QinetiQ Group plc

Annual Report & Accounts 2022

Focused on

sustainable

global growth

QinetiQ Group plc

Annual Report & Accounts 2022

Introduction

We are building an

integrated global defence

and security company

Our purpose

QinetiQ is dedicated to protecting

lives 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 approximately 7,000 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.

Front cover depicts a Banshee Jet80+ target launching

from HMS Prince of Wales. Photo by Ben Corbett; UK

Throughout this report FY22/2022 refers to QinetiQ’s

Financial year ended 31 March 2022.

The report also refers to “Underlying” measures of

performance. Definitions can be found on page 207.

QinetiQ Group plc Annual Report & Accounts 2022

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

FINANCIAL

STATEMENTS

How we have performed

Financial highlights

Good progress with strong second-half momentum.

Operational highlights

Positioning ourselves for long-term sustainable global growth.

ORDERS

£1,226.6m

(FY21: £1,149.4m*)

STATUTORY OPERATING PROFIT

£117.5m

(FY21: £108.7m^)

REVENUE

£1,320.4m

(FY21: £1,278.2m)

UNDERLYING EARNINGS PER SHARE

20.6p

(FY21: 22.1p)

UNDERLYING OPERATING PROFIT

£137.4m

(FY21: £151.8m)

STATUTORY EARNINGS PER SHARE

15.7p

(FY21: 21.4p^)

£117.5m

£108.7m^

£117.6m

FY21

FY20

FY22

£1,320.4m

£1,278.2m

£1,072.9m

FY21

FY20

FY22

20.6p

22.1p

20.0p

FY21

FY20

FY22

£137.4m

£151.8m

£133.2m

FY21

FY20

FY22

15.7p

21.4p^

18.7p

FY21

FY20

FY22

• Leading role in securing the interests of our NATO allies – we

supported Formidable Shield, the largest live-fire integrated air and

missile defence exercise in 2021 led by the US Sixth Fleet and conducted

by Naval Striking and Support Forces NATO. This is a good example of

the benefits arising from our investment in the Long Term Partnering

Agreement (LTPA) contract, driving enhanced operational outcomes for

our customers, increasing the demand for our ranges and positioning

QinetiQ at the leading edge of safe delivery of complex events to ensure

our NATO allies can defend against future threats.

• Our large contracts continue to support significant growth in the

UK – we have won orders totalling £115m on the Weapons Sector

Research Framework contract, including work on the development

and deployment of directed-energy weapons for the UK’s Ministry of

Defence (UK MOD), an important capability particularly focused on

counter-hypersonics. The Engineering Delivery Partner (EDP) contract

continues to evolve to meet the ever-changing needs of our customers,

and has now delivered over £920m of orders since its inception in

October 2018.

• Strategic partner to Strategic Command – we have won more than

£160m worth of orders with Defence Digital and Defence Intelligence

These include a £33m contract to transform the aeronautical data-

management and aeronautical information production capability

for UK MOD; and a £20m contract to support defence intelligence

transformation across electronic warfare, mission-data, intelligence

training, capability assessments and Urgent Operational Requirements

implementation, adding automation and providing enhanced resilience.

• Building a disruptive mid-tier company in the US – we have won a

number of notable and strategically significant contracts in the US,

including a $12m advanced sensor prototype contract, a $62m full-rate

production contract for our Squad Pack Utility Robot (SPUR) and a

$12m contract to deliver additional Robotic Combat Vehicle Light

(RCV-L) prototypes for testing. With a c.20% growth in orders coupled

with our new leadership team, headed by Shawn Purvis, this provides

a strong foundation for the delivery of our strategy in the US, through

both strong organic growth and strategy-led acquisitions.

• Trusted partner in Australia – Our Australian business continues to

deliver strong growth. Our Major Service Provider (MSP) contract has

delivered orders totalling A$97m including an A$27m order to assist

the Australian Department of Defence in delivering its largest and

most complex Land projects. This contract positions us for future

growth as a trusted partner able to provide sovereign Australian

industry capability, while leveraging our global capabilities.

• QinetiQ Target Systems (QTS) recovery – In FY22 we have seen

significant positive progress across the QTS business with customers

resuming trials and exercises previously cancelled or postponed

due to COVID-19 and winning significant orders, with growth in both

existing countries and new business wins in the US, India and Japan.

FY22 revenue was back to pre-pandemic levels and we remain

positive on the trajectory of the business.

• Net-Zero plan – Over the last decade, we have set a series of

increasingly ambitious greenhouse gas (GHG) emission reduction

targets. In FY19, we developed a new target in line with the Science

Based Targets initiative (SBTi) to reduce our Scope 1 and Scope 2

GHG emissions and we are pleased that over the last 3 years we

have reduced our emissions by 32%. In March 2022 we published

our Net-Zero plan which outlines a credible route to achieve Net-Zero

across Scope 1, 2 and 3.

^ Prior year comparatives have been restated due to a change in accounting policy in respect of software implementation costs.

* Restated to exclude Joint Ventures.

£1,226.6m

£1,149.4m*

£961.7m*

FY21

FY20

FY22

QinetiQ Group plc Annual Report & Accounts 2022

Contents

Focused on sustainable

global growth

What we do

We are a leading science and engineering

company operating primarily in the defence

and security markets. We apply our unique

technical expertise across the product

lifecycle, helping our customers to create,

test and use defence and security capabilities.

Strategic

report

Recent world events

have reinforced the

long-term needs of our

customers, including

capabilities utilising

differentiated technology

and test and training

solutions which are

directly aligned with

our strategy.”

Steve Wadey

Chief Executive Officer

See Page 20

See Page 14

See Page 18

Our vision

To be the chosen partner around the world

for mission-critical solutions, innovating

for our customers’ advantage. Our

strategy delivers on this through three

complementary and mutually reinforcing

pillars; global leverage, distinctive

offerings and disruptive innovation.

ESG

QinetiQ has taken an

active leadership role in ESG

in the defence sector for many

years. This year we have published our

Net-Zero plan which outlines a credible

route for us to decarbonise while also

working with our partners and

customers to help them on

their journey to Net-Zero.

See Page 44

CEO

review

We have delivered

good underlying operating

performance at Group level.

We have continued to make good

strategic progress this year, with our

major achievements being £1.23bn of

orders secured across the Group, and

excellent performance in EMEA Services,

with 26% revenue growth in Australia

and 12% revenue growth in the UK.

QinetiQ Group plc Annual Report & Accounts 2022

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

FINANCIAL

STATEMENTS

Corporate

governance

Risk and audit

summaries

Key areas for the Audit Committee

have included internal control and risk

management, treatment of accounting

judgements on key programmes, ESG

target-setting, assurance and reporting,

including Climate Related Financial

Disclosures (TCFD).

See Page 79

See Page 81

Group Chair’s introduction

FY22 saw QinetiQ delivering a good

underlying operating performance at

Group level. However, our result was

impacted by two short-term issues:

complex project write-down and US

revenue performance. The Board took

swift actions to mitigate these, including

a robust plan to ensure the best possible

outcome on the large complex project.

Board

leadership

decision making

Key decisions made by the Board include

strategic decisions on potential acquisition

opportunities, US leadership and our

Net-Zero plan, and key operational

oversight on the complex project, TCFD

and our safety improvement programme.

See Page 108

Remuneration

summary

Implementing the Directors’

Remuneration Policy in the interests of

shareholders as been the primary focus

of the Remuneration Committee this year.

For FY23 we include more ESG metrics

into the leaders’ collective objectives and

we are developing the new Remuneration

policy, taking on shareholder feedback.

See Page 117

Strategic report

04 About QinetiQ

06 What we do

08 How we are structured

10 Investor proposition

12 Group Chair’s statement

14 CEO review

16 Our business model

18 Our strategy

19 Strategic progress

22 Market themes

24 Trading environment

26 Our stakeholders

28 Stakeholder questions and answers

30 Operating review

36 CFO review

40 Key performance indicators

44 Environmental, Social and

Governance

60 Risk management

69 Longer-term viability assessment

69 Going concern statement

70 Section 172 (1) statement

72 Non-financial information statement

Corporate governance

76 Governance framework

79 An introduction from the Group Chair

81 Board leadership and company

purpose

96 Division of responsibilities

98 Composition, succession

and evaluation

108 Audit, risk and internal control

110 Audit Committee report

116 Risk and Security Committee report

117 Directors’ remuneration report

119 Remuneration at a glance

123 Annual report on remuneration

137 Directors’ report

141 Independent auditors’ report

Financial statements

150 Consolidated income statement

151 Consolidated comprehensive income

statement

151 Consolidated statement of

changes in equity

152 Consolidated balance sheet

153 Consolidated cash flow statement

153 Reconciliation of movements

in net cash

154 Notes to the financial statements

200 Company balance sheet

201 Company statement of changes

in equity

202 Notes to the company

financial statements

Other information

204 Five-year financial summary

205 Additional financial information

206 Glossary

208 Shareholder information

QinetiQ Group plc Annual Report & Accounts 2022

About

QinetiQ

Our purpose

QinetiQ is dedicated to protecting lives and securing the vital interests of our customers.

QinetiQ provides technology and

solutions in order to keep our

armed forces and society safe.

QinetiQ is focused on producing

mission critical solutions and

innovating for our customers’

advantage.

In action:

QinetiQ, in partnership with

MedEng, has designed and

developed the Next-Generation

Advanced Bomb Suit (NGABS) for

the army. The NGABS increases

soldier readiness to respond to

evolving threats by providing

situational awareness, 360-degree

ballistic protection and reducing

weight-burdens via its modular

scalable design.

Protecting

lives

Securing

vital interests

of our

customers

See Page 34

In action:

With our defence-grade security

technologies, rigorous threat

checks and system-wide managed

cyber-security service, we help

customers build digital resilience.

See Page 32

QinetiQ Group plc Annual Report & Accounts 2022

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

FINANCIAL

STATEMENTS

Where we operate

Three priority countries:

12%

73%

Revenue by customer location

UK £962m

US £153m

Australia £98m

Rest of world £107m

Revenue by division

80%

20%

EMEA Services £1,059m

Global Products £261m

Three home countries:

QinetiQ’s heritage stems from formerly

being a part of the UK MOD, who we now

work with closely as our largest customer.

Our capabilities are centred around

customer advice and service provision

across research and development,

engineering advice, test and evaluation,

training and mission rehearsal, cyber

security and data.

QinetiQ’s capabilities in the US originate

from a close and strong relationship with

the US Department of Defense, as the

most significant provider of small robots,

combined with our acquired capabilities

on autonomy and sensing. Our operations

include manufacture of robots and

prototype platforms for our customer.

Australia

QinetiQ has had a strong relationship

with the Australian Department of

Defence for many years, providing advice,

engineering and design solutions, as well

as expanding into test and evaluation

services, robotics and autonomous

systems.

Employees:

5,432

Sites: 31

Employees: 487

Sites: 6

Employees: 626

Sites: 5

Belgium

QinetiQ’s space business designs and develops small satellites

and space technology for military, security and civil use.

Employees: 166 Sites: 1

Germany

QinetiQ has developed its capability through acquisition. We

are a trusted provider of airborne special mission operations,

technical solutions and airborne training to defence and

security customers.

Employees: 123 Sites: 3

Canada

QinetiQ Canada provides many services, including test and

evaluation advice, electronic surveillance systems, software

tools for designing and developing vessels, and helping with

cost estimation.

Employees: 74 Sites: 2

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.

QinetiQ Group plc Annual Report & Accounts 2022

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.

Our capabilities are grouped in to six distinctive offerings:

Experimentation

and technology

QinetiQ collaborates with customers and partners to explore

innovative technology solutions that solve our customers’

complex problems. We bring together a wide range of experts

to deliver new, fully-assured capabilities that provide mission

advantage.

Case study: Awarded a multi-million pound UK research

and development contract that forms part of a broad range

of activities in the hypersonics field ,and secured active R&D

projects for Directed Energy technologies.

Cyber and information

advantage

QinetiQ innovates with a broad range of partners across

leading-edge sensor technologies, data processing,

advanced analytics, cyber and artificial intelligence

to use data and information in a more effective way.

Case study: Awarded a $24m US Army contract to build

three additional SPECTRE next-generation, full spectrum,

hyperspectral prototype sensors for a US Army Program

of Record.

Training and mission rehearsal

QinetiQ combines engineering expertise, operational know-

how and leading-edge technologies to deliver physical and

virtual training exercises to support operational readiness and

mission rehearsal.

Case Study: We supported Formidable Shield, the largest

live-fire integrated air and missile defence exercise in 2021,

providing the safe environment, logistics and range control

to facilitate this trial, across the maritime and air domains.

A range of targets were used to test defences, including

subsonic, supersonic and ballistic targets.

Test and evaluation

QinetiQ leverages unique skills, data and facilities to test and

evaluate the performance of military systems. This provides

assurance for our customers that their equipment and

platforms will work effectively when needed in demanding

environments and threat scenarios, helping to reduce

operational risk and through-life cost.

Case study: QinetiQ specialists helped the UK Royal Navy to

overcome an extremely challenging timescale and delivered

both an airborne surveillance capability and guided weapon

capability in time for the first operational deployment of the

UK’s Carrier Strike Group (CSG).

QinetiQ Group plc Annual Report & Accounts 2022

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

FINANCIAL

STATEMENTS

Engineering services and

support

Working alongside a large network of supplier providers,

QinetiQ uses its deep understanding of customer requirements,

existing systems and innovative approach to provide our

customers with reliable technical advice and support, through

all phases of procurement and systems engineering.

Case Study: New Futures Lab service introduced

to maximise the innovation and exploitation of new

technologies and capabilities, putting EDP at the

forefront of some of the MOD’s most important

and innovative programmes.

Single routes to market

We focus on partnering with our customers,

to deliver mission-led innovation through our

six distinctive offerings.

We optimise our capabilities internally,

through leveraging our technology and

engineering solutions globally; in order to

maximise external growth opportunities via

single routes to market, in six “home” and

“priority” countries.

Read more about Our Markets on Page 22

Robotics and autonomous

systems

QinetiQ develops, tests, evaluates and supplies trusted robotic

and autonomous systems across land, sea and air domains.

Case study: Awarded a $62m contract for full-rate

production of our SPUR – the winner of the Common

Robotic System – Individual (CRS(I)) programme by

the US Army.

QinetiQ Group plc Annual Report & Accounts 2022

Helps customers respond to evolving threats based on our

expertise in cyber security, secure communication

networks and devices, intelligence gathering

and training.

Approximate revenue FY22 £310m.

EMEA Services

Revenue: £1,059m

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.

How we are

structured

Air and Space

Maritime and Land

Cyber and Information

International

United States

Included here is our Australian and German operations.

In Australia we provide advice, products and test

and evaluation services, and in Germany we

provide airborne training and mission

operations.

Approximate revenue FY22 £105m.

Delivers operational advantage to customers by providing

independent research, evaluation and training

services.

Approximate revenue FY22 £415m.

De-risks complex aerospace programmes by testing

systems and equipment, evaluating the risks and

assuring safety.

Approximate revenue FY22 £230m.

QinetiQ Group plc Annual Report & Accounts 2022

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

FINANCIAL

STATEMENTS

Global Products

Revenue: £261m

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.

Approximate revenue FY22 £150m.

Space Products: Develops small satellites, payload

instruments, subsystems and ground station

services.

Approximate revenue FY22 £40m.

EMEA Products: Provides research services and bespoke technological

solutions developed from intellectual property spun off from EMEA

Services. The products and intellectual property are typically specialist

defence and security solutions, including secure-communication devices,

cyber products and electrification upgrades to military equipment.

Included in EMEA Products is QinetiQ Target Systems − a world-leading

provider of unmanned air, land and surface targets for live-fire training

and weapon system test and evaluation.

Approximate revenue FY22 £70m.

QinetiQ Group plc Annual Report & Accounts 2022

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 four key attributes:

Unique capabilities and

relevant offerings

Operate in attractive

markets

We have unique capabilities around the world critical

to maintaining national defence and security. In

addition, many of our capabilities are well aligned

with customer priorities:

• Unique position in defence, providing early-stage

research and development, complex test and

evaluation capabilities and select niche defence

and security products

• Key partner to sovereign nations providing leading

technical expertise and state-of-the-art facilities

• Relevant offerings for emerging and future threats

• Strong track record and significant opportunity

for global leverage of capabilities across the Group

• Ambition to build an integrated global defence

and security company

Our business operates in the defence and security

markets which both are seeing significant spending

increases; furthermore our capabilities are well

aligned with those areas that are growing faster

than the overall defence budgets:

• Global defence and security are climbing up the

geo-political agenda

• We are a key partner to nations with shared defence

and security interests: (eg the UK, Australia and the

US, known collectively as AUKUS)

• The total addressable market is worth more than

£20bn, with a key focus on the UK, US and Australia

• We are seeing growing demand for our

differentiated capabilities

• There is significant opportunity for global leverage

of our capabilities across our global business

Six

distinctive offerings

>£20bn

addressable market

~7,000

highly skilled employees

£2.3bn+

revenue ambition by FY27+

QinetiQ Group plc Annual Report & Accounts 2022

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

FINANCIAL

STATEMENTS

Delivering responsibly and

taking a lead on ESG

QinetiQ has taken a proactive lead in ESG for many

years and is uniquely placed to help our partners and

customers to achieve Net-Zero through effective use

of technology:

• An important role in the defence sector, protecting

lives and society

• Early adopter and communicator:

• Held investor seminar in March 2021 on ESG

• Active sustainability leadership role in industry

fora such as Defence Suppliers Forum and ADS.

• Rated strongly by MSCI and Sustainalytics

• Recognised as implementing best practice in

our ethical policy for autonomous systems

• Unique position to help our customers meet their

ESG targets − technology and offerings

AA rated

by MSCI

Net-Zero plan

published Mar-22

Strong financials and

shareholder return

Our business has attractive financial characteristics

supported by a strong balance sheet which enables us

to invest and realise our long-term growth ambitions:

• Strong revenue visibility from long-term contracts

• Attractive margins at the upper end of defence

contracting, demonstrating technical expertise

• Asset-light and cash-generative business model

supports organic investment to drive future growth:

organic investment funded from operating cash flow

• Strong balance sheet and good operational rigour

to support leverage for future acquisitions

• Clear capital allocation policy

• Progressive dividend policy

~£900m

of FY23 revenue under contract

26%

return on capital employed in FY22

QinetiQ Group plc Annual Report & Accounts 2022

Group Chair’s

statement

This has been a

challenging year

for QinetiQ, but

robust actions and

decisive leadership

see us emerge

with strengthened

foundations to

support our future

growth.”

As a Board we recognise the importance

of delivering results in the right way. We

have a strong and resilient Governance

framework and take an active role in

industry bodies to share and learn

from best practice.

In March 2022 we published our Net-Zero

plan which outlines a credible route to

achieve Net-Zero by 2050 or sooner.

We have a clear plan to decarbonise

our own Scope 1 and 2 emissions, through

the use of renewable energy sources,

reduced aviation emissions and other

global projects. But more significantly,

with 89% of our total emissions coming

from Scope 3, we intend to work closely

with our partners and customers to help

them on their journey to Net-Zero. We have

a unique opportunity to help our partners

and customers decarbonise through

technology; whether that be through our

expertise on stealth materials that enables

wider use of windfarms as they are less

likely to interfere with radar; our battery

experts developing high power batteries

for military and commercial use; our

large-scale, low-speed wind tunnel

being used to support advancements

in aircraft efficiency, or many other

technology-driven solutions to improve

sustainability for our stakeholders.

Board changes

There were a number of changes to the

membership of the Board during the year.

Lawrence (Larry) Prior III joined the Board

as senior US independent Non-executive

Director, bringing a wealth of experience

from various sectors including aerospace,

defence and government services, IT, and

cyber and security; Larry’s breadth of

experience as both an executive and

non-executive in the US is a strong

addition to the Board to support our

US and global strategies.

Read more about Safety on Page 55

Introduction:

This last year has seen both challenge and conflict – it started with much of

the world still in the grip of the COVID-19 pandemic and finished with perhaps

the most significantly unsettling conflict of a generation. While the wonders

of science and medicine are successfully containing the COVID-19 pandemic,

it is saddening to see the conflict and resulting humanitarian crisis arise in

Ukraine. This conflict will impact lives, economies and geo-politics for many

years to come. It also demonstrates the vital importance of defence companies

to society. At QinetiQ we are proud of our unique and important role in the defence

ecosystem, central to protecting lives and making the world a safer place.

QinetiQ Group plc Annual Report & Accounts 2022

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

FINANCIAL

STATEMENTS

After four years as CFO, David Smith stepped

down from the Board and we were delighted

to appoint Carol Borg as his successor.

Carol brings extensive experience of

leading global finance teams, and driving

operational execution and performance

management in complex growing

businesses. David made a very significant

contribution to QinetiQ, providing robust

financial direction and guidance. I wish

him the very best in his retirement.

I am also pleased to welcome Steve

Mogford to the Board for FY23. Steve

brings a wealth of experience, as Chief

Executive of United Utilities Group Plc, and

former senior roles in the defence sector at

SELEX Galileo (part of Finmeccanica), BAE

Systems Plc and British Aerospace Plc.

Steve’s official appointment date will be

August 2022.

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 its

global growth.

I would like to thank all my Board

colleagues, past and present, and

particularly Committee Chairs for

their leadership, support and advice

throughout the year.

While not Executive-level appointments,

I am also pleased to see four further

significant additions to the Global

Leadership Team to further support

and enable our global growth, with the

appointment of Shawn Purvis as President

and CEO of QinetiQ US from Northrop

Grumman, internal promotion of Amanda

Nelson to Group HR Director, internal

promotion of our CTO, Mike Sewart, to

the Global Leadership Team and the

Historical dividend payments

Read more on Page 29

Priority 1

Invest in our organic capabilities,

complemented by acquisitions

where there is a strong strategic fit.

Priority 2

Maintain balance sheet strength.

Priority 3

Provide a progressive dividend to

shareholders.

Priority 4

Return excess cash to

shareholders.

Capital allocation policy

appointment of Sam Lewis as Group Business

Development Director from various roles in

large US defence businesses.

I would also like to take this opportunity

to personally thank Steve Wadey, our CEO,

for his focus, commitment and resilience

over this past year. His leadership and

that of his Leadership Team has been

exemplary and an excellent demonstration

of our values: Integrity, Collaboration and

Performance. In the face of adversity, all

of our people and teams have pulled

together to deliver for our customers;

my thanks to all of them.

Looking ahead

While we faced some unique challenges

this year, I am extremely positive and

optimistic about the future for QinetiQ.

We are closing out the two short-term

issues and have delivered strong

underlying performance from the rest of

the Group, increasing momentum towards

our ambitious goals. We exit this period

into a new normal with strong foundations

– fantastic people, a cohesive strategy,

a strong balance sheet and the right

leadership; ingredients that will support

us in achieving excellent results and

exceeding our stakeholders’ expectations

over the long-term.

Neil Johnson

Non-executive Group Chair

20 May 2022

Key

Final

Interim

2012

0.9p

2.0p

2.9p

2013

1.1p

2.7p

3.8p

2014

1.4p

3.2p

4.6p

2015

1.8p

3.6p

5.4p

2016

1.9p

3.8p

5.7p

2017

2.0p

4.0p

6.0p

2018

2.1p

4.2p

6.3p

2019

2.1p

4.5p

6.6p

2020*

2.2p

4.4p

6.6p

2021

2.2p

4.7p

6.9p

2022

2.3p

7.3p

5.0p

QinetiQ Group plc Annual Report & Accounts 2022

CEO

review

Following a challenging first half, we

delivered a strong second half and

achieved good underlying operational

performance at Group level.

With a clear focus on disciplined execution

of our strategy we secured our largest

order intake at £1.23bn, 9% growth on an

organic basis, demonstrating high demand

for our distinctive offerings. We maintained

good programme execution and delivery

across all our major contracts to deliver

5% revenue growth on an organic basis.

Underlying operating profit was £137.4m,

equivalent to 11.4% margin before a

£14.5m complex project write-down

consistent with our short-term guidance.

We continue to deliver very strong cash

performance with 114% underlying cash

conversion, up from 98% last year, using

our new cash conversion definition.

US revenue performance recovery was

slower than expected, with the second

half in line with the first half, largely due to

the US defence budget being constrained

by the extended Continuing Resolution.

However, we secured c.20% year-on-year

growth in order intake which, coupled

with our new leadership team, provides a

strong foundation for the delivery of our

US growth strategy. The complex project

contract is now closed and the financial

impact remains fully contained in our

first half results.

Delivering our global ambition

Recent world events have reinforced

the long-term needs of our customers,

requiring capabilities utilising differentiated

technology, test and training solutions

which are directly aligned with our

strategy. This defence and security context

is heightening the market needs for our

six distinctive offerings. Our addressable

market is worth more than £20bn per year,

and we see increased customer demand

for our high-value solutions in high-priority

growth segments. The major focus for

growth is in our three home countries,

the UK, US and Australia, where we are

pursuing similar opportunities to support

their shared defence and security mission.

The formation of the AUKUS alliance

between these nations reinforces our

multi-domestic strategy and makes

us increasingly relevant. We are well-

positioned to deliver strong growth in the

UK and to more than double our Australian

and US businesses in the next five years.

Building on our track record of growing

the company by 75% over the last six

years, we have increased the scale of our

ambition. We will grow by another 75%

over the next five years to more than

£2.3bn revenue. Within our latest strategic

business plan, we see 30% of our future

growth coming from the UK and more

than 50% coming from Australia and the

US. This plan is supported by our strong

balance sheet and continued investment in

our global strategy, through both organic

opportunities and strategic acquisitions.

Focused strategy

Our strategy is increasingly relevant and

provides focus for our business decisions

and our investment choices. We are a

company with a clear purpose, vision

and customer value proposition called

“mission-led innovation”, co-creating cost-

effective solutions to meet our customers’

needs at pace, as reinforced by the current

conflict in Ukraine. Our strategy is a multi-

domestic strategy, with a clear focus on

where we operate, what we do and how we

deliver value for our customers:

Global leverage – Build an integrated

global defence and security company

to leverage our capability through single

routes to market in the UK, US, Australia,

Canada, Germany and Belgium.

Distinctive offerings – Co-create high-value

differentiated solutions for our customers, in

experimentation, test, training, information,

engineering and autonomous systems.

Disruptive innovation – Invest in and apply

disruptive business models, digitisation

and advanced technologies to enable our

customers’ operational mission at pace.

Throughout the last

year our people have

continued to partner

with our customers

to deliver high-value

solutions critical to

current and future

national defence and

security challenges.”

Read more about our strategy on Page 18

Introduction:

Recent world events have reinforced the long-term needs of our customers,

including capabilities utilising differentiated technology, test and training

solutions which are directly aligned with our strategy. With a clear focus on

disciplined execution of our strategy, increasing demand for our solutions and

good revenue coverage, we have positive momentum and are on-track to deliver

sustainable growth.

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Our first priority is to maintain focus on

driving organic growth in each country.

We remain disciplined in delivering our

commitments to our customers and

shareholders by continuously improving

our bidding, programme execution and risk

management capability.

Looking forward, we have a clear strategic

business plan focused on creating a global

leader in mission-led innovation. With a

strong balance sheet, we continue to invest

in our multi-domestic growth strategy to

realise our ambition. We have clarity around

our six distinctive offerings and focus on

our home countries, to provide a guide for

our future investment decisions. Growth will

be driven by investing in these distinctive

offerings and leveraging across countries.

We have continued to make good strategic

progress implementing our strategy to

become an integrated global defence and

security company:

• Providing a leading role in securing the

interests of our NATO allies through

facilitating the Formidable Shield

exercise

• Our large contracts in the UK continue

to support significant growth, with 12%

revenue growth in the UK

• We have won over £160m orders

with Defence Digital and Defence

Intelligence, becoming a strategic

partner to Strategic Command

• We are building a disruptive mid-tier

company in the US with a number of

notable wins across our robotics and

sensing capabilities

• We continue to deliver strong growth in

Australia, with 26% revenue growth

• QinetiQ Target Systems has recovered

from COVID-19 and achieved its largest

ever order intake with £42m orders

• In March 2022 we published our Net-

Zero plan, targeting a 33% reduction

in emissions by 2030 and Net-Zero by

2050 or sooner

• You can read about these further in the

Operating Review

Environmental, Social

and Governance (ESG)

We continue to take our ESG responsibility

seriously, ensuring our growth strategy is

sustainable. We have been seen as a leader

in the defence sector in ESG by many for

years (validated by our strong MSCI and

Sustainalytics ratings).

Our Environmental agenda is significant,

including responsibility for over 50

internationally recognised conservation

sites. In March we launched our Net-

Zero plan with validation by Science

Based Targets initiative (SBTi) currently

underway, to achieve Net-Zero emissions

by 2050 or sooner, with a reduction of 33%

by 2030. We are already well on the way

towards this target with a 32% reduction

in our scope 1 & 2 emissions over the last

3 years. We are also working closely with

our customers to co-create sustainable

solutions, such as modernisation of the

operations on St Kilda, a World-Heritage site,

in the middle of our world-class test range.

From a Social perspective, we are a

people business and we want our people

to feel inspired and have the opportunity

to realise their full potential. This year we

are enhancing our focus on both physical

safety and wellbeing. With rising costs of

living and growing competition for talent,

we have committed £10m additional

investment into our reward offering with

a particular emphasis on our lower paid

staff. We continue to embrace many forms

of difference to make us stronger, including

gender balance with a global target of

30% women by 2030. I have recently

augmented the QinetiQ Leadership Team

for the next phase of growth. The team is

diverse in many ways, with the necessary

skills and experience in our key markets

and has seen an increase of women

representations from 25% to 36% in FY23.

Effective Governance is critical to

our sustainability. We are focused on

strengthening our own skills and processes

and ensuring our supply chain is both

vibrant and meets the same standards

of safety, security, sustainability and

governance that we do. In May 2022 we

launched our sustainable procurement

guide to help our suppliers achieve this

objective. Driven by our company purpose,

we take the ethics of defence seriously and

carefully consider who we do business with

and the projects we undertake, to protect

lives and secure the vital interests of our

customers. This year we are taking our

focus on ESG to a new level, with 17.5%

of all leadership incentives focused on

delivering our commitments.

Read more about our

Distinctive offerings on

Page 6 and 7

QinetiQ Group plc Annual Report & Accounts 2022

Our business

model

Delivering for our stakeholders

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 in facing future

emerging threats and challenges.

The challenge Our 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 and 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 our customers.

Exploiting emerging technologies

and maintaining technological

advantage requires extensive

research and experimentation.

It requires dynamic approaches

to innovation and partnerships

to exploit the most advanced

technology.

It requires industry to deliver more

for less, driving efficiencies with

innovative delivery models.

We apply our unique technical

expertise across the product lifecycle,

helping our customers to create,

test and use defence and

security capabilities.

QinetiQ Group plc Annual Report & Accounts 2022

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Read more about How we deliver for our stakeholders on Page 26 and 27

~£900m

of FY23 revenue under contract

114%

Underlying cash conversion in FY22

Our customer

value proposition

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.

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.

Use it

Ensuring our customers

are trained and operationally ready

By combining real and simulated training

experiences we can ensure our customers

are operationally ready to use their capabilities

when it matters. 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.

QinetiQ Group plc Annual Report & Accounts 2022

Our strategy

Build an integrated global defence

and security company to leverage

our capability through single routes

to market in UK, US, Australia,

Canada, Germany and Belgium.

Co-create high-value solutions

for our customers in engineering,

experimentation, test, training,

information and autonomous

systems.

Invest in and apply disruptive

business models, digitisation and

advanced technologies to enable

our customers’ operational mission

at pace.

Our vision

The chosen partner around the world for mission-critical solutions,

innovating for our customers’ advantage.

Our strategy

Three complementary and mutually supporting strategic pillars support us in achieving our vision.

Our values

Our behaviours

Creating a safe and secure environment for us all to thrive

A high performance and inclusive work environment where employees are engaged, empowered and clear

about how they can contribute to our vision.

We deliver safely, responsibly and sustainably for the benefit of all our stakeholders

Read more about ESG framework and offerings on Page 45

Read more about Our Values on Page 91

Our purpose

Protecting lives and securing the vital interests of our customers.

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Build an integrated global

defence and security company

Global

leverage

FY22 highlights

• We have won a $10m contract with the US Army to

develop our supersonic target offering. The contract,

known as Modernizing Instrumentation Solutions for

Test and Evaluation (MISTE) for High Energy Laser

Measurement (HELM), is a great example of our single

routes to market in action, leveraging our Rattler target

into the US for the testing of high-energy lasers on

supersonic targets.

• Through FY22 QinetiQ Target Systems has seen

significant positive progress following the COVID-19

disruption, with customers resuming trials and

exercises and winning some significant orders. We

have achieved good growth in both existing countries

with new business wins in the US, India and Japan.

• We have entered into a strategic collaboration

agreement with automotive manufacturer AM General

to accelerate the development of electrification

technologies for military vehicles, demonstrating the

viability of electrifying military land vehicles to deliver

enhanced performance, while decarbonising military

operations, initially on the HUMVEE vehicle. This is a

UK/US collaboration that will lay the foundation for

further research into electrification capabilities for

land vehicles.

Strategic pillar #01

Leverage our capability through single

routes to market in the UK, US, Australia,

Canada, Germany and Belgium.

Case study: T&E leverage

into Australia

We are leveraging our UK capabilities in

Test and Evaluation to support growth

in our key home markets internationally;

three examples this year of our global

leverage in Australia are:

1. Building on our success with the

development of the unmanned aerial

systems (UAS) flight test range in

Queensland, we have signed our first

commercial Queensland flight test

range user agreement.

2. Launched a global skills transfer programme, aimed at

expanding local Test and Evaluation expertise to support

increasingly complex projects in Australia. The bespoke

career development program offers new and existing

QinetiQ employees in Australia the opportunity to work

alongside global experts to grow their technical and

operational expertise within sovereign test and evaluation.

3. We have won an A$27m order to assist the Australian

Department of Defence in delivering its largest and most

complex land projects. This contract positions us for future

growth as a trusted partner, able to provide sovereign

Australian industry capability, while leveraging our

global capabilities.

We are successfully

leveraging our

capabilities into

the global Test and

Evaluation market,

with notable contract

wins and delivery

internationally.”

Strategic

progress

QinetiQ Group plc Annual Report & Accounts 2022

Co-create high

value solutions

Strategic

progress

Distinctive

offerings

FY22 highlights

• We have secured a $62m full-rate production contract in

the US for over 1,200 small advanced robots with a multi-

year delivery schedule for the US Army. The Common

Robotic System Individual contract is the largest US

Government Program of Record in robotics, giving us a

strong platform for growth.

• In 2018 we won a significant competitive programme

to provide private sector client-side support to the

Battlefield Tactical Communication and Information

Systems Delivery Team for the UK MOD. The contract is

a critical enabler to deliver the next generation of Tactical

Communication and Information Systems for UK armed

forces. Following the strong delivery we have been

awarded a one year extension.

• We have won the DI Pillar £20m contract to support

defence intelligence transformation covering electronic

warfare, mission data, intelligence training, capability

assessments to accelerating innovation, implementing

Urgent Operational Requirements, adding automation and

providing enhanced resilience.

• Successful field testing of advanced bomb suit for US

Army – our Next-Generation Advanced Bomb Suit has

successfully completed field testing to enable full-rate

production in FY23 worth $70m over a 5 year period

• A$7.5m, five year extension to the Australian Mine

Warfare Maintenance Facility contract, out to 2027.

Strategic pillar #02

Co-create distinctive products and

services to offer exceptional value

for our customers in engineering,

experimentation, test, training,

information and autonomous systems.

Case study: US customer pivot

against the near-peer threats in

the Indo-Pacific

Our US business is continuing to

successfully adapt to the changing

market dynamics and customer

behaviours. Two example projects that

are focused to combat the future threat

environment are:

1. We have won a $24m contract from the US Army to build

three additional SPECTRE next generation full spectrum

hyperspectral prototype sensors. SPECTRE is an ISR

(intelligence, surveillance and reconnaissance) sensor

system that enables multi-mission Uncrewed Aircraft

Systems (UAS) and crewed aircraft to operate in parallel to

other critical sensor payloads and weapons, with improved

performance at a fraction of the size and weight

of the sensors currently in use by the US Government.

2. We have received a $12m contract for delivery of additional

prototype vehicles under the Robotic Combat Vehicle

Light (RCV-L) programme, for testing and experimentation

by the US Department of Defense. Furthermore, we have

established a strategic partnership with Oshkosh for the

Optionally Manned Fighting Vehicle (OMFV) competition,

seeking to position ourselves to be the primary provider of

autonomous controls and integration for the US military

land platforms.

Our US business

continues to develop

and manufacture

innovative defence

products specialising

in robotics,

autonomy and

sensing solutions.”

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Innovation to support delivery of

our customers’ mission at pace

Disruptive

Innovation

FY22 highlights

• Exploring directed-energy technology – In December

we were awarded a multi-million pound R&D contract

that forms part of a broad range of activities in the

hypersonics field. QinetiQ has now secured active

research and development projects that span near

term and future generations of directed-energy

technologies, all of which are aligned with the

intentions set out in the UK Integrated Review and

Defence Command paper. This is a great example

of our disruptive innovation and focus on creating

a global leader in high-value solutions to national

defence and security challenges.

• Completion of modernisation and sustainability

investment on St Kilda – alongside the National Trust

for Scotland and UK MOD, as part of the LTPA Air

Range Modernisation programme, we have completed

a significant programme of upgrades on the UNESCO

World Heritage Site of St Kilda. The investment

has developed world-class test and evaluation and

training capabilities, while improving the sustainability

of facilities, demonstrating the deployment of our

capital to support both our long-term growth as well

as progressing QinetiQ’s and our customers’ drive

towards Net-Zero.

Strategic pillar #03

Invest in and apply disruptive business

models, digitisation and advanced

technologies to enable our customers’

operational missions at pace.

Case study: Delivery on the

Robust Global Navigation

System (RGNS) contract

We have completed the hardware design

and initial associated embedded software

development and integration for the

highly complex Robust Global Navigation

System (RGNS) £67m contract, won in

2019 with the UK Ministry of Defence.

Having passed this important technical

milestone, we now move into the initial

stages of production and testing. This

is an important programme for the UK

to develop next-generation satellite

navigation and timing receivers, that

will be robust and reliable in the most

challenging and contested environments.

This demonstrates our ability to work

collaboratively with our customers

and partners to deliver the most

complex innovative solutions for

sovereign capabilities.

We are successfully

delivering on the

most complex

programmes,

delivering disruptive

innovation for

our customers’

advantage.”

QinetiQ Group plc Annual Report & Accounts 2022

Market

themes

The long-term themes reshaping defence

markets around the world

How are defence and security markets changing?

Geo-political tensions have risen to new heights following the

Russian invasion of Ukraine. This has created more uncertainty

around the world than has existed at any time since 9/11 and

has risked moving Europe and NATO closer to a direct conflict

with Russia.

There is an expectation that NATO members need to fundamentally

increase the range and readiness of their military capabilities for the

foreseeable future. At the same time, China demonstrates a growing

assertiveness in the Indo-Pacific, which is further driving US investment

and action to bolster deterrence and security in the region.

Achieving operational advantage over an adversary requires

timely and reliable intelligence, alongside the strategic application

of capability and resources, to mitigate threats and 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 in a wide range of scenarios.

Rising global tensions and

increasingly complex threats

The threat environment continues to become increasingly

complex, fuelled by rapid advances in technology and

heightened geo-political 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.

The proliferation of grey-zone warfare

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.

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 inter-operability between platforms

and systems to create true capabilities. This extends to the

need for greater co-operation between different forces and

nations to ensure a concerted effort in countering these

modern threats.

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.

Our customers seek to rapidly

modernise their defence and

security capabilities so they

can better address current and

future threats.”

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How are we evolving to these new market dynamics?

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.

Delivering disruptive science, engineering

and technology required to modernise

defence and security capabilities

QinetiQ was founded on innovation with research,

development, test and 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 inter-operability 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.

A multi-domestic strategy

Our strategy is a multi-domestic strategy aimed at

developing sovereign defence capabilities within the

countries in which we operate. The major focus for growth

is in our three home countries, the UK, US and Australia,

where we are pursuing similar opportunities to support

their shared defence and security mission – targeting to be

seen as British in the UK, American in the US and Australian

in Australia. The formation of the AUKUS alliance between

these nations reinforces our multi-domestic strategy and

makes us increasingly relevant. We are well-positioned to

deliver strong growth in the UK and more than double our

Australian and US businesses in the next five years.

Partnering for innovation

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.

QinetiQ Group plc Annual Report & Accounts 2022

Trading

environment

The 2021 Integrated Review outlined the UK’s current

defence and security policy. This, alongside the Defence

Command Paper and the Defence and Security Industrial

Strategy, has seen the allocation of an additional £24.1bn

in funding over a four-year period from November 2020

to 2024. The Integrated Review placed science and

technology at the heart of the UK’s defence policy with

innovation cited as critical to UK success. The UK is

investing 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. The Russian

invasion of Ukraine has further cemented wider

support for defence investment.

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 and Development and Test and 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.

The US maintains the largest defence budget worldwide,

with the FY22 Department of Defense budget of $743bn,

more than the next ten largest countries combined. The

FY23 budget request is $30bn higher at $773bn. The

budget reflects the National Defence Strategy and the

focus of that strategy on the growing challenge presented

by China. As well as supporting the preparation for

future challenges, such as climate change, it preserves

investment for the readiness and deterrence against

current threats, including the acute threat of an aggressive

Russia and the constantly emerging threats posed by

North Korea, Iran, and violent extremist organisations. The

budget request includes more than $130.1bn for research,

development, test and evaluation (an all-time high and a

9.5% increase on FY22) to address the need to sharpen

readiness in advanced technology, cyber, space and

artificial intelligence.

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.

Read more about our UK business on Page 30

Read more about our US business on Page 33

>£15bn

Market Opportunity

£153m

FY22 revenue

1 Sources: Jane’s Market Budget Forecast April 2021, UK MOD and US DOD forecasts for RDT&E, Australia Defence publications and QinetiQ estimates.

2 Research & Development and Test & Evaluation.

>£15bn

Market Opportunity

£153m

FY22 revenue

>£3bn

Market Opportunity

£962m

FY22 revenue

The UK, US and Australia are our home countries and collectively

represent 92% of our revenue.

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Australia

Tensions in the Indo-Pacific region remain heightened

from competition between global powers. In light of this,

Australia published its Defence Strategic Update and

Force Structure Plan in July 2020, placing increased

emphasis on force readiness and capability modernisation.

In September 2021, a trilateral security partnership was

announced between Australia, United Kingdom and United

States (AUKUS) to further enhance security in the region.

The total defence budget is estimated to increase by

3.1% in real terms from 2021-22 to 2022-23, and by 7.1%

in real terms over the period 2022-23 to 2025-26. This

reflects funding required to continue delivery of the 2016

Defence White Paper and new or adjusted capability

investments outlined in the 2020 Force Structure Plan,

as well as increased investment in the capabilities of the

Australian Signals Directorate through the 2022-23 budget

measure REDSPICE (Resilience, Effects, Defence, Space,

Intelligence, Cyber, and Enablers). During 2022-23, AUKUS

partners will progress trilaterally agreed programmes

of work and priority initiatives under: cyber capabilities,

artificial intelligence, quantum technologies, and additional

undersea capabilities.

We see many opportunities to support the Australian

forces in modernising sovereign defence capabilities,

leveraging expertise from across QinetiQ.

Other international markets

The strategic landscape has undergone a seismic shift

following Russia’s invasion of Ukraine in February

2022. This has provoked NATO to increase its defence

capabilities and readiness to respond, adding to the

pressure for the NATO member countries to increase their

defence spending of at least 2% of GDP. Following the

announcement of Germany to increase defence spending

by EUR100bn over the next five years, many other NATO

and European countries are also increasing their defence

and security investment.

While priority and investment focus will be attached to the

prosecution of our three home country strategies (UK, US

and Australia), we will continue to conduct business in the

support of allies in 5-Eyes, NATO and Continental Europe.

Read more about our Australian business on Page 32

Read more about our International markets on Page 32

1 Sources: Jane’s Market Budget Forecast April 2021, UK MOD and US DOD forecasts for RDT&E, Australia Defence publications and QinetiQ estimates.

2 Research & Development and Test & Evaluation.

>£0.5bn

Market Opportunity

£98m

FY22 revenue

>£1.5bn

Market Opportunity

£107m

FY22 revenue

QinetiQ Group plc Annual Report & Accounts 2022

We engage via a variety of community investment activities

such as outreach, volunteering, supporting local charities and

community liaison.

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.

We engaged with our shareholders during the year through

both physical and 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. We seek to keep

an open dialogue with our shareholders, particularly

around the short-term issues experienced in this year.

Customers

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

stakeholders

Shareholders

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.

Employees

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.

Suppliers

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.

Communities

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 that ensure the safety and

security of members of society, and our Net-Zero emissions plan.

Regulators

Various aspects of our business involve oversight from

regulators. We engage with regulators to understand changing

regulations, ensuring we can meet these requirements.

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 benefit of

the customer, QinetiQ and our suppliers.

For more information on Section 172 Statement see page 72.

Our approach to engagement

Primary stakeholders

Other stakeholders

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 customer’s

views on our performance and relationships through our

formal customer research systems.

How we engage

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.

We engage with regulators via meetings, audits and reports.

QinetiQ Group plc Annual Report & Accounts 2022

STRATEGIC

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STATEMENTS

We aim to benefit the wider socio-economic wellbeing of the

communities where we operate. 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 providing signposting to

rewarding careers.

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.

Our engagement has helped us to identify

priority focus areas to improve the employee

experience. By listening to our people through

our Peakon surveys we have directed our efforts

to enhance those areas highlighted, including

ways of working, safety, digital improvements

and concerns on cost of living.

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.

We have sought to keep the financial markets

and our shareholders up-to-date with progress

on the issues throughout this challenging

year; shareholder feedback and comments on

operational direction, returns and acquisitions

has helped shape our strategic thinking and

decision-making.

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.

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.

Impact of engagement How we create value

Our business model, supported by our strategy, aims to deliver

sustainable long-term growth and returns to our shareholders.

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.

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.

We take an active role in the defence industry, with our customers,

peers and partners alike. For example, our Chief Executive has been

recently re-appointed as Industry Co-Chair of the Defence Growth

Partnership (DGP).

Through engagement we are able to ensure we

continue to meet the high standards expected

by regulators.

Primary stakeholders

Other stakeholders

Our

Stakeholders

QinetiQ Group plc Annual Report & Accounts 2022

We are capability-focused rather

than platform-focused, meaning

we operate across all customer

platforms, developing strong partnerships

with customers, defence peers and

academia. We are proud of our unique and

privileged position as a customer-friend

and advisor. Our core capabilities such as

test and evaluation, training and rehearsal,

robotics and autonomy support our purpose

of protecting lives, by ensuring platforms

work safely and correctly, and removing the

war-fighter from harm’s way. We are also

proud to have published our Net-Zero GHG

emissions plan and to manage over 50

conservation sites.

What differentiates QinetiQ

from competitors, particularly

in regard to ESG?

Stakeholder

Q&A

EMEA Services is a brilliant

example of the results from

successful delivery of our

long-term strategy, where we have

been actively winning larger, longer-term

contracts, which has driven strong growth

in our backlog, supported by up-skilling

our business development capability and

our programme management capability

to successful execute those contracts.

This demonstrates the strength in the

fundamentals of our strategy and the

foundations of QinetiQ.

What is driving the strong

performance in EMEA

Services?

Answers to some

of our stakeholders’

most frequently

asked questions

QinetiQ Group plc Annual Report & Accounts 2022

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

FINANCIAL

STATEMENTS

In our first-half results we reported two discrete short-

term issues. Firstly, an unusual combination of emergent

risks across system maturity, supplier capability and

contract delivery conditions on a large complex project caused

a £14.5m write-down. The project has now been fully closed

and the financial impact remains consistent and contained in

our first half results. Neither the system nor the supplier exist

in our forward order-book and there is no read-across to other

programmes. After careful review, we strengthened our risk-

management practices to better consider and mitigate the effect

of combined risks materialising on an individual project. Secondly,

US organic revenue reduced by 24% compared to prior year

with the second half revenue performance recovery slower than

expected. As we reported in November in our Interim results,

there were a number of compounding effects that impacted our

first half results in the US including lower opening order backlog

due to COVID-19, supply-chain and the US administration change,

and the customer priority pivot from Afghanistan to the Indo-

Pacific. Whilst we took proactive steps to manage the revenue

shortfall in the first half and position us for growth in the second

half, our second half revenue recovery performance was slower

than targeted, with the second half in line with the first half largely

due to the US defence budget being constrained by the extended

Continuing Resolution. The US defence budget was constrained

by the extended Continuing Resolution through the first quarter of

calendar 2022 which had a material impact on contract funding

held back, and therefore customer spending behaviour, impacting

our ability to deliver revenue in our fourth quarter; the impact of

the Continuing Resolution delay was particularly felt by those

companies like ours with March year ends.

What were the two discrete short-term issues

that QinetiQ faced this year, why did they occur

and how has QinetiQ’s approach evolved since?

Our US growth strategy is developing a disruptive

mid-tier operator in the world’s largest defence market,

targeting $600m annual revenue by FY26, through both

organic and inorganic growth. Importantly, the structure and

approach of QinetiQ US today is very different from 2006-2010.

In the first instance we have significantly strengthened our

governance system with Special Security Agreement (SSA),

enabling much greater collaboration with the wider QinetiQ Group

and management teams. Secondly we are focused on our core

capabilities in higher-skill, higher-margin operations that align

with key US budget growth segments such as sensing, autonomy

and robotics. Thirdly, we have put in place a strong management

structure to drive performance, including the excellent hire this

year of Shawn Purvis as QinetiQ US CEO.

What is QinetiQ’s US growth strategy and

how does this differ from the past?

Firstly, we look to invest in our business to support

the long-term growth of the Group. We do this through

two lenses, supporting organic growth and targeting

acquisitions that are strategically aligned with our overall growth

ambition. Next, we look to retain a strong balance sheet and to

optimise our capital structure. At present we have a net cash

position but in future we would consider taking on leverage to

fund strategically aligned acquisitions consistent with our financial

and operating policies. Our business would be comfortable in a

sustainable leverage position of circa 2 times net debt to EBITDA,

and for the right strategic acquisition potentially higher for a short

duration, returning to below 2 times leverage within 24 months.

We also have a disciplined approach to portfolio management

as demonstrated by the three disposals completed last year that

were no longer aligned with our strategic objectives. Then we look

to retain a progressive dividend to shareholders – the full-year

dividend for FY22 is 7.3p per share. Finally we commit to return

excess cash to our shareholders. Whilst we have had a material

cash balance for a few years, and with good operational and

strategic rigour this may continue to increase in the short term,

we are comfortable with this as it gives us the flexibility and

ability to prosecute our strategy.

What is QinetiQ’s capital

allocation policy?

As a predominantly service orientated business, our

primary inflation exposure is from wages. For single

source work (approximately half of Group revenue)

wage inflation is recoverable as an allowable cost. In competitive

processes any cost increase is considered in our pricing strategy.

Fixed price contracts contain “variation of price” clauses that

allow for an adjustment based on an agreed escalation factor

or index, reducing or removing inflation risk to QinetiQ. Firm

price contracts include our assumptions on wage growth over

the contract, therefore we hold the benefit and risk of wage

inflation being lower or higher than planned. We enter each

financial year with approximately 60-65% of that year’s

revenue already contracted, therefore with the mix of fixed,

firm and cost-plus contract we are exposed to approximately

half of the cost increase as an impact to our bottom line with

the other half passed directly on to customers.

What is QinetiQ’s exposure

to inflation?

EMEA Services

demonstrates the

successful delivery of

our long-term strategy.”

QinetiQ Group plc Annual Report & Accounts 2022

Business unit commentary

Maritime & Land (~39% of EMEA

Services revenue)

The Maritime and Land business delivers

operational advantage to customers by

providing independent research,

evaluation and training services.

• We supported Formidable Shield,

the largest live-fire Integrated Air and

Missile Defence exercise in FY22 led by

US Sixth Fleet and conducted by Naval

Striking and Support Forces NATO.

In total, 16 ships, 31 aircraft, and

approximately 3,300 personnel from

10 NATO nations participated in the

live training event at the Hebrides

range. We provided the safe

environment, logistics and range

control to facilitate this trial, across

the maritime and air domains. A range

of targets were used to test defences,

including subsonic, supersonic and

ballistic targets. This is an excellent

example of our investment in the LTPA

contract, driving enhanced operational

outcomes for our customers and

increasing the demand for our ranges,

with QinetiQ being at the leading edge

of safe delivery of complex events to

ensure our NATO allies can defend

against future threats.

• We supported the Royal Navy Carrier

Strike Group Strike Warrior exercise at

MOD Aberporth and Hebrides ranges,

with our operational training and

missions system business Inzpire,

supporting the overall training activity

using its God’s Eye View (GEV)

capability. Exercise Strike Warrior

involved more than 20 warships, three

submarines and 150 aircraft from 11

nations and was the final test for the

Carrier Strike Group before its first

operational deployment. The GEV

system developed by QinetiQ enabled

the Royal Navy and Royal Air Force to

enhance the training value from the

exercise with a near real-time picture

of the overall exercise, tracking each

asset across waters off north-west

Scotland by connecting sensors across

the Hebrides range and RAF bases

through a digital backbone.

Financial performance

Orders for the year increased by 6% to

£918.9m (FY21: £864.4m), driven by

£115m under the WSRF contract in the

UK, mainly for the development of directed

energy systems in the UK; an increase in

orders from Defence Digital and Defence

Intelligence; and an order worth A$27

million for Land systems engineering

support in Australia.

Revenue increased by 13% to £1,059.2m

(FY21: £939.9m), and grew by 13%

on an organic basis, as a result of

new work under the EDP and WSRF

contracts, Defence Digital contracts

(in Cyber & Information) and ongoing

growth in Australia.

At the beginning of FY23, £726m of

the division’s FY23 revenue was under

contract, compared to £684m (of the

FY22 revenue) at the same point last

year. This reflects the 6% increase in

orders won in the year.

Underlying operating profit grew by 14%

to £135.6m (FY21: £118.6m) and grew

organically by 14% in line with revenue

growth. Operating margin increased

to 12.8% reflecting the continuation of

disciplined cost control and

risk management.

Including the LTPA, approximately 67%

of EMEA Services revenue is derived

from single source contracts (FY21:

approximately 68%). By investing in

our core contracts and extending their

duration the high proportion of single

source revenue contracted on a long-term

basis provides visibility and reduces our

exposure to future changes in the baseline

profit rate set annually by the Single

Source Regulations Office.

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.

Financial Performance

FY22

£m

FY21

£m

Orders

918.9 864.4

Revenue 1,059.2 939.9

Underlying operating profit 135.6 118.6

Underlying operating margin 12.8% 12.6%

Book to bill ratio

1.1x 1.2x

Total funded order backlog 2,541.6 2,710.6

1 To be consistent with revenue reporting prior year orders has been restated to exclude £1.7m of contribution

from Joint Ventures.

2 B2B ratio is orders won, excluding the share of orders from JV orders, divided by revenue recognised,

excluding the LTPA non-tasking services revenue of £222m (FY21 £226m).

QinetiQ Group plc Annual Report & Accounts 2022

STRATEGIC

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FINANCIAL

STATEMENTS

• We have won orders totalling £115m

on the Weapons Sector Research

Framework (WSRF) contract,

including work on the development

and deployment of directed energy

weapons for the UK MOD, an important

capability as identified in the Integrated

Review earlier in the year, particularly

focused on counter-hypersonics. We

were appointed to lead the WSRF

in June 2020 by DSTL, alongside

industry partners MBDA and Thales.

The framework, which we expect to be

worth £300m over five years, brings

together more than 100 industry and

academic partners to research and

develop technologies for the benefit

of the UK MOD.

• Working alongside a range of industry

and NATO partners, we successfully

delivered the

Robotic Experimentation

and Prototyping augmented by

Maritime Unmanned Systems

(REPMUS) trials in Portugal. This

was an important unmanned system

development trial that combined multi-

national and multi-domain data to

generate a detailed mobile command

and control picture of the battle-space

used by an amphibious raiding party.

• Under the LTPA Air Ranges

Modernisation programme we have

completed a significant upgrade to our

facilities on the island of St Kilda – the

UK’s only dual UNESCO World Heritage

site, 40 miles off the west coast of

the Outer Hebrides in Scotland. We

have developed a new energy centre,

accommodation, tracking radars

and telemetry, completed on time

and to budget.

• We have made an investment in

our autonomy capability in the UK,

acquiring the Northstar autonomous

navigation software intellectual

property and related test and trials

assets from TP Group Plc. As part

of the investment, the software

development team have also moved to

QinetiQ. This investment demonstrates

our capital allocation policy in action,

investing in important capabilities and

IP to support future growth in the UK

and internationally.

Air & Space (~22% of EMEA

Services revenue)

The Air and Space business de-risks

complex aerospace programmes by

evaluating systems and equipment,

assessing the risks and assuring safety.

• The Engineering Delivery Partner (EDP)

programme continues to evolve to

deliver the ever changing needs of our

customers, and has now delivered over

£920m of orders since inception of this

10-year framework contract in October

2018. Over 97% of engineering outputs

have been delivered on time, right first

time. This year, we also achieved Full

Operating Capability (FOC) as planned

and we successfully passed through

the 4-year review point demonstrating

DE&S’ continued confidence and

commitment to the contract. Key

wins this year include:

— A £25m, 3-year contract to integrate

all Lightning II Technical Support

requirements to provide the

continuity and flexibility necessary

to support safe, effective and

operationally focused aircraft

capability development;

— A multi-year contract bringing

together the Land Assurance

QinetiQ is providing into a single,

agile contract, supporting the

achievement of FOC of the AJAX

vehicle line by 2025;

— A series of contract amendments

totalling £22m to supporting the

New Style of IT programme in

its delivery of critical engineering

delivery commitments and

timelines through maintaining

essential engineering expertise and

continuity of technical knowledge.

• Despite logistical challenges presented

by COVID-19, we have successfully

delivered the full 2021 Test Aircrew

Training course. Aligned with our

global ambitions and broadening

international success, our training

courses are attracting significant

international demand. In FY22, we have

welcomed students from Australia,

Finland, Switzerland, Netherlands,

Sweden, German and Turkey.

• We have made good progress on

developing the tools, people, processes

and procedures for Digital Test and

Evaluation. We are applying these to

the New Medium Helicopter acquisition

programme for DE&S where we will

pilot our digital innovation on this

important procurement to help the

MOD speed up its decision-making

and reduce costs.

• Building on our pre-collaboration

agreement on the UK’s next-generation

fighter concept known as Tempest,

throughout the year we have signed

contracts with the four main key

industry partners to develop our role

and position in the programme. 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. We have also

continued to develop opportunities

on the FCAS Acquisition Programme.

• We continue to deliver on a range

of other critical programmes and

capabilities in the Air domain,

including Merlin CROWSNEST radar

trials and Future Anti Surface Guided

Weapon trials in support of the MOD

Carrier Strike Group (CSG) capability,

acceleration of the Tribune program,

bringing the C130J capability across

to the A400M, support to the Battle

of Britain Memorial Flight, and

continued provision tests for

Boeing in our five-metre wind

tunnel at Farnborough.

QinetiQ Group plc Annual Report & Accounts 2022

— A several million pounds 2-year

contract extension to support

UK MOD in the development

and transition to live service

of a cutting edge, highly

scalable and deployable

secure Communications

and Information System;

— The DI Pillar £20m contract to

support defence intelligence

transformation, covering aspects

key to defence intelligence: from

electronic warfare; mission data;

intelligence training; capability

assessments to accelerating

innovation; implementing Urgent

Operational Requirements (UORs);

adding automation; and providing

enhanced resilience. This contract

is won and delivered through EDP

alongside our partners and

subject-matter experts.

• Over the last year we have seen

strong delivery progress on the highly

complex Robust Global Navigation

System (RGNS) development contract,

won in 2019 with the MOD. We have

completed the hardware design and

initial associated embedded software

development and integration. This is

an important programme for the UK to

develop the next-generation satellite

navigation and timing receivers,

that will be robust and reliable in

the most challenging and contested

environments. The contract is a great

example of QinetiQ delivering on

highly complex programmes at

the leading-edge of technology

for sovereign capability.

• Our recent acquisitions of NSC

and Naimuri are performing well

producing over 20% year-on-year

revenue growth. In particular, in line

with our acquisition strategy, we have

successfully leveraged the Naimuri

business (acquired in 2020) into the

National Security and Data Intelligence

UK market, now a key supplier on

intelligence frameworks.

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.

• Our Australian business continues

to deliver strong growth. Our Major

Service Provider (MSP) contract has

delivered orders totalling A$97m

including an A$27m order to assist the

Australian Department of Defence in

delivering its largest and most complex

Land projects. This contract positions

us for future growth as a trusted

partner able to provide sovereign

Australian industry capability, while

leveraging our global capabilities.

• Building on our success with the

development of the unmanned aerial

systems (UAS) flight test range in

Queensland, we have signed our first

commercial Queensland UAS range

user agreement. This demonstrates

excellent progress in leveraging our

UK capabilities in Test and Evaluation

to support growth in our key home

markets internationally.

• In Germany, following the re-baselining

of the business plan in FY21, this

past year has been better for the

business, winning both extensions

and new work. Furthermore the

German Government’s commitment

to increase defence spending

provides a supportive environment to

business growth in our capabilities

of operational training and special

mission support.

Cyber & Information (~29% of EMEA

Services revenue)

The Cyber and Information business

helps government and commercial

customers respond to fast-evolving threats

using its expertise in training, secure

communication networks and devices,

intelligence gathering and surveillance

sensors, and cyber security.

• We have won over £160m of orders

with Defence Digital and Defence

Intelligence. We have become

a strategic partner supporting

Strategic Commands’ digital change

programmes and are well-placed to

continue to leverage our position with

these customers in the coming years.

Orders won include the following , many

of which are contracted through EDP:

— A £33m contract to transform the

aeronautical data management

and aeronautical information

production capability for UK MOD.

PICASSO Aeronautical Information

Capability (P-AIC) will provide

global access to reliable, timely,

accurate, and (where applicable)

assured and legislatively

aligned, worldwide Aeronautical

Information that will support safe

Defence aviation. The solution will

be a 24/7, cloud-hosted, system-

of-systems, that will transform

the way UK MOD manages

aeronautical data;

— In 2018, a significant competitive

programme to provide private

sector client side support to the

Battlefield Tactical Communication

and Information Systems

(BATCIS) Delivery Team within

Defence Digital (within MOD).

The contract is a critical enabler

to deliver the next generation

of Tactical Communication and

Information Systems as part of a

Single Information Environment

for UK armed forces. Following the

strong delivery in the first three

years of the programme by both

QinetiQ and in collaboration with

our partners (Roke, ATOS and

BMT) and suppliers, we have been

awarded a one-year extension;

Operating

review

continued

STRATEGIC

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QinetiQ Group plc Annual Report & Accounts 2022

Financial performance

Orders increased by 8% to £307.7m (FY21:

£285.0m) This was driven by a US$62m

order for the full rate production contract

on the SPUR robots in the United States,

partly offset by a reduction in order value

of £22.5m associated with the complex

project, and a change in customer

funding priorities from counter-insurgency

missions in Afghanistan to emerging

near-peer threats in the Indo-Pacific

and the impact of the Continuing

Resolution in early 2022.

At the beginning of FY23, £172m of

the division’s FY23 revenue was under

contract, compared to £117m (of the FY22

revenue) at the same point last year. This

increase reflects the growth in orders in

year combined with lower revenue burn

following supply chain and technical

challenges in the United States in FY22.

Revenue was down 23% on a reported

basis at £261.2m (FY21: £338.3m), due

to slower recovery in the US including

COVID related delivery and supply-chain

challenges on the initial production

ramp-up of SPUR robots and the change

in customer funding priorities mentioned

above. Furthermore there was the loss

of revenue contribution from the FY21

disposals (Optasense, Boldon James

and Commerce Decisions) amounting to

£16.8m. Excluding the impact of these

disposals and foreign exchange,

revenue was down 16% (£51.7m)

on an organic basis.

Underlying operating profit fell to £1.8m

(FY21: £33.2m), with an underlying

operating profit margin of 0.7% (FY21:

9.8%). This loss was driven by a £14.5m

write-down on the complex project and

the revenue shortfall in the US business.

Excluding the impact of this write-down

operating profit was £16.3m

(6.0% margin) in FY22.

Business Unit commentary

United States (~58% of Global

Products revenue)

Our US business develops and

manufactures innovative defence products

specialising in robotics, autonomy and

sensing solutions. This business unit

comprises Technology Solutions

(formerly QNA) as well as C5ISR

Solutions (formerly MTEQ), which

we acquired in December 2019.

• US organic revenue reduced by 24%

compared to prior year with the

second half revenue performance

recovery slower than expected. As we

reported in November in our interim

results, there were a number of

compounding effects that impacted

our first half results in the US,

including lower opening order backlog

due to COVID-19, supply-chain issues

and the US administration change,

and the customer priority pivot from

Afghanistan to the Indo-Pacific.

• Whilst we took proactive steps to

manage the revenue shortfall in the

first half and position us for growth

in the second half, our second half

revenue recovery performance

was slower than targeted, with the

second half in line with the first half

largely due to the US defence budget

being constrained by the extended

Continuing Resolution. The US

defence budget was constrained by

the extended Continuing Resolution

through the first quarter of calendar

2022 which had a material impact

on contract funding held back,

and therefore customer spending

behaviour, impacting our ability

to deliver revenue in our fourth

quarter; the impact of the Continuing

Resolution delay was particularly felt

by those companies like ours with

March year ends. Furthermore we

have also seen some delays to other

contract wins due to overall customer

sentiment during these times, which

has had the effect of delaying some

spending decisions.

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

FY22

£m

FY21

£m

Orders 307.7 285.0

Revenue 261.2 338.3

Underlying operating profit 1.8 33.2

Underlying operating margin 0.7% 9.8%

Book to bill ratio

1.2x 0.8x

Total funded order backlog 287.2 233.5

1 B2B ratio is orders won divided by revenue recognised.

QinetiQ Group plc Annual Report & Accounts 2022

Operating

review

continued

Business unit commentary

United States (~58% of Global

Products revenue) continued

Despite these challenges, we have secured

an impressive $253m of orders in FY22,

19% growth on the prior year.

• Building on the successful delivery and

trials of our Intelligence, Surveillance

and Reconnaissance (ISR) prototype

system on a Program of Record, we

have won a $24m contract from the

US Army to build three additional

SPECTRE next generation full

spectrum hyperspectral prototype

sensors. SPECTRE is an ISR sensor

system that enables multi-mission

Uncrewed Air Systems (UAS) and

crewed aircraft to operate in parallel

to other critical sensor payloads and

weapons, with improved performance

at a fraction of the size and weight of

the sensors currently in use by the US

Government. This is exciting progress

for our US business, with opportunity

for greater exploitation in the future.

• Our Next Generation Advanced

Bomb Suit (NGABS) for the US Army

has successfully completed field

testing to enable full-rate production

to commence in FY23, worth an

estimated $70m over a five-year

period. Our solution brings together

a novel see-through Heads-Up

Display, combined with advanced

integrated sensing capability, to bring

a differentiated capability for Explosive

Ordinance Disposal operators. As a

Program of Record, NGABS production

will provide another significant

foundation for our growth in the US.

• We have won a $10m contract with

the US Army to develop our supersonic

target offering. The contract, known as

Modernizing Instrumentation Solutions

for Test and Evaluation (MISTE) for

High Energy Laser Measurement

(HELM), is a great example of our

single routes to market in action,

leveraging our Rattler target into the

US for the testing of high energy lasers

on supersonic targets.

• We have also secured a $62m FRP

contract in the US for over 1,200

SPUR robots under the Common

Robotic System–Individual (CRS-I)

contract with a multi-year delivery

schedule for the US Army. The SPUR

robot enables a heightened capability

for organic tactical reconnaissance,

surveillance and target acquisition

to enhance manoeuvres and

protection for dismounted forces.

The small advanced robotic platform

is lightweight and highly mobile

offering unprecedented capability in

multi-domain environments including

special payloads, advanced sensors

and mission modules. CRS-I is the

largest US Government Program of

Record in robotics, giving us a strong

platform for growth. During the year

we have completed necessary steps to

transition the contract from low rate to

full rate production to meet customer

delivery milestones in the years ahead.

• We received a $12m contract for

delivery of additional prototype

vehicles under the Robotic Combat

Vehicle Light (RCV-L) programme, for

testing and experimentation by the US

DoD. Furthermore, we have established

a strategic partnership with Oshkosh

for the Optionally Manned Fighting

Vehicle (OMFV) competition, seeking

to position ourselves to be the primary

provider of autonomous controls

and integration for the US military

land platforms.

• We are investing in tactical airborne

and strategic ISR capabilities and

strategic teaming to exploit our

expertise on combat-vehicle platforms

over the next few years to drive

future growth. We are confident we

will deliver growth in the second half

from existing contracted customer-

funded R&D work and new growth

opportunities on airborne sensors

and ground-vehicle integration.

• In January 2022 we announced the

appointment of Shawn Purvis as the

new President and CEO of QinetiQ

US. Shawn has more than 25 years

of experience in the US defence and

intelligence industry with Northrop

Grumman and SAIC, with a track

record of transformational leadership,

driving billion-dollar P&L performance

of complex organisations and large-

scale acquisition integration. Shawn is

further building her US leadership team

to support the scale of our ambition of

growth. In July 2021 we also appointed

Lawrence (Larry) Prior III to the QinetiQ

Plc Board; he brings a wealth of US

experience from aerospace, defence

and government services. With

these executive and non-executive

appointments, we are building the right

foundations for growth to more than

double the size of the US business

over the next five years, through

both organic growth and strategy-led

acquisitions. For more context and

information on our growth ambition

and plan, please refer to the investor

seminar we presented on 27 April

2022: Delivering our global ambition;

a playback can be found on our

website here: https://www.qinetiq.

com/en/investors/investor-seminars/

delivering-global-growth.

• While the second half revenue in the

US has been lower than we expected,

we remain confident of our growth

looking forward. We have secured 20%

growth in order intake in FY22 which,

coupled with our new leadership team,

headed by Shawn Purvis, provides a

strong foundation for delivery of our

strategy in the US.

QinetiQ Group plc Annual Report & Accounts 2022

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

FINANCIAL

STATEMENTS

Space Products (~15% of

Global Products revenue)

QinetiQ’s Space Products business

provides satellites, payload instruments,

sub-systems and ground-station services.

• We have won two significant new

contracts in our Belgium Space

business:

— - A €28m contract for satellite and

payload integration of Quantum Key

Distribution encryption technology.

This is a significant commercial

satellite win with our customer,

ArQit, aiming to be the first provider

of quantum encryption services

to the defence and commercial

sectors. This contract also provides

market opportunity for further

follow-on satellite sales over the

next 10 years.

Building on the success of the PROBA

satellite platform, we have won a >€10m

contract for the European Commission,

contracted via the European Space Agency

(ESA) to deliver and operate an important

new satellite that will support technological

innovation, de-risking and concept testing

for public agencies and commercial

enterprises in Europe. The satellite

will provide organisations with new

opportunities to capitalise on affordable

access to space demonstration and

validation, essential for driving advances

in new space technologies and capabilities.

EMEA Products (~27% of

Global Products revenue)

EMEA Products provides research services

and bespoke technological solutions

developed from intellectual property

originating in EMEA Services. QinetiQ

Target Systems is also reported within

EMEA Products.

• We have entered into a strategic

collaboration agreement with

automotive manufacturer AM General

to accelerate the development of

electrification technologies for military

vehicles. The partnership has begun

with the development of a hybrid

concept of the globally iconic HMMWV

(High-Mobility Multipurpose Wheeled

Vehicle often referred to as ‘HUMVEE’)

– demonstrating the viability of

electrifying military land vehicles to

deliver enhanced performance while

decarbonising military operations. The

HUMVEE vehicle concept is the first

step of a highly ambitious programme

in which QinetiQ and AM General

are exploring how electrification can

transform competitive advantage in

the land domain. This collaboration will

lay the foundation for further research

into electrification capabilities for land

vehicles, for example autonomous

systems, increased situational

awareness through enhanced sensor

capability and optical communications.

• QinetiQ Target Systems (QTS)

experienced disruption in FY21 due

to COVID-19 with cancellations of

trials and deployments due to travel

restrictions around the world. Through

FY22 we have seen significant positive

progress across the QTS business

with customers resuming trials and

exercises and winning some significant

orders, seeing growth in both their

existing countries and new business

wins in the US, India and Japan – the

business has both recovered from

COVID and achieved its largest order

intake ever with £42m orders.

• QinetiQ Target Systems, under

the LTPA and CATS contracts, in

September 2021 supported trials of

our Banshee Jet 80+ on the flight-deck

of HMS Prince of Wales. The Banshee

flights represent the first step for

the UK Royal Navy in exploring how

crewless technology could be operated

from the Queen Elizabeth-class aircraft

carriers in the future. Commander Rob

Taylor, lead for Royal Navy air test and

evaluation group, commented: “There

is a real need for a low-cost drone

such as the Banshee that can replicate

a range of the threats in the skies and

provide a test bed for future payloads”.

• Our sensors and communication

products have seen strong global

demand and growth, with orders of

£15m for our SIGINT, counter-drone

radar, secure communication and

secure navigation products to UK

and international customers.

QinetiQ Group plc Annual Report & Accounts 2022

CFO

review

Exceptionally strong

performance in

EMEA Services

enabled us to

partially mitigate

a disappointing

year from Global

Products.”

Overview of full year results

We have made good progress with a

strong second half, partially offsetting

the challenging first half.

We delivered strong orders and revenue,

growing organically by 9% and 5%

respectively. Prior to the complex project

write-down, we delivered good underlying

trading performance with operating profit

margins within our short-term target range

at 11.4%. Strong cash performance has

continued in FY22 and we closed the year

with net cash of £225.1m, which continues

to provide support for investment

opportunities. We have changed our

cash conversion definition to reflect our

pre-capex cash flows as a proportion of

EBITDA – using this new definition we

achieved underlying cash conversion of

114%. We enter FY22 in a strong position,

with a large order backlog and a robust

balance sheet.

Orders in the year totalled £1,226.6m

(FY21: £1,149.4m), a 7% increase, 9% on

an organic basis. This included £320m

of Engineering Delivery Partner (EDP)

framework orders, £115m under the WSRF

contract and in excess of £160m from

Defence Digital and Defence Intelligence

in EMEA Services and in the United States

a $62m order for the full rate production

contract on the SPUR robots in

Global Products.

Financial performance

(£m)

Statutory results Underlying results

FY22 FY21

Revenue 1,320.4 1,278.2 1,320.4 1,278.2

Operating profit 117.5 108.7 137.4 151.8

Profit after tax 90.0 121.9 118.1 126.1

(p)

Earnings per share 15.7 21.4 20.6 22.1

Dividend per share 7.3 6.9 7.3 6.9

Total funded order backlog 2,828.8 2,94 4.1

Total orders 1,226.6 1,149.4

Net cash inflow from operations 209.7 194.4 215.3 199.0

Cash conversion ratio

114% 98%

Free cash flow 110.0 106.7

Net cash 225.1 164.1

1 Cash conversion defined as operating casflow pre-capex/ EBITDA.

2 Prior year comparatives have been restated due to a change in accounting policy in respect of software

implementation costs.

We are also seeing positive trends in our

order-book progression:

• Backlog: The LTPA is a large multi-

year contract that was booked in prior

years – as we deliver revenue this

will naturally reduce the LTPA order

backlog. Order backlog excluding the

LTPA continues to steadily increase,

with 7% CAGR increase, now

standing at £1.33bn.

• Opportunity size: As part of our

previously stated strategy, we are

also seeing success in winning and

delivering on larger longer-term

contracts, with 34% of our FY22 Orders

from contracts over £5m in size, up

from 28% two years ago.

Revenue increased 3% to £1,320.4m

(FY21: £1,278.2m) up 5% on an organic

basis, with a 13% organic increase in

EMEA Services primarily due to ongoing

EDP growth, new work under the WSRF

contract and work delivered under the

Major Service Provider (MSP) contract in

Australia. Global Products revenue was

down 16% organically due to the revenue

performance recovery in the US being

slower than expected, with the second half

in line with the first half, largely due to the

US defence budget being constrained by

the extended Continuing Resolution.

As explained in our Interim Results, in the

first half we reported a write-down on a

large complex project due to technical

issues and supplier delay on system

development for a service contract.

QinetiQ Group plc Annual Report & Accounts 2022

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

FINANCIAL

STATEMENTS

3% total growth

5% organic growth

1,278.2

(10.3)

1,320.4

(14.2)

(41.0)

(10.7)

118.4

FY21

£ million

Global

Products

Complex

project

write-down

Foreign

exchange

FY22

EMEA

Services

Acquisitions

& disposals*

Revenue bridge

9% total decline

12% organic decline

151.8

0.2

137.4

4.3

(20.8)

(14.5)

16.4

FY21

£ million

Global

Products

Complex

project

write-down

Foreign

exchange

FY22

EMEA

Services

Acquisitions

& disposals*

Underlying operating profit bridge

* Prior year acquisition of Naimuri and prior year disposal of Optasense, Boldon James

and Commerce Decisions

7% total growth

9% organic growth

1,149.4

(16.5)

1,226.6

76.3

(22.5)

48.6

(8.7)

FY21

£ million

Global

Products

Complex

project write-

down

Foreign

exchange

Acquisitions &

disposals*

FY22EMEA

Services

Orders bridge

The write-down was due to a unique

combination of emergent risks across

system maturity, supplier capability and

contract delivery conditions. Our first half

results included a prudent judgement of

the revenue and additional cost impact

to resolve the project. The impact on our

full year underlying results was an order

reduction of £22m, revenue reduction of

£11m and operating profit reduction of

£14.5m. The project has now been fully

closed and the financial impact remains

consistent with and contained in our

first half results.

Underlying operating profit of £137.4m

(FY21: £151.8m) was down 9%. Excluding

the impact of the write-down underlying

operating profit was flat at £151.9m, at

11.4% margin, consistent with our short-

term target range of 11-12%. On an organic

basis (after adjusting for the impact of

acquisitions, disposals and the effect of

foreign exchange) underlying operating

profit was down 12%. Operating profit in

Global Products decreased by £31.4m

primarily due to the write-down and US

reduced revenue. This was offset by

EMEA Services which saw a 14% increase

in profit following a similar increase in

revenue in this area of the business.

Statutory operating profit, including the

impact of specific adjusting items, as set

out below, was £117.5m (FY21 restated:

£108.7m).

Underlying profit before tax decreased 9%

to £136.0m (2021: £149.9m) in line with

the decrease in underlying operating profit,

with underlying net finance expense at

£1.4m (2021: £1.9m).

Specific adjusting items

Specific adjusting items, sometimes

referred to as the middle column, at the

operating profit level amounted to a loss of

£19.9m (FY21 restated: loss of £43.1m).

This included £10.7m amortisation of

acquired intangibles (FY21: £10.9m); £3.7m

associated with unsuccessful acquisition

activity (FY21: £1.0m acquisition costs);

a £2.4m past service cost in respect of

the defined benefit pension scheme and

a £1.9m charge in respect of a change in

accounting policy in respect of software

implementation costs. The latter arises

from a decision by the International

Financial Reporting Interpretations

Committee (IFRIC) on how companies

should be interpreting accounting standards

when assessing how to account for

configuration and customisation costs

in cloud computing arrangements.

QinetiQ Group plc Annual Report & Accounts 2022

114% Cash conversion

137.4

4.3

131.0 (20.0)

(1.0)

110.0

52.1

21.5

189.5

215.3 (84.3)

£ million

Underlying

Free cash

flow

Net InterestTaxationNet cash

inflow from

operations

(post capex)

CapexForeign

exchange

OtherWorking

capital

movement

EBITDAUnderlying

operating

profit

Depreciation

and

amortisation

Many companies, including QinetiQ, are now

having to expense, rather than capitalise,

the costs of implementing new software

tools procured through “Software as a

Service” arrangements.

Below operating profit, specific adjusting

items included income of £4.5m (FY21:

£7.1m) in respect of the defined benefit

pension net surplus and a tax expense of

£11.8m (FY21 restated: £3.1m income),

discussed in more detail below. The

prior year also included a gain on sale of

businesses and investments of £28.7m and

a £25.4m goodwill impairment in relation

to the QinetiQ Germany business. Further

analysis is set out in note 4.

Net finance costs

Net finance income was £3.1m (FY21:

£5.2m). The underlying net finance expense

was £1.4m (FY21: £1.9m) with additional

income of £4.5m (FY21: £7.1m) in respect

of the defined benefit pension net surplus

reported within specific adjusting items. The

pension net finance income is calculated as

a percentage of the opening net asset. In

FY22 the opening net asset (£214.3m) was

substantially smaller than the net asset at

the start of FY21 (£309.7m) generating a

reduction in the level of net finance income.

Similarly, the increase in the net surplus

within FY22 (closing at £362.2m) will lead

to an increase in the pension net finance

income in FY23.

Tax

The total tax charge was £29.7m (FY21

restated: £20.7m), with specific adjusting

items driving the increase. The underlying

tax charge was £17.9m (FY21: £23.8m), on

lower underlying profit before tax with an

underlying effective tax rate of 13.2% for the

year ending 31 March 2022 (FY21: 15.9%).

The underlying 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 underlying

effective tax rate before the impact of RDEC

would be 17.3% (FY21: 19.4%). The impact

of RDEC is shown net of £9.5m (FY21:

£10.6m) appropriated by the MOD. Within

other creditors there are provisions for

payments of MOD appropriations awaiting

the resolution of an SSRO decision with

regard to RDEC which may give rise to a

reversal of the creditor and to an increased

benefit from RDEC in the income statement

in the current and future periods.

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.

A £15.9m charge in respect of the impact

on UK deferred tax balances due to the

UK corporation tax rate change from 19%

to 25% has been classified as a specific

adjusting item. Together with a £4.1m

income (FY21 restated: income of £3.1m)

in respect of the pre-tax specific adjusting

items (see note 4), the total specific

adjusting items tax expense was £11.8m

(FY21 restated: income of £3.1m).

At 31 March 2022 the Group had unused

tax losses and US carried forward interest

expense of £128.1m (FY21: £73.2m) which

are available for offset against future taxable

profits. Deferred tax assets are recognised

on the balance sheet of £15.5m in respect of

£59.7m of US net operating losses, £4.5m in

respect of £19.0m of Canadian net operating

losses and £1.8m in respect of £5.5m of

German trade losses.

CFO

review

continued

Cash flow bridge

Strong cash generation

QinetiQ Group plc Annual Report & Accounts 2022

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

FINANCIAL

STATEMENTS

Cash performance

Underlying net cash flow from operations

was £215.3m (FY21: £199.0m). Listening

to stakeholder feedback we have changed

our cash conversion definition to reflect

our pre-capital expenditure cash flows

as a proportion of EBITDA in order to

demonstrate how we convert our profit

(excluding interest, tax, depreciation and

amortisation) into cash flow – under this

new definition we achieved underlying

cash conversion of 114%, an increase from

98% last year applying the new definition;

for reference using our prior year definition

we delivered cash conversion (pre-capex

cash flow vs operating profit) of 157%

(FY21: 131%). This cash flow included

a £21.5m working capital inflow driven

by the timing of contract receivables

and payables.

Capital expenditure increased to £84.3m

(FY21 restated: £75.9m), driven by

ongoing LTPA contract investment and

digital transformation. After paying tax

and net interest of £21.0m the Group

generated free cash flow of £110.0m

(FY21: £106.7m). 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 2022 the Group had

£225.1m net cash (FY21: £164.1m).

The increase in net cash was primarily

due to the £110.0m free cash flow,

offset by dividend payments of

£40.2m (FY21: £37.7m).

We retain a strong balance sheet to

support investment in our long-term

growth strategy and maintain a rigorous

approach to the deployment of our

capital, scrutinising organic and inorganic

opportunities in the same manner, to

ensure returns to our shareholders are

appropriate for the risks taken.

Our priorities for capital allocation,

following this rigorous methodology, are:

1. Organic investment complemented

by acquisitions where there is a

strong strategic fit;

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 FY22 we have demonstrated

our capital allocation policy in action:

excellent cash conversion and balance

sheet strength retained; £84m capital

investment in year; M&A targets pursued;

and a progressive dividend payment

confirmed. Whilst we have had a material

cash balance for a few years and with

good operational and strategic rigour this

may continue to increase in the short-term,

we are comfortable with this as it gives

us the flexibility and ability to prosecute

our strategy.

Committed facilities

The Group has a £275m bank revolving

credit facility with an additional ‘accordion’

facility to increase the limit up to £400m.

The facility, of which £65m will mature

on 27 September 2024 and £210m will

mature on 27 September 2025, was

undrawn at 31 March 2022 and provides

the Group with significant scope to

execute its strategic growth plans.

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).

For FY22 Group ROCE was 26% (FY21:

28%). Before the impact of the complex

project write-down FY22 ROCE is 28%, in

line with the prior year. As we continue

to invest in our business to support

sustainable long term growth our

ROCE is forecast to remain attractive,

at the upper end of the 15-20% range.

Earnings per share

Underlying basic earnings per share

decreased by 7% to 20.6p (FY21: 22.1p)

driven by the lower underlying profit after

tax. Basic earnings per share for the

total Group (including specific

adjusting items) decreased 26%

to 15.7p (FY21 restated: 21.4p).

The average number of shares in issue

during the year, as used in the basic

earnings per share calculations, was

573.2m (FY21: 569.7m) and there were

573.8m shares in issue at 31 March 2022

(all net of Treasury shares).

Dividend

The Board proposes a final FY22 dividend

per share of 5.0p (FY21: 4.7p) making the

full year dividend 7.3p (FY21: 6.9p). The

full year dividend represents an increase

of 6% in line with the Group’s progressive

dividend policy.

Subject to approval at the Annual General

Meeting, the final FY22 dividend will be

paid on 25 August 2022 to shareholders

on the register at 29 July 2022.

Pensions

The net pension asset under IAS 19, before

adjusting for deferred tax, was £362.2m

(31 March 2021: £214.3m). The key

driver for the increase in the net pension

asset since March 2021 was gains due

to changes in financial assumptions

(primarily in respect of the discount

rate), which decrease the present value of

scheme liabilities, partially offset by a small

decrease in the value of scheme assets.

The key assumptions used in the IAS 19

valuation of the scheme are set out in

note 28.

Foreign exchange

The Group’s income and expenditure is

largely settled in the functional currency

of the relevant Group entity, mainly

Sterling, US Dollar or Australian Dollar. The

Group has a policy to hedge all material

transaction exposure at the point of

commitment to the underlying transaction.

Uncommitted future transactions are not

routinely hedged. The Group does not

hedge its exposure to translation of the

income statement. The principal exchange

rates affecting the Group were the Sterling

to US Dollar and Sterling to Australian

Dollar exchange rates.

For the avoidance of doubt, the strategic

report covering pages 1 to 75 has been

approved by the board and signed on

their behalf by:

Carol Borg

Chief Financial Officer

20 May 2022

Details of the Group’s tax strategy,

treasury policy and approach to managing

currency risk and liquidity risk can be

found in the Additional Information section

on page 205

QinetiQ Group plc Annual Report & Accounts 2022

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.

Description

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.

Performance this year

Orders in the year were £1,226.6m,

up by 7%, or 9% on an organic

basis. EMEA services grew by

6% on an organic basis driven by

growth in WSRF orders. Global

Products grew 20% on an organic

basis, driven by a $62m order for

SPUR robots full rate production

contract in the US.

Performance this year

Non-UK revenue was down 16%

organically due to the revenue

performance recovery in the US

being slower than expected, with

the second half in line with the first

half, largely due to the US defence

budget being constrained by the

extended Continuing Resolution.

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.

Link to strategy

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 KPI.

Orders (£m)

358.5

(FY21: 420.4)

1,226.6

(FY21: 1,149.4)^

International

revenue (£m)

FY21

FY20

FY22 1,226.6m

1,149.4m^

961.7m^

FY21

FY20

FY22 £358.5m

£420.4m

£333.4m

Key performance

indicators

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).

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.

Our non-financial KPI are shown on

page 42 and 43.

^ Restated to exclude Joint Ventures

QinetiQ Group plc Annual Report & Accounts 2022

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Description

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.

Description

The earnings before interest and

tax, excluding all specific adjusting

items. See glossary for definition.

Description

The underlying earnings, net of

interest and tax, excluding all

specific adjusting items,

expressed in pence per share.

See glossary for definition.

Performance this year

Revenue grew by 5% on an

organic basis, driven by a strong

performance in EMEA Services

where organic growth was 13%,

driven by ongoing EDP growth

and new work under the WSRF

contract. This was partially offset

by a 15% organic decline in Global

Products driven by challenges in

the US business.

Performance this year

Underlying profit decreased by

9% (£14.4m) to £137.4m, driven

by the £14.5m complex project

write-down. There were various

other movements including

US underperformance, offset

by stronger EMEA Services

performance.

Performance this year

Underying EPS decreased by 7%

(1.5p) to 20.6p with the decline in

underlying profit partially offset by

the lower effective tax rate.

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.

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.

Link to strategy

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.

(FY21: 10%)

Organic revenue

growth (%)

137.4

(FY21: 151.8)

Underlying operating

profit (£m)

20.6

(FY21: 22.1)

Underlying earnings

per share (p)

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

Underlying net cashflow from

operations was strong, growing

8%. This reflects movements in

working capital and no cash

impact from the complex

project profit write-down.

Link to strategy

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.

215.3

(FY21: 199.0)

Underlying net cash flow

from operations (£m)

FY21

FY20

FY22

10%

FY21

FY20

FY22 £137.4 m

£151.8m

£133.2m

FY21

FY20

FY22 20.6p

22.1p

20.0p

FY21

FY20

FY22 £215.3m

£199.0m

£17 7.8m

QinetiQ Group plc Annual Report & Accounts 2022

FY21

FY20

FY22 31

FY21

FY20

FY22 2.05

2.67

2.74

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.

Description

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

Our score remains in the category of good,

supported by our continuous improvement

approach to actioning customer feedback.

Performance this year

Our LTI decreased to 2.05 in FY22 from

2.67 in FY21. This ongoing decrease, is

supported by our EHS strategy and

planned future programme.

See page 55 for more details.

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 in both our home countries

and overseas, which requires a relentless

focus on meeting their needs. Customer

satisfaction is a metric used for the

Bonus Banking Plan.

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.

(FY21: 49)

Customer satisfaction (Net

Promoter Score)

2.05

(FY21: 2.67)

Health and safety (LTI)

Key performance

indicators

continued

Non-financial

KPIs

We are committed to delivering

responsibly and sustainably

for the benefit of all of our

stakeholders.

Understanding measurements

that give us insight into customer

satisfaction, health and safety

and employee engagement help

us enhance our performance and

are vital in ensuring our progress

is sustainable.

Read more about our ESG

approach on Page 44

QinetiQ Group plc Annual Report & Accounts 2022

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FY21

FY20

FY22 3.3

3.3

2.3 (UK only)

FY21

FY20

FY22 7.1

7.3

6.9

FY21

FY20

FY22 27,936

29,444

35,587

Description

The total percentage of our early careers

community (apprentices, graduates and

sponsored students) of our global workforce.

We have been measuring this globally for two

years, improving on a UK-only KPI in FY20).

Description

We use WorkDay 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.

Description

In FY19 we set a target to reduce our

Scope 1 and Scope 2 greenhouse gas

emissions, by 25% from the FY19 base year.

During FY22 we set new targets; in FY23

we will be transitioning to a new target and

will show performance in the Annual Report

for completeness.

Performance this year

We continue to see investment in our early

careers community and programmes, and

see a steady level in the number of our

early careers population (again 3.3%)

compared with FY21.

See page 58 for more details.

Performance this year

This year we continue to have good

participation rates (71%) and have seen a

slight decline in the overall score, 7.1 in

FY22 from 7.3 in FY21, but with some

areas of improvement.

See page 58 for more details.

Performance this year

We saw a significant decrease in our Scope

1 and Scope 2 emissions in FY21 compared

with FY20 and we continue to see this

decrease in FY22, equating to a 32% reduction

against our FY19 base year.

See page 48 for more details.

Link to strategy

As a knowledge-based business it is critical

to our long-term viability that we develop

the next generation of employees.

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

a key way to demonstrate our commitment

to addressing climate change and a

critical part of our sustainability strategy; it

underpins our wider business performance.

We have published our Net-Zero plan and

will transition to new targets in FY23.

3.3%

(FY21: 3.3%)

Early careers talent (%)

7.1

(FY21: 7.3)

27,936

(FY21: 29,444)

Employee engagement

(score out of 10)

Greenhouse gas emissions

Scope 1 & 2 (tonnes CO

QinetiQ Group plc Annual Report & Accounts 2022

Environmental,

Social &

Governance

During FY22, we have had many conversations with our key

stakeholders, where they have expressed the importance

they place on sustainability and their expectation that we

are considering environmental, social and governance (ESG)

aspects. FY22 has seen a particular focus on climate change with

the development and publication of our first Net-Zero greenhouse

gas emissions plan, TCFD reporting and Carbon Reduction Plans.

The board has oversight and governance of ESG and regularly

discusses and reviews a range of topics such as climate change,

diversity and inclusion and Speak Up.

Steve Wadey

Chief Executive Officer

Over the following pages, we report

progress on those areas we consider most

important. Additional information is provided

on the sustainably pages on our website

www.qinetiq.com/en/our-company/sustainability

Highlights in FY22

• Publication of our Net-Zero

Greenhouse Gas Emissions Plan.

• 32% reduction of our Scope 1 and

Scope 2 greenhouse gas emissions

(GHG) against our FY19 Base Year.

• Leadership in climate change

programmes in our sector.

• Launched adaptive working

for employees.

• Won Engineering, Aerospace and

Defence Sector category in Britain’s

Most Admired Companies 2021.

• Received Team of the Year award

from the Jon Egging Trust.

• Received Gold Award in the

UK MOD Defence Employer

Recognition Scheme.

• Achieved Employer of Choice for

Gender Equality citation in Australia.

• Recognised for Outstanding

Diversity and Inclusion Strategy

at the Australian Aviation

Aerospace Awards.

• Awarded Graduate Program

of the Year in the Australian

Defence Industry Awards and

an Excellence Award for Best

Graduate Development Program

at the Australian HR Awards.

ESG Strategy

Priorities, strategy, materiality

and stakeholder engagement

Signposting

Through this report we have also indicated

where ESG is an enabler for our business:

non-financial KPI (pages 42), risk management

(page 62), engagement with stakeholders

(page 26), TCFD report (page 50) non-financial

information statement (page 74) and Board

Governance including ESG (page 89)

The ESG landscape continues to evolve

rapidly so we regularly review our ESG

priorities by considering our business

strategy and purpose, the views of our

stakeholders, the landscape and best

practice. This approach ensures we are

confident that ESG issues are integral to

our business strategy and we are meeting

the expectations of our stakeholders.

We have refreshed our ESG strategy,

enhancing our plans and introducing new

programmes e.g. our Net-Zero GHG plan,

new sustainable procurement strategy

and Adaptive Working.

We have also revisited our mapping

against the Sustainable Development

Goals. Our Leaders have common goals to

focus on a number of aspects, including

safety, engagement, diversity and inclusion

(D&I) and environment. Our approach to

ESG governance is described on page

61. We strive to be proactive, chairing the

Sustainability Working Group with our

trade body (ADS), and Co-chairing the

MOD-Industry Sustainable Procurement

Working Group. In FY22 Steve Wadey

became the Industry Co-chair of the new

Climate Change and Sustainability Steering

Group under the UK Defence Suppliers

Forum (DSF). We actively collaborate with

customers/peers on topics such as ethics,

D&I and skills.

STRATEGIC

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QinetiQ Group plc Annual Report & Accounts 2022

Our ESG

framework

Our purpose

Protecting lives and securing the vital interests of our customers

Our ESG framework

We have a clear framework and focus to deliver change in the three areas of ESG

Our values

Creating a safe and secure environment for us all to thrive

Our values demonstrate our purpose and ESG framework in action

We deliver safely, responsibly and sustainably for the

benefit of all our stakeholders

Material issues

• Health, safety and wellbeing

• Employee engagement

• Diversity and inclusion

• Learning and development

• Reward and recognition

• Human rights and

modern slavery

• Community and STEM outreach

Social

Material issues

• Climate change; Net-Zero

and resilience

• Sustainable solutions

for customers

• Environmental management

• Waste and resources

• Conservation and biodiversity

Environmental

Material issues

• Business ethics

• Code of Conduct

• Anti-bribery and corruption

• Ethical trading policy

• Responsible and sustainable

procurement

• Leadership ESG remuneration

Governance

ESG fully supported by the Global

Leadership Team and Board

Integrity

Industry engagement and leadership;

Multidisciplinary internal collaboration.

Collaboration

MSCI

AA and

Sustainalytics

: in the top

7% in our sector

Performance

QinetiQ Group plc Annual Report & Accounts 2022

6.2%

5.2%

88.6%

Figure 1: FY21 Scope 1, 2 and 3 emissions

Scope 1 total 15.87 ktCO

Scope 2 total 13.57 ktCO

Scope 3 total 228.56 ktCO

Environmental

Environmental stewardship has never been more

important, with climate change and the impact

on biodiversity ever-growing global concerns.

We actively play our part, reducing greenhouse

gas emissions, our conservation activities and

by the solutions we provide for our customers

to meet their sustainability ambitions while

maintaining defence capability.

Climate change

Over the last decade, we have set a series of increasingly ambitious GHG emission reduction targets.

In FY19, we developed a new target in line with the Science Based Targets initiative (SBTi) to reduce

our Scope 1 and Scope 2 emissions by 25%, from a FY19 base year by FY25. We are pleased that from

FY19 to FY22 we were able to make excellent progress against this target (see page 48). In FY22 we

extended the coverage of our GHG reporting to incorporate Scope 3 emissions. This means we are now

developing visibility of the GHG emissions of our whole value-chain, which is essential for playing our

part in tackling climate change. We have collected data, set a new base year of FY20 and set a target of

reaching Net-Zero by 2050 or sooner. In this section we outline our new Net-Zero plan, detail our Scope

1 and 2 data and energy projects, and provide our disclosures in line with the Taskforce on Climate

Related Financial Disclosures (TCFD) (see page 50).

Transition to Net-Zero

During FY22 our Climate Change Steering Group, comprising a team of multi-disciplinary experts and leaders from across our

business (including energy management, Group Property, CR&S, Strategy and Planning, Supply Chain, Legal, Operations, Aviation,

Business Development, Investor Relations and Innovation) worked together to develop our Net-Zero plan. This plan replaces our

previous targets; it includes our Scope 3 emissions, which we mapped for the first time and sets a new base year (due to improved

data quality and availability, as it includes Scope 3 and improved representation of our operations, e.g. a full year of data from our

business in Germany). A summary of the plan is shown on the next page and a full copy of the plan can be found on our website. We

commit to achieve Net-Zero GHG emissions by 2050 or sooner for our operations and our whole value-chain (ie Scope 1, 2 and Scope

3). A breakdown of our new targets against the FY20 base year is presented in the table below. Our total footprint for FY20 across

Scopes 1, 2 and 3 was 265k tonnes CO

equivalent (tCO

e). Our FY21 current footprint is 258k tCO

e and is presented in more

detail in Figure 1 (see also our Net-Zero plan). We will now be reporting our Scope 3 emissions annually.

Timeframe Scopes 1&2 Scope 3 Total

FY20 Base year Base year Base year

FY30 -50% absolute reduction -30% absolute reduction -33% absolute reduction

FY50 or sooner Net-Zero Net-Zero Net-Zero

QinetiQ Group plc Annual Report & Accounts 2022

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STATEMENTS

Our Net-Zero

pathway

initiatives

Our ambition

Our targets

Examples of

how we will

achieve our

ambition

Our full Net-Zero plan can be found on our website: www.qinetiq.com/en/our-company/sustainability/climate-change/net-zero

Stakeholder engagement and expectations on climate change

During FY22, we saw a significant increase in focus on climate change from key customers and have been actively responding and engaging.

Under the Defence Suppliers Forum (DSF) Climate Change Steering Group, QinetiQ have taken a leading role as Industry Co-chair, delivering

the first phase of the programme, including producing a Code of Practice for the Defence Sector through joint industry-MOD working group.

We also published our first Carbon Reduction Plan, pursuant to a new requirement from UK Government customers and essential in order to

bid for contracts over £5 million pa (this can be found on our website).

Achieving

QinetiQ Net-Zero

Initiative 1

Net-Zero Operations (Scope

1 and 2 GHG emissions)

50%

Reduction from

2020 to 2030 and

net-zero by 2050

or sooner

30%

Reduction from

2020 to 2030 and

Net-Zero by 2050

or sooner

Create and foster the internal

foundation and productive industry

engagement to deliver success

Helping our customers achieve

their Net-Zero ambitions without

compromising their capability

• Optimise our estate footprint

using metering, management

and control.

• Implement energy efficiency

improvements to deliver 5-20%

energy savings.

• Invest further in on-site

renewables (we have, for

example, generated renewable

electricity on the roof at our

HQ site in Farnborough since

February 2012) and procure

100% of the remainder of our

electricity needs from renewable

sources by 2030.

• Reduce water consumption by

introducing grey water/rainwater

harvesting where appropriate.

• Transition our road fleet to zero

emission power sources by 2035.

• Monitor opportunities to

transition our aviation fleet to

Sustainable Aviation Fuel (SAF).

• Eliminate leakage of sulphur-

hexaflouride (SF6) from our

range equipment.

• Develop an advanced, data-driven

approach to further leverage our

Scope 3 data.

• Focus on highest emitting

categories, including our

engineering services supplier

network, procurement of digital

assets and travel and transport.

• Reduce emissions from

international air travel by

50% by 2030 and use

transportation providers who

are demonstrably improving their

own emissions performance.

• Continue the QinetiQ Collaborate

programme to engage with

suppliers and customers.

• Participate in relevant industry

associations and events.

• Develop environmental

awareness training for

colleagues.

• Evolve the employee relationship

with incentives.

• Maintain a detailed 5-year funding

horizon for Net-Zero activities

through the Integrated Strategic

Business Plan.

• Net-Zero pilot site by 2025.

• Co-create with customers to

develop innovative solutions,

building our portfolio of climate-

positive solutions which currently

includes: enhanced synthetic test

and evaluation solutions, stealth

materials for wind turbines,

hybrid-electric technology for

battlefield equipment, smart

power grids, and providing

deployable test and

evaluation capabilities.

• Invest in relevant research and

development to bring more

climate-positive solutions

to market; an example area

of investment is high power

batteries and storage for

military and commercial use.

• Implementing nature-based

sequestration initiatives, with

a specific focus on restoring

natural ecosystems.

• Exemplary management of

our estates and habitats

around the globe.

Initiative 2

Net-Zero upstream

and downstream focus

(Scope 3 GHG emissions)

Initiative 3

Deliver critical internal

and industry-wide

enabling activities

Initiative 4

Co-create with customers,

invest in research and

development and care

for our environments

Contributing to

Global Net-Zero

QinetiQ’s Net-Zero GHG Emissions plan: one page summary

QinetiQ will be a Net-Zero company by 2050 or sooner, with achievable and ambitious

near-term GHG emissions reduction targets. To deliver this, we will take a global whole

value-chain approach. We will work proactively with our supplier ecosystem, continue to

invest in relevant climate-positive research and development to help our customers achieve

their Net-Zero ambitions, while improving the operational efficiency and biodiversity of our

estates and those we manage on behalf of our customers.

QinetiQ Group plc Annual Report & Accounts 2022

Environmental

continued

Scope 1 and Scope 2 emissions

FY22 FY21 FY20

Total Scope 1 emissions (tCO

e) 15,727 15,872 19,289

Total Scope 2 emissions (tCO

e) 12,236 13,572 16,298

Total Scope 1 and 2 emissions (tCO

e) 27,936 29,444 35,587

Intensity ratio (tCO

e per £m of revenue) 21 23 33

Energy consumption (kWh) resulting in the above reported emissions 125,261,565 122,808,625 139,780,656

Proportion of energy consumption arising from UK operations (%) 98% 99% 98%

Proportion of emissions arising from UK operations (%) 98% 99% 98%

In line with reporting requirements, in the table above we publish

our Scope 1 and Scope 2 emissions and intensity metric. We

have adopted a financial control approach, used the GHG Protocol

Corporate standard and UK Government (BEIS) emission conversion

factors. PricewaterhouseCoopers LLP (PwC) carried out a limited

assurance engagement on selected GHG emissions data for the year

ending 31 March 2022 in accordance with International Standard

on Assurance Engagements 3000 (revised) and 3410, issued by the

International Auditing and Assurance Standards Board. The figures

that have been covered by this assurance process are indicated in

the table by the following symbol (

). A copy of PwC’s report and

our methodology is on our website:

www.qinetiq.com/en/our-company/sustainability/climate-change

We are pleased to report a further reduction in our Scope 1 and

Scope 2 emissions, equating to a 32% reduction from our base year,

against our target of 25% by FY25. As described in the previous

section, this target has now been superseded by more ambitious

Net-Zero targets.

To meet the Streamlined Energy and Carbon Reporting (SECR)

requirements, we also present our energy performance in the table

above (identifying the proportion that is for the UK) and the following

are examples of energy and emissions reduction projects in FY22:

• Replacement of the main drive control system in our 5m wind-

tunnel, which should result in estimate a 1 MWh/annum saving.

• Improvement of the ventilation systems in the concourse at

Farnborough to reduce the need for compressors.

• Installation of new air conditioning systems in the range control

building at MOD Hebrides.

• Review of options for electric vehicle infrastructure on our main

sites – these will be implemented in FY23.

• Review of photovoltaic (PV) solutions for our key sites, informing

our plans for expanding our use of PV.

• Significant employee engagement, including blogs and webinars.

• Replacement of 139 street lights and bollards in parking and

pedestrian areas across our Farnborough site.

• SF6 is a GHG with a very high global warming potential and we

have worked with the customer to change pressure systems to

be able to use an alternative gas, while maintaining delivery.

Sustainable solutions for customers

Sustainability is essential to next-generation defence. Climate

change will trigger new instability due to natural disasters and

lack of resources; military technologies that rely on outdated

fuels may become inoperable without commercial infrastructure.

Electrification opens up new ways of operating; there is a

need for greater agility to respond to these changes and to

increase resilience to future shocks. Innovation is vital to help

our customers modernise and gain operational (or business)

advantage, meeting Net-Zero goals without reducing capability,

and wherever possible taking advantage of new technologies to

deliver enhanced capabilities.

Examples where QinetiQ can provide those vital solutions include

virtual test and evaluation (T&E): unit-based virtual training

(UBVT) gives the field army a virtual (desktop/laptop) style

environment for training a wide variety of units (dismounted

forces, logistics, and vehicle squadrons, to reservists). It is a

very flexible, immersive and realistic training environment, which

reduces risks for personnel, as well as equipment logistics and

reduces the carbon footprint prior to live training. A wide variety

of training events has been held this year, including AWE21

demonstration for Collective Training development.

We manage a number of sites as part of the LTPA for the UK

MOD, including at MOD West Freugh. Funded by the MOD, the

West Freugh project was started as a technical demonstrator to

show how a site could be taken to Net-Zero carbon emissions.

A site audit identified key issues (such as a high proportional

baseload) and an ‘ideation’ campaign helped us gather cross-

company input and ideas, alongside expert evaluation. A suite of

solutions has been developed, ranging from ‘Fabric First’ where

insulation and lighting are improved, decarbonisation of space

heating (removing oil and gas heating), local generation by solar

and wind, sub-metering, smart grid and storage, to smooth out

peaks and troughs, as well as electrification of vehicles and

carbon sequestration. The solutions are replicable and so

provide opportunities for other sites.

Environmental management

We have refreshed our commitment to protect our environment,

and simplified our approach as part of our EHS strategy. We

seek to deliver responsibly and sustainably for our customers,

protecting the environment, enhancing biodiversity and

minimising our GHG emissions. Underpinned by ISO 14001

certification in the UK and Canada, environmental matters

are reviewed regularly by the Risk and Security Committee.

QinetiQ Group plc Annual Report & Accounts 2022

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STATEMENTS

We have engaged and communicated with our people on a range

of environmental issues, explaining our approach to environmental

stewardship and encouraging their participation and we used

World Environment Day as an opportunity to engage with our

teams through various virtual events. We ran a “December Climate

Change Challenge” campaign to promote how we can all contribute

to tackling climate change. Every day through December, different

employees wrote blogs about their ideas and experiences.

Waste management

Our waste target is to increase the annual proportion (%) of UK

waste that is re-used and recycled from our underlying waste

production. The sites that produce significant waste (collectively

95% of the total) have waste management action plans. We met

the FY22 waste target, with 82.7% of underlying waste re-used

or recycled (compared with 81.5% in FY21). There had been

some COVID-19 related impacts on waste-contractor availability

to transport and deal with waste, which had effected recycling

opportunities, but we are now seeing improvements. Waste

contributes to our Scope 3 emissions and so forms part of

our Net-Zero plan and we will continue to look at how we

can drive reductions.

Conservation and biodiversity

Climate change is having an impact on habitats and we know that

responsible stewardship of the sites we manage can contribute

to biodiversity. We continue to support operational delivery while

protecting flora and fauna, for example:

• We have successfully undertaken remedial works of the MOD

Pendine Long Test Track, alongside the protected colonies of

the diminutive petalwort.

• Our work as part of Sands For Life (a conservation project

to revitalise sand dunes across Wales) has seen dune

habitats rejuvenated at MOD Pendine through clearance

of scrub and sea buckthorn and improving fencing to

enable conservation grazing.

• Our work to reinstate and landscape in the SSSI (Site of

Special Scientific Interest) as part of the new accommodation

project in the World Heritage Site of St Kilda has been

well received by National Trust for Scotland and positively

remarked upon by visitors.

• Partnership is key and we work with Marwell Wildlife to

support the SSSI at our site in Farnborough.

• We have also resumed face to face meetings of the MOD

Shoeburyness Conservation Group, where we bring together

many of our stakeholders.

In FY23 we will continue to focus on environmental stewardship

programmes, building in greater connection with our Net-Zero

plan. We will be further promoting environmental volunteering to

engage our people, proving opportunities for awareness, learning

and involvement.

QinetiQ Group plc Annual Report & Accounts 2022

Taskforce on Climate-related Financial Disclosures

The recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) provide a framework for consistent reporting

of climate-related information. Across four overarching themes (governance, strategy, risk management and metrics), there are

11 disclosures. We are committed to implementing this approach to provide investors and other stakeholders with information on

climate-related risks relevant and material to our business. Pursuant to Listing Rule 9.8.6 R(8), we provide our disclosures here,

consistent with this framework, plus links to where further detail is provided in this document. A number of aspects of TCFD were

already part of our ESG and risk management approach, but we recognise the TCFD framework is still new, so we will seek to refine

our reporting over time as best practice and guidance evolves and our approach develops.

Governance

Board oversight of

climate-related risks

and opportunities

The QinetiQ Board has overall responsibility for our ESG approach and climate change forms a core part of this agenda. Both

the CFO (previously David Smith and now Carol Borg) and our Group Director of Corporate Responsibility and Sustainability

(CR&S) provide regular reports and briefings on ESG and climate change to the Board (see page 89).

Our Remuneration Committee has also reviewed and approved non-financial collective goals for our leadership community

for FY23 (See page 117) which will include climate change.

Management’s role

in assessing and

managing climate-

related risks and

opportunities

Carol Borg, our CFO, has extensive ESG experience (page 82) and is the Board member with overall responsibility for

climate change; she chairs the Climate Change Steering Group (CCSG) supported by our Group Director of CR&S. The CCSG

membership includes leaders and subject matter experts from across the business in key roles (see page 46 for details),

ensuring we take the necessary multidisciplinary approach. It is the senior forum for developing and implementing strategy

and plans and for reviewing risks and performance.

The CCSG met monthly through FY22, to drive the development of the Net-Zero plan (see pages 46-47) and to oversee our

TCFD approach as well as other programmes such as stakeholder engagement. There is a dedicated TCFD Working Group,

reporting into the Steering Group.

Strategy

Climate-related risks

and opportunities

identified over the

short, medium and

long term

Climate change is a significant global issue and considerations for businesses include both physical risks, including factors

such as flooding and extreme weather events, and transition risks which are related to the transition to a lower carbon

economy, such as policy or regulation change and changing markets.

We have undertaken a qualitative review of our operations, our supply chain and our work for customers and considered the

effect on cost, revenue and asset value. We have considered the medium (2030) and longer term (2050). We have identified

that our business is exposed to both physical and transitional risks (before mitigation activities) and issues are listed below.

This is included in our principal risks on page 70 and a description of our risk management approach is on page 52.

Physical risk:

• Increasing number or the increasing severity of extreme weather events or flooding (for a limited number of sites) may

result in damage to infrastructure, which could disrupt operations on our estate and those sites we manage on behalf of

our customers. Depending on the scenario, the likelihood and severity of these events is likely to increase in the medium

and long term.

• Increasing number or the increasing severity of extreme weather events may impact the ability of our supply

chain to meet requirements, thereby causing disruption to operations or customer delivery. Depending on

the scenario, the likelihood and severity of these events is likely to increase in the medium and long term.

Transition risk:

• Policy and Legal: Across all of the territories we operate, we may be subject to greater regulatory requirements or carbon

(GHG) pricing which may result in additional costs, or the failure to meet requirements. This will be potentially more likely

for scenarios where global decarbonisation is more rapid.

Opportunities:

• The global transition to a low-carbon economy may create opportunities for us to innovate for our customers,

and increase revenue from current or future low-carbon solutions (products or services).

Other issues were considered (for example, the impact on reputation) but were less material. We will continue to

refine our approach and look to create a quantitative approach and will report further information as this develops.

Environmental

continued

QinetiQ Group plc Annual Report & Accounts 2022

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The impact of

climate-related risks

and opportunities on

QinetiQ’s business,

strategy and financial

planning

Climate change risks and opportunities are reflected in our strategy and plans and we strive for continuous improvement to

reflect our purpose, our growth strategy, the external landscape and stakeholder expectations.

• During FY21 we more explicitly embedded our commitment to ESG and sustainability into our QinetiQ business strategy,

revising our framework to include the need to “deliver responsibly, sustainably for the benefit of all our stakeholders”

(further updated in FY22 to include safety (see page 18). ESG and climate change are embedded in our Integrated

Strategic Business Plan (ISBP) process.

• In FY21, we also included, for the first time, GHG emissions as a core non-financial KPI (see page 43) reflecting the

increased importance of our GHG emissions.

• During FY22, we more clearly brought together an overview of those products and services that meet the sustainability

agenda of our customers.

• In FY22 we developed and published our Net-Zero plan (see pages 46-47) which provides a framework for reducing our

GHG emissions using four initiatives, which will contribute to both reducing risks, for example reducing our exposure to

energy prices by reducing energy use, to creating opportunities, such as our strategy to innovate and collaborate across

the value-chain to develop sustainable solutions for customers.

• In FY22 we started work on quantifying the financial risks of climate change and will continue to develop this as part of

our climate resilience programme, focusing on risks and mitigations. We have been developing an approach to introduce

an internal cost of carbon that will be used in business cases and acquisitions (see our full Net-Zero plan: www.qinetiq.

com/en/our-company/sustainability/climate-change/net-zero).

The resilience

of QinetiQ’s

strategy, taking

into consideration

different climate-

related scenarios,

including a 2

C or

lower scenario

In FY22, we undertook scenario-analysis to assess the potential impact of climate change on our business. Our analysis

considered three scenarios to explore rising, stabilising and declining emissions to ensure we considered different possible

futures (including 2

C or lower). We used scenarios that were based on the Representative Concentration Pathways (RCPs),

which are used by the Intergovernmental Panel on Climate Change (IPCC) to reflect that the transition to a decarbonised

world may take different pathways, with different outcomes.

• Low (<2

C) strongly declining emissions: Intensification of decarbonisation action resulting in increasing and rapid

transition, with more limited physical risks.

• Middle (2-4

C): stabilising/slowly declining emissions; physical risks continue and transition risks continue to increase.

• High (>4

C): rising emissions; Failure to address climate change results in high physical risks, with more limited

transition issues.

We considered two time horizons (2030 and 2050) so we were aligned with our Net-Zero targets and used a variety of data

sources. In our Net-Zero plan we have aligned our strategy with a transition to Net-Zero. Our four initiatives outline our plans

for reducing our Scope 1, 2 and 3 emissions, addressing our operations, working with our supply chain and customers (see

page 47 for more detail).

This scenario analysis builds on our previous programmes of undertaking climate-change risk assessment at key sites

and horizon scanning for changes to the external landscape (e.g. regulatory and market). The output has informed our

understanding of how climate-related risks (both physical and transitional) could impact our business. We will review

and evolve this scenario analysis and integrate the findings into our risk management approach, in order to ensure that

mitigations are identified and in place to address our business resilience to climate change. Our approach to scenario

modelling has been qualitative and we have started to develop a quantitative approach which will evolve.

QinetiQ Group plc Annual Report & Accounts 2022

Risk management

QinetiQ’s processes

for identifying and

assessing climate-

related risks

Our risk management and control framework enables us to effectively identify, assess and manage risks and where material

these are featured within our principal risk register. We have based our approach to climate risks on our existing risk

management methodology (to ensure that we are embedding it into our existing processes).

In line with TCFD recommendations, our risk assessment approach covered both physical risks and transition risks. To

identify key risks and opportunities, we undertook a review of best practice and guidance to explore what would be relevant

to QinetiQ operations. In order to establish those that we believe are material, In order to identify material risks, we ran

briefing sessions and workshops with key stakeholders (e.g. Head of Site, supply chain, operations, business development)

who are our subject matter experts across the business in order to identify risks, and then these were reviewed to look at

the key issues and identify those that were considered to be most material.

As part of our day to day management of our site operations we are familiar with the physical risks posed and have a good

understanding of suitable mitigations. Transition risks include a number of issues which we also manage – for example –

routinely horizon scanning for emerging regulation and understanding of evolving markets (e.g. via our close engagement

with customers on Net-Zero).

QinetiQ’s processes

for managing

climate-related risks

Ownership and management of individual risks are assigned to members of the Global Leadership Team (GLT) who are

responsible for ensuring the operational effectiveness of internal control systems and for implementing key risk mitigation

plans. The Board undertakes an annual assessment of the principal risks and Climate Change is included (see page 70 in

the risk section). The GLT is supported by our Head of Enterprise Risk Management and our risk managers, who are able to

have more tactical and operational oversight. Risks are assigned owners. This approach, which forms part of our risk culture,

will ensure that climate change is fully integrated into our risk management approach (see page 62).

How processes for

identifying, assessing

and managing

climate-related risks

are integrated in to

QinetiQ’s overall Risk

management

For physical risks we have considered these primarily by site, and for issues such as our supply chain and business delivery.

Risks have been identified (for example where there may be increased flood risk) and will form part of the regular review

cycle. Risk will change either due to new emerging information or changes to our business (e.g. use of site, supplier, etc).

Transition risks are more dynamic and we will be horizon scanning to identify any relevant changes. Any new changes

(e.g. new legislation) will be addressed in line with our standard processes. We have used a variety of sources of

information to undertake the assessments. We have developed a TCFD “resource hub” for our risk community.

Climate change is identified as a principal risk and described in more detail in the risk section on page 70.

Metrics and targets

Metrics used to

assess climate-

related risks and

opportunities in-line

with QinetiQ’s

strategy and risk

management process

A key part of addressing the risks of climate change is to transition our business to Net-Zero and so key metrics are

associated with GHG emissions, one of our five non-financial KPI (see page 43) as well as targets as part of our

Net-Zero plan (see pages 46-47).

Scope 1, 2 and if

appropriate 3 GHG

emissions and the

related risks

We have disclosed our Scope 1 and Scope 2 GHG emission in the Annual Report and Accounts for a number of years. During

FY22 we calculated our Scope 3 emissions for the first time and this is shown on page 46. We have also published our total

Scope 1, 2 and 3 GHG emission in our Net-Zero plan (the plan is published in full on our website: www.qinetiq.com/en/our-

company/sustainability/climate-change/net-zero). Our Net-Zero plan identified how we will address these emissions through

four initiatives. This programme has clear oversight by the CCSG and will ensure we are able to manage the programmes,

and identify and address risks.

QinetiQ’s targets for

managing climate-

related risks and

opportunities and

performance against

targets

We were the first aerospace and defence company globally to publicly commit on the Science Based Targets initiative (SBTi)

website to developing science based-GHG targets aligned to a 1.5

C scenario. We submitted our full set of Scope 1,2, and 3

(near term and Net-Zero) emissions targets to SBTi in January 2022, with formal assessment and validation scheduled in

FY23. Our targets will, subject to validation, position us to pledge our commitment to Race to Zero, the United Nations global

campaign. The targets form part of our Net-Zero plan where we have in place a programme across our business to measure

manage and reduce emissions from our supply chain operations and our products and services. These targets are detailed

on page 46. Our leadership Incentive scheme will support these targets (see page 117).

Environmental

continued

QinetiQ Group plc Annual Report & Accounts 2022

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Priorities for FY23

Governance Our Board will continue to review progress and in FY23 our new ESG Steering Committee, chaired by our CEO will provide an

additional route for leadership support and monitoring of progress. Our leadership incentives are aligned with ESG and this

will be enhanced in FY23 (see page 117), linked to our climate change programme and goals.

Strategy We will review best practice and evolve our use of scenarios. We will develop tools to build a quantitative methodology and

refine our approach.

Risk Management We will be focusing on further embedding climate change risk into business as usual. To support this we will continue to

refine our approach and review emerging trends as well as best practice.

Metrics and targets We have published our new Net-Zero plan and so will be working towards these new targets. We will also consider whether

any additional metrics are required to support our climate resilience reporting.

QinetiQ Group plc Annual Report & Accounts 2022

Social

This year we have fully articulated our employee offering, bringing

together all of the advantages of working at QinetiQ and what our people

can expect in return for their contribution. This includes opportunities to

grow their career, to get involved in meaningful and interesting projects,

clear reward and recognition, and to have pride in our impact on the

world around us. The employee offering framework features six areas of

focus; safety and wellbeing, responsibility and sustainability, diversity and

inclusion, adaptability and flexibility, learning and development, reward

and recognition; with our purpose, values and behaviours at the heart.

Our people and communities

We want working at QinetiQ to feel inspiring,

for our people to have the opportunity to

realise their full potential, and feel recognised

for their contribution.

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Safety and wellbeing

Safety

Our Environment, Health and Safety (EHS) strategy encourages

us to look after ourselves, each other and the world around us.

In support, we have;

• Introduced a new EHS incident management tool,

consolidating previous systems and tools, enabling

improved data analytics and enhancing governance

across the whole of the Group.

• Developed a new risk assessment process, ensuring

consistency across the Group and providing a suite

of tools and resources.

• Initiated a new training programme on accident investigation,

increasing competencies of leaders and investigators.

Underpinning our commitment, our leaders have a common

goal for safety as part of their leadership incentive scheme

(see page 125).

Our overall safety record is good, the Lost Time Incident (LTI)

rate (1) for the whole of the Group has decreased from 2.67 in

FY21 to 2.05 in FY22. It is one of our five non-financial KPIs

(see page 42).

Lost Time Incident (LTI) Rate

FY20

FY21

FY22

2.67

2.05

2.74

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.

In the last year we received two safety Improvement Notices from

the UK Health and Safety Executive (HSE). The first relates to

the incident at the MOD Pendine site in the UK, which resulted in

life-long injuries to one of our team. This event occurred in March

2021 and was reported last year. Action has been taken, resulting

in confirmation from the HSE that the terms of the notice have

been met. The second Improvement Notice refers to management

of gas networks at five UK sites and we are on track to meet the

requirements, by the due date of September 2022.

As a result, with a desire to continuously improve, we launched a

company-wide Safety Improvement Programme. We undertook

two safety culture surveys, seeking feedback from all employees

on our safety culture across all our sites. The results have been

compared against previous data and will be used to identify

site-based culture improvement programmes. We are utilising

DuPont Sustainable Solutions (DSS) for a further independent

deep-dive into our safety culture and organisational safety

performance. See also page 92 and page 116.

Wellbeing

Our wellbeing strategy focuses on the five pillars of physical

health and mental health, personal growth, working environment

and financial wellbeing. We continue to develop our global

wellbeing offering:

• Extended the UK and Australia Mental Health First Aider

network into Canada.

• Launched the Thrive mental wellbeing app in Belgium,

Canada and the US.

• Delivered online mental health awareness courses to support

managers and employees.

• Created a suite of seven wellbeing tool-kits to support

wellbeing conversations in the workplace.

• Delivered a wellbeing action plan guide and template

to support employee wellbeing best practice.

COVID-19

Having established a range of guidance and controls early in

the pandemic, we have continued to ensure that our people

understand what they need to do to look after themselves and

each other. Reflecting government guidance in each of the

countries where we operate, we empowered up to 80% of

our people to work at home and protected those who

needed to be on our sites.

To enable this we have:

• Shared practical advice and developed our digital tools.

• For colleagues who need to work on site, taken a risk-based

approach with individual teams working through what they

need to do, based on the work they are doing.

• Encouraged regular testing, with test kits available

on our sites.

• Continued to offer extended special paid leave, providing

support to anyone who cannot work from home.

• Engaged and shared information with our people, encouraging

them to use the health and wellbeing resources available,

including our Mental Health First Aiders, Employee Assistance

Programme, Wellbeing Toolkits and Wellbeing Action Plan.

• Published regular COVID-19 updates as well as answering any

questions as they arise. All of the guidance and resources are

consolidated on our COVID-19 Hub, accessed via our intranet.

Feedback from WorkDay Peakon continues to show that this

support is valued.

As we look forward to FY23, our overall safety and wellbeing

focus will be on continuous improvement. For safety, we

will continue to deliver against the EHS strategy and Safety

Improvement Programme. For wellbeing, we will leverage insights

from our employee networks (e.g. Neurodiversity and Disability

and Carers), the Peakon Workday engagement survey and

Safety Improvement Programme outputs. We will be improving

our offerings in areas such as financial wellbeing and stress

awareness and will be promoting and maximising the benefits

from our Employee Assistance Programme. As we address

COVID-19, we are putting the emphasis on enabling our people

to manage the risk in a way that is right for each situation. It

is important we are now trusting our own judgement to make

considered and informed decisions about how we look after and

protect each other.

QinetiQ Group plc Annual Report & Accounts 2022

In addition to volunteering, we continue to support a number of

charities. In the UK our charity partner is SSAFA. In Australia we

have donated to Legacy Australia and the Royal Flying Doctor

Service of Australia.

In FY23 we aim to increase our outreach, both through virtual

activities (such as virtual work experience) and increase

in-person outreach (such as our Schools Powerboat Challenge).

Our defence partnerships

We have been re-validated with the Gold Award status by the

UK MOD in their Defence Employer Recognition Scheme, which

recognises UK employers who demonstrate a commitment to

defence by proactively supporting the Armed Forces community

and inspiring others to do the same (we were first awarded gold in

2016). We have always been passionate about supporting our Armed

Forces community, including veterans, as we believe that having

Service Leavers and Reservists within our company greatly enhances

how we connect with our key customers. We signed the UK Armed

Forces Covenant in 2013 and continue to create covenant-related

initiatives, such as our global QinetiQ Veterans and Reserves Network

(QVRN), which helps to connect, support and value colleagues who

serve or have served in their nations’ Armed Forces.

In the US, we have a Veteran’s outreach programme through Circa

and Military Offices Association of America and participate in military

hiring events through Recruit Military and Corporate Grey. We also

partnered with Our Military Kids whose mission is to recognize the

children’s service and sacrifice, by providing grants for extracurricular

activities. We have enrolled in the Virginia Veteran Values (V3)

Program, a Commonwealth of Virginia Department of Veterans

Services Program, which educates and trains employers on the

value of Virginia’s veterans, and helps them connect with these

personnel to maximise the productivity of their workforce.

Diversity and inclusion

We’re creating a company where our differences are not only

embraced but make us stronger. To achieve this our Inclusion

2025 strategy aims to build a workplace and culture where everyone

can feel valued, be authentic and realise their full potential. Our

focus in FY22 has been across three key themes: awareness of

the importance of diversity and inclusion (D&I); leadership; and

employees. This year, we have:

• Held a number of global awareness campaigns on topics,

including dyspraxia, mental health, women in STEM,

menopause, psychological safety, Black History Month,

LGBT History Month, disability, Speak Up and Domestic

Violence awareness.

• Increased availability of D&I training and resources.

• Maintained D&I as part of our leadership incentive scheme,

with leaders delivering 670+ interventions such as running

team sessions, writing blogs and supporting reverse

mentoring and our D&I networks.

• Facilitated our D&I champions (see page 105) and the leads

of our seven employee-led networks to meet regularly, sharing

ideas and best practice.

Responsibility and sustainability: Community

Due to COVID-19, we have adapted our community outreach

activities, which have traditionally been in person, and recognised

evolving needs in our communities. Our key focus is through

science, technology, engineering and maths (STEM) outreach with

young people, where our employees provide real-world experiences

to inspire the next generation of scientists and engineers. Support

from employers to schools and youth groups, continues to be

important to help mitigate the long-term impacts of the pandemic.

We have a network of STEM outreach leads in the UK, Australia

and Belgium, who support our volunteers. We have valued the

expertise of partners; in the UK we have worked with the Jon

Egging Trust, STEM Learning and Primary Engineer, to continue

to understand young peoples’ current needs, and to design virtual

and remote outreach activities, which can be delivered globally.

A highlight this year was receiving the Team of the Year award

for our contribution to the Jon Egging Trust Blue Skies Outreach

programmes in Wiltshire.

In Australia, we have partnered with Girls of Impact to sponsor

a Future Female Innovators summit for Australian high school

students. In Belgium we participated in specialist Space Industry

Careers fair to raise awareness with young people of rewarding

careers. We engaged with an estimated 5,500+ young people

through bespoke in-person or online outreach activities, and

through larger events or external organisers such as virtual

careers fairs.

Social

continued

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• Run a fourth cohort of our reverse mentoring programme.

• Recognised our D&I champions and network leads at the

Global Recognition Gala.

• Gained an Employer of Choice for Gender Equality citation

in Australia and recognised for an Outstanding Diversity and

Inclusion strategy at the Australian Aviation Aerospace Awards.

• Participated in FTSE Women Leaders, reporting improved

female representation in our Executive Committee plus

direct reports, from 23.5% in FY21 to 27.2% in FY22.

• Reported an improvement in our UK gender pay gap

from 13.9% in 2020 to 12.6% in 2021.

Our FY23 priorities will be to continue to deliver our Inclusion

2025 strategy; to raise awareness, work with our leaders and

our employee networks. We will build on our progress on gender

balance, setting a target of 30% for our Group workforce to be

women by 2030 and we will also be focusing on improving

ethnic diversity.

Employee engagement

Critical to all of our people feeling valued and engaged is making

sure that the employee voice is considered. Views are represented

by the Global Employee Voice (GEV), a group of employees who

work alongside leaders to help shape ideas and initiatives. The

representatives met regularly with the CEO and Group Director

of Human Resources and have also met with the Chairman and

Board members during the year (see page 93). The GEV Chair

also actively participates at leadership engagement events. In

FY22 the GEV has supported a number of changes, including

the COVID-19 response, Employee Offering, our Adaptive

Working approach, and supporting organisational change.

With our people working on site and remotely, communication

has never been more important. Two-way communication

channels, including our Global Portal intranet, monthly live events

through Q-Talk, and virtual communities, encourage our people

to share their thoughts, feedback and experience. In addition, we

hold Global Employee Roadshows four times a year, providing

an opportunity for our people to hear from the Global Leadership

Team about our market strategy, and important topics from

across the global business.

Gender balance data

FY22 FY21 FY20

Female Male Female Male Female Male

Board directors

(44%)

(56%)

(37%)

(63%)

(22%)

(78%)

Senior managers

(20%)

240

(80%)

(19%)

239

(81%)

(17%)

267

(83%)

Other employees

1478

(22%)

5136

(78%)

1,447

(22%)

5,145

(78%)

1,384

(20%)

5,080

(80%)

1 For more information on Board diversity see page 104.

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, CEO and CFO.

All employees (including leaders)

22%

78%

27%

73%

GLT and direct reports

Women

Men

Women

Men

QinetiQ Group plc Annual Report & Accounts 2022

Employee engagement is one of our five non-financial KPIs,

reflecting its importance to our business strategy (page 43). To

enable us to adopt a continuous listening approach, using regular

insight to shape how we create a great place to work, we use

Workday Peakon. This helps us understand what is important to

our people, so that we can take action globally and locally. We

measure engagement quarterly and continue to see a good level of

engagement, with participation rates at 71%, similar to FY21 (74%).

This year we have seen a slight decline in the overall score from 7.3

in FY21 to 7.1 in FY22. Employees shared that areas of strength

are adaptive working, flexibility and autonomy. Our people also tell

us that there is a strong sense of team working, pride and purpose.

We have made progress in the priority area of Career Growth (see

below for more details on activities). Underpinning our commitment,

our leaders have a common goal for engagement as part of their

leadership incentive scheme. Where leadership focus is prioritised

and visible, engagement has improved, for instance in Australia and

the US. Our voluntary turnover was 13.8% in FY22, compared with

8.7% in FY21 with some hotspots in the US and Australia.

Focus in FY23 will be on evolving our employee offering, creating

choice and meeting the diverse needs of our people. Responding

to business needs and listening to feedback, we are continuing to

explore how we can make the best of our investment, enabling us

to attract and retain talented people who are proud of what they do.

Adaptability and flexibility

The continuing impact of the global pandemic has meant that we

have had to adopt different ways of working to ensure that we

maintain the safety and wellbeing of our people and our partners

while continuing to deliver effectively for our customers. Building

on what we have learnt, we launched our Adaptive Working

approach, encouraging us to consider where, when and how we

work together to deliver the best outcome for our customers,

while retaining the benefits of work/life balance, greater flexibility

and more focus on safety and wellbeing.

Adaptive Working was launched in June 2021 and focuses on

three principles; working flexibly, global collaboration/ knowledge-

sharing, and business focus. To help our people understand

this approach, we have published Group-level principles and

local guidance, supported by discussion tools and information

resources. Adaptive Working empowers us to make a difference

to our customers and the teams in which we work, balancing

work and individual needs, and meeting our sustainability

commitments to protect the world around us. Looking forward

to FY23, we will be focused on maximising the value of this

approach in our overall employee offering.

Learning and development

We promote and enable personal growth for employees and

take a blended approach to learning, with a mix of on-the-job

experience, virtual and live training, and access to a wide range of

resources and toolkits. Our learning portfolio has increased and

evolved this year to include:

• Introducing SuccessFactors to 95% of our company,

providing a platform for continuous development, through

setting development plans, understanding the competencies

needed to progress, and providing access to the associated

learning resources.

• Leadership Live, a new digital platform provides fresh, relevant

and on-demand personalised development, available to all of

our people, not just leaders.

• New global suite of mandatory e-learning, translated and

appropriate for each country.

• Sustained focus on coaching and mentoring; focusing on

leaders, increasing the number of mentors and growing our

reverse mentoring programme.

• Established Management and Team Essentials programmes

aimed at providing leaders with fundamental knowledge and

skills to help build high-performing teams.

• Welcomed five new Fellows and promoted two colleagues to

Senior Fellow.

• More than 300 new starters attended the new interactive

virtual corporate induction.

In FY23, we will:

• Continue to grow our digital learning capability to help more

people access learning faster in the moment of need and

during their work to improve productivity and reduce the costs

associated with face to face external training courses.

• Provide new, innovative ways to develop our global leaders.

• Leverage our skills and expertise globally through the Test

and Evaluation Sovereign Skills Programme.

• Provide a new personal development fund, enabling more

choice for our people to drive their career development.

Early careers

Our Early Careers programme is designed for graduates and

apprentices, providing a rich and rewarding learning experience

for them as they start their career with us. We also welcome

year in industry, and summer placements every year. Investing

in the next generation ensures we are developing the skills and

capabilities needed for the future, as well as creating a near-term

talent pipeline. Demonstrating our commitment to early careers

is one of our non-financial KPIs (page 43). In the UK programme,

we have focused on developing personal, technical and leadership

skills, building business knowledge, and acquiring professional

qualifications. Our placements ensure real-life experience, such

as working on trials, customer secondments, and alongside the

Global Leadership Team. We encourage coaching and

mentoring, including opportunities to take part in our

Reverse Mentoring programme.

As a member of The 5% Club we commit to publishing a

breakdown of our UK early careers community (see table below)

including the percentage they comprise of the UK workforce.

FY22 FY21 FY20 FY19

Apprentices 53 72 67 101

Graduate programme 105 98 50 90

Sponsored students 24 24 2 8

% UK workforce 3.3 3.6 2.3 4.0

Social

continued

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We are also actively supporting 38 colleagues at later stages of

their careers to undertake apprenticeships because we believe

the apprenticeship model is an excellent way to support skills

development and career development. In Australia our 18 month

graduate programme has seen two cohorts of 30 graduates

run concurrently this financial year with a further 14 graduating

from the 2020 programme. D&I remains a priority; we achieved

50% female representation in our 2022 graduate intake and

realised a significant increase in the employment of Indigenous

Australians through the creation of dedicated traineeships and

apprenticeships as part of our Reconciliation Action Plan, and in

support of the Australian Government’s Indigenous Participation

Plan. We were proud to win Graduate Programme of the Year

in the Australian Defence Industry Awards and an Excellence

Award for Best Graduate Development Programme at the

Australian HR Awards.

Our Early Careers focus in FY23 will be on maximising

the apprenticeship levy in the UK, supporting the ongoing

development of our people through progression or reskilling,

as part of talent development plans.

Rewarding for Performance

Reward and recognition are key elements of our people strategy

and an important part of our employee offering. We offer a

broad range of reward and recognition, designed to enhance our

employees’ wellbeing and incentivise both collective performance

and individual contribution; enabling us to make choices about

what works best for ourselves and for our families. Through our

Rewarding for Performance framework, our people have been

able to collectively share in our success:

• Our All Employee Incentive Scheme (AEIS) for contribution

in FY22 paid £500 to each employee.

• We continue to invest in Pay and Progression, addressing

market anomalies and managing in-year role and grade

progression, with an investment of £ 2.0m.

• Through Thank Q, our global recognition scheme, we

celebrated 2,540 individual people and 872 teams,

with 3,412 awards.

As we continue to build a truly integrated, global company, we

are evolving the way we work together. Our Global Recognition

Gala is no exception and in 2021 we adapted the event to bring

together colleagues celebrating at live events from the UK, US and

Australia, as well as virtually from Belgium, Germany and Canada;

making this our most global gala yet. At the event we presented

51 awards, recognising 186 of our people.

Looking forward to FY23, we plan to increase our current

investment by a further £7.1m in our refreshed global reward

strategy and wider employee offering. As part of this we will

also review our current offering, with the intention of ensuring

that our overall reward strategy meets the changing needs and

diverse nature of our workforce. Our leaders will continue to be

incentivised, aligned with key ESG factors to support our strategy

and this will be enhanced in FY23 (see page 117).

QinetiQ Group plc Annual Report & Accounts 2022

Governance

Governance is a critical pillar, supporting us in how

we deliver business responsibly and sustainably.

It is linked to our corporate governance section.

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 contains information on ethical decision-making and also how to seek

help and advice. We review the Code 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 we provide a number of different ways

for them to seek help or raise concerns. Employees 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. These are also available to third parties (we publish

our Code on Conduct on our website, which contains the details:

www.qinetiq.com/en/our-company/sustainability/business-ethics

Throughout the year, we have promoted the importance of

speaking up and the various different contact routes with our

employees, in awareness campaigns, in the Code of Conduct

and in our mandatory ethics training. We have promoted

psychological safety both via blogs and a team tool kit. We

promoted our guide for managers, supporting them in creating an

open and inclusive environment, where our people feel confident

to raise concerns, and they know how to listen to and support

anyone who may come to them with an issue. For third parties,

we have promoted these via our website and in our supplier

Code of Conduct.

We have responded to all queries received via our ethics

email advice services and confidential reporting line.

Our Audit Committee oversees our approach to confidential

reporting (see page 95). Our Business Ethics Committee, chaired

by our Chief Ethics Officer (the Company Secretary), oversees

our ethics programme. We are members of our trade association,

ADS, Business Ethics Network where members can share best

practice on ethics, human rights and anti-bribery.

Our focus in FY23 will be to continue to promote and raise

awareness on Speak Up and we will be undertaking a best

practice review of the Code of Conduct.

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 and

that it meets best practice. The principles of our ABC 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 (which is for all employees), we provide specific training

for our people in roles with a higher potential exposure to bribery

and corruption risks. This 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.

In FY23, we plan to review our fraud prevention procedures and

deliver specific role-related commercial intermediary training.

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Human rights and modern slavery

As part of our ongoing programme to address modern slavery,

we operate and manage an action plan across the Group.

We continue to provide in-depth training to those in key roles,

and develop new supporting resources for all employees and

suppliers, including industry engagement events such as our

Collaborate programme. We regularly review our policies and our

approach to risk in the supply chain. Our updated supplier Code

of Conduct helps to ensure our suppliers have clarity of their

responsibilities on human rights, modern slavery and speaking

up. 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, our ethical trading policy, international business

risk management process, grievance mechanisms, due diligence

and export controls process. Our third-party confidential reporting

mechanism, provides routes for third parties to raise concerns.

We monitor the application of these policies and procedures

through our business and supplier 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. More information can be found on our website:

www.qinetiq.com/en/our-company/sustainability/business-ethics

In FY23 we will continue make progress against our modern

slavery action plan.

Working with our Supply Chain

Our supply chain is an extension of our own company. We ensure

that it is committed to the same standards of safety, security,

sustainability and governance as we are. We have a supplier

Code of Conduct and our supplier assurance process ensures

that suppliers understand the issues important to us. We have

developed a new Sustainable Procurement Strategy and created

a Sustainable Procurement Guide for our suppliers. The Supplier

code and the Guide are both available on our website:

www.qinetiq.com/en/our-company/suppliers-and-smes/

working-with-us

As signatories to the UK Prompt Payment Code, we report

our payment performance as required by legislation and have

continued to focus on paying small suppliers early throughout the

COVID-19 pandemic. In FY22, we ran supplier Collaborate events

to raise awareness of issues such as environment and emissions,

abolishing slavery in our supply chains and fostering supplier

diversity. Working in collaboration with wider industry, we foster

and develop ecosystems which draw together supplier, academia

and third sector communities to answer complex science,

social, engineering and technology challenges, supporting our

customer offering. Through this approach we enable access to

opportunities for diverse suppliers, including Small to Medium

Sized Enterprises and non-traditional defence suppliers,

removing barriers of entry and promoting inclusive procurement.

In FY23 we will continue to develop our approach to sustainable

procurement and run further Collaborate events.

Governance of ESG

Regular papers and briefings are provided to the Board by the

Group Director CR&S on all material ESG issues, including ESG

strategy, stakeholder engagement and reporting, ethics, Speak

Up, Climate change, D&I and community (See page 89). This

provides oversight of our approach, including progress against

programmes and plans. In FY23 we will be introducing a new

ESG Steering Committee, chaired by our Chief Executive. The ESG

strategy forms part of our ISBP (the five year plan) and includes

longer term plans e.g. our Net-Zero plan with targets to 2050.

We have linked key ESG factors to the non-financial element of

our leadership incentive scheme, and this continues to evolve;

the FY22 focus on engagement, D&I, safety and security will be

enhanced in FY23, (see page 117), aligned with key ESG priorities,

with the addition of a specific goal linked to climate change,

to support our new Net-Zero plan.

QinetiQ Group plc Annual Report & Accounts 2022

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 and

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 and Security Committees.

Risk processes cannot operate in isolation and, like safety and

security, must engender a supportive and robust culture to

enable effective risk-based decision making. Our Group-wide risk

management framework supports and develops a positive risk

culture that spans the strategic to operational levels; exploiting

both a top-down and bottom-up approach. Our culture and

embedded risk management processes, combined, result in a

stronger and more resilient organisation in the face of challenges.

Managing threats and optimising opportunities to support the

long-term success of our organisation is an established part of

the way we conduct business. Continual cycles of review and

improvement of our risk maturity keeps pace with a growing

business in a complex industry; 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

both the effective delivery of our strategy and those risks which

may have a material effect on our stakeholders, partners and

environment. The Board and Global Leadership Team 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 well established 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.

Over the past 12 months, we have seen considerable movement

in our principal risks, including the addition of three new

risks, which have gained in materiality, and the decrease of

three existing risks. The pandemic has been the catalyst for

fundamental changes in the way employees work, and the

subsequent “Great Resignation” phenomenon, driven by worker’s

dissatisfaction with current working conditions and personal

reassessments of career and lifestyle due to the changes and

hardships of the pandemic, is likely here to stay. In light of

this, we have escalated our people risk to the principal risks. In

addition, the step-change in the new requirements and evolving

context of our climate risk was met with a significant amount

of work throughout the year to assess and evaluate; resulting

in it being moved from the emerging risks to the principal risks,

Finally, given the significant growth ambitions of the QinetiQ

Group, we must ensure that our delivery organisation can match

the increasing size and complexity of programmes we undertake.

Until our project and programme improvement initiative is

completed, the risk of our project management failing to

keep pace with our growth will be held as a principal risk.

There has been a reduction in the likelihood of our innovation

risk following a number of successful group-wide initiatives.

Our UK growth risk has also decreased in likelihood as a result

of robust mitigation; including increased collaboration across

the Group, paving the way for international opportunities, and

the strong positioning of our abilities and offerings following

the UK Government Spending Reviews. The large contracts risk

has decreased, in part, because the Engineering Delivery Partner

(EDP) contract is now firmly established as the default route

for contracted engineering services for Defence, Equipment and

Support (DE&S). In addition, recent renegotiations of elements of

the EDP programme has taken it to the next level and builds on

the success of the first three years.

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.

The enduring COVID-19 pandemic has continued to have limited

impact on our operations globally. Our sites and facilities have

remained open and the opportunity to maximise the potential of

new ways of working is being exploited through our transformation

programme in order to re-invent our workspaces to maximise

performance and optimise spend whilst simultaneously providing

increased flexibility and productive ways of working for our

employees. We remain cognisant that the pandemic challenges

have the potential to cause future disruption and, therefore,

we continue to monitor the situation in readiness to respond

effectively to ensure that our people are safe and we continue

to deliver excellence for our customers.

Refer to page 55 for more detailed information on

our COVID-19 response

ESG issues continue to be a focus for our investors and other

stakeholders, and so we are ensuring we provide visibility on

our programmes and plans, including how we are managing the

associated risks. We have a well-established ESG strategy in place,

underpinned by robust sponsorship from our Board and the Global

Leadership Team, to ensure we are identifying and managing the

ESG risks to our company, including compliance to legislative and

reporting requirements. The landscape continues to evolve and,

through 2021, we saw a number of topics emerge and develop. Key

areas included the focus and outcomes of COP26, the evolution

of the management of COVID-19, Social Value and Levelling Up

(in the UK), new reporting requirements and Defence Ethics. We

carefully track the emerging ESG risks and, where necessary, build in

additional work-streams under the ESG Programme to ensure robust

mitigation is undertaken and opportunities are leveraged. To reflect

the importance and necessary focus of ESG in QinetiQ, our CR&S

Director reports on the programme directly to the Board.

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Board

Responsible for effective risk management and internal control across QinetiQ Group

Sets risk appetite and assesses principal and emerging risks

Audit Committee, and Risk and Security Committee

Receive reports from second and

third line assurance functions

Monitor and review the

principal and emerging risks

Risk deep-dives Monitor the effectiveness and

application 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

First Line

Managers identify and evaluate risk, in

conjunction with Second Line

Design and operate internal controls and

other mitigation measures, in conjunction

with Second Line

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

Ensures compliance with legal,

regulatory, and ethical expectations

Second Line

Risk management and other oversight

functions with limited independence

Provides complementary expertise,

support, monitoring, and challenge

related to the management of risk

Design and facilitate the risk

management processes across

the Group

Provide risk expertise and support,

including analysis and reports on

the adequacy and effectiveness of

risk management

Responsible for continually improving

the risk management process across

the Group

Monitor compliance with policies

and standards

Report to the Board and Global

Leadership Team

Third 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 Global

Leadership Team

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.

We have described our approach to ESG in more detail in

the responsible business section of this report on Page 44

QinetiQ Group plc Annual Report & Accounts 2022

Risk

management

continued

Cautious Balanced Eager

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

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.

Strategic risks

UK 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.

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 pace and 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, increasingly utilising modelling

and synthetics, embracing digital transformation.

We are expanding our global test and evaluation business, as

evidenced through securing the contract to operate and maintain

the Queensland Flight Test Range and, post-Brexit, maintain

relationships with the UK Government to support bilateral

relationships within Europe; where there is increased recognition

that T&E is an enabler to military capability and prosperity.

Read more at Page 19.

Metrics

Customer satisfaction

All financial KPIs

Responsibility

Group Function

Director:

Business Development

Managing Director:

A&S, M&L and C&I.

Risk appetite

Eager

Likelihood/Impact

Low/Medium

Proximity/Velocity

1-2 yrs/Medium

Strategy

Global leverage

Distinctive offerings

Disruptive innovation

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US business

Risk Impact Mitigation

There is a risk that the US Business

will be unable to establish a

robust and distinct position in

the marketplace and deliver the

significant growth ambition,

resulting in impact to the strategic

direction of the Group and potential

reputational damage.

The ongoing impact of the

Continuing Resolution on the US

DoD budgets within the Federal

Government may exacerbate this

risk through increased customer

disruptions and constraints.

Adverse impact

on the Group’s

financial

performance.

Our US strategy is focused on developing our relationships

with the DoD and major industry prime contractors 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 created specific and ambitious growth strategies for the

US and are developing our capability to enact those strategies

under a new US CEO, and through driving the operational

performance through two customer-focused businesses, C5ISR

Solutions and Technology Solutions. Additionally, we are leveraging

the broader QinetiQ group to sell our commercial systems

internationally to expand our market and mitigate reliance on the

US Government procurement cycles.

To encourage business winning, our single routes to market

approach enables our in-country team to leverage the full

QinetiQ brand and our Group-wide capabilities; maximising the

opportunities to cross-sell and offer comprehensive solutions to

the domestic challenges our US customers face. Initial focus is

on augmenting US business relationships on the next generation

of combat vehicle programmes and making a greater selection of

threat representation targets available to US DoD customers.

We continue to mature our global end-to-end processes and

business systems such that we can act with agility and pace

in response to our US customer requirements. Further, the

US business is fully embedded in our annual Group Audit and

Assurance planning process.

Read more about our addressable market on page 25.

Metrics

All financial KPIs

US revenue as % of

total revenue

Responsibility

Group Function

Director:

Business Development

President and CEO: US

Risk appetite

Balanced to Eager

Likelihood/Impact

High/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 regions,

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 could also impact the

availability and focus of customer

budgets. Elements of this risk exist

within QinetiQ’s control, including

growing the maturity of our in-

country capabilities to deliver our

growth ambitions.

Unable to realise

expected growth

in the planned

timeframes.

Our international strategy is focused on growing capability in

our home and priority markets, and leveraging aligned Group

products and services to maximise growth. We have developed

specific and ambitious growth strategies in our priority markets,

including organic and inorganic growth options.

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, and hold several internationally recognised

certifications and standards.

The continued exploitation of single routes to market enables

our in-country teams to leverage the full 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 and local processes and systems,

as well as the approach to the global leverage of capabilities,

such that we can deliver world-class solutions consistently

across all of our home-market countries.

Read more about our addressable market on page 24.

Metrics

All financial KPIs

International revenue

as % of total revenue

Responsibility

Group Finance Director

Business Development

Managing Director:

International

Risk appetite

Balanced to Eager

Likelihood/Impact

High/High

Proximity/Velocity

1-2 yrs/Medium

Strategy

Global leverage

Distinctive offerings

QinetiQ Group plc Annual Report & Accounts 2022

Risk

management

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

across the QinetiQ group.

• Develop relevant business

models, processes and

products/services.

• Attract, retain and nurture

the right talent.

Negative impact

on the Group’s

market position,

competitiveness,

future growth

and profitability.

Global initiatives to ensure innovation and the necessary

underlying culture is embedded across the Group, including:

• Investment in tools to facilitate innovative approaches, such

as enhanced exploitation of digital platforms and virtual

environments to collaborate and demonstrate our products/

services globally.

• Diversity and Inclusion programme to drive and foster

diverse thinking and embraces new ideas.

• Commercial innovation, including agile approaches

to contracting.

• Strategic workforce planning and global Success Factors,

utilisation to ensure we identify, attract and retain the right

people now and for the future.

Ongoing Group-wide communications, including via the Global

Roadshows and Q-Talks, and training to drive understanding

and adoption of our Mission-Led Innovation philosophy across

QinetiQ Group, which is to deliver better operational outcomes

for customers and end-users; working collaboratively to solve

complex problems, at pace.

Read more about our approach to innovation on page 21.

Metrics

Customer satisfaction

Employee engagement

Responsibility

Group Function Director

Business Development

Group Function Director

Strategy and Planning

Group Function Director

Technical

Group Function Director

Human Resources

Risk appetite

Balanced

Likelihood/Impact

Medium/High

Proximity/Velocity

1-2yrs/Low

Strategy

Global leverage

Distinctive offerings

Disruptive innovation

A material element of the Group’s revenue is derived from large contracts

Risk Impact Mitigation

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

and Support (DE&S) and the wider

UK MOD.

UK Government budget constraints,

could lead to a material change in

use of these large contracts.

The LTPA and

EDP directly

contribute

a material

proportion of the

Group’s revenue

and earnings.

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. We are now

also working with the MOD on the T&E Futures programme

through the delivery of a number of capability and technology

demonstrators.

We have achieved excellent customer satisfaction feedback

along with very strong performance across all of our KPIs,

resulting in strong financial performance on the contract

throughout FY22.

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. During FY22 we have

renegotiated some commercial elements of our agreement

to build on the success of the first two years, ensuring that

EDP remains competitive, relevant and continues to form a

robust part of the solution to government spending challenges,

delivering the best equipment and support of the UK’s Armed

Forces and Front Line Commands.

Metrics

All financial KPIs except

orders

Customer satisfaction

Responsibility

Group Managing

Director M&L

Group Managing

Director A&S

LTPA Managing Director

Risk appetite

Balanced

Likelihood/Impact

Medium/Medium

Proximity/Velocity

0-1yrs/Low

Strategy

Global leverage

Distinctive offerings

Disruptive innovation

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STRATEGIC

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CORPORATE

GOVERNANCE

FINANCIAL

STATEMENTS

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 integrations do not realise the

maximum potential benefits.

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.

Metrics

Inorganic growth

Revenue and Profit

Responsibility

Group Function Director

Strategy and Planning

Group Managing

Directors

Risk appetite

Balanced

Likelihood/Impact

High/High

Proximity/Velocity

1-2yrs/Low

Strategy

Global leverage

Distinctive offerings

The Transformation and Digitisation Programme

Risk Impact Mitigation

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 a

Global Interoperable Infrastructure

to enhance our collaboration, and a

Digital Workspace that enables us

to leverage our skills globally. 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.

Failure to realise

benefits will

challenge our

ability to meet

our strategic

growth targets

and limit our

capacity to scale

affordably.

Global Leadership Team work stream sponsorship and Group-

wide stakeholder engagement to ensure robust requirement

identification and focussed investment. This is supported

by a CEO-led steering group and a Global Digital and Data

Programme Board.

Budget and scope managed through a robust governance

model reporting to the Global Leadership Team and Board that

gives sufficient flexibility to respond to changing customer

needs but with the guide-rails 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. The Digital and Data Programme acts as an

enabler for the overall transformation by providing the tools

and ways of working to more rapidly address the cultural and

behavioural changes required to make the programme a success.

Metrics

Customer satisfaction

Employee Engagement

All financial KPIs

Responsibility

Group Function

Director Business

Transformation and

Services

Risk appetite

Balanced

Likelihood/Impact

High/High

Proximity/Velocity

0-1yr/Medium

Strategy

Global leverage

Distinctive offerings

Disruptive innovation

QinetiQ Group plc Annual Report & Accounts 2022

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

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.

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 Global 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; and in 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 the launch of our Group-wide Health and Safety

Improvement Programme; partnering with industry safety experts

to further enhance our safety culture.

The effectiveness of our internal control environment continues to

be assessed annually with the Board, and a board assurance map

is increasingly used to identify any potential gaps in assurance

over key risks.

ESG risks are robustly managed under the ESG programmes.

Metrics

Health, Safety and

Environment

Mandatory training

compliance

Commercial

intermediary

monitoring

Responsibility

Director of Group

Safety Improvement

Programme

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

QinetiQ Group plc Annual Report & Accounts 2022

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

FINANCIAL

STATEMENTS

Security and IT systems

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.

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.

As a key supplier in the 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 staff, and

mandatory awareness training for all staff and contractors.

• Deployment and continual upgrade of cyber security

detection and protective technologies.

• Annual strategic security reviews.

• Continuous employee communications and engagement,

including an annual Security Culture survey.

The introduction of a group-wide common IT infrastructure through

the Digital and Data Transformation Programme will strengthen our

overall cyber security capability through the adoption of common

security tooling. This will also facilitate greater global inter-

operability through technology controlled information sharing while

still protecting National and Sovereign data and information.

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

Project and programme professionalism and processes

Risk Impact Mitigation

QinetiQ operates in a competitive

and complex delivery environment.

Scalable, adaptable and agile

leadership of work is the norm.

There is a risk that our Portfolio,

Programme and Project

Management (P3M) maturity fails

to keep pace with our growth plans

and successful delivery of larger,

longer-term contracts. We must

continually innovate and develop our

frameworks, processes, tools and

training in order to ensure consistent

excellence in winning business and

delivering for our customers.

Adverse impact

on group financial

performance,

competitiveness

and future growth.

The Group Performance Excellence (GPE) function is

responsible for the continuous improvement or our robust

P3M framework in order to provide a scalable and consistent

approach to delivering benefits to time, cost and quality. Work

is ongoing to consolidate toolsets, implement a pan-discipline,

Group-wide Lifecycle Framework, and enhance Project Manager

professional development.

Project Management Offices (PMOs) have been embedded in each

business unit, and are actively implementing GPE outputs; including

the integration of professional Project Controls and Assurance.

Metrics

All Financial KPIs

Customer

Satisfaction

Revenue and Profit

Responsibility

Group Director

Technical

Risk appetite

Cautious/Balanced

Likelihood/Impact

Medium/Medium

Proximity/Velocity

0-1yrs/Medium

Strategy

Global leverage

Distinctive offerings

Disruptive innovation

QinetiQ Group plc Annual Report & Accounts 2022

Climate change

Risk Impact Mitigation

QinetiQ Group, like all organisations,

must play its part in reducing

GHG emissions and ensuring

that the risks and opportunities

resulting from climate change

and the decarbonising economy

are understood, and effectively

managed as an intrinsic part of our

operations and strategy.

Failure to manage the climate

change risk as part of our strategy

will leave operations on our estates

and our supply chains, exposed.

We may not meet legislative

or customer requirements,

stakeholder expectations and we

will not be correctly positioned in a

decarbonised future.

For more details see our Net-Zero

plan on page 47 and the TCFD

section on page 50.

Negative impact

on the Group’s

market position,

competitiveness,

future growth.

We have a strong track-record of environmental stewardship but

recognise that there is more we can do.

We have developed a Net-Zero plan and are committed to target

to achieve Net-Zero GHG emissions by 2050 or sooner. We have

in place Global initiatives to ensure that we are embedding our

Net-Zero plan;

1. Net-Zero operations (Scope 1 and 2)

2. Net-Zero upstream and downstream focus (Scope 3)

3. Delivery of critical internal and industry-wide enabling

activities (e.g. cost of carbon, and remuneration incentives)

4. Co-create with our customers, invest in research and

development and care for our environment

We have also undertaken a comprehensive review of the risk

of climate change to our business and have ensured that we

embed climate change into our business-as-usual activities,

integrating opportunities into our strategy and ensuring efficacy

through leadership oversight with supporting tracking metrics.

This is reported on page 50 aligned with the TCFD framework.

Metrics

Reduction of GHG

emissions

Customer

satisfaction

Employee

engagement

TCFD outputs

Responsibility

Chief Finance Officer

Risk appetite

Balanced

Likelihood/Impact

Low/Medium

Proximity/Velocity

3-5yrs/Low

Strategy

Global leverage

Distinctive offerings

Disruptive innovation

People

Risk Impact Mitigation

Identifying, attracting and retaining

the right people now and in the

future is essential to QinetiQ’s

success. There has been a

significant change in expectation

within the global workforce in terms

of location, flexibility and baseline

toolsets; this has been accelerated

by the pandemic, and there is a

risk that we fail to grow and adapt

our ways of working in order to

ensure that we attract, develop and

retain the right capability to deliver

excellence for our customers.

Negative impact

on the Group’s

market position,

competitiveness,

future growth.

Our people are a core consideration in all of our strategic and

operational planning.

We are enhancing our Strategic Workforce Planning (SWP), the

Early Careers Programme, D&I Plans, and career management

tools. The HR function is developing a collaborative functional

model for harnessing future capability requirements,

assimilating existing structure, understanding better the skills

gaps and capable of leading SWP strategic thinking.

A high performance culture is central to our people strategy,

supported by engagement, talent review and reward strategies;

this is further enabled through our Smart Adaptive Working

(SAW) guidance which has capitalised on the diverse ways that

our people have worked.

Each of our home countries has been able to adapt to trends an

opportunities in their own localities; for example, a successful

pilot of a four-day week in Australia.

Metrics

Reward

Growth

Career Path

Responsibility

Group Human

Resources Director

Risk appetite

Balanced

Likelihood/Impact

Medium/Medium

Proximity/Velocity

1-2yrs/Medium

Strategy

Global leverage

Distinctive offerings

Disruptive innovation

Proximity – Risk proximity means how far away in time will the risk occur (if it materialises).

Velocity – Velocity refers to the time that elapses between the occurrence of an event and the point at which the QinetiQ first feels its effects.

Risk

management

continued

QinetiQ Group plc Annual Report & Accounts 2022

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

FINANCIAL

STATEMENTS

Longer-

term viability

assessment

Going concern

statement

Assessing the prospects of

the Group

An overview of the Group’s growth

strategy is provided on pages 18 to 21.

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

low-case, base-case and high-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.

The corporate planning process is

underpinned by assessing scenarios and

risks that encompass a wide spectrum of

potential outcomes, both favourable and

adverse. The sensitivity analysis undertaken

by management explores the resilience of

the Group to the potential impact of all the

significant risks set out on pages 64 to 70,

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 (as described

on pages 64-70) 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

108, 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.

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

2027. 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 111, 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 2027.

The Group’s activities, combined with the

factors that are likely to affect its future

development and performance, are set

out on pages 1 to 35. The Group meets its

day-to-day working capital requirements

through its available cash funds and its

bank facilities. The Chief Financial Officer’s

review on pages 36 to 39 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.

The market conditions in which the Group

operates are expected to be challenging,

as spending from key customers comes

under pressure, however the Group enters

the new year with a very strong balance

sheet and a healthy order-book. After

making enquiries, the Directors believe that

the Group is well-positioned to manage

its overall business risks successfully and

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 is exposed to various risks and

uncertainties, the principal ones being

summarised in the ‘Principal risks and

uncertainties’ section on pages 64 to 70.

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 sufficiently material to

prevent the Group from continuing as a

going concern for the next 12 months.

QinetiQ Group plc Annual Report & Accounts 2022

Section 172 (1)

statement

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 – page 4

Business model – pages 16 to 17

Strategy – page 18

Dividend policy – page 39

Longer-term viability statement – page 71

(b) The interests of the company’s employees Improving the safety, health and wellbeing of our people – page 55

Engaging with our people – page 57

Developing our people – page 58

Rewarding and recognising our people – page 59

Non-financial information statement – page 74

Board employee engagement – page 93

Diversity and inclusion – page 56 and 104 to 105

with suppliers, customers and others

Business ethics – doing business the right way – page 60

Anti-bribery and corruption – page 61

Human rights – page 61

Modern slavery – page 61

Supply chains – page 61

Supplier stakeholder management – page 61

(d) The impact of the company’s operations on the community

and the environment

Responding to climate change – pages 46 to 53

Greenhouse gas emissions and energy management – page 47

Investing in our community – page 56

TCFD disclosures – page 50

(e) The desirability of the company maintaining a reputation for

high standards of business conduct

Stakeholder propositions – pages 10 to 11

Our sustainable business model – pages 10 to 11

Our values – page 18

Our culture – page 91

Our approach to responsible and sustainable business – page 48

Internal controls – page 108

(f) The need to act fairly between members of the company Investor engagement – page 94

The Annual General Meeting – page 95

We welcome our responsibilities to promote the success of the

company in accordance with section 172 of the 2006 Companies Act.

QinetiQ Group plc Annual Report & Accounts 2022

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

FINANCIAL

STATEMENTS

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 64 to 70).

•

The Board sets the Group’s purpose, values and strategy

and ensures it is aligned with our culture (see page 90).

•

Direct and indirect stakeholder engagement

(see pages 26 and 92 to 93).

•

External assurance is received through audits, stakeholder

surveys and reports from brokers and advisers.

•

Specific training for our Directors and senior managers

(see page 107).

•

Regularly scheduled Board presentations and reports, by

way of example: customer engagement, risk register reports,

health and 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 and CSR

Committee and Remuneration Committee agenda items.

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 FY22

The principal decisions taken by the Board in FY22 are detailed

on pages 87 to 89. 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.

QinetiQ Group plc Annual Report & Accounts 2022

Non-financial

information

statement

Certain of the non-financial information required pursuant

to the Companies Act is provided by reference to the

following locations:

Non-financial information Section Pages

Business model Business model 16

Policies Non-financial information statement 74–75

Risk Management Risk management 62–64

Principal risks Risk management 64–70

Key Performance Indicators Key performance indicators 40–43

ESG Environmental Social Governance 44–61

Board Diversity Policy Corporate Governance 104

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.

Our people

Policy statement Description

Code of Conduct 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 (Page 60). 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.

Speak Up Guidance for our employees and third parties on how to ‘speak up’ is provided within our Code of Conduct and our supplier

Code of Conduct (both available on our website). Queries to our ethics email line are reported to the GLT monthly and an

overview of the programme was presented to the Board. (See page 86). Confidential reporting is overseen by the Audit

Committee, the process is described on page 95.

Health and safety Our Health and Safety policy outlines our commitment to continuously improving standards of safety management and

compliance. This is supported by our EHS Strategy (page 55). 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 the Board Risk and Security Committee

(see page 115). We track Lost Time Incidents (LIT) as a key non-financial KPI (page 42), which demonstrates

an improvement in the LTI).

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 KPIs with monthly oversight by our GLT as well as

regular oversight by the Board. Our Inclusion 2025 programme including an improvement in gender diversity, is described

on pages 56 and 57 including relevant data and progress against the Board’s Diversity and Inclusion Policy is described

on page 104.

The environment

Policy statement Description

Environmental

management

We are committed to embedding an environmentally sustainable approach to business because we understand its

importance to our business and our stakeholders (see pages 47 and 49). 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 Risk and Security Committee (page 115). We are certified

to ISO 14001 in the UK and Canada and so are subject to external audit.

Energy management and

climate change

Underpinning our ISO 50001 certified energy management system is our energy and carbon management policy, which

creates the framework for energy management. On page 48 we show the positive improvement against our target. Our

policy is part of regular governance review and self certification, as well as external audit, to ensure we are meeting

certification requirements (see page 48). Our new Net-Zero plan has had oversight by the Board (page 89).

Risks associated with climate change are on page 70.

Waste management We recognise that reducing waste meets our sustainability goals, and improves efficiency. On page 49 we outline the

progress against our target. The effectiveness is governed via our assurance processes and KPI with monthly oversight by

our GLT as well as regular oversight by the Risk and Security Committee.

Sustainability appraisal 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.

QinetiQ Group plc Annual Report & Accounts 2022

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

FINANCIAL

STATEMENTS

Community and society

Policy statement Description

Volunteering policy Our policy provides guidance for employees to use company time to use their skills, which enable us to make a positive

difference in the community (page 56). The effectiveness is monitored by the CR&S team and via our assurance process.

Safeguarding children

and vulnerable adults

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.

Tax 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. The tax strategy also has oversight by the Audit Committee (page 112).

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 Description

Human rights 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. Our policies ensure we meet all statutory requirements. 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. (See page 61).

Modern slavery We recognise our responsibility to comply with all relevant legislation, including The Modern Slavery Act 2015. 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. Our Modern Slavery and Human Trafficking statement is published on our website.

The effectiveness is monitoring via our assurance programme and leadership oversight (GLT and Board).

See page 61 for details of the programme.

Data Protection Our data protection policy details how we manage the privacy and security of personal information. 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.

See page 61 and our website for more details.

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 policies. The effectiveness is monitoring via our assurance programme and leadership oversight

(GLT and Board). See our website for more details.

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, which ensures we meet applicable statutory requirements,

has significant senior oversight at GLT and Board level, is managed via our assurance processes and self-certification and

there are regular internal audits. Details of our ABC programme are provided on page 60.

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 It is key that we comply with any sanctions requirements and so undertake various screenings. This is captured in our

policy, which is designed to ensure we comply, which has GLT and Board oversight, is subject to our assurance process

and self-certification.

Gifts and hospitality 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.

QinetiQ Group plc Annual Report & Accounts 2022

Corporate

Governance

79 An introduction from our Chair

81 Governance framework

82 Board of Directors

86 Board activity

87 Board decision making

90 Purpose, values and culture

92 Stakeholder engagement

96 Division of responsibilities

98 Composition, succession and evaluation

100 Nominations Committee report

106 Director effectiveness

108 Audit, risk and internal control

109 Audit Committee report

115 Risk & Security Committee report

117 Directors’ remuneration report

119 Remuneration at a glance

123 Annual report on remuneration

137 Directors’ report

141 Independent auditors’ report

FINANCIAL

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FINANCIAL

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STRATEGIC

REPORT

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GOVERNANCE

QinetiQ Group plc Annual Report & Accounts 2022

CORPORATE

GOVERNANCE

QinetiQ Group plc Annual Report & Accounts 2022

Governance

framework

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 123 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

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 72 to 73 and 87 to 89

• Board of Directors – pages 82 to 84

Code principle B

• Our strategy – page 18

• Section 172(1) statement – pages 72 to 73 and 87 to 89

• Company purpose – page 90

• Culture – pages 91 to 92

Code principle C

• Strategic report – pages 1 to 75

• Audit Committee report – pages 109 to 114

• Risk & Security Committee report – pages 115 to 116

Code principle D

• Social – pages 54 to 59

• Stakeholder engagement – pages 92 to 95

• Section 172(1) statement – pages 68 to 69 and 87 to 89

Code principle E

• Social – pages 54 to 59

• Employee engagement – page 93

• Confidential reporting – page 95

2. Division of responsibilities

Explains the roles of the Board and its Directors

Code principle F

• Governance framework – page 81

• Division of responsibilities – pages 96 to 97

Code principle G

• Governance framework – page 81

• Board of Directors – pages 82 to 84

• Division of responsibilities pages – 96 to 97

Code principle H

• Section 172(1) statement – pages 72 to 73 and 87 to 89

• Time commitment – page 98

Code principle I

• Board and Committee processes – page 98

3. Composition, succession and evaluation

Sets out key processes, which ensure that the Board and its

Committees can operate effectively

Code principle J

• Nominations Committee report – pages 100 to 107

Code principle K

• Board of Directors – pages 82 to 84

• Nominations Committee report – pages 100 to 107

Code principle L

• Director effectiveness – pages 106 to 107

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 109 to 114

Code principle N

• Fair, balanced and understandable – page 111

Code principle O

• Risk management – page 108

• Audit Committee report – pages 109 to 114

• Risk & Security Committee report – pages 115 to 116

5. Remuneration

Describes the company’s remuneration arrangements in respect of its

Directors, how these have been implemented in FY22, and details of

our remuneration policy

Code principle P

• Directors’ remuneration report – pages 117 to 136

Code principle Q

• Directors’ remuneration report – pages 117 to 136

Code principle R

• Directors’ remuneration report – pages 117 to 136

QinetiQ Group plc Annual Report & Accounts 2022

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STRATEGIC

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GOVERNANCE

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.

Board activities

FY22 saw QinetiQ delivering a good

underlying operating performance at Group

level. In particular the EMEA Services

division strongly delivered on its strategy,

winning larger long-term contracts,

managing complex programmes effectively

and delivering for its customers. However,

our result was impacted by two short-term

issues; a write-down on a large complex

project and a weaker performance in the

US, negatively impacted our share price in

late 2021. The Board took swift actions to

mitigate these issues, including a robust

plan to ensure the best possible outcome

on the large complex project, see page

87. The Nominations Committee was

also able to apply the established Senior

Management Succession Programme to

assure that we appointed the best possible

candidate to lead our US business, and in

January we announced the appointment

of Shawn Purvis as President and CEO of

QinetiQ US, see more on page 88.

To navigate through these issues, we

have called on the extensive skills and

experience of the entire Board. 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

During the year 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 challenging time.

A fuller summary of the Board’s activity

during the year can be found on page 86,

further information about the Group’s

stakeholder engagement can be found

on pages 87 to 89, and 92 to 95.

Environmental, Social

and Governance (ESG)

QinetiQ is proud to be acting as a catalyst,

by driving and leading these important

issues within our sector. 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.

An introduction

from the

Group Chair

QinetiQ Group plc Annual Report & Accounts 2022

To ensure that the Board can provide

the appropriate oversight of ESG issues

we have an established Climate Change

Steering Committee, chaired by our

CFO. In addition, in FY23, our Global

Leadership Team will set up a dedicated

ESG Committee, which will be chaired by

our CEO, with the aim to provide further

support to the business in this vital area.

Health and safety

At QinetiQ, safety and wellbeing

remain our number one priority and our

commitment to look after our people,

customers and visitors is at the heart of

our culture. The Board has, during the

year, supported the management team in

launching the Group Safety Improvement

Programme, aimed at developing and

implementing a robust safety management

system that incorporates key lessons

identified and improves our safety culture.

Further information on this can be found

on pages 54 to 59, and 91 to 92.

Culture

Promoting a culture of openness and

debate in the boardroom is one of my

key responsibilities as Group Chair,

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, with a strong desire to

learn and develop. However, our people

have found this year challenging, with

the continued impact of COVID-19 and

the financial performance shock which

required a short-term recovery plan. The

company has spent considerable time

over the last year supporting our people

and getting the culture right, and we are

continuing this journey.

Board and management

succession

There have been a number of changes to

the Board since the last Annual Report.

David Smith stood down as Chief Financial

Officer in November 2021, and we

welcomed Carol Borg as his successor.

Carol brings extensive financial and

operational expertise in driving disciplined

strategy execution. In addition, Larry Prior

joined the Board as an Independent Non-

executive Director in November 2021.

Succession planning for the Global

Leadership Team (GLT) is on track, with

the onboarding of Shawn Purvis as our

US President and CEO, and the internal

promotions of Amanda Nelson as

Group Human Resources Director

and Mike Sewart as Chief Technology

and Operating Officer.

Ensuring a diverse culture on the Board

and the GLT is crucial to improving

effectiveness, encouraging constructive

debate, delivering superior performance

and enhancing the success of the

company. We currently have a Board

comprising 44.4% women and 33.3%

women on the GLT. We continue to be

committed to our gender and ethnic

minority diversity targets for the Board,

and the GLT.

Evaluating the Board’s

performance

Central to setting the correct tone is the

review of the Board’s own performance.

This year we carried out an external

assessment, which was conducted by Tom

Bonham-Carter of The Effective Board LLP.

The positive outcomes of this were well

received, and in the spirit of continuous

improvement, we also identified areas to

work on. Please see pages 105 to 107 for

further information.

The suite of evaluation actions from the

previous year, alongside progress against

these are set out on page 106.

Remuneration

This year was the second year of the

Directors’ Remuneration Policy that

was approved by shareholders at the

AGM in 2020 (the Policy). The Board’s

Remuneration Committee has during the

year focused 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 again

welcome shareholders to our AGM. The

AGM will be held at 11:00 on Thursday

21 July 2022 at the office of Ashurst LLP,

London Fruit and Wool Exchange, Duval

Square, London E1 6PW. Further details

will be provided 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 the year.

Neil Johnson

Non-executive Group Chair

An introduction

from the

Group Chair

continued

QinetiQ Group plc Annual Report & Accounts 2022

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GOVERNANCE

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.

Shareholders

Group Chair

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.

See pages 109 to 114

for Committee Report

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.

See pages 100 to 107

for Committee Report

Determines and recommends

to the Board the framework for the

remuneration of the Group Chair,

CEO, CFO and GLT. Oversees workforce

remuneration and workforce policy.

See pages 117 to 136

`for Committee Report

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.

Risk & Security Committee Disclosure Committee

To provide scrutiny and assurance to

the Board, that the required standards of

risk management, security, health, safety

and environment within the UK, and

internationally, are achieved.

See pages 115 to 116 for Committee

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 Group Chair, the CEO, the

CFO and any one of the Committee Chairs.

The Chief Executive Officer

The Global Leadership Team (GLT)

Responsible for the day-to-day running of the Group’s business and performance, and the development and implementation of the Group strategy.

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.

Board

leadership and

company

purpose

QinetiQ Group plc Annual Report & Accounts 2022

Board of Directors – an experienced and balanced Board

The Group Chair considers all of the Directors to contribute valuably, and to continue to be paramount

to the company’s long-term sustainable success.

Board

leadership and

company

purpose

Steve Wadey

Chief Executive Officer

Nationality: British

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.

Steve is a Fellow of the Institution of

Engineering and Technology, the Royal

Aeronautical Society, and the Royal Academy

of Engineering. He was previously 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. He was also Chair of

the Defence Industry Liaison Board of the UK

Department for International Trade, Defence

and Security Exports.

Other appointments:

Co-Chair of UK Defence Growth Partnership

and Climate Change and Sustainability steering

group with UK MOD.

Neil Johnson

Group Chair

Nationality: British

Skills, competence and experience:

Neil’s former CEO experience and current

roles as a plc Chair and Non-executive Director

brings to the Board relevant knowledge,

challenge and leadership.

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 Chair of Motability Operations,

Centaur Media plc and Hostmore Group plc.

Other appointments:

Chair of Unbound Group plc, and Deputy Chair

and Senior Independent Non-executive Director

of the Business Growth Fund.

Carol Borg

Chief Financial Officer

Nationality: Australian

Skills, competence and experience:

Carol brings a wealth of global financial

expertise and Environmental, Social and

Governance (ESG) leadership to the role.

Leading key interventions in working

capital management, new market entry and

establishment, risk management, insurance and

business continuity, finance process maturation

and shared service centre implementation,

she has a deep international knowledge

of operational execution, performance

management, financial reporting, risk

management, strategy and governance;

all of which makes her a true strategic

finance and commercial business partner.

Carol has held various senior roles in

international businesses, most recently in a

founder-led renewable business as the Chief

Financial Officer of Lightsource bp, a global

solar developer. Prior to that she held various

positions at Vestas, a global wind turbine

manufacturer, the most recent being the

position as Regional Chief Financial Officer of

Vestas’ Southern Europe, Middle East and North

Africa (MENA) and Latin America operations

(spanning manufacturing, sales, construction

and after-sales service).

Other appointments:

N/A

N R RS

QinetiQ Group plc Annual Report & Accounts 2022

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A N R RS

Committee membership key

Audit Nominations Remuneration Risk & Security Committee Chair

A N R RS

Michael Harper

Deputy Chair 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 Chair of Ricardo plc,

Vitec Group plc, and BBA Aviation plc, having

previously been its CEO. Michael’s previous

appointments include Senior Independent

Director of Catlin Group Limited, Non-executive

Director of Williams plc and the Aerospace

Technology Institute, and CEO of Kidde plc.

Other appointments:

N/A

Lynn Brubaker

Independent Non-executive Director

Nationality: American

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.

A N R RS A N R RS

Shonaid Jemmett-Page

Independent Non-executive Director

Nationality: British

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 Aviva plc.

QinetiQ Group plc Annual Report & Accounts 2022

A N R RSA N R RS

Susan Searle

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 extensive experience as

a plc Remuneration Committee Chair enables

her to efficiently and valuably chair the

QinetiQ 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, and Chair of

Greenback Recycling Technologies Ltd.

Lawrence (Larry) Prior III

Independent Non-executive Director

Nationality: American

Skills, competence and experience:

Larry brings a wealth of experience as an

experienced executive and non-executive from a

breadth of sectors including aerospace, defence

and government services, IT, and cyber and

security. This, combined with his global and

US focus, make him ideal to support QinetiQ’s

progress in becoming an integrated global

defence and security company.

Larry is currently an Operating Executive for the

Carlyle Group. His was previously the President

and Chief Executive Officer of CSRA, Inc. where

he led a spinout from CSC, a merger with SRA

and an IPO on the NYSE in 2015. The company

was acquired by General Dynamics in 2018.

Before that he was Executive Vice President

and General Manager of CSC’s North American

Public Sector (NPS) business, providing next-

generation technology solutions and mission

services to the US Department of Defense,

Intelligence Community and FedCiv sectors.

Other appointments:

Operating executive for the Carlyle Group,

including Non-executive Director of CNSI,

Non-executive Director and Chair of the Audit

Committee of KLDiscovery Inc, and Chair of

Two Six Technologies; and independent

Director of Shift5.

General Sir Gordon Messenger

Independent Non-executive Director

Nationality: British

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, Board member

of the UK Health Security Agency, and Her

Majesty’s Constable of the Tower of London

(designate).

A N R RS

Board

leadership and

company

purpose

QinetiQ Group plc Annual Report & Accounts 2022

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A N R RS

Committee membership key

Audit Nominations Remuneration Risk & Security Committee Chair

A N R RS

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.

Other appointments:

N/A

QinetiQ Group plc Annual Report & Accounts 2022

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 18 to 21 and page 90

• Approved the FY23 component of the Group’s five year

Integrated Strategic Business Plan (ISBP).

See more on page 18

• 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

• 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

• Monitored the economic, legislative and geo-political

landscape, particularly as regards to the COVID-19

pandemic and political climate in Ukraine

Financial performance • Approved the company’s annual budget, business plan

and KPIs, and monitored performance against them.

See more on pages 40 to 43

• Reviewed and approved the Group’s full and half-year

results and interim trading updates

• Approved the full year and half-year dividends

• Approved the company’s Annual Report, including its fair,

balanced and understandable nature

• Reviewed and confirmed the Group’s viability statement

and going concern status

• Reviewed the Group’s capital, debt and other

liquidity arrangements

• 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 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

• Reviewed and validated the effectiveness of the Group’s

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 95)

Leadership, people and

culture

• Received recommendations from the Nominations

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

• Received reports from the Chair of the Remuneration

Committee on its activities, recommendations regarding

remuneration strategy and decisions regarding the Group

Chair’s, executive Director’s and senior management pay,

and reviewed and approved Non-executive Director fees

• Reviewed human capital reports, including updates

on talent development programmes and diversity and

inclusion programmes

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 2 to 29, and 92 to 95

• 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 Group Chair’s workforce engagement

activities

• Reviewed regular reports on our approach to ESG issues,

see more on page 89

• 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 pages 72 to 73 and 87 to 89

• Approved the Notice of the AGM

• Undertook an annual compliance review of the

Code and DTR7

• Reviewed the results of the internal Board and

Committee 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

Board

leadership and

company

purpose

QinetiQ Group plc Annual Report & Accounts 2022

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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 72 to 73, 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. Complex Project – write down

Background – During the year this complex project faced increased risk exposure, as technical issues and a delay on system development arose. In

October QinetiQ issued a trading update outlining the issues on the programme. Following this, for the first half-year results we included a write-down

associated with this project, reducing orders by £22.5m, revenue by £8.0m and underlying operating profit by £14.5m. We also presented further

information on the complex project and QinetiQ’s wider contract portfolio in order to provide investors with greater understanding of the discrete

nature of this particular project. In January’s third quarter trading update, we updated the market that discussions with the customer now indicated

contract closure as the most likely outcome, bringing certainty to our exposure, which remained consistent with the £14.5m profit write-down fully

contained in our FY22 first half results. Following the trading update in October, the QinetiQ share price reduced by up to 26% (15 December 2021),

primarily reflecting market concerns of potential write-down value increases or portfolio contagion. Since then our shares have largely recovered,

supported by subsequent trading updates and our full year results which demonstrated closure of the project in-line with the initial £14.5m profit

impact given.

Board discussion – During the year the Board was kept up to date on the progress of this project via updates from the CEO at each Board meeting,

and from the CFO at each Audit Committee and Risk and Security Committee meeting. By ensuring that QinetiQ’s corporate governance framework

and governance procedures were adhered to (capturing: risk assessments; financial reviews; and discussions with the customer and suppliers),

the Board was able to challenge the management team and provide advice where necessary, and also ensuring that the necessary lessons learned

exercises were held and considered.

Board stakeholder considerations and impact

• Shareholders/investors – Trading updates sought to provide increasingly transparent and up-to-date information throughout the year, though full

details of the project could not be disclosed due to commercial sensitives. In addition, the management and investor relation team kept an open

and continuous dialogue with investors, helping to restore market confidence by providing clarity, supporting information, and ensuring investor

understanding of the remedial steps being taken by the company.

• Customer – The project team kept constant and open dialogue with the customer, ensuring the best possible outcome for both parties.

Outcome and next steps – The contract has now been fully closed and we have mitigated all future risk exposure. The financial impact remains

consistent with and contained within the £14.5m write down in our first half results. Our current global order book does not have us working with

this supplier nor does this product exist elsewhere in our portfolio. The Board will ensure that lessons learnt from this event are implemented into

operational and risk management going forward.

2. M&A – incomplete acquisition

Background – Our M&A work maintains a focus on developing our US inorganic growth strategy, and during the year QinetiQ pursued an opportunity

to acquire a sizeable company in the US. Unfortunately this attempt was unsuccessful.

Board discussion – The Board held several phone calls and meetings throughout the process, providing guidance and challenge on the opportunity’s

strategic fit, investment returns and integration considerations. A summary of the lessons learned from the outcome was also presented to the Board.

Board stakeholder considerations and impact – The Board was regularly kept up to date of the potential transaction’s impact on investors,

customers, and employees.

• Employees – integration; incentivisation; development and succession issues for management and staff

• Customers – business development opportunities with existing and new customers

• Investors – implications for the Group’s forward funding, capital structure and forecast investor returns

Outcome and next steps – Following this unsuccessful bid, we have further refined our strategy to accelerate our future growth. As a result,

we have reinforced our M&A pipeline development activity to explore further opportunities to grow our US market position. As a business,

we learned an extraordinary amount through this process and have demonstrated that we can credibly contemplate a deal of equivalent scale.

QinetiQ Group plc Annual Report & Accounts 2022

3. Health and Safety

Background – QinetiQ’s Environment, Health and Safety (EHS) strategy sets the direction for how we look after ourselves, each other and the

world around us. One of the areas on which it focuses on is ensuring that we continuously improve; learning from experience and strengthening our

approach to safety and wellbeing. In achieving this we place an emphasis on leadership. Our most senior people are required to lead the way and role

model the behaviours we expect of ourselves and each other. However, the MOD Pendine incident (see more on page 55), has demonstrated that we

need to do more.

Board discussion – The Board, led by the Risk & Security Committee, gave the action to the Global Leadership Team to establish a Safety

Improvement Programme (SIP) to drive a step-change in our safety culture. As such we developed a new risk assessment process and supporting

material, which will improve the way safety risk assessments are carried out across the company.

Board stakeholder considerations and impact – The Risk & Security Committee, led by its Chair Gordon Messenger, closely monitored and guided

the management team throughout the process.

Employees – The Committee gave the action to engage safety experts DuPont, to give an independent view of QinetiQ’s safety arrangements and

culture, and to advise on best-practice improvements. The feedback will be used to define our refreshed approach to our safety culture where we will

be involving all our people at every step of the process, and establishing an environment where it is safe to take a proactive approach, raising issues

and concerns and owning the solution (psychological safety).

Outcome and next steps – Changing a culture takes time and we are taking a systematic approach, doing it properly, learning as we go, drawing on

external expertise and adapting our plan as needed. We are committed to making the necessary change “stick”. The SIP is the mechanism by which

we are driving this improvement across the whole company. The two primary outcomes of the SIP will be a revised QinetiQ Safety Management

System (SMS) and a programme of continuous safety culture improvements.

In the short-term, we are focusing on areas where we can make an immediate impact:

• Our risk assessment process.

• Introducing a new global incident reporting tool.

• Continued learning and improvement from our Safe for Life culture surveys.

• Undertaking an in-depth review of our global systems, processes and culture.

4. US – leadership reorganisation operational performance challenges and customer focus shift

Background – US foreign policy has shifted significantly in recent years, which has been amplified by recent events to counteract the near-peer

adversaries of the West and NATO allies. The US administration is in the process of responding to challenges that remain and are growing regarding

China and also from an increasingly assertive Russia. These changes follow what has been a challenging time within the US defence and security

market. The challenging situation with the US defence budget through 2021 and 2022, coincident with the rapid draw-down from Afghanistan, created

delays and uncertainty in funding, especially in the areas of research, development and prototyping, where QinetiQ US is particularly strong as an

innovation partner to several US customers. As a consequence, these delays, compounded with residual supply-chain issues related to COVID-19,

created operational performance challenges for the US business, and impacted its ability to contract and deliver products and services to the US

armed forces.

Board discussion – The CEO and CFO provided ongoing direct support to the US management team by way of regular visits to the US office

throughout the year. The Nominations Committee oversaw the process of recruiting a new US management team, specifically selected to enhance

organic and acquisition-based approach to growth.

Board stakeholder considerations and impact:

Employees – Due to the challenges the US business went through a necessary employee rationalisation programme was implemented.

Outcome and next steps – With the recruitment of Shawn Purvis as US CEO and President, and a revised leadership team, the US business is well

placed to solidify the current business through further corporate integration, expand business with current customers and partners, and dock in

strategically aligned acquisitions.

Board

leadership and

company

purpose

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5. Environment, Social and Governance – particular focus on climate change and Net Zero Plan

Background – During FY22 the Board confirmed priorities to support the objectives of our Corporate Responsibility and Sustainability (CR&S)

Strategy, addressing the key Environmental, Social and Governance (ESG) aspects.

Board discussion – A key aspect of our evolved strategy is a strong and increasing focus on ESG factors. The Board seeks to grow the company in

a responsible and sustainable way for the benefit of all stakeholders. Our CR&S strategy is designed to meet stakeholder expectations across ESG

themes, aligned with our business strategy. There has been particular focus on climate change this year to meet new requirements, including:

• Net-Zero Plan – Good progress during the year, with candidate targets developed. Underpinning this we mapped our Scope 3 emissions,

developed a new carbon calculator and undertook significant employee engagement, including blogs, webinars and the “December Climate

Change Challenge”, where employees from across the company shared their ideas in daily blogs, ranging from e-waste, travel and lighting

to radiator reflectors.

• TCFD (Taskforce on Climate-Related Financial Disclosures) – A risk assessment was performed during the year, aimed at working with

key stakeholders to identify any material risks, and also to develop a sustainable methodology, so that this approach, to understand our

resilience to climate change, becomes embedded in our standard risk processes.

• Defence Suppliers Forum (DSF) Climate Change Steering Group – Under DSF QinetiQ have taken a leading role in delivering the first phase of the

programme, including producing a Code of Practice for the Defence Sector and some research papers, through three joint industry MOD working groups.

• Publication of our first Carbon Reduction Plan.

• The strategy also addresses other key areas such as diversity and inclusion (Inclusion 2025 strategy, see more on page 56), ethics,

and community investment.

Board stakeholder considerations and impact – The Board was continuously kept up to date of investors’, customers’, and employees’ views.

A summary of the key considerations which informed the Board’s decision making were:

• Climate change and Net-Zero – The transition to Net-Zero is of material interest to society (with particular focus by investors, customers and

employees). The Board supported a new Net-Zero strategy (see page ), which will be implemented in FY23, and see programmes to reduce our

greenhouse gas emissions across our business and embedded in our strategy.

• Customers – Our customers, including the UK MOD, has clearly indicated the importance of climate change, and so we have actively engaged

directly, via the DSF programme, to understand how we can support their wider objectives by way of leading (Steve Wadey acting as the industry

Chair) and mobilising across the sector.

• Employees – Through COVID-19 we have changed the way we work and have engaged with employees to understand how we can best deliver for

our customers. We have developed an adaptive working model, to support our performance and inclusive culture.

• Shareholders and debt providers – QinetiQ’s ESG strategy has been transparently reported and subject to discussions and support in investor meetings.

Outcome and next steps – As part of the 2021 strategy review, the Board agreed the importance of continuing to identify and invest in sustainable

solutions for defence and commercial customers, and also in ESG matters as a whole for our employees and shareholders. A dedicated team

has been established to ensure the delivery of our Net-Zero plan, and we will continue to engage with stakeholders to ensure they are informed

and involved.

QinetiQ Group plc Annual Report & Accounts 2022

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

Board

leadership and

company

purpose

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 FY22.

Board and Committee attendance – 1 April 2021 to 31 March 2022

Members Board Audit Committee

Nominations

Committee

Remuneration

Committee

Risk & Security

Committee

Lynn Brubaker 7/7 4/4 4/4 5/5 4/4

Carol Borg

4/7 – – – 2/4

Michael Harper

7/7 3/4 4/4 4/5 3/4

Shonaid Jemmett-Page

7/7 4/4 4/4 4/5 4/4

Neil Johnson 7/7 – 4/4 5/5 4/4

General Sir Gordon Messenger 7/7 4/4 4/4 5/5 4/4

Larry Prior

5/7 3/4 3/4 3/5 2/4

Susan Searle 7/ 7 4/4 4/4 5/5 4/4

David Smith

5/7 – – – 2/4

Steve Wadey 7/7 – – – 4/4

1 Carol Borg was appointed to the Board on 11 October 2021.

2 Michael Harper was unable to attend the Audit Committee, Remuneration Committee and Risk & Security Committee meetings on 8 November 2021 due to a conflict with a prior commitment.

3 Shonaid Jemmet-Page was unable to attend the Remuneration Committee meeting on 26 January 2022 due to a conflict with a prior commitment.

4 Larry Prior was appointed to the Board on 2 August 2021.

5 David Smith resigned from the Board on 30 November 2021.

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Our culture

Our values make clear our priorities and form the foundations of the company’s culture.

Integrity 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

Collaboration 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

Performance 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

QinetiQ Group plc Annual Report & Accounts 2022

• The likely short-, medium- and long-

term consequences of the decision

• The value created for our investors

• The enhancement of our performance

created by the decision

• The potential impacts on our people,

local communities and environment

of making the decision

• The need to create strong, mutually-

beneficial customer and supplier

relationships

• The Group’s commitment to

business ethics

This section 172(1) statement on pages

72 to 73 explains how the Directors have

had regard to the matters set out in

section 172(1)(a) to (f) Companies Act

2006, when performing their duty under

section 172. The Board aims to promote

the success of the company for the benefit

of its shareholders as a whole, taking into

account the long-term consequences of its

decisions while giving due consideration

to the interests of the company’s

stakeholders (including employees,

customers, suppliers, shareholders, as well

as the environment and local communities

which are impacted by our operations),

while also considering the importance

of maintaining our reputation for high

standards of business conduct. Examples

of what that has looked like in practice

over the past year can be found as follows:

Shareholders Pages 26, 94, 95

Employees Pages 26, 93

Customers/suppliers Pages 26

Environment Pages 44 to 53

Social Pages 54 to 59

Further information about how the

Directors have accounted for stakeholders

in their decision making is set out on

pages 87 to 89.

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 26, 54 to 59, and 93.

Board

leadership and

company

purpose

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

continuous 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

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

• Directors’ attendance at various

company events, such as:

– 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 culture

QinetiQ’s Environment, Health and Safety

(EHS) strategy sets the direction for how

we look after ourselves, each other and

the world around us. Our culture journey,

including safety culture, is constantly

progressing and adapting. During the year

the Board established a GLT-led Safety

Improvement Programme (SIP) to drive

a step-change in our safety culture. This

is working in conjunction with the already

established Safety For Life programme.

Stakeholder engagement

Engagement and collaboration through

our value chain is essential. Partnering

with our stakeholders, understanding their

challenges and managing risks, we can

find solutions for our shared success,

sustain our business and benefit all

our stakeholders. We have aligned our

strategic priorities with the requirements

and needs of our stakeholders to enable

delivery of profitable, sustainable value.

The Board recognises that it has a duty to

act in the best interest of the company for

the benefit of its shareholders, as well as

considering other stakeholder interests.

In its decision-making, the Board considers

all relevant factors, including:

• How the decision would align with

the Group’s over-reaching purpose

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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 the safety

measures associated with the COVID-19

pandemic. The process set out below

describes how the Board continued to be

able to effectively gain the views of the

employees throughout the year.

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 with the Global Employee Voice (GEV)

• Attends the Global Recognition Gala and also Global

Employee Roadshows

• Reports back to the Board

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 pages 57 to 58

• Regular contact with Neil Johnson

• Two meetings with Susan Searl, the Chair of the

Remuneration Committee

• Regular meetings 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

are 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

• Reported back to the Board by the CEO

Monthly virtual Global

Engagement Network

(GEN) events –

delivered by the Global

Leadership Team

The GEN includes approximately 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 feedback 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 is currently important across QinetiQ

• A mechanism accessible for employees to get a thorough

understanding of what is happening in the company and

also to provide individual feedback

Peakon Employee

Engagement surveys

Quarterly surveys enabling the Board and the Leadership

team to immediately assess employees’ engagement

throughout the Group

See more on pages 57 to 58

• 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

QinetiQ Group plc Annual Report & Accounts 2022

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 Group Chair

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 FY22 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 with

shareholders ahead of the AGM

on remuneration matters.

This year has seen increased investor

engagement, with many seeing our share

price weakness in late-2021 and overall

market sentiment towards defence

stock improving in early-2022 as a good

opportunity to invest. We continue to

be proactive in investor engagement,

both with our existing shareholders

and prospective new shareholders.

April

• Q4 trading update and

analyst briefings

• Investor Seminar

Board

leadership and

company

purpose

2021

May

• Full year results announcement

• Analyst briefings

• Full year results investor roadshow

Shareholder engagement

June

• Annual report published

Timeline

July

• Governance meetings ahead of AGM

• Trading update and analyst briefings

• Virtual AGM

• Announcement of CFO succession

August

September

• Group Chair meetings with

shareholders

• Announcement US CEO appointment

October

• Q2 post-close trading update

November

• Interim results announcement

• Analyst briefings

• Interim results investor roadshow

December

2022

January

• Q3 Trading update and

analyst briefings

February

March

• Net Zero plan published

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53.8%

46.2%

Investors met: By type

Shareholders

Non-shareholders

10.5%

84.2%

Investors met:

By investor location

Europe

North America

5.3%

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 11am on Thursday, 21 July

2022 at the offices of Ashurst LLP, London

Fruit and Wool Exchange, 1 Duval Square,

London E1 6PW.

Any updates to the arrangements for

the conduct of the meeting will be

communicated via www.QinetiQ.com.

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. The

Board reviewed the effectiveness of the

Group’s confidential reporting process,

provided challenge and advice on the

matter, and was satisfied that the

process in place is fit for purpose.

QinetiQ Group plc Annual Report & Accounts 2022

Division of

responsibilities

Role of the Board

Underpinned by good corporate governance, the Board is focused on delivering an effective and entrepreneurial Board which:

• Provides challenge, advice and support to management

• 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 Group Chair 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:

Group Chair

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 each Non-executive Director

makes an effective contribution

Deputy Chair

Michael Harper

• Maintains a close dialogue with the Group Chair and CEO

• Supports and deputises for the Group Chair 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

Carol Borg

• 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 and governance, insurance and internal

audit functions, and climate-change initiatives

• Communicates (with the CEO) the Group’s financial performance and strategic progress to investors and analysts

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Senior Independent

Non-Executive

Director

Michael Harper

• Acts as sounding board for the Group Chair and a trusted intermediary for the other Directors

• Available to shareholders to discuss any concerns that cannot be resolved through the normal Group Chair or CEO

channels

• Leads the Board in the annual performance evaluation of the Group Chair and in developing the long-term plans for the

Group Chair’s succession

• Meets with the Non-executive Directors without the Group Chair present at least annually, and as required, to discuss

Board matters

Independent Non-

Executive Directors

Lynn Brubaker,

Michael Harper,

Shonaid Jemmett-

Page, Gordon

Messenger, Larry

Prior 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 Group Chair and other Directors individually as required,

primarily in relation to corporate governance matters, and Non-executive Directors’ training and development needs

• Responsible with the Group Chair 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

QinetiQ Group plc Annual Report & Accounts 2022

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. 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 Group Chair was independent upon his appointment

in April 2019 and continues to use objective judgement in his

leadership of the Board.

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, Susan

Searle and Lynn Brubaker, who all have served on the Board

for more than six years, was subject to a rigorous review by

the Nominations Committee in March 2022. 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 all continue to demonstrate integrity

and independence in their advice and challenge. Michael, Susan

and Lynn 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.

The Group Chair 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, i.e. Greencoat UK Wind

plc and Cordiant Digital Infrastructure Limited, both of which

are investment trusts rather than full operating companies.

In addition, the latter and ClearBank Limited are non-listed

companies. Therefore by their nature, the time requirements for

these roles are not as significant as at a FTSE 250 operating

company such as QinetiQ. In December 2021 Shonaid was

appointed as a Non-executive Director of Aviva plc. Before her

appointment the Group Chair reviewed her current commitments

and contribution to the QinetiQ Board, and he confirms that

during the year Shonaid has provided significant input and

advice at QinetiQ’s Board and Committee meetings, in particular

in her role as the Audit Committee Chair. He is therefore

confident and satisfied that Shonaid has the time and

availability to commit fully to her role on the QinetiQ Board.

Board and Committee processes

The Board has a formal schedule of matters reserved for its

approval, which includes (but is not limited to) : 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 and Security, Remuneration

and Disclosure. Any matters outside of the schedule and the

responsibility of the Committees, fall within the 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.

Composition,

succession and

evaluation

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The Group Chair 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 from the Group General Counsel and 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 Group Chair or relevant Committee Chair on the business

to be considered at that meeting.

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.

QinetiQ Group plc Annual Report & Accounts 2022

100

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.

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.

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 Chair and Senior

Independent Director. Further information

about Michael’s independence assessment

review can be found on page 98.

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 Chair

QinetiQ aims to

have the best

people governing

our business today

and a competitive

and diverse

talent pipeline

able to govern

the business

tomorrow.”

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

• 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

• Review the independence of the Non-

executive Directors and any potential

conflict of interest for all Directors

FY22 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 a new CFO

and a new Non-executive Director

• 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 and

Inclusion Policy and the company’s

inclusion initiatives

Nominations Committee report

Composition,

succession and

evaluation

QinetiQ Group plc Annual Report & Accounts 2022

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Board members – Age

The below bar chart demonstrates the skills and experience of the Board members:

41-50

51-60

61-70

Board members – Gender balance

Women

Men

Board members – Nationality

British

American

Australian

Global Leadership Team –

Gender balance

Women

Men

Direct reports to the GLT –

Gender balance

Women

Men

Skills and experience

71-80

11%

22%

45%

22%

44%

56%

67%

22%

11%

33.3%

66.7%

27%

73%

R&D/Technology

Cyber security

Remuneration

eCommerce

Defence

M&A

Strategy

Emerging markets

Aerospace and aviation

Transformation

Finance and financial reporting

International business

Government services

QinetiQ Group plc Annual Report & Accounts 2022

102

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 2022, 2023 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 page 101)

• Background, professional skills and experience

(see more on pages 82 to 85 and 101)

• The number and balance of Executive and

Non-executive Directors

• Length of tenure (see more on page 103)

• Independence (see more on page 98)

• The appointment of Carol Borg as CFO. Carol’s

appointment to the Board brought vast experience of both

operational and financial management, including extensive

experience as a strategic business partner in diverse and

complex international organisations

• The appointment of Larry Prior to the Board’ increased

the Board’s general maturity by way of Larry’s wealth

of experience as an executive and non-executive from

a breadth of sectors including aerospace, defence and

government services, IT, and cyber and security. This,

combined with his global and US focus, make him ideal

to support QinetiQ’s progress in becoming an integrated

global defence and security company

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. In addition, we pick the best suited

agency for the specific role currently recruited for.

• MWM Consulting Ltd (who has no other connection to

the Group) was appointed to assist with the recruitment

of Carol Borg, and Russel Reynolds Associates (who

has no other connection to the Group) was used for the

recruitment of Larry Prior.

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 105 to 107

• Annual review of the Group Chair’s performance led by the

Senior Independent Director. See more on page 107

• Annual independence review of the Non-executive

Directors. See more on page 107

• Continued assessment of the Non-executive Directors’

time commitment. See more on pages 98

• Policy on Board members’ appointments to other Boards

• Annual performance review of the CEO and CFO,

supplemented by the Group Chair’s and Non-executive

Directors’ continual assessment of their performance.

See more on page 106 to 107

• A thorough induction programme for new Directors.

See more on page 107

• Annual training for the Board as a whole and on an

individual basis. See more on page 107

• The FY22 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 87 to 89

• The effectiveness of the Committee’s succession plans is demonstrated by the new Director appointments in FY22, having enhanced the Board’s

experience and skills, and increased the Board’s gender diversity from 37.5% to 44.4%

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.

Composition,

succession and

evaluation

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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 down 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 Appointment date 6-year date 9-year date

Michael Harper 22 Nov 2011 22 Nov 2017 22 Nov 2020

Susan Searle 14 Mar 2014 14 Mar 2020 14 Mar 2023

Lynn Brubaker 27 Jan 2016 27 Jan 2022 27 Jan 2025

Neil Johnson 2 April 2019 2 April 2025 2 April 2028

Shonaid Jemmett–Page 19 May 2020 19 May 2026 19 May 2029

Gordon Messenger 12 Oct 2020 12 Oct 2026 12 Oct 2029

Larry Prior 2 Aug 2021 2 Aug 2027 2 Aug 2030

% of Directors 1 – 3 years: 43% 4 – 6 years: 14% 7 – 9 years: 43%

QinetiQ Group plc Annual Report & Accounts 2022

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Composition,

succession and

evaluation

Senior management succession

planning programme

The Committee, has undertaken its

usual programme of senior management

succession planning. Senior management

for this purpose includes the members

of the GLT, as well as 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 an annual review

of such senior managers’ experience

and skills and their progress and notable

achievements to ascertain their potential

for further career progression. The

Committee also keeps the performance of

potential successors to Executive Director

roles under regular review throughout

the year during Board interactions 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 through a formal

process of annual reviews, and continual

feedback and support. This programme

enables the Committee to identify

any gaps in the senior management

succession pipeline and any requirements

for senior managers’ further development.

The Board’s senior management

succession plans were put into action

through the promotion of Amanda

Nelson to Group Functional Director of

Human Resources, and Mike Sewart

as Chief Technology and Operating

Officer. In January Shawn Purvis was

appointed President and CEO of QinetiQ

US. She has vast experience in the US

defence and intelligence industry, and

a long track record of transformational

and inspirational leadership, driving

performance in complex organisations

and delivering large scale acquisition

integration.

In FY23, with effect from 1 July 2022, a

new smaller QinetiQ Leadership Team

(QLT) will be implemented, which will

be fundamental in QinetiQ delivering the

next phase of sustainable growth and to

create a safe and secure environment

for employees to thrive in. As part of

the implementation of the new QLT, the

Committee was delighted to oversee the

internal promotion of Mike Sewart to Chief

Technology and Operating Officer.

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), 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 90), 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 and Inclusion Policy, of which the

key points are:

• To 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

We are pleased to have seen the positive

benefits to these initiatives, which have

resulted in improvements in gender

diversity and representation of people from

ethnic minorities at a number of levels of

the business, including:

• Female representation on the Board

has increased from 37.5% in 2021 to

44.4% in 2022

• Female CFO

• Two female Committee Chairs

• Female representation on the GLT

has increased from 27% in 2021 to

33.3% in 2022

• Female representations of the direct

reports to the GLT has increased from

24% to 27%, and remains a key area

of focus

• A member of the GLT comes from an

ethnic minority background

Currently all members of the Board are

from a white background , however the

Committee continues to be dedicated

to accomplish the targets set by the

Hampton Alexander Review, Parker Review

and the new Listing Rules in relation

to gender and ethnic diversity at board

and executive management level. The

Committee will continue to keep this under

review to ensure progress against the

targets, as set out in the Board Diversity

Policy. 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

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.

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The employee Diversity & Inclusion (D&I)

policy

Pages 56 to 57 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 KPIs 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 2023

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, FY22 was

the first year of the cycle and an external

evaluation was undertaken by Tom

Bonham Carter of The Effective Board

LLP. Neither has any other connection

to the Group.

Year 1

FY22 – External

evaluation by selected

independent consultants

(specific basis and approach agreed)

Year 2

FY23 – Internal

evaluation to focus on

reviewing core effectiveness and

areas identified for development

from the Year 1 external evaluation

Year 3

FY24 Internal

Evaluation to focus on reviewing

the effectiveness of new initiatives

and progress on areas identified for

development from the Year 2 internal

evaluation

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Directors’ effectiveness

The principal sources of data used to

assess the effectiveness of the Board and

its Committees were interviews conducted

with each Board member, the Company

Secretary and a selection of members

of the senior management team.

The questions were designed to

understand whether the Directors have

thoroughly discussed and agreed the

use of the shareholders’ funds (what,

where, when, how and why) to ensure the

company is successful while managing

the risks inherent in the strategy, plans

and the operating environment. This was

then augmented by an assessment of

how effective the Board is in ensuring

that the executive team implements the

strategy and plans and manages all the

other activities of the company including

engaging with all the stakeholders.

For the individual Directors, there were

questions on each directors contribution,

the manner in which he or ‘she contributes

and any suggestions for improvements.

Finally, there were questions on the

effectiveness of the Board’s four

Committees which included asking if each

Committee fulfilled its terms of reference

and how each Committee could improve.

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.

The Company Secretary, in consultation

with the Group Chair and Committee

Chairs, 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 FY22 Board and

Committee evaluation are shown below:

Key strengths Areas for further attention

Effective implementation of the strategy To review its programme of monitoring each

business unit

Clarity of the company’s purpose, vision, and

mission as well as its strategy

In light of section 172, to review the company’s

suppliers and how the company engages

with them

The Board works well as a unit, with Board

discussions being constructive and the

Executive Directors being transparent

to the Board and open to advice.

To continue to monitor, oversee and challenge

the company’s safety culture

When comparing the outcome of the FY22 evaluation against the principal areas

identified for further attention in the FY21 evaluation, the following progress can be

noted:

Areas for further attention Progress during the year

By way of using Board briefing meetings to

aid understanding and focus discussion, and

constructive challenge during scheduled

Board meetings

The Board has successfully held a number of

discussions between Board meetings

The ESG strategy The ESG strategy has evolved significantly

during the year, see more on pages 44 to 61

Further support to management in its work on

the Digital and Data Transformation Programme

This has been and continues to be an area of

focus for the Board. Major progress has been

achieved, and the implementation process is

continuing to plan

Composition,

succession and

evaluation

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The Group Chair’s individual performance

As part of our annual evaluation process, Michael Harper, as

Senior Independent Director, led a review of the Group Chair’s

performance. At a private meeting, the Non-executive Directors,

with input from the Executive Directors, assessed the Group

Chair’s 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 Group Chair, Neil Johnson, 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, Neil Johnson

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 Group Chair, 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 Group Chair, Executive Directors and members of senior management

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

Meetings with the Chair of the Committees, external auditors and external remuneration advisers

Visiting MOD Butec

During the year Shonaid Jemmett-Page and Gordon Messenger

visited MOD Butec as part of their induction. The experience

provided Shonaid and Gordon with an opportunity to understand

the day-to-day work of the business and to gain a real insight

into the company’s culture and values in an operational setting,

outside of the Boardroom.

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.

QinetiQ Group plc Annual Report & Accounts 2022

108

Audit, risk and

internal control

Frameworks for risk management

and internal control

The Board is responsible for promoting the long-term success

of the company for the benefit of shareholders, as well as

taking account of other stakeholders including employees and

customers. This includes ensuring that an appropriate and

proportionate system of internal control is in place throughout

the Group. To discharge this responsibility, the Board has

established frameworks for risk management and internal control

using a Three Lines Model, see page 63, and reserves for itself

the setting of the Group’s risk appetite. In-depth monitoring of

the establishment and operation of prudent and effective controls

in order to assess and manage risks associated with the Group’s

operations is delegated to the Audit Committee, complemented

by the work by the Risk & Security Committee. However, the

Board retains ultimate responsibility for the Group’s systems

of internal control and risk management and has reviewed

their effectiveness during the year.

The frameworks for risk management and internal control play

a key role in the management of risks that may impact the

fulfilment of the Board’s objectives. They are designed to identify

and manage, rather than eliminate, the risk of the Group failing to

achieve its business objectives and can only provide reasonable

and not absolute assurance against material misstatement or

losses. The frameworks are regularly reviewed and were in place

for the financial year under review and up to the date of this

report. They help ensure the Group complies with the Financial

Reporting Council’s (FRC) guidance on Risk Management,

Internal Controls and related financial and business reporting.

After having been discussed by the Audit Committee and the

Risk & Security Committee, the Board, conducts a robust six-

monthly assessment of the Group’s emerging and principal

risks. The assessments included those emerging risks that could

impact the Group’s business model and future performance

and therefore required management prioritisation and action.

Specifically the Board considered the principal risks facing the

company when approving the Group business plan. During

the year, the Risk & Security Committee received updates on a

number of emerging risks and associated mitigating actions by

management. Emerging risks were also taken into account in the

design of scenarios which are intended to stress test the Group’s

five-year strategic business plan, recovery plan, climate change

impacts, decisions on the return of capital to shareholders and

operational resilience. The company’s approach to risk and risk

management together with the principal risks that face the Group

are explained within the risk section of the Strategic report.

Enterprise Risk Management

Our Enterprise Risk Management (ERM) is designed to

consistently identify, measure, manage, monitor and report

the principal risks to the achievement of the Group’s business

objectives and is embedded throughout the Group. It is codified

through risk policies and business standards which set out the

risk strategy, appetite, framework and minimum requirements

and controls for the Group’s worldwide operations. Group

reporting manuals in relation to International Financial Reporting

Standards (IFRS) reporting requirements and a Financial

Reporting Control Framework (FRCF) are in place across the

Group. The ERM relates to the preparation of reliable financial

reporting, covering both IFRS, and local statutory reporting

activity. The ERM process follows a risk-based approach, with

management identification, assessment (documentation and

testing), remediation (as required), reporting and certification

over key financial reporting related controls.

Board oversight of risk management

The Board’s delegated responsibilities regarding oversight of risk

management and the approach to internal controls are set out on

pages 63 to 70. There are good working relationships between

the Board committees, and they provide regular reports to the

Board on their activities and escalate significant matters where

appropriate. The responsibilities and activities of each Board

committee are set out in the committee reports.

Self assessment and certification model

Each business unit Managing and Functional Director is required

to make a declaration that their business unit’s governance,

and system of internal controls are effective and are fit for

purpose for their business and that they are kept under review

throughout the year. Any material risks not previously identified,

control weaknesses or non-compliance with the Group’s risk

policies or local delegations of authority must be highlighted

as part of this process. The effectiveness assessment draws

on the regular cycle of assurance activity carried out during the

year, as well as the results of the annual assessment process.

The details of key failings or weaknesses are reported to the

Risk and Security Committee and the Board on a regular basis

and are summarised annually to enable them to carry out an

effectiveness assessment.

Internal financial controls

Internal financial controls are the systems that the Group

employs to support the Board in discharging its responsibilities

for financial matters and the financial reporting process.

The main elements include:

− Assessment by Internal Audit of the effectiveness of

operational controls

− Clear terms of reference setting out the duties of the Board and

its Committees, with delegation to management in all locations

− Group Finance and Group Treasury manuals outlining

accounting policies, processes and controls

− Weekly, monthly and annual reporting cycles, including targets

approved by the Board and regular forecast updates

− Leadership teams reviewing results against forecast and

agreed performance metrics and targets with overall

performance reviewed at region and Group levels

− Specific reporting systems covering treasury operations,

major investment projects and legal and insurance activities,

which are reviewed by the Board and its Committees on a

regular basis

− Confidential reporting procedures allowing individuals to report

fraud or financial irregularities and other matters of concern

− Data protection policies to detect breaches and other issues

QinetiQ Group plc Annual Report & Accounts 2022

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Dear Shareholder,

I am pleased to present the report of the

Audit Committee on the work carried

out by the Committee during FY22.

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 main tasks of the Audit Committee

continue to be the oversight of a robust

system of internal controls and risk

management across the business,

encompassing both financial and

increasingly non-financial risks and

ensuring the integrity of the Annual Report

and Accounts and other reporting. The

particular areas for focus, which are

addressed by the internal audit plan, the

approach of the external auditors and

“deep dive” reviews are determined by

the needs of the business and the risks

it faces. The full terms of reference of

the Audit Committee can be found at

www.QinetiQ.com.

We foster an ethos of continuous

improvement and I am proud of the

progress we have made this year in

building an integrated risk and control

framework across the business, aligning

the activities under the Three Lines Model

in response to major risks, see page 63

for further details. This has meant a close

working relationship between the risk

management function and internal audit,

the second and third lines. Matt Guy, our

Head of Internal audit, explains how he

reviewed the Three Lines Model in relation

to fraud risk across the business in the

Internal Audit section below on page 112.

During the year, a large and complex

project ran into difficulty and required

provisioning and disclosure. The

Committee kept this matter under

constant review to ensure provisioning

and disclosure were appropriate. The

year-end position is discussed in detail

in the Significant Judgements section

on pages 110 to 111. In addition, we

will ensure that lessons are learned

from this event.

The US is an area of focus for the business

and therefore for the Committee, and this

year has seen the appointment of two

strong leaders in the senior positions of

President and CEO of QinetiQ US, and also

its CFO. We need to ensure that there is

a robust system of internal control and

risk management which is commensurate

with our growth ambitions. To this end, the

Group Audit Committee is working closely

with the US Audit Committee, with the

Group Chair speaking regularly, and the

internal audit plan includes a review of the

US control environment.

Finally the Committee has embraced the

relevant aspects of the quickly evolving

ESG agenda, including target setting,

assurance and reporting. The TCFD

reporting, on pages 50 to 53, was reviewed

and challenged by the Committee.

I would like to thank David Smith, the

former CFO, who gave great support to

this Committee over many years, and

I welcome Carol Borg who is already

bringing fresh perspectives to the work of

the Committee and more widely.

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.

Shonaid Jemmett–Page

Audit Committee Chair

The main tasks

of the Audit

Committee

continue to be

the oversight of

a robust system

of internal

controls and risk

management

across the

business.”

Audit Committee report

QinetiQ Group plc Annual Report & Accounts 2022

110

Audit, risk and

internal control

continued

Activities during the year

Financial reporting:

Key uncertainties and judgements/estimates

Specific issues addressed by the Committee for the year ended 31 March 2022 include the following items of significant judgement.

Issue Key uncertainties and judgements Review and challenge by the Committee Conclusion

Impairment of

goodwill and

acquired intangibles

German and US

Technology Solutions

goodwill impairment

assessment

The Group holds goodwill on its

balance sheet in respect of various

Cash Generating Units (CGUs).

An impairment review has been

undertaken confirming that sufficient

headroom (the gap between the

assessed net present value of future

cash flows and the carrying value of

net operating assets) exists in respect

of these CGUs and no impairment is

required. However, there is a low level

of headroom in respect of the QinetiQ

Germany and US Technology Solutions

CGUs and applying a reasonable level

of sensitivity to the assumptions would

lead to an impairment.

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 revenue and profit estimated to

be delivered through key opportunities not

yet under contract.

The Committee acknowledged

that there was a wide range of

outcomes to the impairment test

which is very sensitive to outer

year cash flows. On challenging

management, and a review of the

challenge presented by the external

auditors, the Committee concluded

that no impairments need to be

recorded in year. The risk of future

impairment in Germany should a

key contract not be successfully

re-tendered when it comes up

for renewal should be (and

has been) disclosed in the

financial statements.

Contract accounting

Large complex contract

During the first half the Group

experienced technical issues and

delay on system development for

a complex service contract. The

contract has now expired and

judgements are required as to the

recoverable value of contract assets.

The Committee received commentary

from management on the recoverability

of advance payments to suppliers and

assessed the carrying value of assets at the

balance sheet date.

The Committee concluded that

management’s best estimates of

the carrying value of contract assets

were appropriate and that the

contract loss was likely to be limited

to the £14.5m previously disclosed

externally, with no material

exposure. It was appropriate not

to record an asset for additional

amounts potentially recoverable

from the customer and supplier.

Long-term contract

accounting

Risk assessment on key

contracts

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.

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 and the use of Monte-

Carlo modelling).

The Committee concluded that

management’s best estimates

were reasonable.

Provisions and

contingent liabilities

Pendine provision

The Group holds provisions in respect

of legal, regulatory and environmental

issues. Judgement is required in

determining whether provisions

are required.

Specifically, a provision is held in

respect of a serious incident at the

MOD range at Pendine in the prior

financial year.

The key judgements considered by

the Committee were: (i) QinetiQ will be

prosecuted, found guilty and be subject

to financial penalties; (ii) the quantum of

the liability in respect of such penalties;

(iii) that insurance will cover the cost of

any civil damages (with a provision of

£16.0m being recorded together with

an Other Receivable).

The Committee concluded that

management’s best estimates

were reasonable.

QinetiQ Group plc Annual Report & Accounts 2022

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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 71, including the

process on how the process was conducted.

Fair, balanced and understandable

In accordance with the Code, the Board has established

processes to ensure that all reports and information 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.

Issue Key uncertainties and judgements Review and challenge by the Committee Conclusion

Capitalisation of assets

Capitalisation of digital

cloud-computing

investments

QinetiQ has made (and plans to

continue to make) significant

investment in digital tools.

Capitalisation of intangible assets

such as these is covered by the

accounting standard IAS 38

‘Intangible Assets’ but there is no

specific standard in respect of ‘Cloud

computing costs’. New guidance has,

however, been issued by the IASB’s

International Financial Reporting

Interpretations Committee (IFRIC)

in respect of configuration and

customisation costs in a cloud-

computing arrangement.

Judgement is required as to whether

the cost of such investments should

be capitalised or expensed (or

potentially treated as a prepayment).

The Committee noted the ‘Agenda decision’

issued by the IFRIC during the financial year

and agreed that the IFRIC’s interpretation

should now be matched by the Group’s

interpretation.

Management’s assessment of the new

guidance and how this was reflected in

the financial statements was discussed

at length.

The change in accounting policy impacts

the financials reported in the prior year and

judgement is required as to whether the

size of such adjustments are sufficiently

material to require a restatement of the

prior year comparatives (as opposed to

a cumulative catch-up adjustment in the

current year).

The Committee concluded that:

• The impact of the change in

accounting policy is sufficiently

material to require a prior year

restatement.

• It is appropriate to expense

costs in respect of configuration

activity for software tools

provided through a Software as a

Service arrangement.

• It is appropriate to classify such

costs as a specific adjusting item

(noting that over the course of

the Group’s digital transformation

programme these would

otherwise cause significant

fluctuations in underlying profit

not representative of in-year

performance − being irregular,

long-term investments).

As such, the Audit Committee was requested to provide advice

to the Board on whether the FY22 Annual Report and 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 established process, 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.

The Board considers that the Annual Report and Accounts 2022,

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.

QinetiQ Group plc Annual Report & Accounts 2022

112

Audit, risk and

internal control

continued

The Audit Committee risk management responsibilities

The Group’s system of internal control has been in place for

the year under review and is up to the date of approval of the

Annual Report. Over the year the Audit Committee has discharged

its commitment to monitor the integrity of the of the Group’s

published financial information, providing the appropriate

challenge to any significant judgements and estimates made

by management. Furthermore, the Committee has evaluated

the adequacy, robustness and effectiveness of the Group’s

internal financial and other controls. In addition, the Committee

has provided support to 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. Finally,

the Committee has reviewed 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

and has approved the activities, reviewed the findings and assessed

the effectiveness of the Group’s internal audit function.

Report from US on internal controls

During the year Internal Audit commissioned a review of the

internal financial controls relating to several business cycles

and an assessment of the control environment in QinetiQ’s US

businesses. The review found that, as is common with many

growing business at this stage of maturity, additional formality in

respect of evidencing and documentation of controls is required.

Management has accepted the findings and Internal Audit will

monitor progress of implementing the remeditation actions.

Task Force on Climate-related Financial Disclosures (TCFD)

QinetiQ has committed to implement the recommendations of

TCFD in full, and this is our first disclosure of these important

issues. We are devoted to developing a business model that

is consistent with the objectives of the Paris Agreement, and

therefore reduce our Scope 1 and 2 emissions by 2050. Further

details can be found on page 48. The Committee reviewed

the proposed disclosures and challenged assumptions and

judgements therein.

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 discusses 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 Group 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 Group’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.

Quality of income

The Committee reviewed the quality of income generated during

the year. This entailed assessing the sustainability of income or

whether it was generated from one-off items such as provision

releases. The assessment informs the Committee’s work on

whether the accounts are fair, balanced and understandable,

and whether any adjustments should be considered in

remuneration calculations.

Internal audit

The Group Internal Audit function is independent of the business,

operating under the third line as part of QinetiQ’s adoption of

the Three Lines Model (see page 63 for further details). Internal

Audit work closely with other functions providing assurance to

help develop a robust system of risk management and internal

control, and also to ensure there remains a collaborative

approach to assurance across the business and that plans are

complementary.

Internal Audit reports directly to the Audit Committee, formally

reporting four times during the year. The Audit Committee

approves the annual audit plan, monitor progress, and assess

the overall effectiveness of the audit process. The plan aims to

ensure that all significant financial and non-financial risks are

reviewed within a rolling three-year period.

The audit plan for the year was built around a number of priorities

including the development of an internal controls framework,

assessing the progress of key change programmes, and a focus

on some specific elements of IT and security, including software

licences. In addition, there has been a review of key operational

and financial controls in the US businesses.

As commonly happens the audit plan was updated throughout

the year, including changes to reflect risks that were identified or

concerns which were raised. This led to reviews over purchasing

cards and staff expenses being added to the FY22 audit plan.

QinetiQ Group plc Annual Report & Accounts 2022

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Based on the results of the audit and assurance activity in the

year the control environment is considered to be effective, with

an open culture of continuous improvement demonstrated by

the business.

Internal Audit will also continue to develop the assurance map

of the business, reporting twice a year to the Audit Committee

on specific risk areas in order to build the Group wide view of

assurance and the effectiveness of the assurance activities.

During the year there was a deep dive on fraud risk across the

Group, reviewing and assessing the assurance provided under

the three lines.

The Audit Committee has assessed the effectiveness of the

Group Internal Audit function by way of an annual survey and

questionnaire completed by members of the Audit Committee,

the external auditors, and a selection of management across the

business. The outcome was that the function remains effective,

with a number of scores improving over the year. There were

also opportunities identified to develop the team with specialist

knowledge needed for specific audit assignments.

Looking forward to the forthcoming financial year there are

priorities for the audit plan that include delivering assurance over

key improvement programmes in the areas of safety and IT, as

well as focusing efforts to ensure all businesses within QinetiQ

have a common base level of effective internal financial controls.

External audit

PwC audit scope

Reflecting the changing composition of the Group, the FY22 Audit

Scope also included QinetiQ Australia, contributing £94.3m to

the Group revenue in FY22. The scope also includes full scope

reporting from QinetiQ Inc. (C5ISR) and QinetiQ Limited, which

remains consistent with the historic audit scope. The scope for

Foster Miller Inc. (Technology Solutions) also remains consistent

with the prior year with audit procedures being performed over

Inventory, Revenue and associated balances only. The Committee

viewed it appropriate for the audit scope to be updated to

provide sufficient audit coverage over the consolidated

financial statements.

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 2019 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.

Consideration of breach of 70% rule on auditors’ fees

During the year PwC assisted on the Group work connected to the

M&A incomplete acquisition, further details can be found on page

87, resulting in that PwC’s fees for non-audit services in FY22

exceeded the permitted 70% fee cap. In advance of providing

support on this M&A project, PwC had obtained a waiver from

the FRC along with approval from the Audit Committee Chair.

The Committee considered that PwC’s independent advice on

the matter would support and enhance QinetiQ’s approach to

risk management and due diligence which would lead to the

creation of shareholder return and value.

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 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.

QinetiQ Group plc Annual Report & Accounts 2022

114

Audit, risk and

internal control

continued

The following auditors’ remuneration has been charged in arriving at profit before tax:

2022

£’000

2022

£’m

% of audit

fee

2021

£’000

2021

£’m

% of audit

fee

Audit fees 1,112 1.1 1,087 1.1

Non-audit:

Audit-related assurance services 91 0.1 8% 84 0.1 8%

Other assurance services 570 0.6 51% 40 0.0 3%

Total non-audit fees 660 0.7 59% 124 0.1 11%

% of three year average audit fees 77%

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. Since then the external

audit engagement partner has been Julian Gray, Senior

Statutory Auditor, who has now concluded his fifth year as the

Group’s audit lead partner. As the time line for the mandatory

appointment of a new external audit lead partner is five years,

John Ellis of PwC has been identified and appointed as the

new PwC lead partner to manage the external audit team going

forward. The external audit contract will be put out to tender

at least every 10 years, and 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

re-appointment at the 2022 AGM.

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 Audit Committee to

be independent and, in accordance with the Code, the Board

concludes that the Committee as a whole possesses competence

relevant to the Group’s sector, having a range of financial and

commercial experience in the industry and the commercial

environment in which QinetiQ operates. The Group Chair, CEO,

CFO, Group Financial Controller, Group Head of Internal Audit,

Group Director Risk and Governance and representatives of the

external auditor attended all Committee meetings by invitation

during the year.

The Audit Committee 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.

Audit Committee effectiveness review

The evaluation of the effectiveness of the Committee was

conducted alongside the Board effectiveness review. See more

on pages 105 to 107. 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 continuing to monitor the

developments following the consultation published by the

Government in March on proposals for significant reform

of audit and corporate reporting.

Statutory audit services compliance

The company confirms that during the year under review it

applied and was in compliance with the Competition and Market’s

Authority’s Order on statutory audit and services, which relates to

the frequency and governance of external audit tenders and the

setting of a policy on the provision of non-audit services.

QinetiQ Group plc Annual Report & Accounts 2022

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GOVERNANCE

Dear Shareholder,

I am pleased to present our Risk &

Security Committee report for FY22,

which describes our activities and

areas of focus during the year.

The Risk & Security

Committee risk management

responsibilities

The Risk & Security Committee provides

further scrutiny, and assurance to the

Board, that the required standards in

risk management, security, health and

safety, within the UK and internationally,

are achieved. This includes driving

continuous improvement ensuring that

the organisation fulfils its statutory

requirements and duty of care. This assists

the Board in reviewing and assessing the

Group’s risk management systems.

Risk profile of the Group

During the year, the Committee has

focused on reducing the Group’s risk

profile. The review of the Group Risk

on pages 62 to 70, 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.

Security profile of the Group

One of our core responsibilities is to

oversee the Group’s physical and non-

physical security systems. Our future

success will be reliant on our ability to

exploit and operate technology at pace

while still retaining the exacting levels

of security required by our customers

and partners.

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.

The Committee members and I have,

together with the Group Functional Director

Business Transformation and Services,

Group Director Security, the Business

Services Director and Group Director Risk

and 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. World events have

potentially heightened our risk, particularly

in cyberspace, and we must be vigilant and

innovative to ensure we remain ahead of

the ever-evolving threats.

FY23 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

• Continue the implementation of a

Global Security Strategy to emphasise

the importance of security and to

drive a culture of heightened security

awareness across the Group

• Continue to ensure that we are

recruiting, building and retaining the

right workforce skills and talent to

drive our physical and non-physical

security focus

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

The safety and

wellbeing of

our employees,

customers and

partners, remains

the company’s

number one

priority.”

Risk & Security Committee report

QinetiQ Group plc Annual Report & Accounts 2022

116

Audit, risk and

internal control

continued

Key highlights FY22

• A key initiative during the year in our Integrated Strategic

Business Plan (ISBP) FY22 was to improve our cyber

incidence resilience

• Launch of the Safety Improvement Programme (SIP) to

drive a step-change in our safety culture; ensuring we have

the right processes, tools and systems; the skills-set and

mind-set needed (physical safety). Moreover, to establish an

environment where it is safe to take a proactive approach,

raising issues and concerns and owning the solution

(psychological safety)

• Focused on the risk management processes in the

Group’s international businesses

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 62 to 70)

• 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 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.

Risk & Security Committee 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 and Services, the

Group Director Security, the Group IT Services Director, the Group

Director Risk and Governance and the Group Head of Internal

Audit attended all Committee meetings by invitation.

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 and 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.

QinetiQ Group plc Annual Report & Accounts 2022

117

FINANCIAL

STATEMENTS

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GOVERNANCE

Directors’

remuneration

report

Dear Shareholder,

As the Group Chair outlined in his

statement on page 12, FY22 was a

challenging year for the company; our

good underlying performance was

impacted by two discrete short-term profit

issues. The impact of these issues has

been contained and I am confident that

FY23 will see a return to sustainable

profit growth.

The response of the Executive Directors,

the Global Leadership Team (GLT) and all

of our employees to the profit challenges

in the second half of the year was

outstanding. Orders and revenue both saw

strong growth over FY22 to create a sound

platform for the future.

Incentive out-turn for FY22

The annual contribution to the Bonus

Banking Plan (BBP) for FY22 for the

CEO, the new CFO (Carol Borg) and the

former CFO (David Smith) is 71.4%, 69.4%

and 69.4% of the maximum respectively,

recognising their personal performance

during a year when the company delivered

stretch orders and cash performance;

with the disappointing profit performance

recognised by a 0% outturn for this

element (which had a 25% weighting).

The FY22 contingent share award under

the Deferred Share Plan (DSP) will be

made at 60.2% of the maximum reflecting

above target revenue growth in-year. This

DSP award will not vest in full unless the

performance hurdle is met in FY25.

The FY22 CEO single figure on page 123 is

lower than FY21 largely due to the smaller

BBP contribution. The FY22 single figure

includes the second award under the

DSP based on FY19 performance, which

I am pleased to confirm has now ceased

to be contingent as the performance

underpin has been met; that is, our FY22

profit performance of £137.4m exceeded

that delivered in FY19 of £124.9m

. The

FY19 DSP vests as shares which must be

retained for a further two years.

The Committee considered the FY22

BBP and DSP outturns 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 incentive targets or outcomes.

1. Restated in FY20 for a change in accounting policy.

CFO succession

FY22 saw the retirement of our CFO, David

Smith. I would personally like to thank

David for the support he provided to the

work of the Remuneration Committee.

Carol Borg joined QinetiQ in October 2021

taking over as CFO effective 1 December

2021. Carol brings a strong focus on

Environmental, Social and Governance

(ESG) issues to QinetiQ which will

support the work of the Remuneration

Committee as such issues are of

increasing importance to the company and

key stakeholders; this is reflected in our

approach to incentives.

The Remuneration Committee considered

and approved the Good Leaver retirement

terms for David and the appointment terms

for Carol as detailed on page 130. Also,

following the approval of his remuneration

terms in FY21, Sam Lewis joined the GLT in

April 2021 as Group Business Development

Director. Two further critical roles were

appointed to the GLT in FY22 for which

the Committee appoved the remuneration

terms - Shawn Purvis as President and

CEO of our US business and Amanda

Nelson as Group HR Director. At the end

of FY22, the Committee also approved the

remuneration terms for Mike Sewart as

Chief Technology and Operating Officer,

effective April 2022.

Implementation for FY23

The Bonus Banking Plan for FY23 is based

on the same financial metrics as in FY22

(orders, profit and cash) with stretch

targets set against the delivery of the

Integrated Strategic Business Plan (ISBP).

Financial metrics have a 70% weighting for

FY23 (previously 75%) and non-financial

targets have a 30% weighting (previously

25%) based on the achievement of

individual, common and collective goals.

Payment for target performance is 50% of

the maximum.

The changes for FY23 in terms of the

weightings for the financial and non-

financial elements of the BBP provide for

an enhanced focus on ESG measures

and a reduction in the cash metric (20%

weighting for FY23, was 25% previously).

The response

of the Executive

Directors, the

GLT and all of our

employees to the

profit challenges

in the second half

of the year was

outstanding.”

QinetiQ’s Gender Pay Gap data

can be found on our website at

www.QinetiQ.com

QinetiQ Group plc Annual Report & Accounts 2022

118

Directors’

remuneration

report

continued

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.

In support of the ISBP, the FY23 DSP strategic growth

performance measure is revenue growth across the Group

excluding in-year acquisitions, as per FY21 and FY22. Underpins

ensure that FY23 profit margins are strong and Group operating

profitability must be at least equal to FY23 performance in FY26

for full vesting.

Employee engagement and reward

QinetiQ’s employees are key to the delivery of our ambitious

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 54 details our employee engagement activity.

I met with the Chair and other representatives of the Global

Employee Voice 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 and 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

payment if the company achieves a level of operating profit

within a predetermined range from target to stretch. For FY22 I

am disappointed that the profit target for AEIS payment was not

achieved; however I am pleased that the CEO and the GLT chose

to pay a discretionary award of £500 to all employees to reflect

the way our employees rose to the challenge of the profit issues

and ensured that other key performance metrics were delivered.

The AEIS is a key element of the company’s Rewarding for

Performance framework and aligns employees and shareholder

interests by incentivising and rewarding profitable growth. The

company will operate the AEIS again for FY23 and thereafter.

Looking forward, the company will increase investment

significantly in FY23 in our enhanced global reward strategy and

wider employee offering.

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, at the July 2021 AGM, a 94% vote in favour of the

Directors’ Remuneration Report for FY21.

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 to be effective from 1 January

2023, and the new CFO received a 10.5% pension allowance on

her appointment.

The Committee acknowledges that the incentive plans can appear

complex as we have received this feedback from shareholders

and new hires. Over the coming year the Committee will conduct

a full review of the incentive approach in preparation for the Policy

vote at the 2023 AGM, with the overall aim of simplification.

Conclusion

Supporting leadership to drive the response to the profit issues

and implementing the Directors’ Remuneration Policy in the

interests of shareholders were the primary areas of focus of the

Remuneration Committee in FY22. The Committee believes that

we have a talented GLT that deal with issues with commitment

and integrity. As the company continues to grow and expand

internationally we need to be mindful of our global competitive

environment and the increasing levels of responsibility.

FY22 was a challenging year for QinetiQ, delivering growth in

orders and revenue, but with a disappointing profit performance.

The Remuneration Committee carefully scrutinises financial

performance as it relates to incentive payments. The Committee

considered a discretionary adjustment to the scheme outturns

but this facility was not used. We are satisfied that payments

are appropriate and fair, reflecting overall performance delivered

in FY22 and in consideration of the profit challenges. The

Committee was pleased to note the share price response (£3.42

close on 29 April 2022) to the 20 April 2022 trading update which

confirmed that the profit write-downs were fully contained in our

first half results.

As we look to FY23, we anticipate that the company will return

to the trajectory of sustainable organic profit growth which we

delivered for six years prior to FY22.

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 Directors’

Remuneration Report at the AGM on 21 July 2022.

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 2022

QinetiQ Group plc Annual Report & Accounts 2022

119

FINANCIAL

STATEMENTS

STRATEGIC

REPORT

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GOVERNANCE

Remuneration at a glance

Components, alignment, application and changes

Annual fixed pay

Link to strategy Application in FY23

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.

No change to current

Policy.

Benefits

Benefits include a car allowance, health insurance, life

assurance, income protection and taxable expenses.

No change to current

Policy.

Pension

Existing Executive Directors currently receive 20% of base

salary allowance as cash in lieu of pension.

New Executive Directors

will receive 10.5%, as will

existing ones effective

January 2023, to align with

the UK workforce.

Medium-term variable pay (one to four Years)

Link to strategy Application in FY23

The Bonus Banking Plan (BBP)

The BBP is a partially deferred annual bonus scheme where a

maximum award of 200% of salary is available. 70% weighted

on financial metrics (for FY23 orders, operating profit and

operating cash flow) and 30% 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 70% 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; some reweighting

of metrics to provide a

greater focus on ESG.

Long-term variable pay (one to six years)

Link to strategy Application in FY23

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 into 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 period before DSP shares vest, and

then 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.

No change to current

operation.

QinetiQ Group plc Annual Report & Accounts 2022

120

£1,088

£523 £523 £523£523

£435

£870

£272

£544

£1,675

£1,256

£853 £853 £853 £853

£1,340

£419

£838

£670

Directors’

remuneration

report

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.

Fixed pay

Bonus Banking Plan

Deferred Share Plan

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Pay at risk, shares held, subject to certain performance conditions

Shares held, not subject to performance conditions

Single Figure FY22

(£’000)

Chief Executive Officer Chief Financial Officer

Key

Fixed pay

Medium-term variable pay

Long-term variable pay

* Including the £100,000 ‘Other’ payment, see page 123

Key

Fixed pay

Medium-term variable pay

Long-term variable pay

FY22FY21

£832

£703

£912

£1,179

£814

£733

FY22

CFO

FY22

former

CFO

FY21

£407

£522

£274

£439

£892

£509

£619

Minimum – Fixed pay (FY23 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)

Illustration of FY23 potential

(£’000)

Chief Executive Officer Chief Financial Officer

Target TargetStretch Stretch+50% +50%Min Min

Remuneration in context

Our remuneration principles

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.

Targets are set by the Committee

to ensure executives are

incentivised to outperform, while

delivering sustainable levels of

performance.

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.

Flexible

Stretching Aligned

£240

£816

TOTAL

£2,696

TOTAL

£2,477

TOTAL

£2,033

TOTAL

£614*

TOTAL

£1,355

TOTAL

£853

TOTAL

£1,942

TOTAL

£3,031

TOTAL

£3,784

TOTAL

£523

TOTAL

£1,230

TOTAL

£1,937

TOTAL

£2,427

QinetiQ Group plc Annual Report & Accounts 2022

121

FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

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 Policy summary description Maximum opportunity

Base 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

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.

Pension The company provides a non-consolidated pension

contribution allowance in line with practice relative

to its comparators.

Any new Executive Directors will have a maximum

contribution of 10.5% which is the level available to

UK employees. The allowance paid to the CEO will

reduce to 10.5% effective 1 January 2023.

Benefits 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.

Benefit values can vary year-on-year depending on

premiums and the maximum is the cost of providing

the relevant benefits.

Incentive Plan 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.

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

QinetiQ Group plc Annual Report & Accounts 2022

122

Directors’

remuneration

report

continued

Element Policy summary description Maximum opportunity

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.

300% of base salary for the CEO. 200% of base salary for

the CFO.

On cessation of employment, Executive Directors are

required to maintain a shareholding of 100% of salary for

one year post-cessation, then 50% of salary for a further

one year.

n/a

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.

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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 2022.

Audited information

Executive Directors’ single total figure of remuneration

Executive Director Year

Salary

£’000

Benefits

£’000

Pension

£’000

Total

fixed pay

Bonus

Banking Plan

£’000

Deferred

Share Plan

£’000

Other

£’000

Total

variable

pay

Total

remuneration

£’000

Steve Wadey (CEO) 2022 639 65 128 832 912 733 – 1,645 2,477

2021 512 68 123 703 1,179 814 – 1,993 2,696

Carol Borg (CFO) 2022 199 20 21 240 274 – 100 374 614

(Appointed 11 October 2021) 2021 – – – – – – – – –

David Smith (Former CFO) 2022 315 29 63 407 439 509 – 948 1,355

(Retired 30 November 2021) 2021 392 37 93 522 892 619 – 1,511 2,033

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.

The ‘Other’ payment to the CFO is a payment in part compensation for performance-based annual bonus lost on resigning from her former employer as detailed on page 130.

Salary as at

1 April 2021

£’000

Increase in

the year

Salary as at

1 July 2021

£’000

FY22 salary

actually paid

£’000

CEO 616 5.0% 647 639

CFO – – – 199

Former CFO 466 2.5% 478 315

FY19 Shares

Awarded Vesting %

Vesting

Estimated

value £’000

CEO 243,650 100% 243,650 733

Former CFO (pro-rata) 184,401 100% 169,118 509

BBP cycle

3 balance

brought

forward

£’000

Dividend

equivalent

payment

£’000

BBP

award in

year

£’000

June 2022

payment in

cash (50%

value)

£’000

BBP cycle

3 balance

carried

forward

£’000

CEO 553 13 912 739 739

CFO – – 274 137 137

Former CFO 419 10 439 868 -

Cash in lieu

of pension

£’000

Total in lieu

of pension

£’000

CEO 128 128

CFO 21 21

Former CFO 63 63

Taxable

expenses

£’000

Car

allowance

£’000

Insurance

benefit

£’000

Total

benefits

£’000

CEO 28 19 18 65

CFO 11 6 3 20

Former CFO 8 9 12 29

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 former CFO entered into

a voluntary salary waiver for six months of the year of £104,450 and £74,450

respectively. Carol Borg was appointed on a salary of £420,000.

Fixed pay

Benefits

Benefits comprise a car allowance, travel allowance, private medical expenses

insurance, life assurance, income protection, and taxable expenses.

Pensions

The Executive Directors did not participate in the QinetiQ pension scheme for

FY22 and have not done so in prior years. The pension figure consists of cash

in lieu of pension equating to 20% of base salary for the CEO and the former

CFO and 10.5% of base salary for the CFO.

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. FY22 represents the second year of cycle 3 as detailed on page

126.

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.

The FY19 Deferred Share Plan award achieved the performance underpin

based on FY22 profit exceeding that in FY19 (£124.9m) and, therefore, the

shares ceased to be contingent and are disclosed in the single figure for

FY22. The 100% vesting refers to the shares which have passed the underpin

of those initially granted based on FY19 performance, which was 93.4% of

the maximum available. The share value used is the 3-month average to 31

March 2022 (280.4p) and the estimated value includes CEO £49,461 and

former CFO £34,331 as dividend equivalent payments.

Deferred Share Plan

The FY21 DSP figures represent the actual vesting of the of the FY18 award replacing the estimate provided last year. The share price at vesting was 348.9p and

the FY21 figure includes £43,274 and £32,923 paid to the CEO and former CFO respectively as income in respect of a dividend equivalent payments.

QinetiQ Group plc Annual Report & Accounts 2022

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Directors’

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report

continued

Bonus Banking Plan

FY22 performance measures and operation

For the year ended 31 March 2022 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 2022, the CEO, former CFO 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

Orders

Underlying net cash flow from

operations

Underlying operating profit

Collective goals

Personal goals

25%

12.5%

Audited information

FY22 performance outcomes

Weighting

(%) Threshold Target Stretch Actual

% of

maximum

reward

achieved

CEO

contribution

CFO

contribution

Former

CFO

CEO/CFO financial performance measures:

Orders

25% £975.0m £1,100.0m £1,225.0m £1,226.6m 100% £319,561 £98,959 £158,190

Underlying operating profit

1, 2

25% £137.5m £150.0m £162.5m £137.4m 0% £0 £0 £0

Underlying net cash flow from operations

1, 2

25% £152.5m £165.0m £17 7.5m £215.3m 100% £319,561 £98,959 £158,190

CEO/CFO collective goals

(as detailed on page 125):

• Performance against key stretching

objectives 12.5% 40% 50% 100% 85% 85% £135,813 £42,058 £67, 231

CEO personal goals

• Performance against stretching goals

relating to growth and leadership 12.5% 40% 50% 100% 86% 86% £137,411

CFO personal goals

• Performance against stretching goals -

strategic, growth and operational 12.5% 40% 50% 100% 70% 70% £34,636

Former CFO personal goals

• Performance against stretching goals -

strategic, growth and operational 12.5% 40% 50% 100% 70% 70% £55,367

CEO overall result 71.4% £912,346

CFO overall result (pro-rated) 69.4% £274,612

Former CFO overall result (pro-rated) 69.4% £438,978

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 207.

12.5%

QinetiQ Group plc Annual Report & Accounts 2022

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FINANCIAL

STATEMENTS

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CORPORATE

GOVERNANCE

Collective and personal goals (25.0% weighting)

Measures FY22 Performance

Outcome

(% maximum)

Collective goals (12.5%

weighting)

Safety and security culture

– 40% weighting

Stretch performance levels were met to improve safety and security through high visibility safety

and security tours and leading safety and security engagements.

Employee engagement

– 30% weighting

Employee engagement fell slightly in FY22 as measured by the independent Peakon tool.

Leaders delivered diversity and inclusion events and interventions with strong feedback.

Productivity and efficiency

–30% weighting

Leaders achieved stretch performance levels to simplify processes, drive innovation, improve

productivity of our facilities, implement collaborative actions and improve ESG across the Group.

Total 85%

Personal goals (12.5% weighting)

Measures FY22 Performance

Outcome

(% maximum)

CEO

Growth Active management of the portfolio to drive higher margins and strengthen strategy

implementation through acquisitions and global campaigns. Deliver US integration and return the

US business to profitable growth.

Leadership Establish a GLT for FY23 that reflects diversity and provides the capability required to fulfil global

ambitions with succession plan implemented. Improve ESG focus including publishing Net Zero

Plan and improving safety focus and culture.

Total 86%

CFO

Strategic Deliver minimum result at company level.

Growth Agree FY23 budget with improved process for UK recoveries.

Operational Deliver new model for Group Assurance and Audit.

Total 70%

Former CFO

Strategic Deliver on financial commitments.

Growth Explore innovative ways to lead growth.

Operational Adopt best practice operating model for Finance team.

Total 70%

QinetiQ Group plc Annual Report & Accounts 2022

126

Directors’

remuneration

report

continued

How the plan operates

• The Plan operates on a fixed three-year performance cycle

with a four-year vesting cycle. FY22 represents year two 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 in cash 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

Audited information

Operation during FY22

Cycle 3

Notional

shares on

account at

start of

Plan year 2

(1 April

2021)

30-day

average

share price

to 31 March

2022

(p)

value as at

measurement

date

(£)

Bonus plan

contribution

for Plan

year 2

(£)

Dividend

equivalent

payment

(£)

Bonus

pool total

value as at

measurement

date

(£)

Gross

payment in

cash for Plan

year 2

(£)

Bonus pool

total value

after cash

payment

(£)

Notional

shares on

account at

end of

Plan year 2

(31March

2022)

CEO 183,140 302.1 553,266 912,346 12,820 1,478,432 (739,216) 739,216 244,692

CFO – 302.1 – 274,612 – 274,612 (137,306) 137,306 45,450

Former CFO 138,54 4 302.1 418,541 438,978 9,698 867,217 (867, 217) – –

Forfeiture

For BBP Cycle 3 the CEO and former 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 the level determined by the Remuneration

Committee at the start of the year of £124.9m for FY22. FY22 Group underlying operating profit was £137.4m (excluding contribution

from acquisitions) therefore no notional shares were forfeited.

The BBP Cycle 3 notional shares held by the former CFO as at 31 March 2022 will be paid as cash in June 2022 based on the

notional share price over March 2022. The pro-rata FY22 BBP payment to the former CFO will be paid in cash in June 2022

with no deferred element.

Discretion

For BBP Cycle 3, for the year ended 31 March 2022, targets were largely achieved providing a contribution of 71.4% of the maximum

award for the CEO and 69.4% for both the CFO and former CFO. CEO £912,346, CFO £274,612 and former CFO £438,978 has been

reported in the single figure table which represents the contributions to the plan related to FY22 performance. No discretion was

applied to these contributions as the Committee considers them appropriate reflecting Group performance. In reviewing the BBP

out-turn the Remuneration Committee was mindful of the wider stakeholder experience across the financial year.

Measurement date at the end of each Plan Year

Contribution* or forfeiture

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.

Cycle 3

* Single figure BBP value for a Plan/financial year.

YEAR 1

FY21 FY22 FY23 FY24

YEAR 2 YEAR 3 YEAR 4

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Deferred Share Plan (DSP)

Scheme interests awarded during the financial year ended 31 March 2022

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 Executive Directors 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. FY21 DSP contingent shares granted in the year are detailed on page 129. The FY21 award was 97.3% of the

maximum available.

Setting performance targets FY22

The FY22 DSP performance measure was group revenue 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

FY22 performance outcome

The FY22 Deferred Share Plan award was measured against Group revenue with the following calibration.

Measure Weighting Threshold Target Stretch Actual

% Max award

achieved

% Salary

awarded

Total

£’000

Group Revenue

CEO 100% £1,200m £1,300m £1,400m £1,320.4m 60.2% 75.3% £480,939

CFO

£148,933

Former CFO

£59,699

1 As an in-year joiner, pro-rated 172/365 days to reflect the portion of FY22 served.

2 As a good leaver, pro-rated 244/1,460 days to reflect the portion of the 4-year performance period served.

The FY22 DSP award was also subject to a pre-grant performance underpin that FY22 profit margins are higher than 10%, which was

achieved. Group revenue achieved at £1,320.4m was between the Target and Stretch levels of performance resulting in a FY22 DSP

contingent award of shares at 60.2% of the maximum available.

The FY22 DSP award will be subject to a further performance underpin before vesting:

• Group underlying profit out-turn 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 £137.4m for FY22 which must be achieved in FY25.

The FY22 DSP award which vests based on the achievement of the FY25 performance underpin must be held as shares for a further

two years.

The FY19 DSP award achieved the performance underpin based on FY22 profit exceeding that in FY19 (£124.9m) and, therefore, the

shares ceased to be contingent and will be released on 28 June 2022. Had the FY22 profit not been greater than FY19, 50% of the

DSP award would have lapsed. The net shares vesting from the FY19 DSP must be retained for a further two years for continuing

Executive Directors. The value of this award is shown in the single figure table, in line with the reporting regulations, calculated as

CEO £683,195 and former CFO £474,207 based on the share amounts due to vest of 243,650 and 169,118 (pro-rata) respectively

and a share price of 280.4p (3-month average to 31 March 2022). The cash in lieu of dividends payment on these awards at vesting

included in the single figure table is estimated at CEO £49,461 and former CFO £34,331. Actual share values at vesting and the cash

payment in lieu of dividends will be reported in a restated FY22 single figure in the FY23 DRR.

QinetiQ Group plc Annual Report & Accounts 2022

128

Directors’

remuneration

report

continued

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 has achieved his shareholding requirement and currently holds actual shares equivalent to 359% of base salary using a share

price of 280.4p (three-month average to 31 March 2022).

The CFO was appointed during 2021 and does not currently meet the minimum shareholding requirement; with a current holding of

actual shares equivalent to 0% of base salary.

The Remuneration Committee continues to monitor progress towards the shareholding requirement.

beneficially

owned

Shares subject

to performance

conditions

Shares not

subject to

performance

conditions

Total shares

held at

31 Mar 2022

Steve Wadey 829,280 476,396 588 1,306,264

Carol Borg (Appointed 11 October 2022) – 193,199 – 193,199

David Smith (Resigned 30 November 2021) 426,428 242,561 533 669,522

Michael Harper 45,000 – – 45,000

Susan Searle 48,300 – – 48,300

Lynn Brubaker 25,000 – – 25,000

Neil Johnson 100,000 – – 100,000

Ian Mason (Resigned 26 April 2021) 10,000 – – 10,000

Shonaid Jemmett-Page 7,000 – – 7,000

General Sir Gordon Messenger – – – –

Lawrence Prior III (Appointed 2 August 2021) – – – –

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 11 April 2022 Steve Wadey purchased 61 shares, then on 9 May 2022 he purchased 55 shares, through his participation in the SIP.

There have been no other changes to the shares shown above between 31 March 2022 and 20 May 2022.

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 127. The Compensation Share Plan award to Carol Borg is only subject to continued

employment.

Notional shares held by the CEO and CFO in the BBP Cycle 3 do not appear in the table above as they are not actual shares at 20 May

2022. However, in reviewing compliance with the shareholding requirement, the net of tax value of notional shares (i.e. 51.75% in the

UK) of the 50% of the BBP balance which is not subject to forfeiture is included within the calculation.

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GOVERNANCE

Audited information

Total scheme interests summary

Total scheme interests, including those awarded during the financial year ended 31 March 2022, are as follows.

Plan name Date of grant

Number 1 April

2021

Granted in year

(maximum

potential of

awards) Vested in year Lapsed in year

Number 31

March 2022

Share price on

date of grant Vest date

Steve Wadey

DSP 2018 8 Jun 18 220,785 – 220,785 – – 206.0 8 Jun 21

DSP 2019 28 Jun 19 243,650 – – – 243,650 304.0 28 Jun 22

DSP 2021

25 Jun 21 – 232,746 – – 232,746 321.9 25 Jun 24

464,435 232,746 220,785 – 476,396

David Smith

DSP 2018 8 Jun 18 167,975 – 167,975 – – 206.0 8 Jun 21

DSP 2019 28 Jun 19 184,401 – – 15,283 169,118 304.0 28Jun 22

DSP 2021

25 Jun 21 – 176,070 – 102,627 73,443 321.9 25 Jun 24

352,376 176,070 167,975 117,910 242,561

Carol Borg

Compensation Share

Plan 5 Jan 22 – 193,199 – – 193,199 258.8 5 Jan 25

– 193,199 – – 193,199

1. The FY21 DSP contingent share award granted on 25 June 2021 at a share price of 321.9p (30-day average to 31 March 2021) is calculated on awards of 97.3% of the maximum (121.6% of salary)

with a face value of £749,210 and £566,773 for the CEO and former CFO respectively. If the FY21 Group underlying profit (£150.0m) is not achieved in FY24, a minimum of 50% of the award will lapse.

The contingent share award for the FY22 DSP will be granted in June 2022. The Committee estimates that 159,198 contingent shares

will be awarded to Steve Wadey, 49,299 to Carol Borg and 19,761 to David Smith (both the latter awards pro-rata for length of service).

This is calculated based on awards of 75.3% of salary and a share price of 302.1p (30-day average to 31 March 2022).

As part of the package approved by the Remuneration Committee for Carol Borg at recruitment, it was agreed that she would receive

a share award in part compensation for share awards which were forfeited on resigning from her former employer. On 5 January 2022

Carol was granted an award over 193,199 shares which will vest in 3 years. The QinetiQ share price used was the average closing

price over the 30 days prior to the award with a value at grant of £500,000. The award was structured as a conditional award granted

under a one-off arrangement and will lapse in the event of Carol’s cessation of service ahead of the award’s vesting date, save for

good leaver treatment. The award is limited to settlement with existing shares sourced from the company’s employee benefit trust

(no new issue or treasury shares will be used in relation to the award). Exceptionally, the award may be cash settled but there is

no intention to do so. The award includes a dividend equivalent entitlement by reference to the value of dividends with record dates

arising during the vesting period. Market standard terms apply in respect of scope for the company to make appropriate adjustments

to the award in the event of a variation of share capital or in the event of demerger, payment of special dividend or similar event

materially affecting the price of shares. Best practice malus and clawback terms apply. The award is not pensionable. The award was

granted under Listing Rule 9.4.2(2) to implement terms agreed to facilitate Carol’s recruitment as an Executive Director; the unusual

nature of the awards forfeited meant that they could not be replicated by the QinetiQ DSP. No advantageous amendment to the terms

of the award (except for minor administrative changes) will be made without prior shareholder approval in general meeting.

The average 3-month market share price to 31 March 2022 of the FY19 DSP was 280.4p, leading to an estimated loss of £57,501 and

£39,912 for the CEO and former CFO respectively based on share price depreciation of the shares due to vest on 28 June 2022.

There have been no other changes to the interests shown above between 31 March 2022 and 20 May 2022.

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.

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130

Directors’

remuneration

report

continued

Audited information continued

CFO succession

David Smith retired from the role of CFO effective 30 November 2021, succeeded by Carol Borg effective 1 December 2021 having

joined the company as CFO Designate on 11 October 2021 to enable a smooth transition of responsibilities.

Carol Borg was appointed on a base salary of £420,000. Her appointment terms also included a grant of restricted stock with a value

of £500,000, deemed to be less than the value of long-term incentives forfeited on resigning, and a cash payment for annual bonus

lost with her former employer for the 2021 financial year, capped at £100,000.

David Smith received his normal remuneration until retirement with no payment for loss of office. On 1 December 2021 David entered

into a Friend of QinetiQ agreement with the company which is a contract for occasional consultancy which the company provides

to selected former employees to retain their expertise and skills on an ‘as needed’ basis. The agreement with David provides no

guarantee of future work and has no impact on the treatment of his incentives.

The Remuneration Committee determined that Good Leaver status be provided to David as regards BBP and DSP participation including -

a) FY22 BBP paid on a pro-rata basis, subject to performance, in cash in June 2022 with no deferred element.

b) FY22 Cycle 3 account balance released as cash in June 2022 based on the notional share price averaged over March 2022.

c) FY19 and FY21 DSP awards will be preserved on a pro-rata basis and will remain available to vest subject to the achievement of

the performance underpins.

d) The FY22 DSP will be awarded on a pro-rata basis in June 2022, vesting on June 2025, subject to the achievement of the

performance underpin.

David will be required to maintain a shareholding in line with the Directors’ Remuneration Policy.

Performance review

The ten-year and three-year charts show the company’s Total Shareholder Return over the period from 31 March 2012 to 31 March

2022 and 31 March 2019 to 31 March 2022 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

QinetiQ

FTSE 250 (excluding investment trusts)

Source: Datastream (Thomson Reuters)

TSR – Value of a 100 unit investment

made on 31 March 2010

300

250

200

150

100

31/03/2012

31/03/2013

31/03/2014

31/03/2015

31/03/2016

31/03/2017

31/03/2018

31/03/2019

31/03/2020

31/03/2021

31/03/2022

Three-year comparator chart

QinetiQ

FTSE 250 (excluding investment trusts)

Source: Datastream (Thomson Reuters)

TSR – Value of a 100 unit investment

made on 31 March 2017

120

110

100

31/03/2019

31/03/2020

31/03/2021

31/03/2022

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CEO remuneration

The table below shows the CEO’s remuneration over the same performance period as the Total Shareholder Return chart (31 March

2012 to 31 March 2022):

Year ended 31 March CEO Salary/fees Single figure

Annual bonus

(% of maximum)

Long-term

incentives

(% of maximum

vesting)

2022 Steve Wadey 639,121 2,477,069 71.4% 100.0%

2021 Steve Wadey 511,550 2,695,414 95.7% 100.0%

2020 Steve Wadey 610,357 1,978,247 87.5% 38.4%

2019 Steve Wadey 596,422 2,339,474 94.4% 31.7%

2018 Steve Wadey 582,167 1,522,460 66.7% –

2017 (restated) Steve Wadey 568,166 1,829,470 86.4% –

2016 Steve Wadey 520,219 1,654,546 85.4% –

2016 David Mellors 455,885 1,423,382 82.9% –

2015 David Mellors 501,227 1,725,960 88.6% 13.9%

2015 Leo Quinn 469,776 673,979 – –

2014 Leo Quinn 610,844 2,17 7,742 7 7.0% 15.4%

2013 Leo Quinn 593,050 3,992,001 100.0% 40.3%

CEO pay ratio

The calculation below is based on the FY22 single figure for the CEO of £2,477,069 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 31 March 2022.

Total remuneration

Ratio of the CEO’s pay to UK employees

Year 25th percentile Median 75th percentile

FY22 67 : 1 49 : 1 37 : 1

FY21 70 : 1 52 : 1 39 : 1

FY20 56 : 1 41 : 1 31 : 1

The CEO pay ratios have reduced between FY21 and FY22. The primary reason for this is the lower CEO single figure for FY22 due to

the lower BBP outturn.

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 will monitor long-term trends.

Total pay of UK employees

£ 25th percentile Median 75th percentile

Total pay and benefits £37,28 6 £50,831 £66,297

Salary component £34,196 £44,910 £61,740

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 discretionary amount of £500 to all eligible employees for performance delivered in FY22 even though the profit target was not met.

QinetiQ Group plc Annual Report & Accounts 2022

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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 FY22 the company element of the AEIS was paid at a discretionary

level of £500 as the profit target was not met. The AEIS will be operated again in FY23 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. For FY23 the company has agreed significant investment in the employee offering across the Group.

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 2022 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 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021

Lynn Brubaker 54 46 (7) 5 2 – – 6 3 65 51

Admiral Sir James Burnell-Nugent

(Resigned 31 December 2020) – 33 (7) – – – 6 (1) – – – 39

Michael Harper 54 46 (7) 1 – 10 9 (1) – – 65 55

Shonaid Jemmett-Page (Appointed 19

May 2020) 54 41 (3) 1 – 12 7 (1) – – 67 48

Neil Johnson 250 219 (31) 3 – – – – – 253 219

Ian Mason (Resigned 26 April 2021) 4 46 (7) – – – – – – 4 46

General Sir Gordon Messenger

(Appointed 12 October 2020) 54 25 1 – 14 – – – 69 25

Paul Murray (Resigned 14 July 2020) – 17 (5) – – – 2 (1) – – – 19

Lawrence Prior III

(Appointed 2 August 2021) 36 – 2 – 7 – 3 – 48 –

Susan Searle 54 46 (7) 1 – 12 9 (1) – – 67 55

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.

The Committee Chair fee paid to General Sir Gordon Messenger in FY22 includes a true-up of £2,000 of unpaid Committee Chair fees

for FY21 due to an administrative error by the company. Lynn Brubaker and Larry Prior are US residents and are 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 £10,000 as Senior Independent Director, and that for

Larry Prior is a payment of £10,000 as the senior US Non-executive director.

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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 2021 and 31 March 2022. The analysis only includes Directors who served for the whole of FY22 and FY21 and is impacted by

the temporary salary/fee sacrifice in FY21.

% change between FY22 and FY21 % change between FY21 and FY20

Salary/fees Benefits Annual bonus Salary/fees Benefits Annual bonus

Steve Wadey 24.9% -4.3% -22.7% -16.2% 35.9% 10.3%

David Smith – – – -15.2% 0% 11.1%

Carol Borg – – – – – –

Neil Johnson 14.3% 100% – 17.1% -100% –

Michael Harper 18.4% 100% – -15.9% 0% –

Susan Searle 21.2% 100% – -6.8% -100% –

Ian Mason – – – -9.8% -100% –

General Sir Gordon Messenger – – – – – –

Lawrence Prior III – – – – – –

Shonaid Jemmett-Page – – – – – –

Lynn Brubaker 33.0% 127.5% – -35.5% -7 7.8% –

Average UK employee 2.9% 10.9% -38.2% 1.2% -1.2% 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 buy-backs and any other significant

use of profit and cash within the previous two financial years.

2021

2022

£464.8.m

£473.5m

-1.8%

DIFFERENCE

Total employee remuneration

2021

2022 £41.0m

£46.7m

-12.2%

DIFFERENCE

Share-based profit distribution

Dividend cash payment plus purchase of own shares

(see page 151).

Other significant profit distribution

There were no other significant profit distributions in

2021 or 2022.

QinetiQ Group plc Annual Report & Accounts 2022

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Directors’

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continued

Gender related pay

QinetiQ is subject to gender pay reporting for UK employees and a copy of our latest report is available on the company’s website.

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 100).

Director Date appointed Arrangement Notice period

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.

–

Lawrence Prior III 2 August 2021 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.

–

Carol Borg 11 October 2021 Service contract 12 months

Steve Wadey 27 April 2015 Service contract 12 months

Implementation of Policy for the year ended 31 March 2022

Fees

Non-executive Directors’ fees were reviewed effective 1 July 2021, the last increase being in July 2019, and are now as follows –

• Basic fee £55,000 (previously £52,000)

• Committee Chair fee £12,000 (previously £10,000)

• Senior Independent Director fee £10,000 (no change)

The Non-executive Group Chairman receives a fee of £250,000 per annum which has not been adjusted since appointment.

Fees are reviewed in line with Policy. In FY21 a voluntary fee waiver was implemented for six months as detailed on page 132.

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 and CFO do not hold any Non-executive

Directorships in other companies.

Fees effective

1 July 2021

Group Chairman 250,000

Basic fee for UK Non-executive Director 55,000

Additional fee for chairing a Committee 12,000

Additional fee to Deputy Chairman/Senior Independent Non-executive Director 10,000

Additional fee for attendance at a Board meeting held in US by UK resident Non-executive Director 2,500

Additional fee for attendance at a Board meeting held in UK by US resident Non-executive Director $4,000

QinetiQ Group plc Annual Report & Accounts 2022

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Implementation of Policy for the year ending 31 March 2023

At the 11 May 2022 meeting of the Remuneration Committee, base salary increases of 3.6% (to £670,000p.a.) and 3.6% (to

£435,000p.a.) were approved for the CEO and CFO respectively, effective 1 July 2022. Both salary reviews are aligned with the

Rewarding for Performance guidance used for all UK employees which included a 4.0% budget for the July 2022 salary review.

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 FY23 acquisitions) Relative weighting(%)

Bonus Banking Plan Underlying operating profit 25.0%

Target performance 100% of base salary Underlying net cash flow from operations 20.0%

Stretch performance 200% of base salary Orders 25.0%

Common, ESG and Personal goals 30.0%

For FY23 the Remuneration Committee agreed to reduce the weighting of Bonus Banking Plan financial metrics to 70% (previously

75%) by reducing the cash metric to 20% (previously 25%). This enables an increased focus on ESG goals as part of the non-financial

metrics with a 30% weighting (previously 25%).

For FY23, 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 FY23 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 FY22. There will be a pre-grant margin

underpin to ensure that profit performance remains strong in FY23.

Performance metrics have been set for FY23 based on the ISBP FY23. 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 FY23 DSP award will be subject to a performance underpin before vesting:

• Group underlying profit out-turn for FY23 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 FY23 DSP award, this will be the actual underlying

operating profit (£m) for FY23 which must be achieved in FY26.

Awards of contingent shares will be made in June 2023 based on FY23 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.

QinetiQ Group plc Annual Report & Accounts 2022

136

Directors’

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report

continued

Remuneration Committee meetings, activities and decisions FY22

The following table provides a summary of all the key activities during the year. The attendance at each meeting is detailed on page

90. The membership of the Remuneration Committee in FY22 was Susan Searle (Chair), Michael Harper, Neil Johnson, Lynn Brubaker,

Ian Mason (resigned 26 April 2021), General Sir Gordon Messenger, Shonaid Jemmett-Page and Lawrence Prior III (joined 2 August

2021).

Base salary Incentives Share awards Governance Salaries and Resourcing

May 2021 Review of FY21 Company

performance and final results

for BBP and DSP

Approval of FY18 DSP

Performance underpin and

vesting

FY21 DSP awards

Market update

Approve Directors’

Remuneration Report.

GLT base salary reviews

July 2021 AGM preparation CFO succession

November 2021 FY22 half-year forecast Market update

Review of GLT shareholdings

Review of company reward

practices

Review of Terms of Reference

Terms of a GLT-level

appointment

January 2022 ‘Blue Sky’ session in preparation for the 2023 AGM Directors’ Remuneration Policy vote

March 2022 FY22 provisional results

FY23 target setting

FY19 DSP provisional vesting 2023 Directors’ Remuneration

Policy vote

Directors’ Remuneration Report

2021 % of votes

(%)

Directors’ Remuneration Policy

2020 % of votes

(%)

Votes for

Votes against

93.6%

87.0%

Remuneration Committee effectiveness review

In 2022 the effectiveness review was conducted by The Effective Board LLP.

This process is described further on page 80.

Remuneration consultants

The Committee appointed FIT Remuneration Consultants LLP, 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 £55,000

determined on a fixed-fee annual retainer basis, with fees agreed in advance for out-of-

scope work, if any. FIT provided no additional services to the company during the year

and the Committee is satisfied that the advice received is independent and objective.

Statement of voting

Annual Report on Remuneration – 2021

Votes for 436,288,423 (93.6%)

Votes against 29,698,657 (6.4%)

Total votes cast 465,987,080 (80.5% of share capital)

Abstained 10,345,055

Directors’ Remuneration Policy – 2020

Votes for 393,525,108 (87.0%)

Votes against 59,006,721 (13.0%)

Total votes cast 452,570,726 (79.7% of share capital)

Abstained 19,408,696

Details on the voting on all resolutions at the 2022 AGM will be announced via the RNS

and posted on the QinetiQ website after the AGM.

Susan Searle

Remuneration Committee Chair

20 May 2022

QinetiQ Group plc Annual Report & Accounts 2022

137

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STATEMENTS

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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:

Information Page

Corporate governance statement 78

Directors’ details 82 – 84

Directors’ conflicts of interest 99

Directors’ interests in shares 128

Employees 54 – 59

Stakeholder engagement statement 92

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

174

Greenhouse gas emissions 46 – 49

Likely future developments in the business

of the company or its subsidiaries

1 – 75

Results 36 – 39

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

138

Statement in the Directors’ Report about the corporate

governance arrangements applied by the company

138

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

131

Illustration of the effect of future share price

increases on executive pay outcomes in the

Directors’ Remuneration report

123

Management report

The Strategic report on pages 1 to 75 and the Directors’ report,

as detailed on pages

137 to 140, 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).

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.

In the financial year, the Group recorded £302.1m (FY21:

£300.4m) of total R&D-related expenditure, of which £287.5m

(FY21: £281.9m) was customer-funded work and £14.6m (FY21:

£18.5m) was internally funded. Additionally, £3.4m (FY21: £2.6m)

of late-stage development costs were capitalised and £2.1m

(FY21: £2.4m) 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. 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 2022, the company had an allotted and fully paid

up share capital of 578,757,121 ordinary shares of 1p each with

an aggregate nominal value of £5.8m and one Special Share with

a nominal value of £1. The ordinary share total includes 4,912,585

shares held by employee share trusts.

Details of the shares in issue during the financial year are shown

in note 29 on page 182.

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.

QinetiQ Group plc Annual Report & Accounts 2022

138

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:

• 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

• A provisions whereby at least the Non-executive Chairman

or Chief Executive Officer must be a British citizen.

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 182.

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 2022, the

Trust held 4,912,585 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.

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.

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. The below table has been

adjusted to reflect notifications received under Section 793 of

the 2006 Companies Act on 29 April 2022, that the following

companies no longer meet the 3% threshold requirement under

DTR5: Silchester International Investors LLP, Ninety One UK Ltd

(formerly Investec), Ruane Cunniff & Goldfarb, abrdn plc

(formerly Standard Life Aberdeen plc) and Norges Bank.

Name of shareholder

At 31 March 2022

% w issued

share capital*

At 12 May 2022

% of issued

share capital*

Schroders 9.82% 9.98%

BlackRock. Inc. 7.73% 7.66%

GLG Partners LP 5.66% 5.79%

Liontrust Asset Management PLC 3.93% 3.93%

* 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. The

qualifying third party indemnity was in force during the financial

year and also at the date of approval of the financial statements.

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.

QinetiQ Group plc Annual Report & Accounts 2022

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GOVERNANCE

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 119.

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 2021, the shareholders

passed resolutions which authorised the Directors to allot relevant

securities up to an aggregate nominal value of £3,857,994

(£1,928,997 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

2022 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 2022 AGM.

Annual General Meeting

The company’s AGM will be held on Thursday 21 July 2022 at

11:00am at the office of Ashurst LLP, London Fruit and Wool

Exchange, Duval Square, London E1 6PW.

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.

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 UK-adopted International Accounting Standards.

QinetiQ Group plc Annual Report & Accounts 2022

140

Directors’

Report

continued

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 UK-adopted International Accounting Standards

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.

Directors’ confirmations

Each of the Directors, whose names and functions are listed on

pages 82 and 84 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 UK-adopted International Accounting Standards,

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 71 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 2022.

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 2022

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Auditors’

Report

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 2022 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 UK-adopted international

accounting standards;

• 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

sheet as at 31 March 2022; the Consolidated income statement, the

Consolidated comprehensive income statement, the Consolidated

cash flow statement, and the Consolidated and Company statement

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.

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 note 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, in the US over QinetiQ Inc. (C5ISR), and in Australia

over QinetiQ Pty Ltd based on their size or risk. 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. (Technology

Solutions) and QinetiQ Target Systems Limited to provide

sufficient overall Group coverage.

• Additionally in Technology Solutions, 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).

• Impairment of goodwill and acquired intangibles (Group).

• Accounting for tax research and development expenditure

credits (Group).

• Impairment of investments in subsidiary undertakings

(Parent).

Materiality

• Overall Group materiality: £6,650,000 (2021: £6,400,000)

based on approximately 5% of underlying profit before tax.

• Overall Company materiality: £5,000,000 (2021: £5,000,000)

based on approximately 1% of total assets.

• Performance materiality: £5,000,000 (2021: £4,800,000)

(Group) and £3,750,000 (2021: £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.

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.

Provisions and contingent liabilities (Group) and the impact of

COVID-19 (Group and parent), which were key audit matters

last year, are no longer included because of a reduction in the

level of estimation involved in the accounting for provisions and

contingent liabilities and the limited impact from the pandemic on

the operations and financial results of the Group and Company.

Otherwise, the key audit matters below are consistent with

last year.

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Auditors’

Report

continued

Key activities How our audit addressed the key audit matter

Long-term contract accounting (Group)

Refer to page 110 (Report of the Audit Committee) and

page 189 (note 36, Significant accounting policies −

Revenue from contracts with customers) and page 154

(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 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 certain key controls

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 throughout 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 calculated revenue recognised and agreed 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.

• We validated costs incurred allocated to contracts during the year to supporting

documentation on a Group-wide basis.

• We made enquiries as to the potential impact in delivery and forecast costs to

complete arising from climate change risks.

For remaining untested contracts, we selected a sample and performed testing

over revenue and costs, 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 and

consideration of recoverability of amounts recoverable on contract.

Additional testing was performed, where not sufficiently covered by the above, over

the contract asset and liability balance sheet positions. These have been sample

tested and agreed to supporting documentation.

No material exceptions were found.

Impairment of goodwill and acquired intangibles (Group)

Refer to page 110 (Report of the Audit Committee), page

193 (note 36, Significant accounting policies − Impairment

of goodwill and tangible, intangible and held for sale assets,

page 162 (note 14, Goodwill) and page 164 (note 15,

intangible assets).

The Group has a material amount of goodwill and acquired

intangible assets. There is a risk of impairment where

the performance of the cash generating unit is behind

expectation and does not support the value held on the

balance sheet.

Management performed a discounted cash flow analysis

based on the Board-approved five-year strategic plan to

assess whether the goodwill and acquired intangible assets

are supported by future cash flow projections. This annual

impairment review was performed as at 31 January 2022.

No triggering events have been identified in the period to

31 March 2022 and therefore no additional impairment

reviews have been performed. No impairment charge has

been recognised during the year.

Our audit focused on the risk that the carrying value of

goodwill and acquired intangible assets could be overstated.

We have tested the principles and mathematical integrity of the Group’s discounted

cash flow model used to assess goodwill and indefinite-lived intangible assets for

potential impairment. With the assistance of our valuation specialists, we assessed

the long-term growth rates and discount rates used in the impairment calculation, by

comparing the Group’s long-term growth rates and discount rates assumptions to

external data, along with the mathematical accuracy of the model. We concluded that

the Group’s assumptions were materially appropriate.

We confirmed that cash flows for the next 5 years, consistent with internal budgeting

and strategic planning processes and the long term viability assessment, have been

input to the model and that the underlying budgets and strategic plans have been

approved by the Board.

We challenged the cash flow projections used within the model by reference to

current cash flows, analysis of management’s historic forecasting accuracy,

understanding future contract opportunities and through obtaining third party

evidence where possible. We held discussions with financial and non-financial

personnel, corroborating explanations to supporting documentation and seeking

contradictory evidence, if available.

We tested the sensitivity of the impairment calculations, changes in the underlying

assumptions and concluded that no impairments are required, and that the sensitivity

to key assumptions is sufficiently disclosed. We did not identify any indication of

management bias and did not identify any impairment triggers which would require an

updated impairment assessment in the intervening period to year end.

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Key activities How our audit addressed the key audit matter

Accounting for tax research and development expenditure

credits (Group)

Refer to page 191 (note 36, Significant accounting policies

– Taxation) and page 159 (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.

We have reviewed management’s accounting policy for RDEC and disclosure of its

impact on the Group’s underlying effective tax rate. Management has determined the

RDEC should be accounted for under IAS 12, as opposed to 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.

Impairment of investment in subsidiary company (parent)

Refer to page 202 (Accounting policies – Investments and

note 2, Investments in subsidiary undertakings).

The Company has investments of £515.2 million in its

subsidiary undertakings. 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 investments 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.

We have evaluated management’s consideration of impairment triggers through

performing our own independent assessment which has included:

• 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 investments.

We found that management’s conclusion that there are no impairment triggers in the

investments in subsidiaries carrying value was reasonable.

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,

C5ISR and QinetiQ Pty Ltd, with QinetiQ Limited being the only

component considered financially significant to the Group.

The audit of QinetiQ Limited is performed in the UK and the

audit of C5ISR and QinetiQ Pty Ltd are performed by our

local PwC component teams based in the US and Australia,

respectively. This provides sufficient coverage overall 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. Technology Solutions 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 Technology Solutions, 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

full scope components, QinetiQ Limited, C5ISR and QinetiQ Pty

Ltd, accounted for 88% of consolidated Group revenue and 72% of

underlying profit before taxation (on an absolute basis, excluding

holding companies and consolidation entities).

The full scope audits plus the additional audit procedures over

inventory in two other locations and revenue and associated

balance sheet accounts within Technology Solutions, resulted

in coverage of 92% of consolidated Group revenue and 92% of

total Group assets.

The combination of the work referred to above, together with

additional procedures performed at a 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 taxation, gave us the evidence required

for our opinion on the financial statements as a whole.

QinetiQ Group plc Annual Report & Accounts 2022

144

Auditors’

Report

continued

The Group engagement leader discussed and agreed the audit

plan with our component audit teams, in addition to agreeing

the format and content of communications. We determined that

the level of involvement we were able to have in the audit work

at our reporting entities was sufficient, and appropriate audit

evidence had been obtained, to enable us to form our opinion

on the financial statements as a whole. We maintained regular

dialogue throughout the audit process with our component audit

teams through the use of video conferencing. We also supervised

the work performed by all component teams through the review

of component team 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 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 Financial statements − Company

Overall materiality £6,650,000 (2021: £6,400,000). £5,000,000 (2021: £5,000,000).

How we determined it Approximately 5% of underlying profit before tax. Approximately 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 on note 4 of 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 a holding Company. This materiality

relates to the audit of the Company only, as the

Company was not in scope for the Group audit.

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

£4,300,000 and £6,317,500. 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% (2021: 75%) of overall materiality, amounting

to approximately £5,000,000 (2021: £4,800,000) for the Group

financial statements and £3,750,000 (2021: £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 £332,500

(Group audit) (2021: £320,000) and £250,000 (Company audit)

(2021: £250,000) 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:

• Obtaining management’s Board-approved strategic plan

for the five year period ended 31 March 2027. We held

discussions with management to understand the

budgeting process and the key assumptions made

in the forecasting processes;

• Performed a comparison of the cash flow forecasts used

in the going concern assessment to those in the strategic

plan and, where applicable, compared these forecasts

for consistency to those used elsewhere in the business,

including for long-term contract 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 headroom in management’s

forecasts when performing severe but plausible sensitivities;

• Evaluating the feasibility of management’s mitigating actions

in response to the severe stress testing scenarios; and

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GOVERNANCE

• We assessed the adequacy of disclosures in the Going

Concern statement on page 71, the audit committee

report on page 109 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.

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, which includes reporting based on the

Task Force on Climate-related Financial Disclosures (TCFD)

recommendations. 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 2022 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.

QinetiQ Group plc Annual Report & Accounts 2022

146

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.

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 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 and relevant tax legislation. 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;

• Assessment of matters reported on the Group’s whistleblowing

helpline and the results of management’s investigation of

such matters;

• Reviewing correspondence with and reporting to relevant

regulatory authorities;

• Challenging assumptions and judgements made by

management in their significant accounting estimates

and judgements, particularly in relation to the key audit

matters above.

• Designing risk filters to search for journal entries, such as

those posted with unusual account combinations or posted

by members of senior management with a financial reporting

oversight role, and testing those journals highlighted

(if any); and

• Incorporating elements of unpredictability into the audit

procedures performed.

Auditors’

Report

continued

QinetiQ Group plc Annual Report & Accounts 2022

147

FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

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 5

years, covering the years ended 31 March 2018 to 31 March 2022.

Other matters

As required by the Financial Conduct Authority Disclosure

Guidance and Transparency Rule 4.1.14R, these financial

statements form part of the ESEF-prepared annual financial

report filed on the National Storage Mechanism of the Financial

Conduct Authority in accordance with the ESEF Regulatory

Technical Standard (‘ESEF RTS’). This auditors’ report provides

no assurance over whether the annual financial report has

been prepared using the single electronic format specified

in the ESEF RTS.

Julian Gray (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors

Southampton

20 May 2022

QinetiQ Group plc Annual Report & Accounts 2022

148

QinetiQ Group plc Annual Report & Accounts 2022

Financial

Statements

150 Consolidated income statement

151 Consolidated comprehensive

income statement

151 Consolidated statement of

changes in equity

152 Consolidated balance sheet

153 Consolidated cash flow statement

153 Reconciliation of movements

in net cash

154 Notes to the financial statements

200 Company balance sheet

201 Company statement of changes

in equity

202 Notes to the Company

financial statements

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

QinetiQ Group plc Annual Report & Accounts 2022

149

FINANCIAL

STATEMENTS

QinetiQ Group plc Annual Report & Accounts 2022

150

Consolidated income statement

For the year ended 31 March

QinetiQ Group plc Annual Report and Accounts 2022

150

Prior year comparatives have been restated due to a change in accounting policy in respect of software implementation costs. See note 38 for details.

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 207. Also refer to notes 4 and 36 for details of ‘specific adjusting items’.

2022 2021 restated^

All figures in £ million Note Underlying

Specific

adjusting

Items

Total Underlying

Specific

adjusting

Items

Total

Revenue

2, 3

1,320.4

–

1,320.4

1,278.2

–

1,278.2

Other operating costs excluding depreciation and amortisation

(1,140.7

)

(8.7

)

(1,149.4

)

(1,086.0)

(6.4

)

(1,092.4

)

Other income 2 9.8 0.7 10.5 9.9 0.1 10.0

EBITDA (earnings before interest, tax, depreciation

and amortisation)

189.5

(8.0)

181.5 202.1

(6.3)

195.8

Depreciation and impairment of property, plant and equipment 3, 4, 16

(46.7)

(1.2)

(47.9)

(45.6)

(0.5)

(46.1)

Impairment of goodwill

4, 14

–

(25.4)

Amortisation and impairment of intangible assets

3, 4, 15

(5.4)

(10.7)

(16.1)

(4.7)

(10.9)

(15.6)

Operating profit/(loss)

137.4

(19.9)

117.5 151.8

(43.1)

108.7

(Loss)/gain on business divestments

–

(0.9)

–

28.4

Gain on sale of investments

–

0.3

Finance income

0.5

4.5

5.0

0.3

7.1

7.4

Finance expense

(1.9)

–

(1.9)

(2.2)

–

(2.2)

Profit/(loss) before tax

136.0

(16.3)

119.7

149.9

(7.3)

142.6

Taxation (charge)/income

(17.9)

(11.8)

(29.7)

(23.8)

3.1

(20.7)

Profit/(loss) for the year

118.1 (28.1

)

90.0 126. 1 (4.2

)

121.9

Profit is attributable to

Owners of the parent company 118.1 (28.1

)

90.0 125.9 (4.2

)

121.7

Non-controlling interests

– – – 0.2 – 0.2

Profit/(loss) for the year

118.1 (28.1

)

90.0 126.1

(4.2

)

121.9

Earnings per share for profit attributable to

the owners of the parent company

2022 2021 restated^

All figures in pence

Note

Underlying

Total

Underlying

Total

Basic 10 20.6p 15.7p 22.1p 21.4p

Diluted 10 20.4p 15. 5p 21.9p 21.1p

Consolidated

income

statement

For the year ended

31 March

QinetiQ Group plc Annual Report & Accounts 2022

151

FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Consolidated comprehensive income statement

For the year ended 31 March

QinetiQ Groupplc Annual ReportandAccounts 2022

151

Financial Statements

Prior year comparatives have been restated due to a change in accounting policy in respect of software implementation costs. See note 38 for details.

Consolidated statement of changes in equity

For the year ended 31 March

All figures in £ million

capital

Capital

redemption

reserve

premium

Hedge

reserve

Translation

reserve

Retained

earnings

Total

Non-

controlling

interest

Total

equity

At 31 March 2021 – previously reported

5.7

40.8

147.6

(0.4)

(2.9)

698.6

889.4

0.3

889.7

Change in accounting policy – software

implementation costs (note 38)

–

(4.8)

–

(4.8)

At 1 April 2021 - restated^

5.7

40.8

147.6

(0.4)

(2.9)

693.8

884.6

0.3

884.9

Profit for the year

–

90.0

–

90.0

Other comprehensive income for the

year, net of tax

–

0.5

4.8

96.4

101.7

–

101.7

Purchase of own shares

–

(0.8)

–

(0.8)

Issues of new shares

0.1

–

0.1

–

0.1

Share-based payments

–

7.4

–

7.4

Deferred tax on share options

–

(0.3)

–

(0.3)

Fair value adjustment in respect of

equity-based contingent consideration

–

0.7

–

0.7

Dividends

–

(40.2)

(0.1)

(40.3)

At 31 March 2022

5.8

40.8

147.6

0.1

1.9

847.0

1,043.2

0.2

1,043.4

At 31 March 2020 – previously reported

5.7

40.8

147.6

0.4

8.3

681.9

884.7

2.4

887.1

Change in accounting policy – software

implementation costs (note 38)

–

(2.0)

–

(2.0)

At 1 April 2020 - restated^

5.7

40.8

147.6

0.4

8.3

679.9

882.7

2.4

885.1

Profit for the year

–

121.7

0.2

121.9

Other comprehensive expense for the

year, net of tax

–

(0.8)

(11.2)

(84.3)

(96.3)

–

(96.3)

Purchase of own shares

–

(9.0)

–

(9.0)

Share-settled liabilities

–

13.7

–

13.7

Share-based payments

–

10.6

–

10.6

Deferred tax on share options

–

0.5

–

0.5

Transactions with NCI

–

(1.6)

(2.3)

(3.9)

Dividends

–

(37.7)

–

(37.7)

At 31 March 2021^

5.7

40.8

147.6

(0.4)

(2.9)

693.8

884.6

0.3

884.9

Prior year comparatives have been restated due to a change in accounting policy in respect of software implementation costs. See note 38 for details.

All figures in £ million

2022

2021^

Profit for the year

90.0 121.9

Items that will not be reclassified to profit or loss:

Actuarial gain/(loss) recognised in defined benefit pension schemes

144.0

(104.1)

Tax on items that will not be reclassified to profit and loss

(47.6)

19.8

Total items that will not be reclassified to profit or loss

96.4

(84.3)

Items that may be reclassified to profit or

loss:

Foreign currency translation

gains/(losses) on foreign operations 5.6 (12.0

)

Movement in deferred tax on foreign currency translation

(0.8)

0.8

Increase

/(decrease) in the fair value of hedging derivatives 0.6

(1.0)

Movement in deferred tax on hedging derivatives

(0.1)

0.2

Total items that may be reclassified to profit or loss

5.3

(12.0)

Other comprehensive

income/(expense) for the year, net of tax

101.7

(96.3)

Total comprehensive income for the year

191.7

25.6

Total comprehensive income is attributable to:

Owners of the parent company

191.5 25.4

Non

-controlling interests 0.2 0.2

Total comprehensive income for the year

191.7 25.6

Consolidated

comprehensive

income statement

For the year ended

31 March

Consolidated comprehensive income statement

For the year ended 31 March

QinetiQ Groupplc Annual ReportandAccounts 2022

151

Financial Statements

Prior year comparatives have been restated due to a change in accounting policy in respect of software implementation costs. See note 38 for details.

Consolidated statement of changes in equity

For the year ended 31 March

All figures in £ million

capital

Capital

redemption

reserve

premium

Hedge

reserve

Translation

reserve

Retained

earnings

Total

Non-

controlling

interest

Total

equity

At 31 March 2021 – previously reported

5.7

40.8

147.6

(0.4)

(2.9)

698.6

889.4

0.3

889.7

Change in accounting policy – software

implementation costs (note 38)

–

(4.8)

–

(4.8)

At 1 April 2021 - restated^

5.7

40.8

147.6

(0.4)

(2.9)

693.8

884.6

0.3

884.9

Profit for the year

–

90.0

–

90.0

Other comprehensive income for the

year, net of tax

–

0.5

4.8

96.4

101.7

–

101.7

Purchase of own shares

–

(0.8)

–

(0.8)

Issues of new shares

0.1

–

0.1

–

0.1

Share-based payments

–

7.4

–

7.4

Deferred tax on share options

–

(0.3)

–

(0.3)

Fair value adjustment in respect of

equity-based contingent consideration

–

0.7

–

0.7

Dividends

–

(40.2)

(0.1)

(40.3)

At 31 March 2022

5.8

40.8

147.6

0.1

1.9

847.0

1,043.2

0.2

1,043.4

At 31 March 2020 – previously reported

5.7

40.8

147.6

0.4

8.3

681.9

884.7

2.4

887.1

Change in accounting policy – software

implementation costs (note 38)

–

(2.0)

–

(2.0)

At 1 April 2020 - restated^

5.7

40.8

147.6

0.4

8.3

679.9

882.7

2.4

885.1

Profit for the year

–

121.7

0.2

121.9

Other comprehensive expense for the

year, net of tax

–

(0.8)

(11.2)

(84.3)

(96.3)

–

(96.3)

Purchase of own shares

–

(9.0)

–

(9.0)

Share-settled liabilities

–

13.7

–

13.7

Share-based payments

–

10.6

–

10.6

Deferred tax on share options

–

0.5

–

0.5

Transactions with NCI

–

(1.6)

(2.3)

(3.9)

Dividends

–

(37.7)

–

(37.7)

At 31 March 2021^

5.7

40.8

147.6

(0.4)

(2.9)

693.8

884.6

0.3

884.9

Prior year comparatives have been restated due to a change in accounting policy in respect of software implementation costs. See note 38 for details.

All figures in £ million

2022

2021^

Profit for the year

90.0

121.9

Items that will not be reclassified to profit or loss:

Actuarial gain/(loss) recognised in defined benefit pension schemes

144.0

(104.1)

Tax on items that will not be reclassified to profit and loss

(47.6)

19.8

Total items that will not be reclassified to profit or loss

96.4

(84.3)

Items that may be reclassified to profit or loss:

Foreign currency translation gains/(losses) on foreign operations

5.6

(12.0)

Movement in deferred tax on foreign currency translation

(0.8)

0.8

Increase/(decrease) in the fair value of hedging derivatives

0.6

(1.0)

Movement in deferred tax on hedging derivatives

(0.1)

0.2

Total items that may be reclassified to profit or loss

5.3

(12.0)

Other comprehensive income/(expense) for the year, net of tax

101.7

(96.3)

Total comprehensive income for the year

191.7

25.6

Total comprehensive income is attributable to:

Owners of the parent company

191.5

25.4

Non-controlling interests

0.2

Total comprehensive income for the year

191.7

25.6

Consolidated comprehensive income statement

For the year ended 31 March

QinetiQ Groupplc Annual ReportandAccounts 2022

151

Financial Statements

Prior year comparatives have been restated due to a change in accounting policy in respect of software implementation costs. See note 38 for details.

Consolidated statement of changes in equity

For the year ended 31 March

All figures in £ million

capital

Capital

redemption

reserve

premium

Hedge

reserve

Translation

reserve

Retained

earnings

Total

Non-

controlling

interest

Total

equity

At 31 March 2021 – previously reported

5.7

40.8

147.6

(0.4)

(2.9)

698.6

889.4

0.3

889.7

Change in ac

counting policy –

software

implementation costs (note 38)

–

(4.8)

–

(4.8)

At 1 April 2021

- restated^

5.7

40.8

147.6

(0.4)

(2.9)

693.8

884.6

0.3

884.9

Profit for the year

– – – – –

90.0

–

90.0

Othe

r comprehensive income for the

year, net of tax

–

– 0.5 4.8 96.4

101.7

–

101.7

Purchase of own shares

– – – – – (0.8)

(0.8)

–

(0.8)

Issues of new shares

0.1

–

0.1

–

0.1

Share-based payments

–

7.4

–

7.4

Deferred tax on share options

–

(0.3)

–

(0.3)

Fair value adjustment in respect of

equity

-based contingent consideration

– –

– – – 0.7

0.7

–

0.7

Dividends

–

(40.2)

(0.1)

(40.3)

At 31 March

2022

5.8

40.8

147.6

0.1

1.9

847.0

1,043.2

0.2

1,043.4

At 31 March 2020 – previously reported

5.7

40.8

147.6

0.4

8.3

681.9

884.7

2.4

887.1

Change in accou

nting policy –

software

implementation costs (note 38)

–

(2.0)

–

(2.0)

At 1 April 2020

- restated^

5.7 40.8 147.6 0 .4 8.3 679.9

882.7

2.4

885.1

Profit for the year

– – – – –

121.7

0.2

121.9

Othe

r comprehensive expense for the

year, net of tax

– – – (0.8) (11.2)

(84.3)

(96.3)

–

(96.3)

Purchase of own shares

–

(9.0)

–

(9.0)

Share-settled liabilities

–

13.7

–

13.7

Share-based payments

–

10.6

–

10.6

Deferred tax on share options

– – – – – 0.5

0.5

–

0.5

Transactions with NCI

– – – – – (1.6)

(1.6)

(2.3)

(3.9)

Dividends

–

(37.7)

–

(37.7)

31 March 2021^

5.7

40.8

147.6

(0.4)

(2.9)

693.8

884.6

0.3

884.9

Prior year comparatives have been restated due to a change in accounting policy in respect of software implementation costs. See note 38 for details.

All figures in £ million

2022

2021^

Profit for the year

90.0

121.9

Items that will not be reclassified to profit or loss:

Actuarial gain/(loss) recognised in defined benefit pension schemes

144.0

(104.1)

Tax on items that will not be reclassified to profit and loss

(47.6)

19.8

Total items that will not be reclassified to profit or loss

96.4

(84.3)

Items that may be reclassified to profit or loss:

Foreign currency translation gains/(losses) on foreign operations

5.6

(12.0)

Movement in deferred tax on foreign currency translation

(0.8)

0.8

Increase/(decrease) in the fair value of hedging derivatives

0.6

(1.0)

Movement in deferred tax on hedging derivatives

(0.1)

0.2

Total items that may be reclassified to profit or loss

5.3

(12.0)

Other comprehensive income/(expense) for the year, net of tax

101.7

(96.3)

Total comprehensive income for the year

191.7

25.6

Total comprehensive income is attributable to:

Owners of the parent company

191.5

25.4

Non-controlling interests

0.2

Total comprehensive income for the year

191.7

25.6

Consolidated statement of changes in equity

QinetiQ Group plc Annual Report & Accounts 2022

152

Consolidated balance sheet

As at 31 March

QinetiQ Groupplc Annual Report andAccounts 2022

152

Prior year comparatives have been restated due to a change in accounting policy in respect of software implementation costs. See note 38 for details.

The financial statements on pages 150 to 203 were approved by the Board of Directors and authorised for issue on 20 May 2022 and were

signed on its behalf by:

Steve Wadey Carol Borg

Chief Executive Officer Chief Financial Officer

All figures in £ million

Note

2022

2021

2020

Non

-current assets

Goodwill

14 149.4 145.5 180.8

Intangible assets

15 140.3 133.1 136.4

Property, plant and equipment

16 414.5 397.2 375.6

Other financial assets

24 0.5 0.8 1 .0

Financial assets at fair value through profit and loss

13 – 0.9 –

Equity accounted investments

17 2.6 4.2 3.6

Retirement benefit surplus

28 362.2 214.3 309.7

Deferred tax asset

18 21.0 11.7 13.3

1,090.5

907.7

1,020.4

Current assets

Inventories

20 54.9 54.4 52.3

Other financial assets

24 0.6 0.9 6.7

Trade and other receivables

21 361.2 326.7 250.0

Current tax asset

19 1.4 0.7 0.2

Cash and cash equivalents

24 248.1 190.1 105.8

666.2 572.8 415.0

Total assets

1,756.7 1,480.5 1,435.4

Current liabilities

Trade and other payables

22 (462.7

)

(411.7)

(379.8)

Current tax

payable 19 (3.9

)

(2.5

)

(3.6

)

Provisions

23 (21.1) (4.2) (1.8)

Other financial liabilities

(6.9)

(7.0)

(8.9)

(494.6)

(425.4)

(394.1)

Non-current liabilities

Deferred tax liability

(156.7)

(89.7)

(101.3)

Provisions

23 (6.0) (7.8) (9.7)

Other financial liabilities

(17.2)

(20.7)

(19.9)

Other payables

(38.8)

(52.0)

(25.3)

(218.7

)

(170.2)

(

156.2)

Total liabilities

(713.3)

(595.6)

(550.3)

Net assets

1,043.4

884.9

885.1

Equity

Ordinary shares

29 5.8 5.7 5.7

Capital redemption reserve

40.8 40.8 40.8

Share premium

account 147.6 147.6 147. 6

Hedging reserve

0.1

(0.4)

0.4

Translation reserve

1.9

(2.9)

8.3

Retained earnings

847.0 693.8 679.9

Capital and reserves attributable to shareholders of the parent company

1,043.2 884.6 882.7

Non

-controlling interest 0.2 0.3 2.4

Total equity

1,043.4 884.9 885.1

Consolidated

balance

sheet

As at

31 March

QinetiQ Group plc Annual Report & Accounts 2022

153

FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Consolidated cash flow statement

For the year ended 31 March

QinetiQ Group plc Annual ReportandAccounts 2022

153

Financial Statements

Prior year comparatives have been restated due to a change in accounting policy in respect of software implementation costs. See note 38 for details.

Reconciliation of movement in net cash for the year ended 31 March

All figures in £ million

Note

2022

2021^

Underlying net cash inflow from operations

215.3 199.0

Less

specific adjusting items: change in accounting policy in respect of software implementation 25 (1.9)

(3.6)

Less specific adjusting items

: acquisition transaction costs 25 (3.7)

(1.0)

Net cash inflow from operations

209.7

194.4

Tax paid

(20.0)

(15.0)

Interest received

0.5 0.3

Interest paid

(1.5)

(1.7)

Net cash inflow from operating activities

188.7 178.0

Purchases of intangible assets

15 (21.4)

(10.9

)

Purchases of property, plant and equipment

16 (62.9)

(65.0)

Proceeds from sale of property

1.5

0.1

Proceeds from disposal of businesses

– 54.4

Proceeds from disposal of investment

– 0.3

Dividends from joint ventures and associates

2.0 –

Acquisition of businesses

12 (0.8)

(28.5)

Net cash outflow from investing activities

(81.6)

(49.6

)

Purchase of own shares

(0.8)

(9.0)

Dividends paid to shareholders

11 (40.2)

(37.7)

Payment of

bank facility arrangement fee - (0.4)

Capital element of lease payments

(6.2)

(8.5)

Transaction with non

-controlling interests (0.1)

–

Net cash outflow from financing activities

(47.3)

(55.6)

Increase

in cash and cash equivalents

59.8 72.8

Effect of foreign exchange changes on cash and cash equivalents

(1.8)

11.5

Cash and cash equivalents at beginning of the

year 190.1 105.8

Cash and cash equivalents at end of the year

24 248.1 190.1

All figures in £ million

Note

2022

2021

Increase in cash and cash equivalents in the year

59.8 72.8

Add back net cash flows not impacting net cash

6.2

8.9

Increase in net cash resulting from cash flows

66.0

81.7

Lease liabilities derecognised on disposal of subsidiaries

– 1.9

Leases and debt recognised on acquisition

– (1.3)

Net increase

in lease obligations (1.3)

(9.1)

Other movements including foreign exchange

(3.7)

6.2

Increase

in net cash as defined by the Group 61.0 79.4

Net cash as defined by Group at the beginning of the

year 164.1 84.7

Net cash as defined by Group at the end of the

year

225.1 164.1

Less:

non-cash net financial liabilities 24 23.0 26.0

Total cash and cash equivalents

248.1 190.1

Consolidated

cash flow

statement

For the year ended

31 March

QinetiQ Group plc Annual Report & Accounts 2022

154

Notes to the

Consolidated

Financial Statements

For the year ended

31 March

Notes to the Consolidated Financial Statements

For the year ended 31 March

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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) A down-turn in trading in the Global Products segment (note 3 to the financial statement) driven by a £14.5m write-down on a

complex project due to technical and supplier issues and challenges impacting revenue in the US business;

2) An increase in the value of the Group’s defined benefit pension scheme (note 28).

For a detailed discussion of the Group’s performance and financial position refer to the Strategic Report on pages 1 to 75.

2. Revenue from contracts with customers and other income

Revenue and other income is analysed as follows:

Revenue by category

For the year ended 31 March

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.

Alternative performance measures are used to supplement the statutory figures. See page 207.

Other income

Revenue and profit after tax of associates and joint ventures was £12.2m and £0.4m respectively (2021: revenue of £12.6m and profit after

tax of £1.1m). 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

2022

2021

Services

contracts with customers 1,234.4 1,189.4

Sale of goods contracts with customers

82.9 83.0

Royalties and licences

3.1

5.8

Total r

evenue

1,320.4 1,278.2

Less: adjust current year for acquired businesses

(2.6)

–

Less: adjust prior year for

disposed businesses

–

(16.8)

Adjust to constant prior year exchange rates

10.3 –

Total revenue on an organic, constant currency basis

1,328.1 1,261.4

Organic revenue growth at constant currency

10%

All figures in £ million

2022

2021

Share of associates

’ and joint ventures’ profit after tax 0.3 0.7

Other income

9.5 9.2

Other income – underlying

9.8 9.9

Specific adjusting item: gain on sale of property (note 4)

0.7

0.1

Total other income

10.5 10.0

All figures in £ million

2022

2021

153.0

215.6

Australia

98.2 77.9

Europe

76.9 88.2

Rest of world

30.4 38.7

International

358.5 420.4

United Kingdom

961.9 857.8

Total revenue

1,320.4 1,278.2

International revenue %

27%

33%

Revenue from ‘home countries’ (UK, US and Australia)

1,213.1 1,151.3

Home countries revenue %

92%

90%

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155

FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Notes to the Consolidated Financial Statements

cont

inued

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155

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 32% (£897.8m) of revenue allocated to unsatisfied contracts as of 31 March 2022 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 £157.3m 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

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.

Definitions of the Group’s ‘Alternative performance measures’ can be found on page 207.

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

2022

2021

UK government

881.7

794.6

US government

104.7

140.8

Other

334.0

342.8

Total revenue

1,320.4

1,278.2

All figures in £ million

2023

2024

2025

2026+

Total

Total f

orecast revenue allocated to unsatisfied performance obligations

897.8 564.7 426.0 940.3 2,828.8

ll 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

2022

2021

ll figures in £ million

Revenue

from

external

customers

Underlying

operating

profit

Revenue

from

external

customers

Underlying

operating

profit

EMEA Services

1,059.2

135.6

939.9

118.6

Global Products

261.2

1.8

338.3

33.2

Total operating segments

1,320.4

137.4

1,278.2

151.8

Underlying operating margin

10.4%

11.9%

QinetiQ Group plc Annual Report & Accounts 2022

156

Notes to the

Consolidated

Financial Statements

continued

For the year ended

31 March

Notes to the Consolidated Financial Statements

For the year ended 31 March

QinetiQ Groupplc Annual ReportandAccounts 2022

156

3. Segmental analysis (continued)

Reconciliation of segmental results to total profit

Prior year comparatives have been restated due to a change in accounting policy in respect of software implementation costs. See note 38 for details.

Non-current assets* by geographic location

*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 2022

For the year ended 31 March 2021

All figures in £ million

Note

2022

2021^

Underlying operating profit

137.4 151.8

Specific adjusting items operating

loss 4 (19.9)

(43.1)

Operating profit

117.5

108.7

(Loss)/gain on business divestments

(0.9)

28.4

Gain on sale of investments

–

0.3

Net finance income

3.1

5.2

Profit before tax

119.7

142.6

Taxation expense

(29.7)

(20.7)

Profit for the year

90.0

121.9

All figures in £ million

UK USA Germany

Rest of

world Total

Year ended 31 March 2022

491.7

129.8

47.8

34.9

704.2

Year ended 31 March 2021 - restated

463.5

132.2

41.6

38.5

675.8

All figures in £ million

EMEA

Services

Global

Products Total

Depreciation and impairment of property, plant and equipment

39.9

6.8

46.7

Amortisation of purchased or internally developed intangible assets

3.4 2.0 5.4

43.3

8.8

52.1

ll figures in £ million

EMEA

Services

Global

Products Total

Depreciation and impairment of property, plant and equipment

38.7

6.9

45.6

Amortisation of purchased or internally developed intangible assets

3.3

1.4

4.7

42.0

8.3

50.3

QinetiQ Group plc Annual Report & Accounts 2022

157

FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Notes to the Consolidated Financial Statements

continued

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157

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:

Reconciliation of underlying profit for the year to total profit for the year

^ Prior year comparatives have been restated due to a change in accounting policy in respect of software implementation costs. See note 38 for details.

* Bonuses awarded on acquisition (and subsequently paid) to key employees within the US MTEQ business (now the C5ISR business) acquired in December 2019.

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:

The aggregate payroll costs of these persons were as follows:

All figures in £ million

Note

2022

2021^

Acquisition transaction costs

–

(1.0)

Unsuccessful acquisition costs

(3.7)

–

Acquisition related remuneration costs*

(1.3)

(1.8

)

Pension past service cost

(2.4)

–

Change in accounting policy in respect of software implementation costs^

38 (1.9)

(3.6)

Fair value adjustment in respect of contingent consideration

0.6 –

Operating costs excluding depreciation and amortisation

(8.7)

(6.4

)

Gain on sale of

property 0.7 0.1

Specific adjusting items

loss before interest, tax, depreciation and amortisation

(8.0)

(6.3

)

Impairment of property

(1.2)

(0.5)

Impairment of goodwill

14 –

(25.4)

Amortisation of intangible assets arising from

acquisitions (10.7)

(10.9)

Specific adjusting items operating

loss

(19.9)

(43.1

)

(Loss)/g

ain on disposal of businesses 13 (0.9)

28.4

Gain on disposal of investment

17 – 0.3

Defined benefit pension scheme net finance

income 28 4.5 7.1

Specific adjusting items

loss before tax

(16.3)

(7.3

)

Specific adjusting items

– tax 9 4.1 3.1

Deferred tax impact of change in future UK corporation tax rate

9 (15.9)

–

Total

specific adjusting items loss after tax

(28.1)

(4.2

)

All figures in £ million

2022

2021^

Underlying profit after tax – total Group

118.1 126.1

Total

specific adjusting items loss after tax (28.1

)

(4.2)

Total profit for the year

90.0 121.9

As at 31 March

Monthly average

2022

Number

2021

Number

2022

Number

2021

Number

EMEA Services

6,036 5,867 5,992 5,673

Global Products

879 1,023 919 1,201

Total

employees

6,915 6,890 6,911 6,874

All figures in £ million

Note

2022

2021

Wages and salaries

369.7 381.7

Social security costs

37.9 35.1

Pension costs

49.4 45.5

-based payments costs 30 7.8 11.2

Total

employee costs

464.8 473.5

QinetiQ Group plc Annual Report & Accounts 2022

158

Notes to the

Consolidated

Financial Statements

continued

For the year ended

31 March

Notes to the Consolidated Financial Statements

For the year ended 31 March

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158

6. Directors and other senior management personnel

The Directors and other senior management personnel of the Group during the year to 31 March 2022 comprise the Board of Directors and

the Global Leadership Team and their remuneration and benefits are summarised below:

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 on page 120 of the Directors’

Remuneration Report.

7. Finance income and expense

For the year ended 31 March

8. Profit before tax

The following auditors’ remuneration has been charged in arriving at profit before tax:

The following items have also been charged in arriving at profit before tax:

ll figures in £ million 2022 2021

Cost of inventories expensed

^ 47.1 35.8

Owned assets: depreciation

40.3 37.2

Leased assets: depreciation

5.9 8.4

Foreign exchange

(gain)/loss (0.7)

0.5

Research and development expenditure

– customer funded contracts 287.5 281.9

Research and development expenditure

– Group funded 14.6 18.5

^ The 2021 cost of inventories expensed was incorrectly reported as £10.2m in the 2021 financial statements and has been restated.

All figures in £ million

2022

2021

Short

-term employee remuneration including benefits 9.2 9.4

Post

-employment benefits 0.1 0.1

-based payments costs 1.7 2.1

Total

11.0 11.6

All figures in £ million

2022

2021

Receivable on bank deposits

0.5 0.3

Finance income before specific adjusting items

0.5 0.3

Amortisation of

deferred financing costs (0.4)

(0.4)

Bank interest and commitment fees

(0.5)

(0.6)

Lease expense

(1.0)

Unwinding of discount on

financial liabilities

– (0.2)

Finance expense before specific adjusting items

(1.9)

(2.2)

Underlying net finance expense

(1.4)

(1.9)

Plus: specific adjusting items

– defined benefit pension scheme net finance income 4.5 7.1

Net finance income

3.1 5.2

All figures in £ million

2022

2021

Fees payable to the auditor and its associates:

Audit of the Group’s annual accounts

0.5 0.6

Audit of the accounts of subsidiaries of the Company

0.6 0.5

Total audit fees

1.1 1.1

Audit

-related assurance services (Interim financial statements) 0.1 0.1

Other assurance services

– M&A 0.5 –

Other assurance

services – other 0.1 –

Total

non-audit fees

0.7 0.1

Total auditors’ remuneration

1.8 1.2

QinetiQ Group plc Annual Report & Accounts 2022

159

FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Notes to the Consolidated Financial Statements

continued

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159

Financial Statements

9. Taxation

^ Prior year comparatives have been restated due to a change in accounting policy in respect of software implementation costs. See note 38 for details.

The total tax charge was £29.7m (2021 restated: £20.7m), with specific adjusting items driving the increase, see below. The underlying tax

charge was £17.9m (2021: £23.8m), on lower underlying profit before tax, with an underlying effective tax rate of 13.2% for the year ending

31 March 2022 (2021: 15.9%). The underlying 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

underlying effective tax rate before the impact of RDEC would be 17.3% (2021: 19.4%). The impact of RDEC is shown net of £9.5m (2021:

£10.6m) appropriated by the MOD (see note 36 for details). Within other creditors there are provisions for payments of MOD appropriations

awaiting the resolution of an SSRO decision with regard to RDEC which may give rise to a reversal of the creditor and to an increased benefit

from RDEC in the income statement in the current and future periods (see note 37).

Tax on specific adjusting items

A £15.9m charge in respect of the impact on UK deferred tax balances due to the UK corporation tax rate change from 19% to 25% has been

classified as a specific adjusting item. Together with a £4.1m of income (2021 restated: income of £3.1m) in respect of the pre-tax specific

adjusting items (see note 4), the total specific adjusting items tax expense was £11.8m (2021 restated: income of £3.1m).

Factors affecting future tax charges

The effective tax rate is expected to remain below the UK statutory rate, subject to the impact of any tax legislation changes, the geographic

mix of profits and the assumption that RDEC retained by the Group remain in the tax line. Future recognition of unrecognised tax losses will

also affect future tax charges. The OECD has released model rules for Pillar II of the Base Erosion and Profit Shifting regulations covering

application of a Global Minimum Tax. The Group is monitoring progress of these rules and management’s initial view is that they are not

expected to have a material effect on the tax charge.

2022

2021^

ll figures in £ million

Underlying

Specific

adjusting

items Total

Underlying

Specific

adjusting

items Total

Analysis of charge

Current UK tax

expense/(income) 20.6 (0.2) 20.4 12.3 (0.4) 11.9

Current UK tax in respect of prior years

(4.0) –

(4.0)

(1.6) – (1.6)

Overseas corporation tax

Current year

4.0 (0.2) 3.8 3.7 (0.4) 3.3

respect of prior years – – – (0.4) – (0.4)

Current tax expense/(income)

20.6

(0.4)

20.2 14.0

(0.8)

13.2

Deferred tax (income)

/expense (4.0) (3.7) (7.7

)

8.7 (1.9) 6.8

Deferred tax impact of change in rates

0.3 15.9 16.2 – – –

Deferred tax in

respect of prior years 1.0 – 1.0 1.1 (0.4) 0.7

Deferred tax (income)

/expense

(2.7) 12.2 9.5 9.8 (2.3) 7.5

Taxation expense/(income)

17.9 11.8 29.7 23.8 (3.1) 20.7

Factors affecting tax expense/(income) in the year

Principal factors reducing the Group’s current year tax charge

below the UK statutory rate are explained below:

Profit

/(loss) before tax 136.0 (16.3) 119.7 149.9 (7.3) 142.6

Tax on profit

/loss before tax at 19% (2021: 19%)

25.8

(3.1)

22.7

28.5

(1.4)

27.1

Effect of:

Expenses not deductible for tax purposes and non

-taxable items (1.2) – (1.2

)

0.6 (0.5) 0.1

ax in respect of prior years (3.0) – (3.0

)

(0.9) (0.4) (1.3)

Research and development expenditure credits

(5.1) –

(5.1)

(5.1) – (5.1)

Recognition

of deferred tax asset

3.3 – 3.3 (1.1) – (1.1)

Deferred tax impact of change in rates

0.3 15.9 16.2 – – –

ifferent tax rates in overseas jurisdictions

(2.2) (1.0)

(3.2)

1.8 (0.8) 1.0

Taxation expense/(income)

17.9

11.8

29.7

23.8

(3.1)

20.7

Effective tax rate

13.2% 24.8% 15.9% 14.5%

QinetiQ Group plc Annual Report & Accounts 2022

160

Notes to the

Consolidated

Financial Statements

continued

For the year ended

31 March

Notes to the Consolidated Financial Statements

For the year ended 31 March

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160

9. Taxation (continued)

Changes in tax rates

In the Spring Budget 2021, the UK Government announced that from 1 April 2023 the corporation tax rate will increase from 19% to 25%. The

25% rate has been substantively enacted at the balance sheet date. An adjustment has been made to reflect that a portion of the UK deferred

tax balances are expected to unwind at the new rate of 25%. The adjustment has been recorded as a specific adjusting item tax expense to

the Consolidated income statement of £15.9m and an expense of £20.6m to the Consolidated comprehensive income statement, increasing

the deferred tax liability by £36.5m. US deferred tax balances have not yet been adjusted for a potential increase in the US federal tax rate, as

an increase has not yet been passed into law.

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’.

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

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

Basic and diluted EPS

For the year ended 31 March

Prior year comparatives have been restated due to a change in accounting policy in respect of software implementation costs. See note 38 for details.

2022

2021

Weighted average number of shares

Million

573.2 569.7

Effect of dilutive securities

Million

6.4

6.1

Diluted number of shares

Million

579.6 575.8

2022

2021^

Profit at

tributable to the owners of the Company £ million 90.0 121.7

Remove loss after tax in respect of specific adjusting items

£ million

28.1

4.2

Underlying profit after taxation

£ million

118.1 125.9

Weighted average number of shares

Million 573.2 569.7

Underlying basic EPS

Pence

20.6

22.1

Diluted number of shares

Million

579.6

575.8

Underlying diluted EPS

Pence

20.4

21.9

2022

2021^

Profit attributable to the owners of the Company

£ million

90.0

121.7

Weighted average number of shares

Million

573.2

569.7

Basic EPS – total Group

Pence

15.7

21.4

Diluted number of shares

Million

579.6

575.8

Diluted EPS

– total Group

Pence

15.5 21.1

QinetiQ Group plc Annual Report & Accounts 2022

161

FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Notes to the Consolidated Financial Statements

continued

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161

Financial Statements

11. Dividends

An analysis of the dividends paid and proposed in respect of the years ended 31 March 2022 and 31 March 2021 is provided below:

The proposed final dividend in respect of the year ending 31 March 2022 will be paid on 25 August 2022. The ex-dividend date is 28 July

2022 and the record date is 29 July 2022

12. Business combinations

There were no acquisitions in the year to 31 March 2022. Deferred consideration of £0.8m has been paid in respect of the prior year

acquisition of QinetiQ Training & Simulation Limited (formerly known as Newman & Spurr Consultancy Limited).

Acquisitions in the year to 31 March

13. Loss/gain on business divestments

Deferred consideration of £1.5m was potentially receivable in respect of the Commerce Decisions business, contingent on performance of

the disposed business in the year to 31 March 2022. The fair value of which had been estimated at £0.9m as at 31 March 2021. The required

performance was not achieved, nil deferred consideration became due and the receivable has been written off to the income statement in the

current year, classified as a specific adjusting item.

Pence

per share £m

Date paid/

payable

Interim 2022

2.3

13.2

Feb 2022*

Final 2022 (proposed)

5.0

28.8

Aug 2022

Total for the year ended 31 March

2022

7.3 42.0

Interim 2021

2.2

12.6

Feb 2021

Final 2021

4.7

27.0

Aug 2021*

Total for the year ended 31 March 2021

6.9

39.6

*Total cash paid in the year to 31 March 2022 was £40.2m (2021: £37.7m)

All figures in £ million

2022 2021

Naimuri Limited

–

28.4

Inzpire Group Limited

–

3.9

Less: cash acquired within Naimuri Limited

–

(4.0)

QinetiQ Training & Simulation Limited

0.8

0.2

Total acquisitions cash outflow

0.8

28.5

All figures in £ million

2022

2021

Boldon James

business (comprising Boldon James Limited) – 19.3

Commerce Decisions business (comprising Commerce Decisions Limited and Commerce Decisions Pty Ltd)

(0.9)

1.6

OptaSense business (comprising OptaSense Holdings Limited and subsidiary companies)

–

7.5

(Loss)/g

ain on business divestments

(0.9)

28.4

QinetiQ Group plc Annual Report & Accounts 2022

162

Notes to the

Consolidated

Financial Statements

continued

For the year ended

31 March

Notes to the Consolidated Financial Statements

For the year ended 31 March

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162

14. Goodwill

Goodwill analysed by cash-generating unit (CGU)

Goodwill is allocated across five cash-generating units (CGUs) within the EMEA Services segment and four CGUs within the Global Products

segment. The full list of CGUs that have goodwill allocated to them is as follows:

Goodwill is attributable to the excess of consideration over the fair value of net assets acquired and includes expected synergies, future growth

prospects and employee knowledge, expertise and security clearances. The Group tests each CGU for impairment annually, or more frequently

if there are indications that goodwill might be impaired. Impairment testing is dependent on management’s estimates and judgements,

particularly as they relate to the forecasting of future cash flows, the discount rates selected and expected long-term growth rates. As a result

of impairment in prior years, QinetiQ Germany has limited headroom (26%) and a critical sensitivity is discussed further below. US Technology

Solutions also displays limited headroom (23%) reflecting the balance of opportunity and risk of securing new government contracts as the

business responds from its recent short-term challenges, discussed further below. However, alongside all other CGUs, management considers

that there are no likely variations in the key assumptions which would lead to an impairment being recognised.

Key assumptions

Cash flows

The value-in-use calculations generally use discounted future cash flows based on financial plans approved by the Board covering a five-year

period (aligned with the Group’s Integrated Strategic Business Plan process and the longer-term viability assessment period). These are

‘bottom-up’ forecasts based on detailed analysis by contract for the revenue under contract and by opportunity for the pipeline. Pipeline

opportunities are categorised as ‘base case’ and ‘high case’ by management and only ‘base case’ opportunities are included in the financial

plans used for the value-in-use calculations.

Cash flows for periods beyond these periods are extrapolated based on the last year of the plans, with a terminal growth-rate assumption

applied. Whilst the Group will likely be impacted by climate change in the future to an extent, the impacts on future cash flows used in the

value-in-use calculations are not considered to be material.

Terminal growth rates and discount rates

The specific plans for each of the CGUs have been extrapolated using the terminal growth rates as detailed in the following table. 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 in £ million

2022

2021

Cost

At 1 April

287.6 307.9

Acquisitions

– 15.0

Disposals

–

(17.2)

Foreign exchange

8.5

(18.1)

At 31 March

296.1 287.6

Impairment

At 1 April

(142.1)

(127.1)

Disposals

– 0.2

Impairment in year

–

(25.4)

Foreign exchange

(4.6)

10.2

At 31 March

(146.7)

(142.1)

Net book value at 31 March

149.4 145.5

All figures in £ million

Primary reporting segments

2022

2021

US Technology Solutions

Global Products 41.5 39.6

MTEQ US C5ISR

Global Products 34.6 33.0

Target Systems

Global Products

24.7

24.3

Space Products

Global Products 5.6 5.7

QinetiQ G

ermany EMEA Services 2.6 2.7

Inzpire

EMEA Services 11.7 11.7

QinetiQ Training &

Simulation Limited EMEA Services 7.8 7.8

Naimuri Limited

EMEA Services

14.8

Australia

EMEA Services

6.1 5.9

Net book value at 31 March

149.4 145.5

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163

FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Notes to the Consolidated Financial Statements

continued

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163

Financial Statements

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

US Technology Solutions

The carrying value of the goodwill for the US Technology Solutions CGU was £41.5m as at 31 March 2022 (2021: £39.6m). The recoverable

amount of this CGU as at 31 March 2022, based on value in use and calculated using the assumptions noted above, is higher than the carrying

value of net operating assets (of £98.5m). The key sensitivity impacting on the value in use calculations is the terminal year cash flows. These

cash flows include certain assumptions around a turnaround in 2023 from a period of softened performance in 2022 which is then sustained

through growth of new product lines in development, with clear market opportunity, and winning identified future government contracts. US

organic revenue reduced by 21% compared to prior year with the second half revenue performance recovery slower than expected due to the

US defence budget being constrained by the extended Continuing Resolution. Confidence remains in the turnaround in FY23 having secured

significant growth in order intake in FY22 which, coupled with a new leadership team provides a strong foundation for delivery of our strategy

in the US. An increase in the discount rate of 1%, a decrease in the terminal growth rate of 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.

US C5ISR (previously MTEQ)

The carrying value of the goodwill for the US C5ISR CGU as at 31 March 2022 was £34.6m (2021: £33.0m). The recoverable amount of this

CGU as at 31 March 2022, based on value in use and calculated using the assumptions noted above, is higher than the carrying value of net

operating assets (of £82.0m). The key sensitivity impacting on the value in use calculations is the terminal year cash flows. An increase in

the discount rate of 1%, a decrease in the terminal growth rate of 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 2022 was £24.7m (2021: £24.3m). The recoverable amount

of this CGU as at 31 March 2022, based on value in use and calculated using the assumptions noted above, is higher than the carrying value

of net operating assets (of £85.0m). The key sensitivity impacting on the value in use calculations is the terminal year cash flows. An increase

in the discount rate of 1%, a decrease in the terminal growth rate of 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.

Germany

The carrying value of the goodwill for the Germany CGU as at 31 March 2022 was £2.6m (2021: £2.7m). Our German operations generally

performed below expectations in the year, however its core contract is in the process of being extended to June 2023 and increased in scope,

underpinning performance in future years. Whilst a further impairment is a risk (following a £25m impairment in 2021) if additional contracts

are not won, or the core contract is not successfully re-tendered in June 2023, the current forecasts result in a small headroom when

comparing discounted future cash flows to carrying value of assets. The key sensitivity impacting on the value in use calculations is the

terminal year cash flows, with the core contract contributing approximately one third of the business’s revenue in the terminal year (2027).

Should this key contract not be successfully won (on a long-term basis) in June 2023 then there would be a significant decrease in future

cash flows and this would lead to full impairment of the residual £2.6m carrying value of goodwill together with an impairment charge of

approximately £1.3m against the £26.8m carrying value of intangible assets. An increase in the discount rate of 1% or a decrease in the

terminal growth rate of 1% would decrease the headroom by £7.0m and £5.3m respectively.

Inzpire

The carrying value of the goodwill for the Inzpire CGU as at 31 March 2022 was £11.7m (2021: £11.7m). The recoverable amount of this CGU

as at 31 March 2022, based on value in use and calculated using the assumptions noted above, is higher than the carrying value of net

operating assets (of £25.8m). The key sensitivity impacting on the value in use calculations is the terminal year cash flows. An increase in

the discount rate of 1%, a decrease in the terminal growth rate of 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.

Naimuri

The carrying value of the goodwill for the Naimuri CGU as at 31 March 2022 was £14.8m (2021: £14.8m). The recoverable amount of this

CGU as at 31 March 2022, based on value in use and calculated using the assumptions noted above, is higher than the carrying value of net

operating assets (of £25.8m). The key sensitivity impacting on the value in use calculations is the terminal year cash flows. An increase in

the discount rate of 1%, a decrease in the terminal growth rate of 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.

All figures %

2022

: (2021)

Technology

Solutions

Target

Systems

Space NV

US C5ISR

Inzpire

Australia

QinetiQ

Germany

QinetiQ

Training &

Simulation

Naimuri

Terminal growth rate

2.3 (2.1) 2.1 ( 1.7) 2.1 (1.7) 2.3 (2.1) 2.1 (1.7) 2.3 (2.3) 1.6 (1.5) 2.1 (1.7) 2.1 (1.7)

Pre

-tax discount rate 10.8 (11.3) 11.6 (12.2) 11.5 (11.9) 10.8 (11.3) 12.2 (12.8) 9.4 (10.0) 9.1 (9.3) 11.5 (12.3) 12.2 (12.2)

QinetiQ Group plc Annual Report & Accounts 2022

164

Notes to the

Consolidated

Financial Statements

continued

For the year ended

31 March

Notes to the Consolidated Financial Statements

For the year ended 31 March

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164

15. Intangible assets

For the year ended 31 March 2022

^ Includes Assets In Course Of Construction of closing net book value of £14.0m (2021 restated: £7.1m).

Additions per the table above are different to 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 US C5ISR (formerly known as MTEQ), Germany and QinetiQ Training & Simulation Limited

(formerly known as Newman & Spurr Consultancy Limited) (£15.7m; £24.3m; £3.3m respectively) with remaining amortisation periods of

approximately 8 years, 10 years and 10 years respectively, and acquired technology associated with US C5ISR, Germany, and QinetiQ Training

& Simulation Limited (£13.5m; £3.3m; £2.1m respectively) all with remaining amortisation periods of approximately 8 years.

For the year ended 31 March 2021

^ Includes Assets In Course Of Construction with net book value at 31 March 2021 restated of £9.6m.

* Prior year comparatives have been restated due to a change in accounting policy in respect of software implementation costs. See note 38 for details.

Acquired intangibles

ll figures in £ million

Customer

relationships Other

Development

costs

Other

intangibles^ Total

Cost

1 April 2021 restated 112.5 82.8 28.2 54.9 278.4

Reclassifications from PPE

– –

(0.1)

6.0 5.9

Additions

– internally developed

– – 3.4 5.8 9.2

Additions

– purchased

– – – 6.4 6.4

Disposal

– (4.0)

– (1.7)

.7)

Foreign exchange

2.0 2.7 0.1 0.6 5.4

At 31 March

2022

114.5 81.5 31.6 72.0 299.6

Accumulated a

mortisation and impairment

At 1 April

2021

(40.1)

(54.4)

(16.8)

(34.0)

(145.3)

Amortisation charge for year

(8.0)

(2.7)

(2.1)

(3.3)

(16.1)

Disposal

– 4.0 – 1.7 5.7

Foreign exchange

(1.0)

(2.3)

– (0.3)

(3.6)

At 31 March

2022

(49.1)

(55.4)

(18.9)

(35.9)

(159.3)

Net book value at 31 March 2022

65.4 26.1 12.7 36.1 140.3

Acquired intangibles

ll figures in £ million

Customer

relationships Other

Development

costs

Other

intangibles^ Total

Cost

31 March 2020 117.5

98.7

27.4

68.2

311.8

Change in accounting policy

- software implementation costs – – –

(2.5)

At 1 April 2020 restated

* 117.5 98.7 27.4 65.7 309.3

Reclassifications from PPE

– – – 0.1 0.1

Reclassifications

– (2.5)

8.5 (6.0

)

–

Additions

– internally developed*

– – 2.5 1.7 4.2

Additions

– purchased

–

0.1

6.4

6.5

Additions

– recognised on acquisition 9.3 1.9 – – 11.2

Business divestments

(8.9)

(9.0)

(10.3)

(12.1)

(40.3)

Foreign exchange

(5.4)

(6.3)

–

(0.9)

(12.6)

At 31 March

2021 restated*

112.5 82.8 28.2 54.9 278.4

Accumulated a

mortisation and impairment

At 1 April

2020

(44.4)

(63.8)

(21.6)

(43.1)

(172.9)

Amortisation charge for year

(7.7)

(3.2)

(2.4)

(2.3)

(15.6)

Reclassifications

– 0.7 (0.9)

0.2 –

Business divestments

8.9 7.7 8.1 10.9 35.6

Foreign exchange

3.1 4.2 – 0.3 7.6

31 March 2021

(40.1)

(54.4)

(16.8)

(34.0)

(145.3)

Net book value at 31 March

2021 restated*

72.4 28.4 11.4 20.9 133.1

QinetiQ Group plc Annual Report & Accounts 2022

165

FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Notes to the Consolidated Financial Statements

continued

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165

Financial Statements

16. Property, plant and equipment

For the year ended 31 March 2022

* Additions per the table above are different to 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 2021

Owned assets

Right of use assets

ll figures in £ million

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 Total

Cost

At 1 April 2020

325.6

264.2

70.5

84.6

56.1

17.6

0.4

819.0

Reclassifications to intangibles

–

(0.1)

–

(0.1)

Reclassifications/transfers

19.8

10.0 13.9

(43.7)

– – – –

Additions

– purchased* 11.0 8.9 5.8 36.7 11.1 –

–

73.5

Additions

- recognised on acquisition 0.1 0.2 0.1 – 1.2 – – 1.6

Disposals

(1.7)

(26.7)

(5.0)

(0.3)

(5.5)

(0.3)

–

(39.5)

Business divestments

(0.3)

(5.6)

(3.1)

–

(4.8)

–

(13.8)

Foreign exchange

(0.7)

(2.1)

(0.3)

(3.3)

(0.4)

– (7.1)

At 31 March

2021

353.8

248.9

81.9

76.9

54.8

16.9

0.4

833.6

Accumulated d

epreciation and impairment

At 1 April 2020

(183.9)

(167.8)

(42.4)

–

(36.6)

(12.4)

(0.3)

(443.4)

Charge

(12.0)

(15.5)

(9.7)

–

(5.6)

(2.7)

(0.1)

(45.6)

Disposals

1.7 26.2 4.9 – 4.1 0.2 – 37.1

Business divestments

0.3 4.7 2.9 – 3.1 – – 11.0

Impairment

(0.5)

– – – – – – (0.5)

Foreign exchange

0.6

1.6

0.3

–

2.0

0.5

–

5.0

At 31 March 2021

(193.8)

(150.8)

(44.0)

– (33.0)

(14.4)

(0.4)

(436.4)

Net book value at 31 March 2021

160.0

98.1

37.9

76.9

21.8

2.5

–

397.2

* Additions per the table above are different to 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.

Owned assets

Right of use assets

ll figures in £ million

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

Total

Cost

1 April 2021 353.8 248.9 81.9 76.9 54.8 16.9 0.4 833.6

Reclassifications to intangibles

(4.6)

–

(1.2)

(0.1)

–

(5.9)

Reclassifications/transfers

1.0

4.3

20.2

(26.9)

–

(1.4)

Additions

– purchased* 0.5 23.0 2.5 47.3 1.3 0.5 – 75.1

Disposals

(0.6)

(2.5)

(1.0)

(2.9)

(1.5)

(0.7)

– (9.2)

Foreign exchange

0.5 0.8 0.4 0.2 1.9

(0.1)

– 3.7

At 31 March

2022

350.6 274.5 102.8 94.5

56.5 16.6 0.4

895.9

Accumulated d

epreciation and impairment

At 1 April

2021

(193.8)

(150.8)

(44.0)

– (33.0)

(14.4)

(0.4)

(436.4)

Charge

(10.5)

(16.7)

(13.1)

– (4.7)

(1.2)

– (46.2)

Reclassifications/transfers

– 1.4 – – – – – 1.4

Disposals

0.2

2.1

0.9

–

1.2

–

4.4

Impairment

–

(0.1)

(0.4)

(1.2)

–

(1.7)

Foreign exchange

(0.4)

(0.8)

(0.4)

- (1.4)

0.1 – (2.9)

At 31 March 2022

(204.5)

(164.8)

(56.7)

(0.4)

(39.1)

(15.5)

(0.4)

(481.4)

Opening n

et book value

160.0 98.1 37.9 76.9

21.8 2.5

–

397.2

Closing Net Book value

146.1

109.7

46.1

94.1

17.4

1.1

–

414.5

QinetiQ Group plc Annual Report & Accounts 2022

166

Notes to the

Consolidated

Financial Statements

continued

For the year ended

31 March

Notes to the Consolidated Financial Statements

For the year ended 31 March

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166

17. Equity accounted investments

As at 31 March

In the prior 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 2022

Deferred tax asset

Deferred tax liability

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.

2022

2021

ll figures in £ million

JV’s and

associates

financial

results

Group net

share of

JV’s and

associates

JV’s and

associates

financial

results

Group net

share of

JV’s and

associates

Non

-current assets 0.6 0.3 0.7 0.3

Current assets

9.1 5.1 12.9 6.5

9.7 5.4 13.6 6.8

Current liabilities

(4.3)

(2.1)

(4.1)

(2.0)

Non

-current liabilities

(1.4)

(0.7)

(1.3)

(0.6)

(5.7)

(2.8)

(5.4)

(2.6)

Net assets of joint ventures and associates

4.0 2.6 8.2 4.2

Net asset

s of joint ventures 0.9 1.0

Net assets of associate

1.7

3.2

Net assets of joint ventures and associates

2.6 4.2

ll figures in £ million

Short-term

timing

differences

Carried

forward

interest

expense

Lease

liabilities

Tax

losses Total

At 1 April 2021

12.7

1.4

5.1

8.5

27.7

redited/(charged) to income statement 3.1 (1.4)

(1.2)

12.5 13.0

Charged

to other comprehensive income (0.9)

– – –

(0.9)

Charged

to equity (0.7)

– – –

(0.7)

Transferred to current tax

(0.2)

– – –

(0.2)

Foreign exchange

0.7

–

0.1

0.7

1.5

Gross deferred tax asset at 31 March

2022

14.7 – 4.0 21.7 40.4

Less: liability available for offset

(19.4

)

Net deferred tax asset at 31 March

2022

21.0

ll figures in £ million

Pension

surplus

Owned

property,

plant &

equipment

Right of use

assets

Acquisition

intangibles Total

At 1 April 2021

(45.5)

(33.5)

(4.7)

(22.0)

(105.7)

(

Charged)/credited to income statement (3.3)

(20.7)

1.4 0.1 (22.5)

harged to other comprehensive income (47.6)

– – – (47.6)

Foreign exchange

–

(0.1)

(0.3)

Gross deferred tax liability at 31 March

2022

(96.4)

(54.3)

(3.4)

(22.0)

(176.1)

Less: asset available for offset

19.4

Net deferred tax liability at 31 March

2022

(156.7)

QinetiQ Group plc Annual Report & Accounts 2022

167

FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Notes to the Consolidated Financial Statements

continued

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167

Financial Statements

At 31 March 2022 the Group had unused tax losses and US carried forward interest expense of £128.1m (2021: £73.2m) which are available

for offset against future taxable profits. Deferred tax assets are recognised on the balance sheet of £15.5m in respect of £59.7m of US net

operating losses, £4.5m in respect of £19.0m of Canadian net operating losses and £1.8m in respect of £5.5m of German trade losses. No

deferred tax asset is recognised in respect of the £43.8m of US interest deductions due to uncertainty over the timing and extent of their

utilisation. Full recognition of the US carried forward interest expense would increase the deferred tax asset by £11.8m. The Group has £30.5m

of time-limited US net operating losses of which £21.5m will expire in 2035 and £9.0m in 2036. The Group made overseas losses in the period

ended 31 March 2022 and recognition of deferred tax assets is dependent on future forecast taxable profits. The Group has reviewed the

latest forecasts for these businesses which incorporate the unsystematic risks of operating in the defence business. In the period beyond

the 5 year forecast we have reviewed the terminal period profits and based on these and our expectations for these businesses we believe it

is probable the losses, with the exception of the interest deductions will be fully utilised. Based on the current forecasts the losses will be fully

utilised over the next 6-8 years. A 10% change in the forecast profits would alter the utilisation period by 1 year.

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 2021

Deferred tax asset

Deferred tax liability

19. Current tax

As at 31 March

^ Prior year comparatives have been restated due to a change in accounting policy in respect of software implementation costs. See note 38 for details.

ll figures in £ million

Intellectual

property

Short-term

timing

differences

Carried

forward

interest

expense

Lease

liabilities

Tax

losses Total

At 1 April

2020 0.3 15.6 – – 7.8 23.7

(Charged)/credited to income statement

(0.1)

(1.2)

– – 1.3 –

Credited to other comprehensive income

–

1.0

–

1.0

Credited to equity

– 0.5 – – – 0.5

Transferred to current tax

– (0.3)

– – – (0.3)

Eliminated on disposal of businesses

(0.2)

– – – – (0.2)

Reclassification

– (1.8)

1.4 5.1 – 4.7

Foreign exchange

–

(1.1)

–

(0.6)

(1.7)

Gross deferred tax asset at 31 March

2021

–

12.7 1.4 5.1 8.5 27.7

Less: liability available for offset

(16.0)

Net deferred tax asset at 31 March 2021

11.7

ll figures in £ million

Pension

surplus

Owned

property,

plant &

equipment

Right of use

assets

Acquisition

intangibles Total

At 1 April

2020

(63.8)

(26.8)

– (21.1)

(111.7)

(

Charged)/credited to income statement (1.5)

(6.8)

– 0.8 (7.5)

redited to other comprehensive income 19.8 – – – 19.8

Acquired in business combination

– – – (2.1)

(2.1)

Reclassification

–

(4.7)

–

(4.7)

Foreign exchange

–

0.1 – 0.4 0.5

Gross deferred tax liability at 31 March 2021

(45.5)

(33.5)

(4.7)

(22.0)

(105.7)

Less: asset available for offset

16.0

Net deferred tax liability at 31 March 2021

(89.7)

ll figures in £ million 2022 2021^

Current tax receivable

1.4 0.7

Current tax payable

(3.9

)

(2.5)

Net

current tax payable (2.5

)

(1.8)

QinetiQ Group plc Annual Report & Accounts 2022

168

Notes to the

Consolidated

Financial Statements

continued

For the year ended

31 March

Notes to the Consolidated Financial Statements

For the year ended 31 March

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168

20. Inventories

As at 31 March

21. Trade and other receivables

As at 31 March

Trade and other receivables includes assets that are realised as part of the business’s normal operating cycle, including amounts of £2.3m

(2021: £11.2m) that are not expected to be realised within 12 months of the year end. Contract assets reduced in year primarily due to the

closure of a complex project (see Global Products operating review). 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 2022 the Group carried a loss allowance in respect of expected credit risk of £2.7m (2021: £3.6m).

Contract assets represents unbilled amounts recoverable under customer contracts (refer to accounting policies note 36).

Ageing of receivables and associated loss allowance for expected credit risk

As at 31 March 2022

As at 31 March 2021

Movements in the provision for expected credit loss

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.

All figures in £ million

2022

2021

Raw materials

32.5 36.0

Work in progress

6.2

5.6

Finished goods

16.2

12.8

Total inventory

54.9

54.4

All figures in £ million

2022

2021

Trade receivables

154.4 120.5

Contract assets

145.8 161.1

Other receivables

26.8

7.8

Prepayments

34.2 37.3

Total trade and other receivables

361.2

326.7

Current

Up to 30 days

past due

30-120 days

past due

>120 days

past due

Total

Gross carrying amount - trade receivables (£m)

136.7

7.9

6.8

5.7

157.1

Gross carrying amount

- contract assets (£m) 145.8 – – – 145.8

Expected loss rate

(%) – – – 47.4% 0.9%

Loss allowance (£m)

– – – 2.7 2.7

Current

Up to 30 days

past due

30-120 days

past due

>120 days

past due

Total

Gross carrying amount - trade receivables (£m)

98.5

10.7

11.9

3.0

124.1

Gross carrying amount

- contract assets (£m) 161.1 – – – 161.1

Expected loss rate

(%) 0.7% – 0.8% 53.3% 1.3%

Loss allowance (£m)

1.9 – 0.1 1.6 3.6

All figures in £ million

2022

2021

Trade

receivables

Contract

assets

Trade

receivables

Contract

assets

At 1 April

1.8 1.8 3.1 –

Increase in loss allowance recognised in income statement

1.8 – 1.4 1.8

Unutilised

amount reversed through income statement

(0.9)

(1.8)

(2.3)

–

Utilised (receivables written off)

–

(0.1)

–

Divestments

–

(0.2)

–

Foreign exchange

– –

(0.1)

–

At 31 March

2.7

–

1.8

QinetiQ Group plc Annual Report & Accounts 2022

169

FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Notes to the Consolidated Financial Statements

continued

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169

Financial Statements

22. Trade and other payables

As at 31 March

Current other payables includes £22m of RDEC payable to MOD. This is subject to a determination from the SSRO and it is possible that the

outcome could be that RDEC is retained by the Company, in which case the liability would be reversed to the income statement.

23. Provisions

For the year ended 31 March 2022

Property provisions relate to under-utilised properties. 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 6 years. Other provisions

includes £16m in respect of a civil liability for Pendine incident. This is offset in Other Receivables for an insurance recoverable. The balance

relates to environmental and other liabilities, the magnitude and timing of utilisation of which are determined by a variety of factors.

24. Net cash

As at 31 March

At 31 March 2022 the Group held £0.2m (2021: £5.6m) of cash which is restricted in its use.

All figures in £ million

2022

2021

Trade payables

76.1 77.3

Other tax and social security

64.6 43.7

Contract liabilities

182.5 157.3

Accrued expenses and other payables

139.5 133.4

Total current trade and other payables

462.7 411.7

Contract

liabilities 15.2 36.3

Other payables

23.6 15.7

Total non

-current trade and other payables

38.8 52.0

Total trade and other payables

501.5 463.7

ll figures in £ million Property

Other Total

At 1 April

2021 8.0 4.0 12.0

Created in year

1.0 16.5 17.5

Released in year

(0.5)

(1.0)

Utilised in year

(1.2)

(0.2)

(1.4)

At 31 March

2022

7.3 19.8 27.1

Current liability

2.8 18.3 21.1

Non

-current liability 4.5 1.5 6.0

At 31 March

2022

7.3 19.8 27.1

2022

2021

All figures in £ million

Assets

Liabilities

Net

Assets

Liabilities

Net

Current financial assets/(liabilities)

Deferred financing costs

0.4 – 0.4 0.4 – 0.4

Lease liabilities

–

(5.5)

–

(6.9)

Derivative financial instruments

0.2

(1.4)

(1.2)

0.5

(0.1)

0.4

Total current financial assets/(liabilities)

0.6

(6.9)

(6.3)

0.9

(7.0)

(6.1)

Non

-current assets/(liabilities)

Deferred

financing costs 0.5 – 0.5 0.8 – 0.8

Lease liabilities

–

(16.6)

–

(19.8)

Derivative financial instruments

–

(0.6)

–

(0.9)

Total non-current financial assets/(liabilities)

0.5

(17.2)

(16.7)

0.8

(20.7)

(19.9)

Total

financial assets/(liabilities)

1.1 (24.1

)

(23.0)

1.7

(27.7)

(26.0)

Cash

65.7 – 65.7 57.0 – 57.0

Cash equivalents

182.4 – 182.4 133.1 – 133.1

Total cash and cash equivalents

248.1 248.1 190.1 – 190.1

Total net cash as defined by the

Group

225.1 164.1

QinetiQ Group plc Annual Report & Accounts 2022

170

Notes to the

Consolidated

Financial Statements

continued

For the year ended

31 March

Notes to the Consolidated Financial Statements

For the year ended 31 March

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170

25. Cash flows from operations

For the year ended 31 March

Underlying cash conversion ratio

ll figures in £ million

2022

2021

Underlying EBITDA

– £ million 189.5 202.1

Underlying net cash flow from operations

– £ million 215.3 199.0

Underlying cash conversion ratio

^ – %

114% 98%

Prior year restated to reflect new definition of underlying cash conversion. See page 207.

All figures in £ million

2022

2021^

Profit after tax for the year

90.0 121.9

Adjustments for:

Taxation expense

29.7

20.7

Net finance

income (3.1)

(5.2)

Loss/(g

ain) on disposal of businesses 0.9

(28.4)

Gain on

disposal of investment –

(0.3)

Gain on sale of property

(0.7)

(0.1)

Impairment of plant and equipment

0.5

Impairment of property

1.2 –

Impairment of goodwill

– 25.4

Acquisition related remuneration costs not paid as at year end

– 1.8

Amortisation of purchased or internally developed intangible assets

5.4 4.7

Amortisation of intangible assets arising from acquisitions

10.7

10.9

Depreciation of property, plant and equipment

46.2 45.6

Loss

on disposal of plant and equipment - 1.0

Share of post

-tax profit of equity accounted entities (0.3)

(0.7)

-based payments charge 7.4 10.6

Retirement benefit contributions in excess of income statement expense

(1.8)

(1.6)

Pension past service cost

2.4

–

Fair value adjustment in respect of contingent consideration

(0.6)

–

Net movement in provisions

(1.0)

0.3

186.9 207.1

Decrease/(i

ncrease) in inventories 1.4

(4.6)

Increase

in receivables (12.8)

(97.3)

Increase

in payables 34.2 89.2

Changes in working capital

(

7))

Net cash flow from operations

209.7 194.4

^ Prior year comparatives have been restated due to a change in accounting policy in respect of software implementation costs. See note 38 for details

Reconciliation of net cash flow from operations to underlying net cash flow from operations to free cash flow

All figures in £ million

2022 2021^

et cash flow from operations

209.7

194.4

Add back specific adjusting item: change in accounting policy in respect of software implementation

1.9 3.6

Add back specific adjusti

ng item: acquisition transaction costs 3.7 1.0

Underlying net cash flow from operations

215.3

199.0

Less: tax and net interest payments

(21.0)

(16.4)

Less: purchases of intangible assets and property, plant and equipment

(84.3)

(75.9

)

Free cash flow

110.0

106.7

Prior year comparatives have been restated due to a change in accounting policy in respect of software implementation costs. See note 38 for details

QinetiQ Group plc Annual Report & Accounts 2022

171

FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Notes to the Consolidated Financial Statements

continued

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171

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:

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)

Lease liabilities (included within Net cash – see note 24)

Additions to the right-of-use assets during the 2022 financial year were £1.8m. The total cash outflow for leases in 2022 was £7.2m. The

Group had no expense relating to variable lease payments not included in the measurement of lease liabilities.

Amounts recognised in the consolidated income statement

The consolidated income statement includes the following amounts relating to leases:

Minimum lease payment commitments

The Group has the following total future minimum lease payment commitments:

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.

All figures in £ million

2022

2021

Within one year

5.7 5.7

In the second to fifth years inclusive

9.3 9.3

Greater than five years

0.5 2.4

Total future minimum lease payments

15.5 17.4

All figures in £ million

2022

2021

Land and buildings

17.4 21.8

Plant, machinery and vehicles

1.1 2.5

Computers and office equipment

– –

Total

right of use assets net book value

18.5 24.3

All figures in £ million

2022

2021

Current

5.5 6.9

Non

-current 16.6 19.8

Total

lease liabilities

22.1 26.7

All figures in £ million

2022 2021

Depreciation charge

Land and buildings

4.7 5.6

Plant, machinery and vehicles

1.2 2.7

Computers and office equipment

– 0.1

Total depreciation charge

5.9 8.4

Interest expense (included in finance cost)

1.0 1.0

Expense relating to short

-term leases (included in operating costs) 1.3 1.1

Expense relating to

low value leases (included in operating costs) 0.2 0.2

Total

lease and sub-lease expense charged to profit before tax 8.4 10.7

All figures in £ million

2022

2021

Within one year

5.5 6.9

In the

second to fifth years inclusive 13.4 15.6

Greater than five years

3.2 4.2

Total future minimum lease payment commitments

22.1 26.7

QinetiQ Group plc Annual Report & Accounts 2022

172

Notes to the

Consolidated

Financial Statements

continued

For the year ended

31 March

Notes to the Consolidated Financial Statements

For the year ended 31 March

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172

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 205.

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to

stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt, cash and cash

equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in

the consolidated statement of changes in equity. The Group has a revolving credit facility with its relationship banks with a requirement for

the half yearly testing period that the ratio of Net Debt to EBITDA will not exceed 3:5:1 and the ratio of EBITDA to net finance charges will not

be less than 4:1. At year end, the Group was undrawn on the facility.

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 2022:

The following table presents the Group’s assets and liabilities that are measured at fair value as at 31 March 2021:

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.

All figures in £ million

Note

Level 1

Level 2

Level 3

Total

Assets

Current derivative

financial instruments 24 – 0.2 – 0.2

Non-current derivative financial instruments

–

Financial instruments at fair value through profit or loss

13 – – – –

Liabilities

Current derivative financial instruments

24 –

(1.4)

–

(1.4)

Non

-current derivative financial instruments 24 – (0.6

)

– (0.6

)

Total

–

(1.8)

–

(1.8)

All figures in £ million

Note

Level 1

Level 2

Level 3

Total

Assets

Current derivative financial instruments

–

0.5

–

0.5

Non

-current derivative financial instruments 24 – – – –

Financial instruments at fair value through profit or loss

13 – – 0.9 0.9

Liabilities

Current derivative financial instruments

–

(0.1)

–

(0.1)

Non-current derivative financial instruments

–

(0.9)

–

(0.9)

Total

–

(0.5)

0.9

0.4

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173

FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Notes to the Consolidated Financial Statements

continued

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173

Financial Statements

All financial assets and liabilities had a fair value that is identical to book value at 31 March 2022 and 31 March 2021. Detailed analysis is

provided in the following tables:

As at 31 March 2022

As at 31 March 2021

ll figures in £ million Note

Financial

assets at fair

value profit

and loss

Financial

assets at

amortised

cost^

Financial

liabilities at

amortised

cost

Derivatives

used as

hedges Other^

Total

carrying

value and

fair value^

Financial assets

Non

-current

Deferred financing costs

–

0.8

–

0.8

Current

Trade receivables

and similar items^ – 120.5 – – – 120.5

Derivative financial instruments

24 – – – 0.5 – 0.5

Deferred financing costs

–

0.4

–

0.4

Cash and cash equivalents

190.1

–

190.1

Total financial assets

190.1

121.7

–

0.5 – 312.3

Financial liabilities

Non

-current

Derivative financial instruments

24 – – – (0.9)

– (0.9)

Lease liabilities

–

(19.8)

Current

Trade payables and similar items^

–

(201.3)

–

(201.3)

Derivative financial instruments

24 – – – (0.1)

– (0.1)

Lease liabilities

– –

–

– (6.9)

(6.9)

Total financial liabilities

–

(201.3)

(1.0)

(26.7)

(229.0)

Total

190.1

121.7

(201.3)

(0.5)

(26.7)

83.3

^ In the prior year notes to the financial statements the ‘Trade receivables and similar items’ line item was reported as ‘Trade and other receivables (excluding prepayments)’ and

included contract assets and an RDEC debtor. The prior year comparatives have now been restated by £168.9m to exclude such assets which do not meet the definition of a financial

instrument.

The ‘Trade payables and similar items’ line item was reported as ‘Trade and other payables (excluding contract liabilities)’ and included tax and social security liabilities and

RDEC liabilities. The prior year comparatives have now been restated by £68.8m to exclude such liabilities which do not meet the definition of a financial instrument.

ll figures in £ million Note

Financial

assets at fair

value profit

and loss

Financial

assets at

amortised

cost

Financial

liabilities at

amortised

cost

Derivatives

used as

hedges Other

Total

carrying

value and

fair value

Financial assets

Non-current

Deferred financing costs

24 – 0.5 – – – 0.5

Current

Trade receivables

and similar items – 170.3 – – – 170.3

Derivative financial instruments

24 – – – 0.2 – 0.2

Deferred financing costs

24 – 0.4 – – – 0.4

Cash and cash equivalents

248.1

–

248.1

Total financial assets

248.1

171.2

–

0.2

–

419.5

Financial liabilities

Non-current

Derivative financial instruments

–

(0.6)

–

(0.6)

Lease liabilities

–

(16.6)

Current

Trade payables

and similar items – – (205.3)

– – (205.3)

Derivative financial instruments

–

(1.4)

–

(1.4)

Lease liabilities

– – – –

(5.5)

Total financial liabilities

– –

(205.3)

(2.0)

(22.1)

(229.4)

Total

248.1

171.2

(205.3)

(1.8)

(

22.1)

190.1

QinetiQ Group plc Annual Report & Accounts 2022

174

Notes to the

Consolidated

Financial Statements

continued

For the year ended

31 March

Notes to the Consolidated Financial Statements

For the year ended 31 March

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174

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 2022 and 31 March 2021 the Group had no borrowings.

Financial assets/(liabilities)

As at 31 March 2022

As at 31 March 2021

Floating-rate financial assets attract interest based on the relevant reference rate. Floating-rate financial liabilities bear interest at the

relevant reference rate. 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 2022.

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

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

2022 against Sterling are net US dollars sold of £80.9m (US$106.7m), net Euros bought £18.9m (€24.0m), net Canadian dollars sold £22.3m

(C$36.8m), net United Arab Emirate dirhams sold £1.0m (AED 5.0m), net Swiss Francs bought of £0.9m (CHF 1.0m), net Swedish Krona

bought of £3.0m (SEK 34.0m), and net Australian dollars bought £0.3m (A$ 0.5m).

Financial assets Financial liabilities

ll figures in £ million Floating

Non-interest

bearing

Fixed or

capped

Non-interest

bearing

Sterling

214.8 0.2 (5.7)

(2.0)

US dollar

11.6 – (13.1)

–

Euro

14.5 – (1.6)

–

Australian dollar

4.9 – (1.6)

–

Other

2.3 – (0.1)

–

Total

248.1 0.2 (22.1)

(2.0)

Financial assets

Financial liabilities

ll figures in £ million Floating

Non-interest

bearing

Fixed or

capped

Non-interest

bearing

Sterling

155.4 0.5 (7.8)

(1.0)

US dollar

14.7 – (15.2)

–

Euro

6.6 – (2.1)

–

Australian dollar

9.3 – (1.3)

–

Other

4.1 – (0.3)

–

Total

190.1

0.5

(26.7)

(1.0)

Net foreign currency monetary assets/(liabilities)

All figures in £ millions

US$

Euro

Other

Total

31 March

2022 – Sterling

3.2 2.4

0.6

3.8 10.0

31 March

2021– Sterling 7.1 3.3 0.8 23.8 35.0

QinetiQ Group plc Annual Report & Accounts 2022

175

FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Notes to the Consolidated Financial Statements

continued

QinetiQ Group plcAnnualReportandAccounts2022

175

Financial Statements

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 £226.2m (2021: £163.9m). The Group held cash and cash equivalents of £248.1m at 31 March 2022 (2021: £190.1m),

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 £182.4m (2021: £133.1m) invested in AAA-rated money market funds.

E) Liquidity risk

Borrowing facilities

As at 31 March 2022 the Group had a revolving credit facility (RCF) of £275.0m (2021: £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:

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 2022

As at 31 March 2021

ll figures in £ million Book value

Contractual

cash flows

1 year

or less 1–2 years 2–5 years

More than

5 years

Non

-derivative financial liabilities

Trade payables

and similar items^ (201.3

)

(201.3

)

(201.3

)

–

– –

Leases

(26.7)

(30.7)

(7.9)

(6.1)

(11.5)

(5.2)

Derivative financial liabilities

Forward foreign currency

contracts – cash flow hedges

(1.0)

(0.1)

(0.3)

(0.6)

–

Total^

(229.0)

(233.0)

(209.3)

(6.4)

(12.1)

(5.2)

^The ‘Trade payables and similar items’ line item was reported as ‘Trade and other payables (excluding contract liabilities)’ in the prior year financial statements and included tax and

social security liabilities and RDEC liabilities. The comparatives have now been restated by £68.8m to exclude such liabilities which do not meet the definition of a financial instrument.

Interest rate:

Reference

rate plus

Total

£m

Drawn

£m

Undrawn

£m

As at 31 March 202

Committed facilities

0.53% 275.0 – 275.0

Freely available cash and cash equivalents

247.9

Available funds 31 March

2022

522.9

As at 31 March 202

Committed facilities

0.53% 275.0 – 275.0

Freely available cash and cash equivalents

184.5

Available funds 31 March 202

459.5

ll figures in £ million Book value

Contractual

cash flows

1 year

or less 1–2 years 2–5 years

More than

5 years

Non

-derivative financial liabilities

Trade payables

and similar items

(205.3

)

(205.3

)

(205.3

)

–

– –

eases

(22.1)

(24.1)

(6.3)

(5.3)

(9.5)

(3.0)

Derivative financial liabilities

Forward foreign currency contracts

– cash flow hedges (2.0

)

(2.0

)

(1.4)

(0.6)

–

Total

(229.4

)

(231.4

)

(213.0

)

(5.9)

(9.5)

(3.0)

QinetiQ Group plc Annual Report & Accounts 2022

176

Notes to the

Consolidated

Financial Statements

continued

For the year ended

31 March

Notes to the Consolidated Financial Statements

For the year ended 31 March

QinetiQGroupplcAnnualReportandAccounts2022

176

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

The maturity of these derivative financial instruments is as follows:

As at 31 March

G) Maturity of financial liabilities

The contractual maturity of the Group’s financial liabilities is shown below:

As at 31 March 2022

As at 31 March 2021

^ Restated to exclude non-financial instruments.

2022

2021

ll figures in £ million

Asset

gains

Liability

losses Net

Asset

gains

Liability

losses Net

Forward foreign currency contracts

– cash flow hedges

0.2 (2.0)

(1.8)

0.5 (1.0)

(0.5)

Derivative assets/(liabilities) at the end of the year

0.2

(2.0)

(1.8)

0.5

(1.0)

(0.5)

2022

2021

ll figures in £ million

Asset

gains

Liability

losses Net

Asset

gains

Liability

losses Net

Expected to be recognised:

In one year or less

0.2 (1.4)

(1.2)

0.5 (0.1)

0.4

Between one and two years

– (0.6)

(0.6)

– (0.3)

(0.3)

More than two years

– – – – (0.6)

(0.6)

Derivative assets/(liabilities) at the end of the year

0.2 (2.0)

(1.8)

0.5 (1.0)

(0.5)

ll figures in £ million

Trade

payables

and similar

items

payables

Derivative

financial

instruments

and lease

liabilities Total

Due in one year or less

205.3 6.9 212.2

Due in more than one year but not more than two years

– 5.3 5.3

Due in more than two years but

not more than five years – 8.7 8.7

Due in

five years or more – 3.2 3.2

Total

205.3 24.1 229.4

ll figures in £ million

Trade

payables

and similar

items^

payables

Derivative

financial

instruments

and lease

liabilities Total^

Due in one year or less

201.3 7.0 208.3

Due in more than one year but not more than two years

–

5.7

Due in more than two years but not more than five years

– 10.8 10.8

Due in five years

or more – 4.1 4.1

Total

201.3 27.6 228.9

QinetiQ Group plc Annual Report & Accounts 2022

177

FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Notes to the Consolidated Financial Statements

continued

QinetiQ Group plc AnnualReportandAccounts2022

177

Financial Statements

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 2022 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 2022

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 2021

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 2022, 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 2022, 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.

1% decrease in

interest rates

10% weakening

in Sterling

ll figures in £ million Equity

Profit before

tax Equity

Profit before

tax

Sterling

–

(2.1)

–

US dollar

–

(0.1)

2.6

–

Other

–

(0.2)

2.4

–

1% increase in

interest rates

10% strengthening

in Sterling

All figures in £ million

Equity

Profit before

tax

Equity

Profit before

tax

Sterling

–

2.1

–

US dollar

–

0.1

(2.2)

–

Other

–

0.2

(1.9)

–

1% decrease in

interest rates

10% weakening

in Sterling

ll figures in £ million Equity

Profit before

tax Equity

Profit before

tax

Sterling

–

(1.6)

–

US dollar

–

(0.1)

4.4

–

Other

–

(0.2)

10.2

–

1% increase in

interest rates

10% strengthening

in Sterling

All figures in £ million

Equity

Profit before

tax

Equity

Profit before

tax

Sterling

–

1.6

–

US dollar

–

0.1

(3.7)

–

Other

–

0.2

5.8

–

QinetiQ Group plc Annual Report & Accounts 2022

178

Notes to the

Consolidated

Financial Statements

continued

For the year ended

31 March

Notes to the Consolidated Financial Statements

For the year ended 31 March

QinetiQGroupplc AnnualReportandAccounts2022

178

28. Post-retirement benefits

Defined contribution plans

In the UK the Group operates a defined contribution pension 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 £49.4m (2021: £45.5m). 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 fifth of its UK employees. The Scheme closed to

future accrual on 31 October 2013 and there is no on-going service cost. 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 with the

Board of Trustees but the Company is consulted. 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.

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 2023 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

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.

QinetiQ Group plc Annual Report & Accounts 2022

179

FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Notes to the Consolidated Financial Statements

continued

QinetiQ Group plc AnnualReportandAccounts2022

179

Financial Statements

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.

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 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 at current times whilst markets are highly volatile. Sensitivities and risks are described on pages 181 and 182.

Pension buy-in transaction

During the current year 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 reduced by an estimated £25m with no

related cash impact. The impact on the surplus was more than offset by the favourable effect of changes to assumptions which reduced the

present value of the Scheme liabilities.

Total expense recognised in the income statement

Movement in the net pension asset

The movement in the net pension asset (before deferred tax) is set out below:

All figures in £ million

2022

2021

Total market value of

assets – see table below for analysis by category of asset

2,065.7 2,071.8

Present value of Scheme liabilities

(1,703.5)

(1,857.5)

Net pension asset before deferred tax

362.2 214.3

Deferred tax liability

(96.4)

(45.5)

Net pension asset after

deferred tax

265.8 168.8

All figures in £ million

2022

2021

Net finance

income 4.5 7.1

Administrative expenses

(1.1)

(1.3)

Total net income recognised in the income statement (gross of deferred tax)

3.4 5.8

All figures in £ million

2022

2021

Opening net pension

asset 214.3 309.7

Net finance income

4.5

7.1

Net actuarial gain

/(loss) 144.0

(104.1)

Administrative expenses

(1.1)

(1.3)

Past service cost

(2.4)

–

Contributions by the employer

2.9 2.9

Closing net pension asset

362.2 214.3

QinetiQ Group plc Annual Report & Accounts 2022

180

Notes to the

Consolidated

Financial Statements

continued

For the year ended

31 March

Notes to the Consolidated Financial Statements

For the year ended 31 March

QinetiQGroupplc AnnualReportandAccounts2022

180

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:

Primarily private market debt investments. Prior year split restated to show split of quoted and not quoted.

Unlisted corporate bonds with commercial property held as security.

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 policies obtained by the pension scheme can only be used to pay or fund employee benefits under the Company’s defined

benefit plan. They are 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 policies are qualifying insurance policies and require classification as a plan

asset. The policies were issued by insurers that are 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

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

2022

2021

Opening present value of Scheme liabilities

(1,857.5)

(1,602.6)

Interest cost

(38.5)

(36.4)

Actuarial gain/(loss) on Scheme liabilities based on:

Change in demographic assumptions 5.9 30.0

Change in financial assumptions

107.5

(269.6)

Experience gains/(losses) 36.5

(23.3)

Past service cost

(2.4)

–

Net benefits paid out and transfers

45.0 44.4

osing present value of Scheme liabilities

(1,703.5)

(1,857.5)

The net actuarial gains are primarily due to a decrease in value of the financial assumption for the discount rate (see Assumptions section

on the following page).

2022

2021

All figures in £ million

Quoted

Not quoted in

an active

market

Total

Quoted

Not quoted in

an active

market

Total

Equities

176.1

44.7

220.8

140.2

47.4

187.6

LDI investment

291.8 – 291.8 362.3 – 362.3

Asset backed security investments

501.7 – 501.7 455.6 – 455.6

Alternative bonds

–

208.6

118.7

136.1

254.8

Corporate bonds

– 97.4 97.4 – 98.0 98.0

Property fund

– 29.5 29.5 – 76.6 76.6

Cash and cash equivalents

–

78.5

–

49.3

Insurance buy

-in policies – 645.9 645.9 – 588.0 588.0

Derivatives

–

(8.5)

–

(0.4)

Total market value of assets

969.6

1,096.1

2,065.7

1,076.8

995.0

2,071.8

All figures in £ million

2022

2021

Opening fair value of Scheme assets

2,071.8

1,912.3

Interest income on Scheme assets

43.0

43.5

Re-measurement gain/(loss) on Scheme assets

(5.9)

158.8

Contributions by the employer

2.9

Net benefits paid out and transfers

(45.0)

(44.4)

Administrative expenses

(1.1)

(1.3)

Closing fair value of Scheme assets

2,065.7

2,071.8

QinetiQ Group plc Annual Report & Accounts 2022

181

FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Notes to the Consolidated Financial Statements

continued

QinetiQ Group plcAnnualReportandAccounts2022

181

Financial Statements

Assumptions

The major assumptions used in the IAS 19 valuation of the Scheme’s liabilities were:

* As a result of two recent insurance buy-in transactions the Scheme has two distinct membership groups: insured members and un-insured members. Insured members are all

pensioners and un-insured members are predominantly not yet drawing pensions. As such, the future cash outflows will be over differing timeframes and it is more accurate to use

different key assumptions to each of the two groups when calculating the Scheme liabilities. These are now presented separately.

^ For pensioners currently aged 65.

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.

The mortality assumptions as at 31 March 2022 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_2021 Core Projections and a long-term rate of

improvement of 1.25% per annum. These mortality assumptions were the same as at the prior year end with the exception of the

allowance made for improvements in mortality which was previously in line with CMI_2020 Core Projections.

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.

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.

Sensitivity analysis of the principal assumptions

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 2022 this portfolio hedges against approximately 95% of the interest

rate risk and also 95% 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. 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 unquoted alternative bonds of £208.6m; the unquoted corporate bonds of £97.4m;

the unquoted equities of £44.7m and the property funds of £29.5m are the assets with most uncertainty as to valuation as at 31 March 2022.

All figures in £ million

2022

2021

Insured

members*

Uninsured

members*

All

members

Discount rate applied to Scheme liabilities

2.80% 2.70% 2.10%

CPI inflation assumption

3.00% 2.90% 2.60%

Net

rate (discount rate less inflation)

(0.20%)

(0.50%)

Assumed life expectancies in years:

Life expectancy at 60 for male currently aged 40

n/a 28.4 28.4

Life expectancy at 60 for female currently aged 40

n/a

30.7 30.7

Life expectancy at 60 for male currently aged 60

22.0^

26.7 26.7

Life expectancy at 60 for female currently aged 60

23.7^

28.6

Assumption Change in assumption

Indicative impact on Scheme

liabilities (before deferred tax)

Indicative impact on

net pension asset

Discount rate

Increase/decrease by 0.1%

Decrease/increase by £32m Decrease/increase by £9m

Rate of inflation Increase/decrease by 0.1% Increase/decrease by £31m Increase/decrease by £3m

Life expectancy Increase by 1 year Increase by £64m Decrease by £37m

QinetiQ Group plc Annual Report & Accounts 2022

182

Notes to the

Consolidated

Financial Statements

continued

For the year ended

31 March

Notes to the Consolidated Financial Statements

For the year ended 31 March

QinetiQGroupplc AnnualReportandAccounts2022

182

28. Post-retirement benefits (continued)

Risks

Through its defined benefit pension plan, the Group is exposed to a number of risks, the most significant of which are detailed below:

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:

Except as noted below all shares in issue at 31 March 2022 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) 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

b) to refer matters to the Board for its consideration in relation to the application of the Compliance Principles

c) 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

ii) 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

d) 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

e) 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).

Volatility in market conditions

Results under IAS 19 can change dramatically d

epending on market conditions. The present value of Scheme liabilities

is linked to

yields on 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.

Choice of accounting

assumptions

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.

Ordinary shares

of 1p each (equity)

Special Share

of £1 (non-equity) Total

Number

As at 1 April 2021

5,742,571

574,257,121

5,742,572

574,257,122

Issue of new shares

45,000 4,500,000 – – 45,000 4,500,000

31 March 2022

5,787,571 578,757,121 1 1 5,787,572 578,757,122

Ordinary shares

of 1p each (equity)

Special Share

of £1 (non-equity) Total

Number

As at 1 April 202

0 5,717,571 571,757,121 1 1 5,717,572 571,757,122

Issue of new shares

25,000

2,500,000

–

25,000

2,500,000

31 March 2021

5,742,571

574,257,121

5,742,572

574,257,122

QinetiQ Group plc Annual Report & Accounts 2022

183

FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Notes to the Consolidated Financial Statements

continued

QinetiQ Group plc AnnualReportandAccounts2022

183

Financial Statements

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).

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 and 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 2022 are 6,816,291 shares (2021: 5,020,832 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 £7.8m,

of which £7.8m related to equity-settled schemes and nil related to cash-settled schemes (2021: £11.2m, of which £11.2m related to equity-

settled schemes and nil to cash-settled schemes). The share-based payment charged to equity is £7.4m consisting of the £7.8m charge to

the income statement offset by a £0.4m charge to equity in respect of dividends accruing on unvested awards.

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.

PSP awards are equity-settled awards and have vested on 22 June 2020. There is no exercise price for these PSP awards.

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.

SIP matching shares are equity-settled awards; those outstanding at 31 March 2022 had an average remaining life of 1.5 years (2021: 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 (2021: nil).

2022

Number

of shares

2021

Number

of shares

Outstanding at start of the year

–

103,314

Exercised during the year

–

(40,347)

Forfeited/lapsed during the year

–

(62,967)

Outstanding at end of the year

–

2022

Number of

matching

2021

Number of

matching

Outstanding at start of the year

734,402

746,645

Awarded during the year

313,509

300,420

Exercised during the year

(247,433)

(291,851)

Forfeited during the year

(38,650)

(20,812)

Outstanding at end of the year

761,828

734,402

QinetiQ Group plc Annual Report & Accounts 2022

184

Notes to the

Consolidated

Financial Statements

continued

For the year ended

31 March

Notes to the Consolidated Financial Statements

For the year ended 31 March

QinetiQGroupplc AnnualReportandAccounts2022

184

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.

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 2022 the awards had an average remaining life of 1.6 years (2021: 1.2 years). There is no exercise price for these awards. The

fair value of the awards at 31 March 2022 was £3.02 (2021: £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.

The number of awards is dependent on the Group’s performance during the year (specifically with respect to the Group 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 2022 the awards had an average remaining life of 1.8 years (2021: 1.8 years). There is no exercise price for these awards. The

fair value of the DSP’s provisionally awarded at 31 March 2022 was £3.02 being the Group’s 30 day average on 31 March. The weighted

average share price at date of exercise was £3.50 (2021: £3.09). 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 and US.

2022

Number of

matching

2021

Number of

matching

Outstanding at start of the year

1,942,855 1,811,792

Granted during the year

529,683 764,822

Exercised during the year

(1,227,020)

(595,978)

Forfeited

/lapsed during the year (123,079)

(37,781)

Outstanding at end of the year

1,122,439 1,942,855

2022

Number of

awards

2021

Number of

awards

Outstanding at start of the year

6,761,362 4,881,077

Difference between actual awards in year and amount

provisionally awarded in prior year 126,565 –

Lapsed during the year

(334,922)

(275,534)

Exercised during the year

(1,460,253)

(545,582)

Provisionally awarded

during the year 1,783,671 2,701,401

Outstanding at end of the year

6,876,423

6,761,362

Provisional awards outstanding

1,783,671

2,701,401

Awards outstanding

5,092,752 4,059,961

Outstanding at end of the year

6,876,423

6,761,362

2022

Number of

awards

2021

Number of

awards

Outstanding at start of the year

148,857 71,355

Granted during the year

495,685

145,257

Exercised during the year

(68,217)

(47,424)

Lapsed

during the year (16,323)

(20,331)

Outstanding at end of the year

560,002

148,857

QinetiQ Group plc Annual Report & Accounts 2022

185

FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Notes to the Consolidated Financial Statements

continued

QinetiQ Group plc AnnualReportandAccounts2022

185

Financial Statements

At 31 March 2022 the awards had an average remaining life of 1.9 years (2021: 1.4 years). There is no exercise price for these awards. The

weighted average fair value of grants made during the year was £2.75 (2021: £2.60). The weighted average share price at date of exercise

was £3.06 (2021: £2.90). Of the options outstanding at the end of the year nil were exercisable (2021: nil).

Value Creation Plan (VCP)

The Group has granted awards under a Value Creation Plan to certain senior executives in the US and UK.

At 31 March 2022 the awards had an average remaining life of 1.2 years (2021: 2.2 years). There is no exercise price for these awards. The

weighted average fair value of grants made during the year was £nil (2021: £2.99). Of the options outstanding at the end of the year nil were

exercisable.

High Performance Share Award (HPSA)

In the prior 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 2022 the awards had an

average remaining life of 1.3 years (2021: 2.3 years). Of the awards outstanding at the end of the year nil were exercisable.

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.

Other performance incentives

In the prior year, as part of the Group’s COVID-19 response measures, the Group elected to settle the 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.

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.

2022

Number of

awards

2021

Number of

awards

Outstanding at start of the year

335,848 –

Granted during the year

– 335,848

Forfeited

during the year (129,173)

–

Outstanding at end of the year

206,675 335,848

2022

Number of

awards

2021

Number of

awards

Outstanding at start of the year

1,336,372 –

Granted during the year

– 1,336,372

Outstanding at end of the year

1,336,372 1,336,372

2022

Number of

awards

2021

Number of

awards

Outstanding at start of the year

– 343,265

Lapsed during the year

–

(25,701)

Exercised during the year

–

(317,564)

Outstanding at end of the year

– –

2022

Number of

awards

2021

Number of

awards

Outstanding at start of the year

– –

Granted during the year

– 4,796,981

Exercised during the year

–

(4,796,981)

Outstanding at end of the year

– –

QinetiQ Group plc Annual Report & Accounts 2022

186

Notes to the

Consolidated

Financial Statements

continued

For the year ended

31 March

Notes to the Consolidated Financial Statements

For the year ended 31 March

QinetiQGroupplc AnnualReportandAccounts2022

186

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 pages 115 and 116.

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) dispose of or destroy all or any part of a strategic asset; or

ii) 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 2022 was £3.9m (2021: £3.0m).

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 62% (2021: 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 £37.2m at 31 March 2022 (2021: £31.6m) 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:

Capital commitments at 31 March 2022 include £24.5m (2021: £25.3m) 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 2022 there were sales to associates and joint ventures of £5.2m (2021: £6.0m). At the year-end there were

outstanding receivables from associates and joint ventures of £1.0m (2021: £1.4m).

All figures in £ million

2022

2021

Total c

ontracted

34.7

33.0

QinetiQ Group plc Annual Report & Accounts 2022

187

FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Notes to the Consolidated Financial Statements

continued

QinetiQ Group plc AnnualReportandAccounts2022

187

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 2022 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.

Name of company

Country of incorporation

Registered office

Subsidiaries

1,7

BJ Trustee Limited

England & Wales

Farnborough

ueSim Limited England & Wales Farnborough

Foster

-Miller Canada Limited Canada 318 Roxton Drive, Waterloo, Ontario, N2T 1R6, Canada

Foster

-Miller Inc

US 350 2

Avenue, Waltham, Massachusetts, MA 02451, USA

Graphics Research Corporation Limited

England & Wales

Farnborough

Gyldan

11 Limited England & Wales Farnborough

Inzpire Group Limited

England & Wales

Farnborough

Inzpire Holdings

Limited England & Wales

Landmark House West, Unit 1b, Alpha Court, Kingsley Road, Lincoln,

Lincolnshire, LN6 3TA

Inzpire

Limited England & Wales

Landmark House West, Unit 1b, Alpha Court, Kingsley Road, Lincoln,

Lincolnshire, LN6 3TA

Leading Technology Limited

England & Wales

Farnborough

Metrix UK Limited

England & Wales Farnborough

Naimuri Limited

England & Wales

Farnborough

Precis (2187) Limited

England & Wales Farnborough

Precis (2188) Limited

England & Wales

Farnborough

Qinetic

Limited England & Wales Farnborough

QinetiQ Aerostructures Pty Ltd

Australia Level 3, 210 Kings Way, South Melbourne, VIC 3205, Australia

QinetiQ Australia Pty Ltd

Australia Level 3, 210 Kings Way, South Melbourne, VIC 3205, Australia

QinetiQ Consulting

Pty Ltd Australia Level 3, 12 Brindabella Court, Brindabella Business Park, Majura ACT

2609.

QinetiQ Estates

Limited England & Wales Farnborough

QinetiQ GmbH

Germany Flughafenstraße 65, 41066, Mönchengladbach, Germany

QinetiQ GP Limited

Scotland 50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ, Scotland

QinetiQ Group Canada Inc.

Canada

5300 Commerce Court West, 199 Bay Street, Toronto ON M5L 1A9,

Canada

QinetiQ Group Holdings Limited

England & Wales Farnborough

QinetiQ

Holdings Limited England & Wales Farnborough

QinetiQ Inc

US 10440 Furnace Road, Suite 204, Lorton, VA 22079,, USA

QinetiQ Insurance PCC Limited

Guernsey

Mill Court, La Charroterie, St Peter Port, GY1 4ET Guernsey

QinetiQ Limited

England & Wales

Farnborough

QinetiQ

Novare Pty Ltd Australia Petrie House, level 6, 80 Petrie Terrace, Brisbane QLD 400, Australia

QinetiQ

Overseas Holdings Limited England & Wales Farnborough

QinetiQ

Overseas Trading Limited England & Wales Farnborough

QinetiQ Pension Scheme Trustee Limited

England & Wales Farnborough

QinetiQ

PFP Limited Partnership

Scotland 50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ, Scotland

QinetiQ Philippines Company, Inc

Philippines

Floor Corporate Centre, 139 Valero Street, Salcedo Village,

Makati City, Philippines

QinetiQ Pty Ltd

Australia Level 33, 101 Collins Street, Melbourne, VIC 3000, Australia

QinetiQ Services Holdings Pty Ltd

Australia Level 33, 101 Collins Street, Melbourne, Victoria 3000, Australia

QinetiQ Solutions Sdn. Bhd.

Malaysia

Suite 6.01, 6

Floor, Plaza See Hoy Chan, Jalan Raja Chulan 50200,

Kuala Lumpur, W.P. Kuala Lumpur, Malaysia

QinetiQ Space N.V.

Belgium

Hogenakkerhoekstraat, 9, 9150 Kruibeke, Belgium

QinetiQ Special Projects Inc

US 5885 Trinity Parkway, Suite 130, Centreville, Virginia 20120-1969, USA

QinetiQ Sweden AB

Sweden

Advokatfirman Delphi, Box 1432, Stockholm, Sweden

QinetiQ Target Services Limited

England & Wales Farnborough

QinetiQ Target Systems Limited

England & Wales

Farnborough

QinetiQ

Training and Simulation Limited

England & Wales Farnborough

QinetiQ US Holdings, Inc.

5885 Trinity Parkway, Suite 130, Centreville, Virginia 20120-1969, USA

Redu Operational Services

S.A

Belgium Rue Devant les Hetres, 2B, 6890 Transinne, Belgium

ubiKon Group Pty Limited Australia Level 33, 101 Collins Street, Melbourne, Victoria 3000, Australia

Sensoptics Limited

England & Wales Farnborough

TSG International LLC

US 350 2

Avenue, Waltham, Massachusetts 02451, USA

Associates

Redu Space Services S.A Belgium Rue Devant les Hetres, 2B, 6890 Transinne, Belgium

QinetiQ Group plc Annual Report & Accounts 2022

188

Notes to the

Consolidated

Financial Statements

continued

For the year ended

31 March

Notes to the Consolidated Financial Statements

For the year ended 31 March

QinetiQGroupplcAnnualReportandAccounts2022

188

35. Subsidiaries and other related undertakings (continued)

As at 31 March 2022 the Group owned 100% of the ordinary shares of these subsidiary undertakings except for Redu Operational Services S.A. (52%)

The class of shares is ‘common share’

As at 31 March 2022 the Group owned 48% of Redu Space Services S.A.

Cody Technology Park, Ively Road, Farnborough, Hampshire, GU14 OLX

Limited partnership. The partners are all wholly-owned Group companies

As at 31 March 2022 the Group owned 49% of Houbara Defence & Security LLC and 49% of QinetiQ Dar Massader QDM Limited.

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)

Newman & Spurr Consultancy Limited has changed its company name to QinetiQ Training & Simulation Limited on 22 March 2022

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 England, 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 bee

n 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:

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 Strategic

Report on page 69 in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006.

The Company has elected to prepare its parent company financial statements in accordance with UK GAAP (FRS 101); these are presented

on page 200. 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 2022.

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’.

Name of company

Country of incorporation

Registered office

Joint venture

Houbara Defence &

Security LLC

6,7

United Arab Emirates

Unit 3, Zone 4, Tawazun Industrial Park, Abu Dhabi, United Arab

Emirates, PO Box 128220

QinetiQ Dar Massader QDM Limited

6,7

Saudi Arabia

Al Nakhla

Tower, 3026-Prince Saud Bin Mohamed Bin Muqin Road, PO

Box 2985, Riyadh 13321, Kingdom of Saudi Arabia

Item

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

mortisation of intangible assets arising from acquisitions P

Pension net finance income

ains/losses on disposal of property and investments P

ransaction & integration costs in respect of business acquisitions P

mpairment of property and goodwill P

Software as a Service

implementation costs previously capitalised under IAS 38 P

The tax impact of the above

ther significant non-recurring deferred tax movements P

QinetiQ Group plc Annual Report & Accounts 2022

189

FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Notes to the Consolidated Financial Statements

continued

QinetiQ Group plc AnnualReportandAccounts2022

189

Financial Statements

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.

Consideration of climate change

In preparing the financial statements the Directors have considered the impact of climate change on the Group. Specific aspects of the

financial statements that could potentially be impacted by climate change are the carrying value of tangible assets and goodwill. Whilst the

Group will likely be impacted by climate change in the future, the impacts on the financial statements as at 31 March 2022 are not considered

to be material.

Recent accounting developments

Developments adopted by the Group in 2022 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 June 2020 and have been adopted with no material impact on the Group’s financial statements:

– Amendment to IFRS 16 ‘Leases’ COVID-19 related rent concessions: The amendment make it easier for lessees to account for COVID-19

related rent concessions such as rent holidays and temporary rent reductions. The Group has no such concessions in its lease agreements;

– Amendments to IFRS 4, IFRS 7, IFRS 9, IFRS 16 and IAS 39 ‘Interest Rate Benchmark Reform Phase 2’, all in respect of interest rate

benchmark reform.

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’, update a reference in IFRS 3 to the Conceptual Framework for Financial Reporting without

changing the accounting requirements for business combinations.

– Amendments to IAS 16, prohibit a company from deducting from the cost of property, plant and equipment amounts received from selling

items produced while the company is preparing the asset for its intended use. Instead, a company will recognise such sale proceeds and

related cost in profit or loss.

– Amendments to IAS 37, specify which costs a company includes when assessing whether a contract will be loss-making.

– Annual Improvements 2018 - 2020

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.

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Notes to the

Consolidated

Financial Statements

continued

For the year ended

31 March

Notes to the Consolidated Financial Statements

For the year ended 31 March

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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.

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FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Notes to the Consolidated Financial Statements

continued

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Financial Statements

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

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

Consolidated

Financial Statements

continued

For the year ended

31 March

Notes to the Consolidated Financial Statements

For the year ended 31 March

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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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FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Notes to the Consolidated Financial Statements

continued

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Financial Statements

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 2–10 years

Customer relationships 1–16 years

Development costs 1–4 years

Other 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 20–25 years

Leasehold land and buildings Shorter of useful economic life and the period of the lease

Plant and machinery 3–15 years

Fixtures and fittings / office equipment 5–10 years

Computers 3–5 years

Motor vehicles 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

Consolidated

Financial Statements

continued

For the year ended

31 March

Notes to the Consolidated Financial Statements

For the year ended 31 March

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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 2022 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 (2021: nil) in recognised lease liabilities and right-of-use assets.

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STRATEGIC

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CORPORATE

GOVERNANCE

Notes to the Consolidated Financial Statements

continued

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Financial Statements

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 an offsetting receivable 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 at the trade date. 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 and liabilities

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 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

Consolidated

Financial Statements

continued

For the year ended

31 March

Notes to the Consolidated Financial Statements

For the year ended 31 March

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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

The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group

uses foreign exchange contracts and, occasionally, interest rate swap contracts to hedge these exposures. The use of financial derivatives is

governed by the Group’s Treasury Policies as approved by the Board of Directors, which provides written principles on the use of derivatives.

The Group does not use derivative instruments for speculative purposes.

Certain derivative instruments do not qualify for hedge accounting. These are categorised as “fair value through profit or loss” and are stated

at fair value, with any resultant gain or loss recognised in the Income Statement.

The Group designates certain hedging instruments in respect of foreign currency risk as cash flow hedges. At the inception of the hedge

relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk management

objectives and strategy for undertaking various hedging transactions. The Group also documents, both at hedge inception and on an ongoing

basis, whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in fair values or cash

flows of the hedged item.

For the Group’s cash flow hedges of highly probable forecast transactions in foreign currencies, the hedge ratio is 100%, subject to a £100k

de Minimis threshold. If the underlying exposure changes over time, either due to commercial factors or timing differences, the hedging

instruments will be rebalanced to ensure that the hedge ratio of 100% is maintained.

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.

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FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Notes to the Consolidated Financial Statements

continued

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197

Financial Statements

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.

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 unquoted alternative bonds of £208.6m; the unquoted corporate bonds of

£97.4m; the unquoted equities of £44.7m and the property funds of £29.5m are the assets with most uncertainty as to valuation as at 31

March 2022 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 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 and further described in note 18.

Within the current tax payable of £3.9m as at 31 March 2022, 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 £4m increase

to a £8m decrease in net assets. If there is a further downturn in forecast taxable profits over the next 12 months then the lower tax estimate

could lead to a further £12m decrease in net assets.

Estimates of costs to complete on long-term contracts

The Group has a large number of contracts which span multiple years and are accounted for on a percentage of completion basis in

accordance with IFRS 15. Long-term contract accounting requires a number of estimates to be made, particularly in calculating the forecast

costs to complete the contract. These forecast costs will be impacted by numerous risks that could crystallise in the future (with a range of

cost outcomes), particularly on contracts of a developmental nature. Across the Group’s portfolio of long-term contracts there is a risk that

the actual out-turn of these contracts could be materially different than assumed in the year end contract forecasts.

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198

Notes to the

Consolidated

Financial Statements

continued

For the year ended

31 March

Notes to the Consolidated Financial Statements

For the year ended 31 March

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198

37. Critical accounting estimates and judgements in applying accounting policies (continued)

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. Treatment

as a 100% associated undertaking would reduce Group revenue by a material amount (~£150m 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’.

Liability in respect of Research and Development Expenditure Credits (RDEC)

Other Payables includes £22.4m of RDEC Expenditure Credits payable to MOD. This is subject to a determination from the SSRO and it is

possible that the outcome could be that RDEC is retained by the Company, in which case the liability would be reversed to the income

statement. A critical accounting judgement is that the liability will become due.

38. Changes in accounting policies

The note explains the impact of a change in accounting policy that is effective for the first time in the Group’s financial statements for the

year ended 31 March 2022:

IFRIC Agenda Decision ‘Configuration and customisation costs in a cloud computing arrangement’

The Group has changed its accounting policy related to the capitalisation of configuration and customisation costs in a cloud computing

(Software as a Service, ‘SaaS’) arrangement. This change is as a result of the IFRS Interpretations Committee’s agenda decision published

in April 2021. The Group’s accounting policy has historically been to capitalise costs directly attributable to the configuration and

customisation of cloud computing arrangements as intangible assets in the Balance sheet, whether or not the services were performed by

the SaaS provider or SaaS subcontractors or a third party. Following the publication of the above IFRIC agenda decision, current cloud

computing arrangements were identified and assessed to determine if the Group has control of the software. For those arrangements where

it was determined that we do not have control of the developed software, to the extent that the services were performed by third parties, the

Group derecognised the intangible asset previously capitalised. Amounts paid to the SaaS provider in advance of the commencement of the

service period, including for configuration or customisation, if identified as not distinct, are treated as a prepayment.

The change in accounting policy led to adjustments amounting to a £8.0m, £6.1m and £2.5m reduction in the intangible assets recognised

in the 31 March 2022, 31 March 2021 and 1 April 2020 balance sheets respectively, and to a £2.4m, £3.6m and £2.5m increase in operating

costs, in those respective years.

Accordingly, the prior period balance sheets at 31 March 2021 and 1 April 2020 have been restated in accordance with IAS 8, together with

related notes. The following tables show the adjustments recognised for each individual line item as at 31 March 2022, 31 March 2021 and 1

April 2020.

Balance sheet (extract)

2022

2021

All figures in £ million

Pre-IFRIC

agenda

Applying

IFRIC

agenda

presented

As originally

presented

Impact of

restatement

Restated

Assets/liabilities

Intangible assets

148.3 (8.0) 140.3 139.2 (6.1) 133.1

Current tax payable

(5.6)

1.7

(3.9)

(3.8)

1.3

(2.5)

Other net assets

907.0

–

907.0

754.3

–

754.3

Net assets

1,049.7

(6.3)

1,043.4

889.7

(4.8)

884.9

Equity

Retained earnings

853.3

(6.3)

847.0

698.6

(4.8)

693.8

Share capital and other

reserves 196.2 – 196.2 190.8 – 190.8

Non-controlling interest

0.2

–

0.2

0.3

–

0.3

Total equity

1,049.7

(6.3)

1,043.4

889.7

(4.8)

884.9

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FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Notes to the Consolidated Financial Statements

continued

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199

Financial Statements

Balance sheet (extract)

The impact of the restatement on the Group’s opening consolidated balance sheet as at 1 April 2020 is set out below:

Statement of profit or loss (extract)

The impact on the Group’s consolidated income statement of applying the restatement is set out below:

Statement of cash flows (extract)

The impact on the Group’s statement of cash flows of applying the restatement is set out below:

All figures in £ million

1 April

2020 As

originally

presented

Impact of

restatement

1 April

2020

restated

Assets/liabilities

Intangible assets

138.9

(2.5)

136.4

Current tax payable

(4.1)

0.5

(3.6)

Other net assets

752.3

–

752.3

Net assets

887.1

(2.0)

885.1

Equity

Retained earnings

681.9

(2.0)

679.9

Share capital and other reserves

202.8 – 202.8

Non-controlling interest

2.4

–

2.4

Total equity

887.1

(2.0)

885.1

2022

2021

All figures in £ million

Pre-IFRIC

agenda

Applying

IFRIC

agenda

presented

As originally

presented

Impact of

restatement

Restated

EBITDA (earnings before interest, tax, depreciation and amortisation)

183.9

(2.4)

181.5

199.4

(3.6)

195.8

Depreciation and impairment of property, plant and equipment

(47.9) – (47.9)

(46.1) – (46.1

)

Impairment of goodwill

–

(25.4)

–

(25.4)

Amortisation of intangible assets

(16.6)

0.5

(16.1)

(15.6)

–

(15.6)

Operating profit

119.4

(1.9)

117.5

112.3

(3.6)

108.7

Gain on sale of investment

(0.9)

–

(0.9)

28.4

–

28.4

Sale of investments

–

0.3

–

0.3

Finance income

5.0 – 5.0 7.4 – 7.4

Finance costs

(1.9)

–

(1.9)

(2.2)

–

(2.2)

Profit/(loss) before tax

121.6

(1.9)

119.7

146.2

(3.6)

142.6

Taxation expense

(30.1)

0.4

(29.7)

(21.5)

0.8

(20.7)

Profit/(loss) for the year attributable to equity shareholders

91.5

(1.5)

90.0

124.7

(2.8)

121.9

Impact on underlying measures of performance

Underlying operating profit/(loss)

91.5

(1.5)

90.0

124.7

(2.8)

121.9

2022

2021

All figures in £ million

Pre-IFRIC

agenda

Applying

IFRIC

agenda

presented

originally

presented

Impact of

restatement

Restated

Net cash inflow/(outflow) from operating activities

191.1

(2.4)

188.7

181.6

(3.6)

178.0

Purchase of intangible assets

(23.8)

2.4

(21.4)

(14.5)

3.6

(10.9)

Others

(60.2)

–

(60.2)

(38.7)

–

(38.7)

Net cash (outflow)/inflow from investing activities

(84.0)

2.4

(81.6)

(53.2)

3.6

(49.6)

Net cash (outflow)/inflow from financing activities

(47.3)

–

(47.3)

(55.6)

–

(55.6)

Increase in cash and cash equivalents

59.8

–

59.8

72.8

–

72.8

Free cash flow (as defined by the Group – see glossary)

110.0

–

110.0

106.7

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Company balance sheet

As at 31 March

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200

The profit for the year ended 31 March 2022 was £38.8m (2021: profit of £45.0m).

The financial statements of QinetiQ Group plc (company number 4586941) were approved by the Board of Directors and authorised for

issue on 20 May 2022 and were signed on its behalf by:

Steve Wadey Carol Borg

Chief Executive Officer Chief Financial Officer

All figures in £ million

Note

2022

2021

Fixed assets

Investments in subsidiary undertaking

s 2 515.2 507.4

515.2 507.4

Current liabilities

Creditors: amounts falling due within one year

(75.4)

(72.9)

Net current liabilities

(75.4)

(72.9)

Total assets less current liabilities

439.8

434.5

Net assets

439.8

434.5

Equity

Share capital

5.8

5.7

Capital redemption reserve

40.8 40.8

Share premium

147.6 147.6

Retained earnings

245.6 240.4

Total equity

439.8 434.5

Company

balance

sheet

As at

31 March

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FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Company statement of changes in equity

For the year ended 31 March

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201

Financial Statements

The capital redemption reserve is not distributable and was created following redemption of preference share capital.

ll figures in £ million

capital

Capital

redemption

reserve

premium

Retained

earnings

Total

equity

At 1 April

2021

5.7 40.8 147.6 240.4 434.5

Profit for the year

– – – 38.8 38.8

Purchase of own shares

– – –

(0.8)

Issue of new shares

0.1 – – – 0.1

Dividend paid

– – –

(40.2)

-based payments – – – 7.4 7.4

At 31 March

2022

5.8 40.8 147.6

245.6 439.8

At 1 April

2020

5.7 40.8 147.6 217.8 411.9

Profit for the year

– – – 45.0 45.0

Purchase of own shares

– – –

(9.0)

-settled liabilities – – – 13.7 13.7

Dividend paid

– – –

(37.7)

-based payments – – – 10.6 10.6

At 31 March

2021

5.7

40.8

147.6

240.4 434.5

Company

statement of

changes in equity

For the year ended

31 March

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202

Notes to the Company

Financial Statements

For the year ended

31 March

Notes to the Company Financial Statements

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202

1. Accounting policies

The Company is a public limited company and is incorporated and domiciled in Farnborough, 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.

Basis of preparation

The financial statements have been prepared on a going concern basis under the historical cost convention and in accordance with applicable

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

the Companies Ace 2006 and the International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies

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

– The effects of new but not yet effective IFRSs

– Disclosures in respect of the compensation of key management personnel

– IAS 24 in respect of related party transactions entered into between two or more members of a group

– 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.

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

financial statements the recoverable from subsidiaries is credited directly to equity as a capital contribution. The fair value of equity-settled

awards for share-based payments is determined on grant and expensed in subsidiary undertakings (and credited to equity in the Company)

on a straight line basis 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. 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

The increase in investments in subsidiary undertakings in 2022 relates to £7.8m of equity-settled schemes during the year.

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

Amounts owed to Group undertakings are unsecured, repayable on demand and bear no interest.

All figures in £ million

2022

2021

Subsidiary undertaking

– 100% of ordinary share capital of QinetiQ Group Holdings Limited 424.3 424.3

Capital contributions arising from share

-based payments to employees of subsidiaries 77.2 69.4

Capital contributions arising from

share-settled liabilities 13.7 13.7

Total investment in subsidiary undertakings

515.2

507.4

All figures in £ million

2022

2021

Amounts owed to Group undertakings

75.4 72.9

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203

FINANCIAL

STATEMENTS

STRATEGIC

REPORT

CORPORATE

GOVERNANCE

Notes to the Company Financial Statements

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203

Financial Statements

4. Share capital

The Company’s share capital is disclosed in note 29 to the Group financial statements.

5. Share-based payments

The Company’s share-based payment arrangements are set out in note 30 to the Group financial statements.

6. Parent company guarantees

The Company has provided guarantees to various customers of subsidiaries to the value of £21.0m (2021: £21.0m) in the ordinary course

of business.

7. Other information

Directors’ emoluments, excluding Company pension contributions, were £5.8m (2021: £5.9m). 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’

emoluments, share schemes and entitlements under money purchase pension schemes are disclosed on page 121 in the Directors’

Remuneration Report.

The remuneration of the Company’s auditor for the year to 31 March 2022 was £0.4m (2021: £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

to the Company.

The monthly average number of employees for the year to 31 March 2022 was nil (2021: nil).

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204

Five Year Financial Summary

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204

Underlying measures are stated before specific adjusting items. Definitions of underlying measures of performance are provided on page 207. Underlying financial

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.

Prior year comparatives for 2021 have been restated due to a change in accounting policy in respect of software implementation costs. See note 38 for details.

2019 restated in 2021 due to the retrospective adoption of the new accounting standard, IFRS 16, in respect of finance leases.

For the years ended 31 March (unaudited)

2022

2021

2020

2019

2018

EMEA Services

£m 1,059.2 939.9 797.4 687.7 651.4

Global Products

£m

261.2

338.3

275.5

223.4

181.6

Revenue

£m

1,320.4

1,278.2

1,072.9

911.1

833.0

EMEA Services

£m

135.6

118.6

100.6

96.8

94.3

Global Products

£m

1.8

33.2

32.6

28.1

28.2

Underlying operating profit

£m

137.4

151.8

133.2

124.9

122.5

Underlying operating margin

10.4

11.9

12.4

13.7

14.7

Operating profit

£m

117.5

108.7

117.6

114.8

141.0

Underlying profit before tax

£m

136.0

149.9

132.2

124.0

122.1

Profit before tax

£m 119.7 142.6 123.1 123.2 144.8

Profit attributable to owners of the Company

£m

90.0

121.9

106.3

113.9

138.1

Underlying basic EPS

attributable to owners of the Company

Pence

20.6

22.1

20.0

19.7

19.3

Basic EPS attributable to owners of the Company

Pence

15.7

21.4

18.7

20.1

24.4

Diluted EPS attributable to owners of the Company

Pence

15.5

21.1

18.6

20.0

24.3

Dividend per share

Pence 7.3 6.9 6.6 6.6 6.3

Underlying net cash flow from operations

£m

215.3

199.0

177.8

135.3

126.5

Net cash as defined by the Group

£m

225.1

164.1

84.7

160.5

266.8

Average number of employees

6,911

6,874

6,267

5,994

6,143

Orders excluding LTPA amendments and JV orders

£m

1,226.6

1,149.4

961.7

774.6

582.6

Five Year

Financial

Summary

QinetiQ Group plc Annual Report & Accounts 2022

205

Foreign exchange

The principal exchange rates affecting the Group were the Sterling

to US Dollar exchange rate and the Sterling to Australian Dollar rate.

12 months to

31 March 2022

12 months to

31 March 2021

£/US$ – opening 1.38 1.24

£/US$ – average 1.36 1.31

£/US$ – closing 1.31 1.38

£/A$ – opening 1.81 2.03

£/A$ – average 1.85 1.84

£/A$ – closing 1.75 1.81

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 2022 were

£20.0m (2021: £15.0m).

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 £9.7m less

than the total expense charged to the income statement.

Additional

Financial

Information

QinetiQ Group plc Annual Report & Accounts 2022

206

Glossary

AGM Annual General Meeting

BBP Bonus Banking Plan

CAGR Compound Annual Growth Rate

C4ISR Command, control, communications, computers,

intelligence, surveillance and reconnaissance

COTS Commercial off the shelf

CPI Consumer Price Index

CR Corporate Resposibility

CRC Carbon Reduction Commitment

CSR Corporate Social Responsibility

DE&S MOD’s Defence, Equipment and Support organisation

DHS US Department of Homeland Security

DSP Deferred Share Plan

DoD US Department of Defense

EBITDA Earnings before interest, tax, depreciation and

amortisation

ED&I Equality, diversity and inclusion

EDP Engineering Delivery Partner

EMEA Europe, Middle East and Australasia

EPS Earnings per share

ESA European Space Agency

ESOS Energy Savings Opportunity Scheme EST

EST Engineering, Science and Technical

FAR Federal Acquisition Regulations

FCA Financial Conduct Authority

FMI 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 Greenhouse gas

IAS International Accounting Standards

IBDM International Berthing and Docking Mechanism

IFRS International Financial Reporting Standards

IRAD Internal research and development

KPI Key Performance Indicator

LDP Leadership development programme

LIBID London inter-bank bid rate

LIBOR London inter-bank offered rate

LTI Lost time incident

LTPA Long Term Partnering Agreement – 25-year contract

established in 2003 to manage the MOD’s Test and

Evaluation ranges

MDP Modernising Defence Programme

MOD UK Ministry of Defence

MSCA Maritime Strategic Capability Agreement

NCSISS Naval Combat System Integration Support Services

OHSAS Occupational Health and Safety Advisory Services

PDR Performance development review

PBT Profit before tax

PSP Performance Share Plan

QNA QinetiQ North America

QSOS QinetiQ Share Option Scheme

QTS QinetiQ Target Systems

R&D Research and development

RDEC Research and development expenditure credit

SE Strategic Enterprise

SPA Special protection area

SSRO Single Source Regulations Office

SSSI Site of Special Scientific Interest

STEM Science, Technology, Engineering and Maths

T&E Test and Evaluation

T&R Training and Rehearsal

TSR Total shareholder return

UAV Unmanned aerial vehicle

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

QinetiQ Group plc Annual Report & Accounts 2022

207

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 Explanation Note

Organic growth 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

Note 2

Underlying operating profit Operating profit as adjusted to exclude ‘specific adjusting items’ Note 3

Underlying operating margin Underlying operating profit expressed as a percentage of revenue Note 3

Underlying net finance income/expense Net finance income/expense as adjusted to exclude ‘specific adjusting items’ Note 7

Underlying profit before/ after tax Profit before/after tax as adjusted to exclude ‘specific adjusting items’ Note 4

Underlying effective tax rate The tax charge for the year excluding the tax impact of ‘specific adjusting items’

expressed as a percentage of underlying profit before tax

Note 9

Underlying basic and diluted EPS Basic and diluted earnings per share as adjusted to exclude ‘specific adjusting items’ Note 10

Orders The level of new orders (and amendments to existing orders) booked in the year. Includes

share of orders won by joint ventures.

N/A

Backlog, funded backlog or order book The expected future value of revenue from contractually committed and funded

customer orders

N/A

Book to bill ratio 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

N/A

Underlying net cash flow from

operations

Net cash flow from operations before cash flows of specific adjusting items. Note 25

Underlying operating cash conversion or

cash conversion ratio

The new ratio for 2022 is the ratio of underlying net cash from operations to underlying

EBITDA. In previous years this was the ratio of underlying net cash from operations to

operating profit

Note 25

Free cash flow 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.

Note 25

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.

Note 24

Return on capital employed Calculated as: 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).

CFO

Review

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; change in accounting policy

in respect of software implementation costs; tax impact of the preceding items and

significant non-recurring deferred tax movements.

Note 4

QinetiQ Group plc Annual Report & Accounts 2022

208

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

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 2022 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

Analysis of share register at 31 March 2022

By type of holder

Total number of

holdings

Percentage of

holders

Total number of

Percentage

issued capital

Individual 5,276 88.27% 4,880,873 0.84%

Institutions and others 701 11.73% 573,876,248 99.16%

Total 5,977 100% 578,757,121 100%

By size of holding

1–500 3,925 65.67% 755,542 0.13%

501–1,000 502 8.40% 402,277 0.07%

1,001–2,500 598 10.01% 1,046,517 0.18%

2,501–5,000 331 5.54% 1,186,725 0.21%

5,001–10,000 168 2.81% 1,206,775 0.21%

10,001–100,000 224 3.75% 7,585,247 1.31%

Over 100,000

229

3.83% 566,574,038 97.8 9%

Total 5,977 100% 578,757,121 100%

QinetiQ Group plc Annual Report & Accounts 2022

209

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.

Key dates

21 July 2022 Trading update

21 July 2022 Annual General Meeting

30 September 2022 Half-year financial period end

November 2022 Half-year results announcement

January 2023 Trading update

31 March 2023 Financial year end

May 2023 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.

QinetiQ Group plc Annual Report & Accounts 2022

210

Shareholder

Information

continued

Company Information and

Advisors

Registered office Corporate brokers

Cody Technology Park Barclays, 1 Churchill Place,

Ively Road, Farnborough, London, EC14 5HP

Hampshire, GU14 0LX

Tel: +44 (0) 1252 392000 Numis, 45 Gresham St

Company Registration London, EC2V 7BF

Number: 4586941

Independent auditors Principal legal advisor

PricewaterhouseCoopers LLP, Ashurst LLP, London Fruit and

Savannah House, Wool Exchange, 1 Duval Square,

3 Ocean Way, London, E1 6PW

Southampton, SO14 3TJ

Registrar

Equiniti, Aspect House,

Spencer Road, Lancing,

West Sussex, BN99 6DA

CBP00019082504183028

Annual Report & Accounts 2022

Cody Technology Park

Ively Road

Farnborough

Hampshire

GU14 0LX

Tel: +44 (0) 1252 392000

Company Registration Number: 4586941