Design and operate internal controls and other
mitigation measures * Design and facilitate the risk management processes * Review and evaluate risk management activity and
across the Group, provide risk expertise and suppor provide assurance of the effectiveness of the control
t environment to manage risks
* Application of delegated authorities, policies to the businesses and functions
,
procedures and codes of practice * Manage the external confidential reporting process
* Responsible for continually improving the risk
management process across the Group as a whole
* Report risks through relevant reporting and * Report to the Board and the Global Leadership Team
escalation processes
* Report to the Board and the Global Leadership Team
2nd line of defence
3(rd) line of defence
1st line of defence
--------------------------------------------------------------------- ------------------------------------------------------------
Emerging risk
The Group Risk Register consists of material risks relating to
effective delivery of our strategy. The Board and Global Leadership
Team look to assess these principal risks from a number of
different perspectives, including both individually and
collectively. We also actively consider emerging risks as part of
the risk assessment process. The Board recognises that some risks
may be affected by factors outside the control of the Company and
also recognises 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 to such risks and utilise
lessons learned across the organisation as part of our ongoing
drive for continuous improvement.
Over the past 12 months our Group risk profile has changed owing
to changes in our external environment, the ongoing development of
our strategy and robust, focused mitigation. In light of this both
the Single Source Regulations impacts on our revenue and the risk
around recruitment and retention have been mitigated to a level
such that they are no longer considered to pose principal risks to
the organisation. However owing to the increased volume of M&A
activity across our portfolio a new risk has been included. In
addition, as the impact of COVID-19 has escalated we have included
a risk that our operations are further disrupted by the
pandemic.
QinetiQ risk appetite
The Board identifies and reviews its tolerance of 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 all delivery options despite greater
inherent risk and eager to be innovative.
Commercial
Opportunities relating to Eager
increased market share where
we have proven delivery into
existing markets
---------------------------
Opportunities that translate Balanced to Eager
proven delivery into new
markets
---------------------------
Opportunities that translate Balanced
new capability or delivery
into existing customers.
---------------------------
Opportunities that involve Cautious to Balanced
new capability or delivery
into new markets.
---------------------------
Operational
Operational delivery Cautious to Balanced
-------------------------
Compliance with legal and Cautious
regulatory requirements
-------------------------
Strategic Risks
UK Defence Test International strategy Innovation strategy
and Evaluation
strategy
Risk Risk Risk
UK Government budget Plans to grow our Failure to create
constraints lead international business a culture of innovation,
to reduced spending may be impacted develop relevant
in the core markets by external influences technology and business
in which we operate. outside of our control, models or to attract
This, and modernising such as geo-political and retain the right
ways of evaluating risks, or specific talent, to enable
capability, results risks arising from the realisation
in a risk that working in new markets of new ideas for
our approaches/offerings and globalised operations. our customers and
may not remain our organisation.Failure
relevant. There to create a culture
remains the of innovation or
potential for this to invest
risk to be exacerbated adequately in, or
by the impact of create value from,
COVID-19 on Government our innovation
spending and the investment. As well
EU exit should as the risks arising
the UK experience from the
a loss of market introduction of
confidence and disruptive technologies/alternative
further reduction business models
in collaborative
EU funding.
---------------------------- -------------------------------------
Impact Impact Impact
A reduction in Unable to realise Negative impact
revenue and associated expected growth on the Group's market
profitability from in the planned timeframes. position,
the Group's Government competitiveness,
and Defence contracts. and future growth.
and failure to
deliver a return
on investment in
our Internal
Research and Development
(IRAD) fund.
---------------------------- -------------------------------------
Mitigation Mitigation Mitigation
Our strategy is Our international Our overall strategy
focused on leading strategy is focused helps us to ensure
and modernising on the markets we that we focus our
UK Test & Evaluation feel we have the innovation on areas
in support of our best routes to access with clear commercial
customers' objectives. with the most appropriate opportunities.
This includes ongoing products or services.
proactive engagement Adopting a focused We continue to mature
with our major approach ensures our innovation approach,
customers to enable we can closely monitor including clear
us to support their our progress, adapting articulation across
objectives. and responding as the organisation,
Our focused investment necessary. to ensure the importance
into contracts We undertake extensive of
enhances our offerings due diligence, taking innovation to both
that support our the appropriate our organisation
customers with professional advice and our
their efficiency to ensure structural, customers is clearly
challenges as well regulatory, legal understood and initiatives
as ensuring that and political risks are supported.
we provide the are understood and
right services minimised. Specific innovation
as the threat environment We partner with activities in FY21
continues to evolve. or acquire, where will strengthen
We continue to appropriate, quality and improve our
deliver new types local businesses innovation approach
of evaluation and to leverage their across the organisation.We
are increasingly infrastructure and have evolved our
moving towards de-risk local market approach to investment
modelling and synthetics access. to
as well as embracing place a greater
the next generation focus on routes
digital transformation. to market in order
We are expanding to drive a profitable
our global Test return. We have
& Evaluation business also further evolved
and post Brexit our partner eco-system
will maintain relationships to support indirect
with the UK Government routes to market.
to support bilateral Our operating model,
relationships within based on matrix
Europe; there is working, helps to
increased recognition ensure that any
that T&E is an internal barriers
enabler to military to collaboration
capability and and knowledge sharing
prosperity. are removed.
---------------------------- -------------------------------------
Metrics Metrics Metrics
* Customer satisfaction - All financial - Customer satisfaction
KPIs - Employee engagement
- International
- All financial revenue as a % of
KPIs total revenue
---------------------------- -------------------------------------
Responsibility Responsibility Responsibility
Group Director Group MD International Group Function Director
Business Development Strategy and Planning
Group Function Director
Business Development
Group Function Director
Technical
---------------------------- -------------------------------------
Risk appetite Risk appetite Risk Appetite
Eager Balanced to Eager Balanced
---------------------------- -------------------------------------
Likelihood/Impact Likelihood/Impact Likelihood/Impact
Medium/Medium High/High High/High
---------------------------- -------------------------------------
Proximity/Velocity Proximity/Velocity Proximity/Velocity
1-2 years / Medium 0 -1 year / Medium 1 - 2 years / Low
---------------------------- -------------------------------------
A material element Mergers and Acquisitions Transformation
of the Group's (M&A)
revenue is derived
from large contracts
Risk Risk Risk
The Long Term Partnering M&A activity forms The transformation
Agreement (LTPA) a key element of programme does
is a 25-year partnering our strategic growth not
contract with the plans in order realise the expected
MOD to provide to expand our customer benefits.
test, evaluation, offerings. New
and training acquisition selection
services. UK Government and integration
budget constraints is key to realising
could lead to a the maximum potential
material change benefits.
to the
contract.
-------------------------- -----------------------------
Impact Impact Impact
The LTPA directly Adverse impact The introduction
contributes a material on the Group's of new ways of
proportion of the financial working disrupts
Group's revenue performance. business delivery.
and earnings
-------------------------- -----------------------------
Mitigation Mitigation Mitigation
Our aim is to provide We have robust The programme is
our customer with governance in place designed around
the capabilities regarding this three
they need to test risk including transformational
and train against the M&A Committee themes (Performance
current and future and relevant Integration culture,
threats in a cost Steering Committees. Global & Digital)
effective manner, to support the
leading and modernising All planned acquisitions delivery of
UK Test & Evaluation. are carefully considered our global strategy,
Our increased customer to ensure good improve customer
focus is evidenced strategic alignment, focus,
in both the LTPA extensive due diligence competitiveness,
and EDP programmes. is undertaken and and global collaboration
Ensuring frameworks integrations are across the Company.
such as the LTPA run as individual
enable agility projects, Significant engagement
and pace to the ensuring they receive with leaders across
Front Line in a the focus and support the organisation
rapidly changing necessary to facilitate to catalyse the
threat environment a smooth transition. change
strengthens the in behaviours necessary
rationale for their to allow the transformation
use. work to deliver
Our investment benefit.
into key contracts
continues to ensure Assessment of "capacity
they meet the our to change" and
customers' expectations phased approach
and remain cost to transformation
effective and relevant in each
in an evolving part of the business
threat environment. to maximise effectiveness.
-------------------------- -----------------------------
Metrics Metrics Metrics
* All financial KPIs except orders Inorganic growth Customer satisfaction
Revenue & profit Employee engagement
All financial KPIs
- Customer satisfaction
-------------------------- -----------------------------
Responsibility Responsibility Responsibility
Group MD Maritime Group Function Group Function
& Land Director Strategy Director Business
Group MD Air & & Planning Transformation
Space Group Managing & Services
Directors
-------------------------- -----------------------------
Risk Appetite Risk Appetite Risk Appetite
Balanced Balanced Eager
-------------------------- -----------------------------
Likelihood/Impact Likelihood/Impact Likelihood/Impact
Medium/High High/High Medium/Medium
-------------------------- -----------------------------
Proximity/Velocity Proximity/Velocity Proximity/Velocity
0 - 1 year / Low 1 - 2 years / Low 0 - 1 year / Medium
-------------------------- -----------------------------
Operational Risks
Significant breach Security and IT COVID-19 pandemic
of relevant systems
laws and regulations
Risk Risk Risk
We operate in highly A breach of physical The COVID-19 pandemic
regulated environments or data security, disrupts QinetiQ
and non-compliance cyber attacks or operations.
has the potential IT systems' failure
to compromise our could have an adverse
ability to conduct impact on our customers'
business in certain operations.
jurisdictions,
potentially having
an impact on a
variety of stakeholders
-------------------------- ---------------------------
Impact Impact Impact
Failure to comply Significant reputational The disease and
with particular damage, as well public health management
regulations could as the strategies require
result in a combination possibility of QinetiQ, our customers
of fines, penalties, exclusion from and suppliers to
civil or criminal some types of government stop or delay some
action, suspension contracts resulting activities.
or debarment from in reduced orders,
government contracts, revenue and profit.
as well as reputational
damage to our brand.
-------------------------- ---------------------------
Mitigation Mitigation Mitigation
Instilling the Data security is QinetiQ's crisis
right behaviours assured through management process
and culture across a multi-layered is well embedded,
the Group is a approach that provides flexible and exercised.
key part in minimising a hardened environment, It operates at
the risks. including robust strategic, tactical
In addition to physical security and operational
our robust policy, arrangements levels across the
procedures and and data resilience Group allowing
mandatory training, strategies. the Company
the QinetiQ Code Information systems to respond rapidly
of Conduct defines are designed with to the pandemic
clear expectations consideration to and governmental
for the Group and single points of requirements in
its employees. failure and all the countries
Key areas of focus comply with relevant in which it operates.
include the following: accreditation standards. The process has
- Safety of product Mandatory security been held under
and services awareness training regular review
- Health, Safety for all employees. and modification
& Continuously reviewing enacted where required
Environment, international the threats and to ensure an effective
trade controls, adapting our security response to the
bribery and ethics; strategy and mitigations pandemic. The Company
where the Company accordingly. has engaged with
adopts a zero tolerance all relevant stakeholders
approach to bribery including government,
and corruption. customers, suppliers
and employees as
the pandemic has
progressed. Ways
of working have
been
adapted to facilitate
remote working
from
home where possible
and to meet public
health
requirements where
not.
-------------------------- ---------------------------
Metrics Metrics Metrics
* Health, Safety and Environment - Cyber dashboard - Customer satisfaction
- Security dashboard - Employee Engagement
- All financial
* Mandatory training compliance KPIs
* Commercial intermediary monitoring
-------------------------- ---------------------------
Responsibility Responsibility Responsibility
Company Secretary/Group Group Function CEO
General Counsel Director Business
Transformation
& Services
-------------------------- ---------------------------
Risk Appetite Risk Appetite Risk Appetite
Cautious Cautious Cautious
-------------------------- ---------------------------
Likelihood/Impact Likelihood/Impact Likelihood/Impact
Medium/High Medium/High High/Medium
-------------------------- ---------------------------
Proximity/Velocity Proximity/Velocity Proximity/Velocity
0 - 1 year / High 0 - 1 year / High 0 - 1 year / High
-------------------------- ---------------------------
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:
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 34
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 73, is taken
into account.
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.
Subsequent to the standard planning activities noted above and
in response to the COVID-19 crisis that started to escalate just
prior to the Group's current year end, specific scenarios have been
run to model a variety of potential impacts of COVID-19 on the
Group. This has been informed by a further month of trading post
year end whilst employees are working during social distancing
restrictions and by revised financial forecasts for the 2021 fiscal
year prepared by each business unit within the Group.
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 2025. 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 whilst still providing an
appropriate longer-term outlook.
Confirmation of longer-term viability
As noted on page 113, 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 2025.
RELATED PARTY TRANSACTIONS
During the year ended 31 March 2020 there were sales to
associates and joint ventures of GBP5.7m (2019: GBP10.1m). At the
year-end there were outstanding receivables from associates and
joint ventures of GBP2.1m (2019: GBP1.4m).
STATEMENT OF DIRECTORS' RESPONSIBILITIES
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 Financial Reporting Standards (IFRSs) as adopted by
the European Union and 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). Under company law the
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 and Company 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 IFRSs as adopted by 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; and
- 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 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 and, as
regards the Group financial statements, Article 4 of the IAS
Regulation.
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.
DIRECTORS' CONFIRMATIONS
The Directors consider that the Annual Report and Accounts,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group and
Company's position and performance, business model and
strategy.
Each of the Directors, whose names and functions are listed on
pages 60 and 61 confirm that, to the best of their knowledge:
- the Company's financial statements, which have been prepared
in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 101
"Reduced Disclosure Framework", and applicable law), give a true
and fair view of the assets, liabilities, financial position and
profit of the Company;
- the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give a true
and fair view of the assets, liabilities, financial position and
profit of the Group;
- the Directors' report 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:
- so far as the Director is aware, there is no relevant audit
information of which the Group and Company's auditors are unaware;
and
- they have taken all the steps that they ought to have taken as
a Director in order to make themselves aware of any relevant audit
information and to establish that the Group and Company's auditors
are aware of that information.
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 2020. 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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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