RNS Number : 9792B
QinetiQ Group plc
12 June 2019
 

 

QINETIQ GROUP PLC

 

12 June 2019

 

Availability of Annual Report and Accounts 2019 and Notice of 2019 Annual General Meeting

 

QinetiQ Group plc (the 'Company') has today published the following documents:

 

·      QinetiQ 2019 Annual Report and Accounts;

·      Notice of 2019 Annual General Meeting; and

·      Chairman's Letter to Shareholders.

 

The documents are available to view or download from the Company's website at www.qinetiq.com/investors.

 

In compliance with Listing Rule 9.6.1, copies of the above documents, together with a copy of the Form of Proxy for the 2019 Annual General Meeting, have been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM.

 

These documents are today being posted or otherwise made available to shareholders.

 

The 2019 Annual General Meeting will be held at 11.00 am on Wednesday, 24 July 2019 at the offices of Ashurst LLP, Fruit and Wool Exchange, 1 Duval Square, London E1 6PW.

 

In compliance with paragraph 6.3.5 of the Disclosure Guidance and Transparency Rules, the information in respect of Principal Risks, Related Party Transactions and the Directors' Responsibility Statement, contained in the Appendix, is extracted from the Annual Report and Accounts and should be read in conjunction with the Group's preliminary results announcement of 23 May 2019 (the 'Preliminary Results') which can be viewed on the Company's website at www.qinetiq.com/investors.  The information in the Appendix and the Preliminary Results together constitute the material required by DTR 6.3.5 to be communicated in unedited full text through a Regulatory Information Service.  This is not a substitute for reading the full Annual Report and Accounts.  Page and note references in the Appendix refer to page numbers and notes in the 2019 Annual Report and Accounts.

 

Enquiries:

 

Jon Messent - Company Secretary

+44 (0) 1252 392000

Ian Brown - Group Head of Investor Relations

+44 (0) 7908 251123

Press Office

+44 (0) 1252 393500



 

 

APPENDIX

 

PRINCIPAL RISKS

How we protect our business

Effective risk management plays an integral role in everything we do: ensuring we utilise the Group-wide risk management framework to inform our decision-making, supporting the successful delivery of our objectives and increasing our operational efficiency. Our Group Head of Enterprise Risk Management is responsible for designing and facilitating the risk management processes across the organisation, provides risk expertise and support to the businesses and reports risk information across the Group including to the Executive Committee, Audit and Risk & CSR Committees and the Board.

 

Our focus on commercial innovation and changes in our customers' approach to risk are business drivers shaping our application of risk management. We develop innovative business models and are taking more outputs-based approaches to contracts; taking on more risk to pursue.

 

Risk management and assurance activity

Three lines of defence model

Our risk management and assurance activity is formed of three lines of defence, each reporting to the Executive Committee, to the Board's Audit Committee in respect of financial risks, and the Board's Risk & CSR Committee in respect of non-financial risks. The first line of defence is performed by the businesses, through managing activities in accordance with established operating principles; the second line is performed by the oversight functions, including the enterprise risk management and safety and governance teams; and the third line is performed by the internal audit team and external providers.

 

Board
Responsible for effective risk management across the QinetiQ Group. Sets risk appetite and assesses principal risks

Audit Committee/Risk & CSR Committee

·      Receive reports from the assurance functions

·      Risk deep dives

·      The Audit Committee focuses primarily on risks with financial impacts

·      The Risk & CSR Committee focuses primarily on risks with non-financial impacts

Executive Committee

Identifies and monitors the principal risks, as well as the material risks (including operational) reported from the businesses and Group functions

Risk owners

-    Managers identify and evaluate risks

-    Design and operation of internal controls to mitigate risks

-    Application of delegated authorities, policies, procedures and codes of practice

 

1st line of defence

Enterprise risk management

-    Risk Management and other oversight functions with limited independence

-    Design and facilitate the risk management processes across the Group, provide risk expertise and support to the businesses and functions

-    Report to the Board and  the Executive Committee

2nd line of defence

 

Independent

risk assurance

-    Internal Audit and independent assurance providers

-    Review and evaluate risk management activity and provide assurance of the effectiveness of the control environment to manage risks

-    Manage the external confidential reporting process

-    Report to the Board and the Executive Committee


3rd line of defence

 

QinetiQ risk appetite

The Board identifies and reviews its tolerance of risk by establishing a clear risk appetite and setting appropriate delegations of authority to the executive and senior leaders. We focus on those critical risk areas necessary to achieve our strategic goals. Risk appetite is articulated by defining three categories which balance scrutiny and mitigation activity against likely benefit:

Cautious

Avoidance of uncertainty - with negligible or low residual risk. Applying innovation prudently where the risks are fully understood.

Balanced

Preference for delivery options that have a low or moderate degree of residual risk. Applying innovation only where successful delivery is likely.

 

 

Eager

Willing to consider all delivery options despite greater inherent risk and eager to be innovative.

 

Commercial

Opportunities relating to increased market share where we have proven delivery into existing markets

Eager

Opportunities that translate proven delivery into new markets

Balanced to Eager

Opportunities that translate new capability or delivery into existing customers.

Balanced

Opportunities that involve new capability or delivery into new markets.

Cautious to Balanced

Operational

Operational delivery

Cautious to Balanced

Compliance with legal and regulatory requirements

Cautious

 

The Group Risk Register consists of material risks relating to effective delivery of our strategy. The Board and Executive Committee look to assess these principal risks from a number of different perspectives, including both individually and collectively. The Board recognises that some risks may be affected by factors outside the control of the Company and also recognises that however robust the risk management processes are they cannot provide absolute assurance and unknown risks may manifest without warning. The Company has processes in place to deploy appropriate management to such risks and utilise lessons learned processes across the organisation such that we continuously strive for improvement.

 

Strategic Risks

UK Defence Test and Evaluation strategy

International strategy

Risk

UK Government budget constraints lead to reduced spending in the core markets in which we operate. This, and modernising ways of evaluating capability, results in a risk that our approaches/offerings may not remain relevant. EU exit causes a loss of market confidence and reduction in collaborative EU funding.

 

Risk

Plans to grow our international business 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 operations.

 

Impact

A reduction in revenue and associated profitability from the Group's government and defence contracts.

 

Impact

Unable to realise expected growth in the planned timeframes.

Mitigation

Our strategy is focused on leading and modernising UK test and evaluation in support of our customers' objectives.

Proactive engagement with our major customers enables us to support their objectives.

Our investments into contracts enhance our offerings that support our customers with their efficiency challenges as well as ensuring that we provide the right services as the threat environment continues to evolve. We are delivering new types of evaluation and increasingly moving towards modelling and synthetics.

We continue to grow our access to international growth from test and evaluation and post Brexit will maintain relationships with the UK Government to support bilateral relationships within Europe.

 

Read more on page 24 - Strategic progress UK T&E

Mitigation

Our international strategy is focused on the markets we feel we have the best routes to access with the most appropriate products or services.

Adopting a focused approach ensures we can closely monitor our progress, adapting and responding as necessary.

We undertake extensive due diligence, taking the appropriate professional advice to ensure structural, regulatory, legal and political risks are understood and minimised.

We partner with or acquire, where appropriate, quality local businesses to leverage their infrastructure and de-risk local market access.

 

Read more on page 24 - Strategic progress International

Metrics

-    Customer satisfaction

-    All financial KPIs

Metrics

-  All financial KPIs

-  International revenue as a % of revenue

Responsibility

Group Director Business Development

Responsibility

Managing Director International

Risk appetite

Eager

Risk appetite

Balanced to Eager

Likelihood/Impact

Medium/High

Likelihood/Impact

Medium/High

Proximity/Velocity

1-2 years / medium

Proximity/Velocity

0 -1 years / medium

 

Innovation strategy

A material element of the Group's revenue is derived from one contract

Single source contract regulations

 

Risk

Failure to create a culture of innovation or to invest

adequately in, or create value from, our innovation

investment. As well as the risks arising from the

introduction of disruptive technologies/alternative

business models

Risk

A significant part of the Group's revenue is derived from UK Government contracts, the Long Term Partnering Agreement (LTPA) being an example of this. Government budget constraints could impact

our ability to grow.

 

Risk

Group performance is adversely affected by application of regulations from the Single Source Regulations Office (SSRO).

Impact

Negative impact on the Group's market position,

competitiveness, future growth and failure to

deliver a return on investment in our Internal

Research and Development (IRAD) fund.

 

Impact

Contracts we have with the UK Government contribute a material proportion of the Group's revenue and earnings

Impact

The regulations could have an adverse impact on the Group's financial performance.

Mitigation

Our overall strategy helps us to ensure that we focus our innovation on areas with clear commercial opportunities.

We have evolved our approach to investment to

place a greater focus on routes to market in order

to drive a profitable return. We have also further evolved our partner eco-system to support indirect

routes to market.

Our operating model, based on matrix working, helps to ensure that any internal barriers to collaboration and knowledge sharing are removed.

Mitigation

Our aim is to provide our customer with the capabilities they need to test and train against current and future threats in a cost effective manner, leading and modernising UK test and evaluation.

As part of this strategy, we are putting more of our work onto longer-term contracts. This provides higher visibility for us. For example, the recent

amendments we have made to the LTPA secure nine years of revenue, and significantly increase Group revenue visibility.

Our investment into key contracts and innovative

delivery approaches continues to ensure we meet the UK Government customer's expectations and remain cost effective and relevant in an evolving threat environment.

 

Mitigation

Our strategy to lead and modernise UK test and

evaluation and invest in our core contracts allows us to put a greater volume of our work onto longer-term contracts, reducing the proportion of our revenues exposed to changes in the SSRO rate.

Our growing international business provides the

opportunity for us to win competitive work which

helps mitigate SSRO margin pressure within the UK.

We continue to support a joint industry position in refining the SSRO framework and its

practical application

Metrics

- Customer satisfaction

- Employee engagement

 

Metrics

- All financial KPIs except orders

- Customer satisfaction

Metrics

- Customer satisfaction

- All financial KPIs

Responsibility

Group Director Business Development Group Director Strategy and Planning

Responsibility

Group Director Business Development  Managing Director Maritime, Land and Weapons

Responsibility

Chief Financial Officer

Risk Appetite

Balanced

Risk Appetite

Balanced

Risk Appetite

Cautious

Likelihood/Impact

Medium/High

Likelihood/Impact

Medium/low

Likelihood/Impact

High/Medium

Proximity/Velocity

1 - 2 years / low

Proximity/Velocity

1 - 2 years / low

Proximity/Velocity

0 - 1 years / medium

 

Operational Risks

Recruitment and retention

Significant breach of relevant

laws and regulations

Security and IT systems

Risk

We operate in many specialised engineering,

technical and scientific domains where key capabilities and competencies may be lost through failure to recruit, develop and retain our employees.

 

Risk

We operate in highly regulated environments and non-compliance has the potential to compromise our ability to conduct business in certain

jurisdictions, potentially having an impact on a variety of stakeholders

Risk

A breach of physical or data security, cyber attacks or IT systems' failure could have an adverse impact on our customers' operations.

 

Impact

Delivery of business strategies, plans and projects would be adversely impacted.

 

Impact

Failure to comply with particular regulations could result in a combination of fines, penalties, civil or criminal action, suspension or debarment from government contracts, as well as reputational damage to our brand.

 

Impact

Significant reputational damage, as well as the

possibility of exclusion from some types of government contracts resulting in reduced orders, revenue and profit.

 

Mitigation

We have created a five-year skills forecast and built it into our overall strategic workforce plan.

Attraction through diverse and inclusive campaigns

to ensure we meet the changing needs of the

business but reflect the talent pools we hire from.

Ensuring we have access to talent now and in the future such as STEM outreach and Early Careers development.

Supporting our people to recognise, develop and

fulfil their potential via the QinetiQ Talent approach,

career frameworks, Academy & Training.

 

Read more about our people on page 38.

Mitigation

Instilling the right behaviours and culture across the Group is a key part in minimising the risks.

In addition to our robust policy, procedures and mandatory training, the QinetiQ Code of Conduct defines clear expectations for the Group and its employees.

Key areas of focus include the following:

Safety of product and services, health, safety &

environment, international trade controls and bribery and ethics, where the company adopts a zero tolerance approach to bribery and corruption.

 

Mitigation

Data security is assured through a multi-layered

approach that provides a hardened environment,

including robust physical security arrangements

and data resilience strategies.

Information systems are designed with consideration to single points of failure and

comply with relevant accreditation standards.

Mandatory security awareness training for all employees.

Continuously reviewing the threats and adapting our security strategy and mitigations accordingly.

 

Metrics

- Strategic workforce planning                      - Apprentices and graduates

- Voluntary employee turnover against planned requirements

Metrics

- Health and safety

- Mandatory training compliance

- Commercial intermediary monitoring

Metrics

- Cyber dashboard

- Security dashboard

Responsibility

Group Director Human Resources

Responsibility

Company Secretary/Group General Counsel

Responsibility

Chief Financial Officer

Risk Appetite

Balanced

Risk Appetite

Cautious

Risk Appetite

Cautious

Likelihood/Impact

Low/Medium

Likelihood/Impact

Medium/High

Likelihood/Impact

Medium/High

Proximity/Velocity

2 + years / low

Proximity/Velocity

0 - 1 years / high

Proximity/Velocity

0 - 1 years / high

 

Risk management in action

A balanced risk approach to implementing output-based, multi-year engineering services Engineering services were historically procured by MOD Defence Equipment & Support (DE&S) through a variety of contractual approaches delivered by over 150 providers. This was inefficient for the MOD, had the potential to delay programmes and created considerable risk to managing within budget.

We have an eager commercial risk appetite for opportunities relating to increased market share where we have proven delivery, therefore will consider all delivery options, and are eager to be innovative despite greater inherent risk. With this in mind, through our Strategic Enterprise contract (SE) with DE&S in the air environment, we developed and successfully implemented a balanced risk method for packaging engineering outputs into multi-year programmes of work.

Focusing heavily on robust but proportionate project and programme risk management, our approach ensures right first time requirements, lean delivery using standardised outputs and a proprietary output acceptance, performance and contract system. Building on this success, this approach is now being implemented on the Engineering Delivery Partner (EDP) programme to bring together previously disparate tasks into a manageable delivery service. Our implementation plan is building an effective partnership supported by our joint risk management approach with the MOD, our top-tier partners, Atkins and BMT, and our provider network of 122 engineering specialist companies. This ensures the full breadth of capability and capacity to deliver is available to MOD, minimising the supply chain risk exposure, increasing delivery standards and achieving cost efficiencies.

 

Read more on Engineering Delivery Partner on page 27

 

LONGER-TERM VIABILITY ASSESSMENT

Assessing the prospects of the Group

The Group's corporate planning processes involve the following individual processes  covering differing time frames:

 

1. An annual Integrated Strategic Business Plan (ISBP) process that looks at the financial outlook for the following five years. This process commences with an assessment of the orders pipeline producing an order intake scenario. A review of the phased delivery profile and the cost base required to support this enables generation of base-case, high-case and low-case profit forecasts. Capex and working capital requirements are also collected, reviewed, approved and a cash flow produced for the plan period;

2. An annual budget process that covers the first year of the five-year planning horizon in detail;

3. A bi-annual forecast process to update the view of the first budget year (the year which would be in progress);

4. A rolling monthly 'latest best estimate' process to assess significant changes to the budget/forecast for the year in progress.

The corporate planning process is underpinned by assessing scenarios and risks that encompass a wide spectrum of potential outcomes, both favourable and adverse. The downside risk scenarios are designed to explore the resilience of the Group to the potential impact of all the significant risks set out on pages 33 to 35, or a combination of those risks.

The scenarios are designed to be severe but plausible, and take full account of the availability and likely effectiveness of the mitigating actions that could be taken to avoid or reduce the impact or occurrence of the underlying risks, and that realistically would be open to them in the circumstances. In considering the likely effectiveness of such actions, the conclusions of the Board's regular monitoring and review of risk and internal control systems, as discussed on page 64 to 65, 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 Executive Committee 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 2024. This is the period covered by our strategic planning process and is subject to stress-testing and scenario planning around potential risks. It has been selected because it presents the Board and readers of the Annual Report with a reasonable degree of confidence whilst still providing an appropriate longer-term outlook.

Confirmation of longer-term viability

As noted on page 95, 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 2024.

 

RELATED PARTY TRANSACTIONS

During the year ended 31 March 2019 there were sales to associates and joint ventures of £10.1m (2018: £10.4m). At the year-end there were outstanding receivables from associates and joint ventures of £1.4m (2018: £4.5m).

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

 

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 "Reduced Disclosure Framework", and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and company and of the profit or loss of the group and company for that period. In preparing the financial statements, the directors are required to:

 

-        select suitable accounting policies and then apply them consistently;

-        state whether applicable IFRSs as adopted by the European Union have been followed for the group financial statements and United Kingdom Accounting Standards, comprising FRS 101, have been followed for the company financial statements, subject to any material departures disclosed and explained in the financial statements;

-        make judgements and accounting estimates that are reasonable and prudent; and

-        prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and company will continue in business.

The directors are also responsible for safeguarding the assets of the group and company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group and company's transactions and disclose with reasonable accuracy at any time the financial position of the group and company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation.

 

The directors are responsible for the maintenance and integrity of the company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

DIRECTORS' CONFIRMATIONS

The directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the group and company's position and performance, business model and strategy.

 

Each of the directors, whose names and functions are listed in pages 56 and 57 confirm that, to the best of their knowledge:

 

-        the company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 "Reduced Disclosure Framework", and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the company;

-        the group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the group;

-        the Directors' Report includes a fair review of the development and performance of the business and the position of the group and company, together with a description of the principal risks and uncertainties that it faces.

In the case of each director in office at the date the Directors' Report is approved:

 

-          so far as the director is aware, there is no relevant audit information of which the group and company's auditors are unaware; and

-          they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the group and company's auditors are aware of that information.

 

SCOPE OF THE REPORTING IN THIS ANNUAL REPORT

The Board has prepared a Strategic report which provides an overview of the development and performance of the Group's business in the year ended 31 March 2019. 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.

 

 


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