QinetiQ Group PLC — Annual Report 2020

Jun 15, 2020

QinetiQ Group plc Annual Report & Accounts 2020

Create it Test it Use it

Our purpose

QinetiQ is dedicated to protecting lives, defending sovereign capability and securing the vital interests of our customers.

Who we are

QinetiQ is a leading science and engineering company operating primarily in the defence, security and critical infrastructure markets.

We are an information, knowledge and technology based company with the breadth and depth of more than 6,000 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 can we develop cutting-edge technology and turn it into a capability, we can 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.

• * Throughout this report FY20/2020 refers to QinetiQ's financial year ended 31 March 2020.
• ** The report also refers to 'Underlying' measures of performance. Definitions of the Group's alternative performance measures can be found in the glossary on page 183.

Front cover image:

An unmanned aircraft system deploying an underwater vehicle as part of a recent Royal Navy trial.

Inside front cover: A trial taking place in our anechoic test facility at MOD Boscombe Down.

See more online at www.QinetiQ.com

How we have performed

Financial highlights

We delivered our fourth consecutive year of growth

2020	£972.1m	2020	£1,072.9m	2020	£133.2m
2019	£776.4m	2019	£911.1m	2019	£124.9m
2018	£587.2m	2018	£833.0m	2018	£122.5m
Orders		Revenue		Underlying Operating Profit
£972.1m		£1,072.9m		£133.2m
(FY19: £776.4m)		(FY19: £911.1m)		(FY19: £124.9m1 )
2020	£117.6m	2020	20.0p	2020	18.7p
2019	£114.8m	2019	19.7p	2019	20.1p
2018	£141.0m	2018	19.3p	2018	24.4p
Statutory Operating Profit		Underlying Earnings per Share		Statutory Earnings per Share
£117.6m		20.0p		18.7p

Prior year comparatives for 2019 have been restated due to a change in accounting policy in respect of leases. See note 37 on page 172 for details.

(FY19: 19.7p)

Strategic highlights

We continued to make good strategic progress

Completed two strategic acquisitions

Acquired Manufacturing Techniques Inc. (MTEQ) in the US for \$105m and NSC in the UK for £14m.

Won four long-term contracts

Secured four long-term contracts driving improved revenue visibility.

Strategic report

(FY19: £114.8m1

)

	02 Where we operate
04	Stakeholder propositions
08	Chairman's statement
10	Chief Executive Officer's review
12	Our sustainable business model
14	Market context
16	Trading environment
18	Our strategy
20	Operating review
24	Chief Financial Officer's review
28	Key performance indicators
32	Principal risks
37	Longer-term viability assessment
37	Going concern statement
39	Our people
44	Responsible & sustainable business

Improved employee engagement

Supported by engagement initiatives our employee engagement score increased by 10%.

Grew international revenue to 31%

We have grown our international revenue from 21% to 31% of Group over the past four years.

48 Stakeholder engagement 50 Section 172 (1) statement 54 Non-financial information statement

58 Corporate governance statement

Governance

Board of Directors Governance framework Audit Committee report Nominations Committee report Risk & CSR Committee reports 82 Directors' remuneration report Remuneration at a glance Directors' remuneration policy Annual Report on Remuneration

110 Directors' report 114 Independent auditors' report

Secured £168m of orders through EDP

Our innovative delivery model for engineering services continued to drive performance.

Continued to transform the LTPA

Successfully delivered first year of the transition to new ways of working.

Financial statements

(FY19: 20.1p)

124 Consolidated income statement
125 Consolidated comprehensive income statement
125 Consolidated statement of changes in equity
126 Consolidated balance sheet
127 Consolidated cash flow statement
127 Reconciliation of movements in net cash
128 Notes to the Financial Statements
176 Company balance sheet
177 Company statement of changes in equity
178 Notes to the Company Financial Statements
180 Five-year financial summary
Other information
181 Additional financial information

182 Glossary

184 Shareholder information

Where we operate

We are a global company with operations around the world. Our home countries, where we have more than 250 people in-country are the UK, the US and Australia. Our priority countries for future growth are Canada, Germany and Belgium.

Revenue by geography

A core pillar of our strategy is to grow our international revenue to 50% of Group. Since we launched our strategy in 2016 we have grown our international revenue from 21% to 31% of Group revenue, supported by both organic and inorganic growth.

For more information see our strategy on page 18.

How we are structured

We report through two divisions; EMEA Services and Global Products.

EMEA Services

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.

Air & Space	Maritime & Land	Cyber & Information	International
De-risks complex aerospace programmes by testing systems and equipment, evaluating the risks and assuring safety.	Delivers operational advantage to customers by providing independent research, evaluation and training services.	Helps customers respond to evolving threats based on our expertise in cyber security, secure communication networks and devices, intelligence gathering and training.	Our International business leverages our expertise and skills developed in the UK and applies them to opportunities in attractive markets globally.
Approximate revenue £200m	Approximate revenue £315m	Approximate revenue £185m	Approximate revenue £100m

Global Products

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.

Customer proposition

We deliver mission-led innovation by applying our core science and engineering expertise to enable agile development of solutions to meet our customers' needs; creating, testing and using critical defence and security capabilities.

Create it

Rapidly creating new capabilities

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.

Test it

Assuring capabilities work when 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 with our digitally enabled infrastructure to provide customers with realistic and cost effective testing solutions.

Use it

Ensuring our customers are trained and operationally ready

Combining real and simulated training experiences we can ensure our customers are operationally ready to use their capabilities when it matters. By 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.

Create it

"Our innovative approach will meet the Government's objectives and produce an integrated prototype system that delivers gamechanging situational awareness." Mary Williams – President, QinetiQ US.

Next generation bomb suit

Dramatically increasing survivability, mobility and situational awareness

MTEQ, which we acquired in December 2019, was awarded a contract to create the next generation of bomb suits for the US Army. This modernises legacy bomb suit systems integrating a modular sensor suite and heads up display capabilities to provide technicians with revolutionary protection, mobility and situational awareness.

Test it

"We are making a massive investment to create a modernised LTPA and the OASIS contract will be able to turn this investment into real value for our customers." Steve Fitz-Gerald – Group MD, Maritime & Land.

Helping to protect UK ships and submarines

Measuring and understanding the unique acoustic and electromagnetic signature of all Royal Navy vessels

The ability to maintain an in-depth knowledge of a ship or submarines acoustic and electromagnetic signature is a critical part of maintaining a battle winning edge, helping to ensure you can see your adversaries before they can see you. Through the £19m Operational Assessment of Signatures Informing Susceptibility (OASIS) contract awarded in August 2019, we will support the Royal Navy in understanding this signature over the lifetime of a vessel. The service provided through the Long Term Partnering Agreement (LTPA) builds on our investment to lead and modernise UK Test & Evaluation and not only helps to protect the fleet of today, but also helps inform the fleet of tomorrow.

Use it

"The course is completely new, it's modular, it's much more flexible and that allows us to provide a bespoke training package to our many customers." Isabelle de Montet-Guerin, Fixed Wing Test Pilot Tutor.

Empire Test Pilots' School

Shaping talented pilots, engineers and aircrew into flight test professionals

Modern flight test programmes are complex and expensive endeavours, requiring a high level of knowledge, skill and hard work in order to get the maximum capability for defence from their air systems. Realising this potential while ensuring our aircraft remain safe to operate requires trained specialists with expertise in a broad range of theoretical, practical and analytical disciplines. Building upon our LTPA investment, we have successfully delivered the first year of our new modernised course, which imparts these skills to our trainees.

Employee proposition

As a business built on the skills and experience of our people, recruiting, engaging and developing high-quality employees is critical to our long-term success. We recognise that motivated and talented people are critical to the success of our company. Our goal is to offer employees:

Meaningful work

People around the world depend on us for their safety and security, and to enable the safety and security of others. We understand the nature of this responsibility and take pride in its delivery.

• We create, test and enable the effective use of new ways to save lives
• Reducing risks to society
• And helping to maintain the global infrastructure on which we all depend

Intellectual stimulation

Working at the cutting-edge of technology and innovation, our people have the chance to explore what is possible today and to shape tomorrow, collaborating with diverse teams to solve complex problems.

• We are creating a unique highperformance culture
• Where teams from different backgrounds, disciplines and experiences collaborate widely and openly
• Constantly discovering new ways of solving complex problems

The right environment

A unique environment, where we provide the leadership and infrastructure that supports our teams to deliver mission-led innovation for our customers' advantage.

• A clearly stated strategy aligns our direction of travel
• From flexible working, and tangible rewards for collective success, we create opportunities for meaningful work
• Providing professional development and supporting personal wellbeing

For more information on how we engage with our employees see page 41.

Partner proposition

We partner with complementary organisations including academia, SMEs and other defence companies, ensuring we deliver the best solutions for our customers. We offer these organisations:

A common purpose

Working with partners whose values and culture align with our own, we are committed to delivering missionled innovation for our customers' advantage.

Genuine collaboration

Collaboration is one of our core values and we recognise we can achieve more by working together, adopting an open and honest approach.

Fair and sustainable approach

We aim to treat our partners fairly, ensuring we act with integrity and have equitable contractual terms. This extends to ensuring we are financially responsible.

For more information on how we engage with our partners see page 48.

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 five key attributes:

Unique capabilities

We operate unique capabilities around the world critical to maintaining national defence and security

• A key partner to UK defence
• Leading technical expertise and state of the art facilities
• High barriers to entry

Attractive markets

Growing exposure to attractive international markets

• Significant presence in high-growth home countries; the US and Australia
• Ambition to increase international revenue to 50% of Group
• Supported by our customer focused approach to delivering mission-led innovation

A clear strategy

We have a clear strategy to deliver long-term sustainable growth in our business focused on:

• Leading and modernising UK Test & Evaluation
• Building an international company
• Innovating for our customers' advantage

Attractive financials

Attractive financial characteristics supported by a strong balance sheet

• Long-term contracts provide good visibility
• A cash generative business model and a clear capital allocation policy
• Investing for growth with the ability to self-fund organic and inorganic investment

Sustainable growth

Delivering sustainable growth and returns to our shareholders

• Fourth year of organic revenue growth and second year of organic profit growth
• Complemented with well performing acquisitions
• Progressive dividend policy

employees

6,000+ highly dedicated

50 specialised sites around the world

£8bn+ addressable market

31% of FY20 revenue generated in international markets

£370m

investment to modernise UK Test & Evaluation

111% growth in international revenue over four years

£850m

of FY21 revenue under contract

£85m of net cash

18% revenue growth (FY19: 9%)

2% underlying EPS growth (FY19: 2%)

For more information on how we engage with our investors see page 66.

Chairman's statement

Taking steps to secure our long-term success

It has been just over a year since I was appointed to the Board of QinetiQ. I was fortunate to have joined a company in a very strong position, with a clear strategy that is being well executed. A fourth year of growth is further evidence of this with many key strategic milestones delivered, including the acquisition of MTEQ.

My predecessor Mark Elliott envisaged the renaissance of QinetiQ and appointed a strong and effective executive team. I should like to thank Mark for his successful stewardship during a critical period of change for the company.

Since joining, I have spent time getting to know QinetiQ, visiting our sites and meeting both UK and international teams. I have enjoyed spending time with our apprentices and graduates, and with our senior managers, engineers, scientists and range staff and have been consistently impressed with the breadth and depth of their knowledge, experience and enthusiasm – our people are incredibly talented scientists, engineers and technicians. They have a strong sense of purpose and customer focus. They understand how important their work is to protecting and saving lives, defending sovereign interests and delivering unique capability. At all levels I meet teams embracing culture change and recognising that it is their responsibility to not only satisfy but exceed customer expectations.

"With talented people, attractive and growing end markets and a strong management team, QinetiQ is well positioned to deliver long-term sustainable growth."

In light of the uncertainty created by COVID-19 a decision on the dividend has been deferred until a later date.

See our Board of Directors on page 60.

See our Governance framework on page 62.

I have also had positive discussions with our Employee Engagement Group (EEG). Formed of elected representatives from across our company their role is to act as the formal employee voice within QinetiQ. The EEG provides the Board and our executive team with valuable insights into how our employees are feeling and we actively engage with them during key decision making processes to help inform our thinking. I would like to thank them for their valuable contribution during the course of the year.

Like all businesses, we have felt the effects of the COVID-19 pandemic which has fundamentally changed the way we operate. Our top priority remains the health, safety and wellbeing of our people and we have had to overcome the challenge of continuing to deliver for our customers while ensuring it is safe to do so. We have adapted quickly to the newnorm and harnessed technology to assist with smarter-working. We are, in this process, learning important lessons which will become embedded in our future structures and processes.

We are fortunate to have entered this crisis from a position of great strength, however with national safeguarding measures in all of our key markets, we do anticipate seeing less-critical customer work being deferred or delayed in the short-term. Given the uncertainty COVID-19 creates, as a Board we believe it is prudent to maintain a cautious approach until there is greater

clarity around the medium-term commercial impact of the global pandemic and any longer-term systemic changes. Consequently, we are deferring our decision on the final FY20 dividend until there is greater clarity on the situation.

Taking a longer-term view, with talented people, attractive and growing end markets and a strong management team, QinetiQ is well positioned to deliver sustainable growth. We are putting in place the structures to ensure this growth continues to be effectively managed and governed, and using the current environment to accelerate some of these changes. We are implementing a new global operating model, appropriate for an integrated defence and security business with international operations. We have strengthened our management team welcoming Mary Williams from MTEQ as our new president of QinetiQ in the US.

Delivery of long-term growth is also dependent upon our ability to operate safely, sustainably and responsibly. Since joining, I have been impressed with the Board's rigorous focus on ensuring the risks within our business are well understood and appropriately managed. While we did not anticipate the COVID-19 situation itself, our response has been built upon preparations made as part of our ongoing approach to risk management. I have emphasised the importance of our people and we continue to implement changes to make QinetiQ a better place to work. While there is still more to do, our employee engagement scores have increased by 10% with three quarters of our people taking part. Environmental concerns have rightly become much more prevalent, there is no doubt that our climate is changing at unprecedented rates. We are actively looking at ways to reduce our environmental impact and to ensure our business is resilient to the effects of climate change.

There will be some changes to the membership of the Board this year. Paul Murray, who has chaired the Audit Committee with great skill and diligence retires after nine years and will hand over to Shonaid Jemmett-Page. Admiral Sir James Burnell-Nugent will retire at the end of 2020, again having served for more than nine years as the highly effective chair of the Risk Committee, and will hand over to his successor. I should like formally to thank Paul and James for their outstanding contributions to QinetiQ over many years and look forward to welcoming Shonaid to the Board.

I, and the entire QinetiQ Board, want to thank all our teams globally for their continued support and energy in sustaining our company and delivering outstanding service to our customers and nations. In time I believe we will look back on this period as the crucible in which a stronger and more vibrant QinetiQ was forged.

Neil Johnson Non-executive Chairman

21 May 2020

Our values

Integrity

We take pride in our decisions, and work to create a sustainable and responsible business. We take personal responsibility to do the right thing, both as an organisation and as individuals.

Collaboration

Delivering value through partnership and teamwork, we actively collaborate with our colleagues, customers and industry partners. We know that working together is the best way to meet our customers' needs.

Performance

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.

Chief Executive Officer's review

Entering FY21 from a position of strength

Through the consistent and successful implementation of our strategy we have delivered our fourth year of growth. Our FY20 performance was strong, with the largest order intake in nearly a decade, revenue growth of 18% and operating profit growth of 7%. We also completed our largest acquisition to date under our strategy with the purchase of MTEQ. This significantly enhances our capabilities in sensing technology, complements our existing US business and expands our presence in the world's largest defence market. With our strategy firmly embedded and delivering consistent results, we are taking steps to mature our organisation ensuring we have the right teams, systems and processes in place to continue building a truly integrated global defence and security company.

Having launched our vision-based strategy in 2016, we are delivering significant progress and continue to drive its implementation. Our strategy has three mutually reinforcing pillars: 1) leading and modernising UK Defence Test & Evaluation (T&E), 2) building an international company, and 3) innovating to deliver advantage to our customers.

During the course of FY20 we secured many strategic achievements, winning significant orders, delivering for our customers, investing in our capabilities and successfully acquiring two businesses. What has been particularly notable is the consistency of performance across our business. The growth we are delivering is across all areas of QinetiQ, both within EMEA Services and Global Products in the UK and internationally.

"The steps we are taking will preserve our balance sheet strength and retain the critical talent we need within our company."

Current impact from COVID-19

Our EMEA Services division benefits from long-term contracts, performing work that is critical to sovereign defence capabilities. To date, the effects of COVID-19 have been limited within this division. We have experienced some limited delays in trial activity, and in Germany a reduction in flying hours, while other work more directly associated with the response to COVID-19 has been accelerated. While many of our employees are able to work effectively and productively from home, similar requirements for our customers and partners to do the same are likely to have a knock-on effect to our business, although it is difficult to quantify the effects at this stage.

The scale and impact of COVID-19 became increasingly apparent as we approached our year end. As we enter FY21, we are seeing isolated effects to our business associated with the restrictions on travel and requirements to implement social distancing. These effects are more likely in our shorter-cycle products business outside of our home and priority countries, particularly within QinetiQ Target Systems where some customers have delayed trial activity and reduced orders for targets.

Strategic response to COVID-19

We entered FY21 in a very strong position, with a large order book and net cash on our balance sheet. Despite our resilient business model and strong financial position, we think it is appropriate to be prudent and have taken decisive action now to maintain the strength of our business in the long-term interests of our employees, customers and investors.

The COVID-19 crisis creates uncertainty and as yet, with no clear guidance on the scale back of national safeguarding measures as well as the potential knock-on impact to customer priorities and budgets, we are taking an appropriately cautious approach. We hope the impact is less pronounced than we are planning for, in which case we will be able to remove the actions quickly.

We are ensuring that our strategic response to the COVID-19 crisis is fair, balanced and proportionate across all our stakeholders, enabling us to be agile and proactive so that we can emerge from the crisis as a stronger more agile company and pursue medium to long-term growth.

1) Our employees

Short-term

Our primary concern is for our people, whose knowledge and expertise are key to our success. Globally, we are taking steps to ensure that employees can work effectively and safely from home while continuing to feel supported. For those employees who need to work on our sites to enable delivery of critical defence and national security programmes, we have implemented a range of safeguarding measures including social distancing, additional cleaning services and provision of personal protection equipment as necessary to ensure our working environments are safe and clean.

Longer-term

With nearly 80% of our employees working from home, our people have successfully risen to the challenge of extensive remote working delivering high levels of productivity and effectiveness. To support longer-term remote working we are accelerating aspects of our digital transformation and evolving our functional delivery model. We are continuing our employee engagement activity using virtual rather than physical meetings building on the positive 10% increase in engagement scores we delivered during FY20. We have continued our All Employee Incentive Scheme, which we introduced last year, which will pay each employee £740 in QinetiQ shares and is a key enabler for growth by aligning our employee and shareholder interests.

2) Our customers

Short-term

The work QinetiQ does is vital to maintaining the capabilities of defence, security and critical national infrastructure, including the emergency services. Our customers are facing significant challenges due to the threat of COVID-19, and we are working closely with them to provide support delivering their priorities at this critical time. We are proud of the role we play in this regard, and we are aware of the responsibilities that we are fulfilling.

Longer-term

We are partnering with customers to understand how their longer-term needs will evolve. We anticipate that future defence and security budgets are likely to come under pressure as the full financial impact to governments of COVID-19 is understood. While overall budgets may come under pressure, we anticipate there being areas within overall defence spending, aligned with our strategy, that will continue to grow. We occupy a privileged position in defence with very close customer relationships and as such are able to advise on defence and security priorities as well as upgrading existing capabilities to respond to the latest threats.

We believe the challenges COVID-19 creates will accelerate the shift to a new defence paradigm that puts rapid, missionled innovation at the centre of procurement, a trend that is well aligned with our own innovation strategy, expertise and recently acquired businesses. Our strategy, which we have been successfully implementing over the last four years, was developed in a constrained budgetary environment, and as such we are confident we can continue to deliver medium to long-term and profitable growth despite potential macro headwinds.

3) Our company

Short-term

To protect our business we are implementing a series of shortterm actions to sustain our skills and critical capabilities for the long-term. These temporary actions include the CEO and CFO volunteering a salary reduction of c.33% and the wider

Board volunteering a 25% reduction in fees. We are also taking a prudent approach to controlling cash outflows, including reducing operating expenditure and deferring discretionary capital expenditure. All bonuses will be paid in shares.

Given the unprecedented nature of COVID-19 and the Board's wish to adopt a prudent course of action to protect the long-term, it will postpone the decision on the proposal of a dividend until a later date. This decision was not taken lightly and will be reviewed as soon as sensible to do so.

We have a strong balance sheet with £85m of net cash available and an undrawn committed revolving credit facility of £275m. The initial five-year facility has been extended by one year to September 2024 and has a further option to extend by one more year to September 2025.

Longer-term

With 92% of our revenue delivered within our six home or priority countries, we have a resilient business model and growth strategy. We believe that the steps we are taking will preserve our balance sheet strength and retain the critical talent we need within our company. Our aim is to emerge from the current crisis able to continue accelerating our strategy to meet the needs of a new world, delivering both organic and inorganic growth.

We are continuing to make good progress on the integration of our acquisitions of MTEQ and NSC. In the US, we are successfully moving our governance structure to a Special Security Agreement (SSA), which will allow greater coordination and collaboration with QinetiQ globally supporting our longer term growth.

In April, we implemented our new global operating model, simplifying our management structure, digitalising our business, leveraging our capabilities globally and driving a performance culture across the organisation.

By taking prudent actions to preserve our balance sheet, we will be well placed to take advantage of the opportunities created by the current crisis, particularly in M&A. Our strategy has enabled us to successfully grow in an uncertain world over the last four years by adding value to our customers. Whilst the world has changed around us, our strategy is unchanged and is more relevant than ever to meet the needs of our customers in this new world.

Outlook – FY21

While we enter FY21 in a position of strength, it is too early to draw conclusions on the overall impact of COVID-19 to our business. At this stage we are planning for a range of outcomes depending upon the duration and extent of national safeguarding measures and any potential budget pressures. We have implemented short-term temporary actions to mitigate the immediate challenges and will provide further updates to the market as we gain more clarity both in terms of near-term trading and longer-term trends.

Outlook – Longer term

With the continued implementation of our strategy and investment, we are well placed to respond to changing customer requirements delivering medium to long-term, profitable growth.

Steve Wadey Chief Executive Officer

21 May 2020

Our sustainable business model

Our fundamental strengths Our customer value proposition

Our people

Customer focus

customers depend on.

The majority of our 6,000+ employees are highly skilled scientists, engineers and technicians with deep domain knowledge and experience. Our success is dependent on our people and we are investing to support their career development, wellbeing and engagement.

Adopting innovative and responsive approaches to meet our customers' needs, our people are inherently customer focused. We strive to provide outstanding customer experience in the delivery of mission critical solutions our

We accelerate our customers' ability to transition from concept to capability. We provide ongoing testing and assurance throughout the lifecycle of complex platforms, weapons and capabilities and ensure our customers are effectively trained to use them. In short, we apply our fundamental strengths to help our customers to create, test and use critical capabilities.

See our customer proposition on page 4.

Specialist facilities

best offering in the market.

We own or operate truly specialist Research, Development, Test & Evaluation facilities around the world. Combining these unique facilities with the expertise of our people supports our customers in countering current, future and emerging threats. We are committed to ensuring these facilities remain world-class and are investing in them accordingly.

Complementary partnerships Forming complementary partnerships with both industry and academia, with the ability to manage large provider networks of small and medium size enterprises, our open and honest approach ensures our customers receive the

Purpose, culture and values

Our business model and how we create value is underpinned by our purpose, culture and values.

Purpose

QinetiQ is dedicated to protecting lives, defending sovereign capability and securing the vital interests of our customers.

Revenue visibility and cash generation

Much of our work is delivered under long-term contracts providing a high level of revenue visibility. In addition our business is cash generative by nature. These attributes inherent in our business enable us to organically invest in our capabilities and sustain our business model.

£850m 133%

of FY21 revenue under contract

underlying cash conversion (pre-capex) in FY20

Capital allocation

We have a clear and disciplined approach to capital allocation with a policy that provides the financial flexibility required to successfully execute our long-term growth strategy, while ensuring that capital is deployed in the most effective manner. Our capital allocation priorities are:

1.

Invest in our organic capabilities, complemented by bolt-on acquisitions where there is a strong strategic fit.

2.

3.

4.

Maintain the necessary balance sheet strength.

Provide a progressive dividend to shareholders.

Return excess cash to shareholders.

How the money works Stakeholder value creation

Customers

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.

18%

improvement in Net Promoter Score

Employees

Our employees work in an exciting high paced 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.

increase in employee engagement

Partners

Working with our partners we bring together complementary industry leading thinking in a truly collaborative environment to the benefit of the customer, QinetiQ and our partners.

100 SMEs support delivery through Engineering Delivery Partner

Investors

Our business model, supported by our strategy, aims to deliver sustainable long-term growth and returns to our shareholders.

2% growth in underlying EPS

Culture

We are creating a high-performing culture where employees are engaged and everyone contributes to our overall success.

Values

Our values are integrity, collaboration and performance. These values underpin who we are and what we do.

Market context

Three long-term themes drive growth in our markets

Key themes

Increasing complexity

• Threats are increasingly complex
• Systems used to counter these threats are correspondingly complex
• Digital risk threatening public and private sectors

Partnering for innovation

• Accelerating pace of innovation through partnerships
• Appetite to exploit ideas coming from outside defence
• Rapidly integrate new technologies into existing capabilities

Value for money

• Customers have finite resources, but increasing requirements
• Defence budgets, while growing, must be seen to deliver value
• Customers are looking to the private sector to drive efficiencies

Increasing complexity

The threats our customers must be confident in defeating are constantly evolving and the pace at which they do so continues to accelerate. From low-cost consumer drones adapted to cause harm, to hypersonic missiles, the threat environment is growing increasingly complex. In parallel to traditional physical threats, digital-based threats continue to grow in sophistication, and are often deployed in conjunction with more conventional threat forms. In order to defeat these threats, the capabilities our customers use are growing in complexity, often combining a multitude of systems and platforms that need to be integrated.

Against this backdrop, the geopolitical environment is also becoming more uncertain. The proliferation of technology has given both state and non-state actors access to capabilities that undermine the technological superiority of western nations. In addition, increasing activity in the 'grey-zone' where the distinction between acts of war and peace are blurred calls for closer integration of defence and security capabilities.

How we are responding

Our ability to emulate advanced threats and test and evaluate the resilience and interoperability of systems and platforms against these threats provides our customers with assurances that they can effectively respond.

Our strategy and commitment to lead and modernise UK Defence Test & Evaluation (T&E), and our investment in to the Long Term Partnering Agreement (LTPA), ensures we have the right capabilities to generate and assure the future platforms and systems needed to respond to this complexity. QinetiQ can combine this with in-depth understanding of the digital threat to evaluate and deploy innovative technologies helping our customers to contend with imminent threats and prepare for the future.

Partnering for innovation

The platforms and systems needed to respond to this complex threat environment are themselves so complex that no one company can deliver them. In addition, our customers are focused on harnessing future technologies to maintain superior technological advantages. Robotics, autonomy, sensing solutions and advances in data processing and machine learning are of particular interest to our customers. The cutting edge of technology is often found in academia and commercial industries, and a key market theme is the need for effective partnership to rapidly convert emerging technologies into assured deployable capability. Partnerships with universities, small and medium size enterprises, and other defence companies are critical in providing our customers with the agility they need to respond.

How we are responding

QinetiQ was founded on innovation with Research, Development, Test & Evaluation at the core of what we do. The breadth and depth of our peoples technical expertise and our investment in their continued development enables QinetiQ to deliver mission-led innovation for our customers' advantage. As a predominantly service-based business, QinetiQ is ideally placed to act as an innovation integrator, acting as a convening facilitator between government, academia and wider industry to rapidly develop and deploy innovative solutions. We are uniquely placed to operate across the breadth of platforms, systems and lifecycles unlike a more traditional vertical platform manufacturer. Our strategy is to further develop our own Research and Development (R&D) capabilities as well as creating valuable partnerships to deliver mission-led innovation to our customers.

Value for money

Governments around the world are faced with multiple calls on their resources, with ageing populations and rising social care costs, combined with moderate economic growth often putting significant pressure on fiscal budgets. With limited resources and a growing number of threats to defend against, many nations are wrestling with maintaining traditional platform based defence capabilities while also developing future digitally enabled technologies. As a result, achieving value for money and the need to do more for less is a key theme across our markets.

How we are responding

We are positioning ourselves as a strategic partner to our customers, understanding their challenges and applying our technical expertise to provide innovative solutions. We believe that by focusing on our customers' needs and helping them realise cost efficiencies, we can create further opportunities to deliver long-term sustainable growth in our business as we win work in new areas. Our ability to work across platforms and technologies and form powerful partnerships helps deliver the right capabilities to customers in the most cost effective manner.

Global RDT&E spend

Over the last five years global Research, Development, Test & Evaluation (RDT&E) spend has grown by 54%. The need to develop and integrate next generation technologies and the need to ensure greater interoperability between platforms and systems to counter increasingly complex threats are both key drivers of this.

Source: Jane's Defence Budget Market Forecast (March 2020)

Trading environment

The UK, US and Australia are our home countries, where we have more than 250 people in-country. They collectively represent 87% of our revenues.

UK

With defence spending of £41.3bn in 2020, the UK has the largest defence budget in Europe. As the threat environment continues to evolve the UK Ministry of Defence (MOD) is committed to driving innovation and developing next generation capabilities. This was recognised in the 2018 Modernising Defence Programme, which placed a particular emphasis on technologies in areas such as artificial intelligence, cyberspace and space; all areas in which we have considerable expertise.

The UK spends approximately £1.5bn on Research, Development, Test & Evaluation (RDT&E) and remains a key market for QinetiQ where we continue to drive mission-led innovation. While the outcome and timing of the forthcoming Integrated Security, Defence & Foreign Policy Review is not yet known, QinetiQ is partnered closely with the MOD to support it in achieving its objectives and realising efficiencies, an approach we believe will create new opportunities for growth. Whilst the COVID-19 pandemic will result in significant fiscal pressure for the UK Government, with the possibility this could be exacerbated by an unfavourable conclusion to trade negotiations with the European Union, the UK's spending commitments to NATO and the evolving threat environment and need to ensure the resilience and security of critical national infrastructure is likely to offer support to UK defence budgets.

US

The US is by far the largest defence market globally with total spending of \$738bn in 2020, more than the next ten largest military budgets combined. With continuing tensions between the US and China, a more assertive Russia and widespread unrest in the Middle East with a resurgent Iran, the 2018 National Defense Strategy cited the need to modernise key capabilities across all domains to maintain superiority and recognised the value of collaboration with the private sector.

If passed, the FY21 Presidential budget request of \$740bn maintains support for key modernisation programmes and features the largest RDT&E budget in 70 years, as the US looks to harness emerging technologies. QinetiQ remains committed to supporting the DOD and our existing expertise in robotics and autonomy are well aligned with their ambitions to make greater use of this technology, evidenced by our recent robotics contract wins. The acquisition of MTEQ, specialising in next generation sensing solutions, a complementary area of focus for the US, also creates further opportunities for us to accelerate and sustain our growth in the world's largest defence market.

Australia

In Australia, current defence spending of \$33bn is forecast to grow at 3% per annum over the next decade, underpinned by cross party support for defence. The modernisation of defence platforms remains a key priority as Australia seeks to reform its force structure to counter rapid developments in 'peer-topeer' threats and China's increasing assertiveness in the South China Sea. In light of this environment Australia is increasingly working in partnership with allied nations, particularly in the Pacific, driving the need for greater interoperability between allied forces. With the need for innovation to counter rapid developments in the threat environment, Australia is placing an increased focus on the RDT&E of cyber capability, hypersonic weapons and autonomous vehicles. With a \$1.2bn RDT&E budget, Australia remains a key market for QinetiQ where we can provide the Australian forces with assurance of existing military capability, facilitate rapid experimentation of new capability and support operational readiness.

Broader international markets

In order to achieve our ambition of growing international revenue to 50% of Group revenue, we aim to drive growth in our three home countries, three priority countries of Canada, Germany and Belgium as well as wider international markets. Our international strategy is underpinned by harnessing the skills and expertise developed in our home countries across the Group to support allies in other high growth markets.

Canada is an attractive market for QinetiQ where we see opportunities to support the Canadian Armed Forces in modernising their own capabilities. The outlook for Canadian defence spending is positive with spending of \$16.9bn in 2020 expected to grow by 5% per annum over the next five years, underpinned by Canada's drive to hit NATO spending targets.

Europe is also an attractive market for QinetiQ, representing nearly 20% of global defence spending. Within this, Germany is a key market with our in-country operation built on the acquisition of E.I.S. Aircraft Operations. Current defence spending in Germany is \$48bn and in a similar fashion to other NATO nations the trajectory is positive supported by the drive to hit NATO spending commitments. Belgium is another key market within Europe, where we are seeing increasing demand for our space products driven by the European Space Agency.

With growing unrest in the Gulf region, defence spending has trended upwards. However, nations driving this spend have predominantly focused on the procurement of new equipment and are increasingly aware of the benefits of integration, assurance and training to create true capabilities. We therefore see opportunities in the Gulf region to support allied nations in creating assured military capabilities.

Impact of COVID-19

The impacts of COVID-19 on our key markets have been both severe and widespread, with most affected in some way. In recent months, national safeguarding measures, including travel restrictions, put in place to halt the spread of the virus have impacted our ability to deliver for customers, with challenges relating to on-site delivery and the shipment of products. Whilst this is short-term in nature and we have been able to adapt to new ways of working to minimise its impact, it would pose more of a challenge were these measures a consistent feature over a longer period. The unprecedented stimulus that many governments have deployed in response to reduce the economic impact of the pandemic will significantly reduce their fiscal flexibility and place pressure on their spending. However, with the geopolitical environment growing increasingly complex and the need to retain superior technological advantage more pressing than ever, we believe demand in our key markets will remain robust over the long-term.

Our strategy

A strategy that is relevant to a dynamic environment

Our vision

To be the chosen partner around the world for mission-critical solutions, innovating for our customers' advantage.

Our strategy

Our strategy is interlinked and mutually reinforcing and aims to deliver sustainable, long-term growth:

UK Lead and modernise the UK Defence Test & Evaluation enterprise, by working in partnership with Government and prime contractors.

International

Build an international company that delivers additional value to our customers by developing our home countries, creating new home countries and exporting.

Innovation

Invest in and apply our inherent strengths to drive innovation for customers' advantage in defence, security and critical infrastructure markets.

Underpinned by

Transformation programme

Our strategy is supported by our ongoing transformation programme. The programme will create an efficient and effective organisation capable of supporting sustainable and profitable growth and is focused on driving performance, globalising and digitising our business.

Performing

• Everyone feels included and engaged
• Empowerment and personal accountability
• Delivering operational excellence

Globalising

• Operating as one company
• Leveraging our capabilities
• Optimised, scalable and resilient

Digitising

• Enhancing customer solutions
• Enabling collaboration
• Modern, integrated tools and systems

Our strategic progress

In FY20 we delivered significant strategic milestones

Strategic achievements

UK

• We continued to successfully invest and deliver against the amended LTPA contract, reflecting our drive to lead and modernise UK Defence Test & Evaluation.
• Completed the acquisition of Newman & Spurr Consultancy (NSC) enhancing our training and simulation capabilities.

Read more in our operating review on page 21.

International

• Delivered a record year of growth in Australia.
• Grew international revenues to 31% of our business.
• Completed the acquisition of MTEQ creating a powerful customer proposition and delivering significant opportunities for growth in the US.
• Secured orders for key US robotic Program of Record.

Read more in our operating review on pages 21 to 22.

Innovation

• £168m of orders under the Engineering Delivery Partner contract.
• €75m contract from the European Space Agency for ALTIUS satellite.
• £67m contract to develop secure satellite navigation receivers.

Read more in our operating review on pages 21 to 23.

Operating review

EMEA Services

Overview

EMEA (Europe, Middle East and Australasia) Services combines world-leading expertise with unique facilities to provide integrated capability generation and assurance. Our core value proposition is built upon our expertise in capability integration, threat representation and operational readiness underpinned by long-term contracts that provide good visibility of revenues and cash flows. The division is also a market leader in research and advice in specialist areas such as Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR), weapons and energetics, cyber security and procurement advisory services.

Financial performance

	2020 £m	2019 £m
Orders1	670.0	534.6
Revenue	797.4	687.7
Underlying operating profit2	100.6	96.8
Underlying operating margin2	12.6%	14.1%
Book to bill ratio3	1.1x	1.2x
Total funded order backlog	2,797.7	2,916.8

1 Includes share of orders from Joint Ventures and excludes the LTPA contract amendment signed post year end in 2019.

2 Prior year comparatives restated due to a change in accounting policy in respect of leases.

3 B2B ratio is orders won divided by revenue recognised, excluding the LTPA contract and share of JV orders.

Orders for the year were £670m (2019: £534.6m), growing £115.4m (22%) on an organic basis excluding acquisitions and foreign exchange. The increase was driven by £168m of orders under the Engineering Delivery Partner (EDP) framework contract and a £67m order for the UK Robust Global Navigation System (R-GNS) programme.

Revenue increased by 16% to £797.4m (2019: £687.7m), including £29.2m from acquisitions, and increased by 12% on an organic basis, principally driven by new work under the EDP and

Battlefield Tactical Communication and Information Systems (BATCIS) contracts.

At the beginning of the new financial year £656m of the division's FY21 revenue was under contract, compared to £565m (of the FY20 revenue) at the same point last year. This reflects the contribution from the acquired business in the year together with the 22% organic increase in orders won in the year.

Underlying operating profit grew by 4% to £100.6m (2019 restated: £96.8m) assisted by a full-year of trading from our 2019 acquisitions. Organic growth was 1% due to ~£2m lower nonrecurring trading items at ~£7m (2019: ~£9m) comprising a £4m benefit in respect of finalising business rates agreements and a £3m benefit related to cost recovery on a major contract. The increasing proportion of EDP work drives profit growth at a lower rate than revenue growth, diluting the operating profit margin, but has limited capital requirements supporting overall returns.

Including the Long Term Partnering Agreement (LTPA), the proportion of EMEA Services revenue derived from single source contracts has remained stable at approximately 70% (2019: approximately 70%). While we have increased revenue derived from competitive contracts this has also been complemented by growth in single source EDP work.

Leading the next phase of unmanned systems exploitation in the maritime domain

In FY20 we were awarded a new contract to lead phase five of the Maritime Autonomous Platform Exploitation (MAPLE) project for the UK Defence Science and Technology Laboratory. The MAPLE project is the overarching programme that seeks to demonstrate and de-risk the integration of multiple Unmanned Systems into the combat system of a Royal Navy warship and the wider integration of unmanned systems into the fleet.

FY20 review

Air & Space (25% of EMEA Services revenue)

The Air & Space business de-risks complex aerospace programmes by testing systems and equipment, evaluating the risks and assuring safety.

• Engineering Delivery Partner (EDP), our innovative delivery model for the provision of engineering services continued to be a key driver of performance. In FY20 £168m of orders were contracted through EDP taking the total since inception to £238m. While EDP remains the default route for the procurement of engineering services to DE&S, it is available to other MOD departments and agencies creating further opportunities for growth.
• Key contract awards through EDP include an £11m contract to provide independent technical evaluation services on the F35 Lightning II aircraft and shortly after year end, a £30m contract that will unify the technical services provided to the Typhoon Delivery Team.
• Building on our investment in Test Aircrew Training, the transformed Empire Test Pilots' School successfully delivered its first year of the new syllabus, with all students passing. The new modernised ETPS is equipped to continue delivering world-class test aircrew training and we continue to experience strong demand for all courses from both domestic and international customers.

Maritime, Land & Weapons (39% of EMEA Services revenue)

The Maritime, Land & Weapons business delivers operational advantage to customers by providing independent research, test, evaluation and training services.

• Following the £1.3bn amendment to the LTPA in April 2019, we are progressing through a two-year transition period to new ways of working. We successfully reached the third operating milestone in this transition on schedule with positive customer feedback. We are continuing to drive modernisation to support our customer in an increasingly complex threat environment.
• As part of this transition many of our sites are undergoing investment and enhancement of facilities and capabilities, enabling us to support larger and more complex trials adding greater value for our customers.
• In April 2020 we were awarded a £13m contract as the industry lead on the Weapons Sector Research Framework providing research and technology into current and future weapons capabilities including laser and directed energy weapons systems.
• Our long-term contracts support solving complex customer problems and have opened new opportunities for us including being awarded a £5m contract to support the Royal Navy in developing their approach to the new Carrier Strike group operations.

Cyber, Information & Training (23% of EMEA Services revenue)

The Cyber, Information & Training business helps government and commercial customers respond to fast-evolving threats based on its expertise in training, secure communication networks and devices, intelligence gathering and surveillance sensors, and cyber security.

• The business delivered an excellent performance across all key metrics as we continue to reposition the business to become a critical mission assurance partner, driving improved visibility and growth.
• Key contract wins include the £67m Robust Global Navigation System (R-GNS) contract to develop secure satellite navigation receivers on behalf of the MOD. The programme will deliver critical capability to provide UK Defence with accurate and resilient positioning, navigation and timing which will underpin the UK's ability to undertake 24/7 military operations around the world in the most demanding and increasingly contested operational environments.
• In February 2020 we completed the acquisition of Newman & Spurr Consultancy (NSC) for £14m (net of cash acquired). NSC provides a range of training and simulation solutions and the strategy-led acquisition enhances our capability in areas such as modelling, simulation and synthetic environments.
• Following our strategic investment in November 2018, Inzpire, the highly regarded provider of operational training services, continues to perform in line with the Board's expectations, delivering good growth in revenue and profit.

International (13% of EMEA Services revenue)

Our International business leverages our expertise and skills developed in the UK, and applies them to opportunities in attractive markets globally. Revenue derived from outside of the UK is reported in many of our businesses and is not exclusive to our International business unit.

• The International business unit delivered a strong performance with good growth in orders, revenue and profit.
• This was underpinned by our performance in Australia where we delivered record orders, as our status as a Major Service Provider in partnership with Nova Systems continues to gather momentum and drive performance. We are working with the Australian Government on a proposal to design and build an Unmanned Air System (UAS) Test Range.
• Our German operations, built on the acquisition of EIS Aircraft Operations in October 2018 performed in line with expectations for orders with some significant contract wins during the period. Delivery performance and profitability was, however, impacted by other operational and cost issues and towards the end of the financial year by the effects of COVID-19. We have written down £4.3m of goodwill associated with the acquisition in anticipation of the financial impact of lower revenue and margins. We continue to seek ways to leverage our capabilities within QinetiQ Germany and see good opportunities to drive long-term growth in a significant European defence market.
• We operate three joint ventures in the Middle East. Our progress in the region has been slower than anticipated, however we have made good progress with a number of strategic contract wins including two significant framework contracts to provide customer side consultancy services. Looking forward we see encouraging opportunities as our joint ventures continue to grow in maturity, capability and local reputation.

Operating review continued

Global Products

Overview

Global Products delivers innovative solutions to meet customer requirements and undertakes contract-funded research and development, developing intellectual property in partnership with key customers and through internal funding with potential for new revenue streams. The division is technology-based and has shorter order cycles than EMEA Services so can have a more lumpy revenue profile. 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. In FY20 the company expanded its products portfolio with the successful acquisition of MTEQ.

Financial performance

	2020 £m	2019 £m
Orders	302.1	241.8
Revenue	275.5	223.4
Underlying operating profit1	32.6	28.1
Underlying operating margin1	11.8%	12.6%
Book to bill ratio2	1.1x	1.1x
Funded backlog	307.2	216.8

1 Prior year comparatives restated due to a change in accounting policy in respect of leases.

2 B2B ratio is orders won divided by revenue recognised.

Orders increased to £302.1m (2019: £241.8m) with growth assisted by a €75m order for the European Space Agency Altius contract and £25m of orders from the acquired MTEQ business, partially offset by a C\$51m order in the prior year figure in respect of delivering unmanned air system services to the Canadian Armed Forces. Organic orders growth was 14%.

At the beginning of the new financial year £193m of the division's FY21 revenue was under contract, compared to £141m (of the FY20 revenue) at the same point last year. This reflects the contribution from the acquired business in the year together with the organic increase in orders won in the year.

Revenue was up 23% on a reported basis at £275.5m (2019: £223.4m), primarily due to contribution from the MTEQ business acquired during the year. On an organic basis, revenue increased by 5% driven by small robotics and Talon upgrade kits in QNA, ongoing growth in QTS and delivery of the Canadian armed forces contract won in FY19.

Global Products underlying operating profit grew by 16% to £32.6m (2019: £28.1m) reflecting the acquisition of MTEQ in December 2019. On an organic basis operating profit increased by 4%, but excluding non-recurring trading items declined by 1%. This was driven by a loss in Optasense, due to a challenging trading environment, partially offset by growth in QTS and a more profitable product mix in QNA.

FY20 review

United States (44% of Global Products revenue)

Our US business develops and manufactures innovative defence products specialising in robotics, autonomy and sensing solutions. This business unit comprises our existing US operations (QNA) as well as MTEQ, which we acquired in December 2019.

• Our US business delivered a strong performance in FY20, primarily driven by robotics orders, with the first deliveries under the Common Robotic System-Individual (CRS-I) contract accepted by the customer.
• We were also awarded the Robotic Combat Vehicle-Light (RCV-L) contract to provide the US military with combat vehicles to support the customer in determining the feasibility of integrating unmanned vehicles into ground combat operations.
• In December 2019, we completed the acquisition of Manufacturing Techniques Inc. (MTEQ) for \$105m with a potential further earn-out of up to \$20m. MTEQ is a leading provider of advanced sensing solutions in the US, and the combination of MTEQ with our existing expertise in robotics and autonomy capabilities creates a powerful customer proposition.
• The integration of our US businesses into a single entity operating under a Special Security Agreement (SSA) is progressing well and we are seeing an increasing number of opportunities for the combined entities to work collaboratively, including on the RCV-L programme. The change in the governance of our US business through the SSA is a significant enabling factor. It will enhance our ability to operate coherently and collaboratively across QinetiQ's global operations meaning we are better able to innovate and deliver for our customers.

OptaSense (9% of Global Products revenue)

OptaSense provides innovative fibre sensing solutions to deliver decision-ready data in multiple vertical markets.

• Despite a positive first half, performance at OptaSense deteriorated in the second half, impacted by severe weakness in oil and gas markets, which was further exacerbated by the impacts of COVID-19. In light of this trading environment OptaSense reported a net loss for the period of £1.9m.

Space Products (9% of Global Products revenue)

QinetiQ's Space Products business provides satellites, payload instruments, sub-systems and ground station services.

• Our Belgium based space business was awarded a €75m contract with the European Space Agency (ESA) to develop and assemble the new Altius satellite. The satellite extends Europe's capabilities in operational Earth Observation and will study the distribution of ozone in the earth's stratosphere helping to chart climate change.
• The satellite will be built utilising our new, higher grade cleanroom facility in Kruibeke, Belgium that was officially opened during the year. The upgraded facility gives us the capacity to produce up to four major products at any one time supporting growth in satellite and docking systems production capacity.
• We were also awarded a €9m three-year contract to build equipment that will support experiments in the International Space Station.

EMEA Products (38% of Global Products revenue)

EMEA Products provides research services and bespoke technological solutions developed from intellectual property spun out from EMEA Services. It also includes our QinetiQ Target Systems (QTS) business.

• Building on an excellent first half, QinetiQ Target Systems delivered a strong performance with mid-teens growth in revenues and profit. This was despite the impacts of COVID-19 towards the end of the year which resulted in delayed trial activity and reduced targets orders. Whilst we are currently experiencing COVID-19 related disruption within QTS, we believe longer-term the business remains well positioned, offering advanced target systems at an attractive price point.
• To support our medium-term growth and ensure our customers can continue to emulate the most advanced aerial threats we launched two new products in the period.
• The first, our Next Generation Banshee target replicates fast flying jets, and enables customers to conduct Test & Evaluation and live-fire training exercises against faster, higher flying, more manoeuvrable and less detectable targets. We also released the Air-Launched 'Rattler' target, a low-cost supersonic target used to accurately replicate anti-radiation missiles and supersonic/high-diving threats.

Significant Banshee orders to support the Indonesian Forces

QinetiQ Target Systems (QTS) sold 59 unmanned Banshee Whirlwind targets to Indonesia. The order is the first from the country since the acquisition of QinetiQ Target Systems in 2016.

The Banshee Whirlwind is powered by QintetiQ's rear-mounted rotary engine and provides accurate and reliable flight profiles of over 100km, reaching flight altitudes of over 7,000 metres, while a radar altimeter allows the target to achieve reliable sea skimming flight as low as five metres. QinetiQ's portfolio of unmanned targets for sea, air and land, enable countries to be more prepared for threats.

Chief Financial Officer's review

A strong financial performance across all key metrics

Financial performance

	Statutory results		Underlying* results
(£m)	2020	2019	2020	2019
Revenue	1,072.9	911.1	1,072.9	911.1
Operating profit1	117.6	114.8	133.2	124.9
Profit after tax1	106.5	113.9	113.7	111.5
(p)
Earnings per share	18.7	20.1	20.0	19.7
Dividend per share	2.2	6.6	2.2	6.6

1 Prior year comparatives restated due to a change in accounting policy in respect of leases.

	Underlying* results
(£m)	2020	2019
Total funded order backlog1	3,104.9	3,133.6
Total orders2	972.1	776.4
Net cash inflow from operations3	177.8	135.3
Cash conversion ratio3	133%	108%
Free cash flow3	59.5	43.5
Net cash3	84.7	160.5

1 Includes the impact of the LTPA amendment signed post year end in 2019.

2 Includes share of orders from Joint Ventures and excludes LTPA contract amendment signed post year end in 2019.

3 Prior year comparatives restated due to a change in accounting policy in respect of leases.

"We enter FY21 in a strong position to face the challenges arising from COVID-19, with a large order backlog and a robust balance sheet."

See our financial KPIs on page 30.

Overview of full year results

We reported a strong performance in FY20, delivering growth across orders, revenue and profitability as we continue to successfully implement our strategy. We enter FY21 in a strong position to face the challenges arising from COVID-19, with a large order backlog and a robust balance sheet. Strong cash generation from the company has continued in FY20 with 133% cash conversion and a net cash position of £84.7m continues to provide support for investment opportunities.

Orders in the year totalled £972.1m (2019: £776.4m), a 19% increase on an organic basis. This was driven by £168m of orders under the EDP framework contract in EMEA services, a £67m UK Robust Global Navigation System (R-GNS) order and €75m contract with the European Space Agency for the Altius satellite in Global Products.

At the beginning of the new financial year, approximately £850m of the Group's FY21 revenue was under contract, compared to £706m (of the FY20 revenue) at the same point last year. This reflects the contribution from the two acquired businesses in the year together with the 19% organic increase in orders won in the year.

Revenue increased 18% at £1,072.9m (2019: £911.1m), assisted by a full-year of trading from our 2019 acquisitions and a £39.7m contribution from MTEQ and NSC which both completed during the second half of FY20. Revenue grew by 10% on an organic basis, with a 12% increase in EMEA Services primarily due to Engineering Delivery Partner (EDP) and a 5% increase in Global Products driven by small robotics and upgrade kits in QNA as well as ongoing growth in QTS.

Underlying operating profit was up 7% at £133.2m (2019 restated: £124.9m), assisted by ~£6m (2019: ~£7m) non-recurring trading items. Current year non-recurring trading items include a £4m benefit in respect of finalising business rates agreements and a £3m benefit related to cost recovery on a major contract in the EMEA Services division, partially offset by a number of other project and commercial risk reassessments. During the year we completed the acquisitions of MTEQ and Newman & Spurr Consultancy which together contributed £3.4m of operating profit in the period of our ownership. Excluding the FY20 acquisitions, the impact of a full year of trading versus a part year of trading for the 2019 acquisitions and the effect of foreign exchange, underlying operating profit for the Group increased organically by ~£2m (2%).

EMEA Services operating profit grew 4% assisted by a full-year of trading from our 2019 acquisitions. On an organic basis EMEA Services profit grew by 1%. The level of profit from non-recurring trading items in FY20 was ~£2m lower compared to the prior year. Excluding such non-recurring trading items, organic growth was 4%. Global Products underlying operating profit grew by 16% reflecting the acquisition of MTEQ in December 2019. On an organic basis Global Products profit grew by 4%. The level of nonrecurring charges was ~£1m lower in FY20 and excluding these items organic profit declined by 1% driven by a loss in Optasense due to a challenging trading environment.

Total operating profit was £117.6m (2019 restated: £114.8m), net of £15.6m expense in respect of specific adjusting items (2019: £10.1m), as set out below.

Underlying profit before tax increased 7% to £132.2m (2019 restated: £124.0m) in line with the increase in underlying operating profit, with underlying net finance expense at £1.0m (2019 restated: £0.9m).

Total profit before tax was £123.1m (2019: £123.2m).

Specific adjusting items

Specific adjusting items, shown in the 'middle column', at the profit after tax level amounted to a total net loss of £7.2m (2019: net profit of £2.4m). This included a gain on sale of surplus property of £14.0m (2019: £0.2m) and net finance income related to the defined benefit pension scheme of £6.5m (2019: £8.2m) offset by a £14.1m goodwill impairment (2019: nil), in relation to E.I.S. Aircraft Operations in Germany (£4.3m) and our Group's Advisory Services business unit (£9.8m), and costs of £7.5m in respect of the acquisitions completed in the year (2019: £2.0m). The tax effect of items impacting profit before tax was an expense of £1.4m (2019: income of £0.4m). The tax line also includes a £3.3m gain from recognising tax losses and surplus interest costs on the balance sheet. See below.

Further analysis is set out in note 4 with goodwill (and impairments of) discussed in note 12.

Net finance costs

Net finance income was £5.5m (2019 restated: £7.3m). The underlying net finance expense was £1.0m (2019 restated: £0.9m) with additional income of £6.5m (2019: £8.2m) in respect of the defined benefit pension net surplus reported within specific adjusting items.

Order bridge

* Comprises £22.5m for Germany & Inzpire for period with no prior year comparator and £25.3m for MTEQ and NSC.

Revenue bridge

* Excludes contribution from JVs of £3.3m

** Comprises £26.5m for Germany & Inzpire for period with no prior year comparator and £39.7m for MTEQ and NSC.

Chief Financial Officer's statement continued

Tax

The total tax charge was £16.6m (2019: £9.3m). The underlying tax charge was £18.5m (2019: £12.5m) with an underlying effective tax rate of 14.0% for the year ended 31 March 2020 (2019: 10.1%). The 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 under IAS12 within the tax line. An adjusted effective tax rate before the impact of RDEC would be 20.0%. 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 £3.3m credit in respect of recognition of tax losses in the US has been classified as a specific adjusting item. This follows from the acquisition of MTEQ in the year that contributes future taxable profits against which historic unrecognised tax losses can be utilised. The prior year included a £2.8m credit from initial recognition of corporate tax deductions for certain equity-settled share based payment schemes. Together with a £1.4m net expense (2019: income of £0.4m) in respect of the pre-tax specific adjusting items, the total specific adjusting items tax credit was £1.9m (2019: £3.2m).

At 31 March 2020 the Group had unused tax losses and surplus interest costs of £90.3m which are available for offset against future taxable profits.

Cash flow, working capital, capex and net cash

Underlying net cash flow from operations was £177.8m (2019 restated: £135.3m) with an underlying operating cash conversion of 133% (2019 restated: 108%).

Capital expenditure increased to £107.8m (2019: £80.7m) as we continue to invest in core contracts including the LTPA following the contract amendment announced in April 2019. After paying tax and net interest of £10.5m the Group generated free cash flow of £59.5m (2019 restated: £43.5m), before property disposal proceeds of £12.5m (2019: £5.3m).

Overall capex between FY21–FY23 is expected to be in the range of £70–100m per annum, of which the majority reflects our investment into the LTPA. Given the nature of our business model, we expect to be able to fund our capex requirements from operational cash flow.

As at 31 March 2020 the Group had £84.7m net cash (2019 restated: £160.5m). The reduction in net cash was primarily due to the £90.2m of consideration for the acquisition of MTEQ and NSC, and payment of £38m of dividends; these were partially offset by £59.5m free cash flow and £12.5m of property disposals.

The Company's £275m multi-currency revolving credit facility (with an 'accordion' feature to expand up to a maximum of £400m) was extended during the year to 27 September 2024, with an option to extend to a final maturity of 27 September 2025. The facility, undrawn as at 31 March 2020, provides a modest margin adjustment of +/- 0.02% based on QinetiQ's greenhouse gas emissions, compared to targets, over the life of the facility.

Capital allocation

Priorities for capital allocation remain in the long-term:

• 1. Organic investment complemented by bolt-on acquisitions where there is a strong strategic fit;
• 1. The maintenance of balance sheet strength;
• 1. A progressive dividend; and
• 1. The return of excess cash to shareholders.

The Group is not subject to any externally imposed capital requirements.

Underlying operating profit bridge

* Underlying performance, before specific adjusting items, as defined in appendix

** Comprises £2.4m for Germany & Inzpire for period with no prior year comparator and £3.4m for MTEQ and NSC

Return on Capital Employed (ROCE)

In order to help understand the overall return profile of the Group, QinetiQ have formulated a Return on Capital employed metric. This is 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).

For FY20 Group ROCE is 28% compared to 39% in the previous year reflecting investment into our business to support sustainable long term growth.

Earnings per share

Underlying basic earnings per share increased by 2% to 20.0p (2019 restated: 19.7p) benefiting from the higher underlying profit after tax. Basic earnings per share for the total Group (including specific adjusting items) decreased 7% to 18.7p (2019 restated: 20.1p).

The average number of shares in issue during the year, as used in the basic earnings per share calculations, was 567.0m (2019: 566.0m) and there were 567.2m shares in issue at 31 March 2020 (all net of Treasury shares).

Dividend

Given the unprecedented nature of COVID-19 and the Board's wish to adopt a prudent course of action to protect the long-term, as announced on 1 April 2020, it will postpone the decision on the proposal of a dividend until a later date.

Pensions

The net pension asset under IAS 19, before adjusting for deferred tax, was £309.7m (31 March 2019: £259.1m). The key driver for the increase in the net pension asset since the March 2019 year end was gains due to changes in financial assumptions (primarily in respect of inflation), which decrease the present value of scheme liabilities, partially offset by reduction in value of scheme assets.

The key assumptions used in the IAS 19 valuation of the scheme are set out in note 28.

Implementation of IFRS 16 'Leases'

The new leases standard became effective for periods beginning on or after 1 January 2019, i.e. FY20 for QinetiQ, using either the full retrospective approach or the modified retrospective approach. QinetiQ has adopted the new standard for FY20 using the full retrospective approach.

Under the new standard, companies will recognise new assets and liabilities, bringing added transparency to the balance sheet. IFRS 16 eliminates the previous dual accounting model for lessees, which distinguished between on-balance sheet finance leases and off-balance sheet operating leases. Instead, there is a single, onbalance sheet accounting model that is similar to previous finance lease accounting. Lessor accounting remains similar to existing practice i.e. lessors continue to classify leases as finance leases and operating leases.

The impact on the income statement for QinetiQ is negligible at a 'profit before tax' level with no impact on EPS, but EBITDA is increased, offset by an increase in depreciation and an increase in finance expense. See note 37 for details.

The impact on the balance sheet is the recognition of a new 'right of use' asset within Property Plant & Equipment and the recognition of a new lease liability. The latter is incorporated within the Group's definition (see glossary) of net cash, hence the most significant impact on the Group's financial KPIs is this change to net cash (reducing previously reported net cash at 31 March 2019 by £28.0m).

Prior year comparatives have been restated (to the extent impacted by IFRS 16) and more details are set out in Note 37 to the financial statements.

For the avoidance of doubt, the strategic report covering pages 2 to 55 has been approved by the Board and signed on their behalf by:

David Smith Chief Financial Officer

21 May 2020

Key performance indicators

Non-financial KPIs

The overall objective of our strategy is to deliver sustainable growth, creating long-term value for our stakeholders. Our progress is measured through a range of financial and non-financial performance indicators.

Understanding measurements that give us insight in to things such as customer satisfaction, health and safety and employee engagement are vital in ensuring our business model is sustainable. Meanwhile 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 businesses and where relevant, are accompanied by indicators specific to those businesses.

See our people on page 38.

See responsible & sustainable business on page 44.

Customer satisfaction (Net Promoter Score)

59 (FY19: 50)

Description

The Net Promoter Score is an internationally recognised metric for customer satisfaction.

The NPS score 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.

Rationale

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.

Performance this year

Our customer feedback continues to be positive and our NPS score remains in the category of 'excellent'. This is supported by our continual improvement approach to actioning customer feedback.

2.7 (FY19: 4.4) Health and safety (LTI) 2.7 4.4 4.0 2020 2019 2018

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.

Rationale

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.

Performance this year

Our LTI rate decreased to 2.7 in FY20, supported by our ongoing commitment to safety through our Safe for Life programme and emphasising safety leadership in FY20. (For more information see page 39).

Link to strategy

Achieving our ambition of becoming our customers' chosen partner requires relentless focus on meeting their needs in both our home countries and overseas. Customer satisfaction is a metric used for the Bonus Banking Plan.

Link to strategy

The safety, health and wellbeing of our people is intrinsically linked to our strategic success.

Apprentices and graduates (%)

2.3 (FY19: 4.0%)

2020	2.3%
2019		4.0%
2018			4.8%

Description

The total number of UK apprentices, graduates and sponsored students (our early careers community) as a percentage of our UK workforce.

Rationale

As a knowledge-based business it is critical to our long-term viability that we develop the next generation of employees.

Performance this year

We experienced an anticipated reduction in our early careers population as we undertook a review of our early careers programmes to assess our future skills requirements in line with our long-term strategy. (For more information see page 42).

Employee engagement (Score out of 10)

2020	6.9	2020
2019	6.3	2019
2018	n/a	2018

Description

In FY19 we implemented Peakon, an employee engagement measurement tool, which provides regular insights into what our employees are feeling, enabling us to identify what we are doing well but also where we can improve and take action.

Rationale

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'.

Performance this year

Our engagement scores increased by 10% in FY20, supported by employee engagement initiatives. There is still more to do and we will continue to build on our progress implementing initiatives aimed at improving the employee experience. (For more information see page 41).

Voluntary employee turnover
(%)

9.7
(FY19: 11.5%)

2020	9.7%
2019	11.5%
	10.0%

Description

This is a measure of the number of employees leaving the company not at QinetiQ's instigation.

Rationale

Voluntary employee turnover provides a measure of the Group's ability to retain employees. As a knowledge based business employee retention is critical to sustaining our business model.

Performance this year

Employee turnover marginally decreased during the year, following a small increase in FY19, driven by higher turnover in the US. Our employee turnover continues to be below industry average.

Link to strategy

As a business whose reputation and achievements are centred on our people, our future success is primarily dependent on our ability to recruit, develop, engage and retain exceptional employees.

Employee engagement is a metric used for the Bonus Banking Plan.

Key performance indicators continued

Financial KPIs

Description

The level of new orders and amendments to existing orders booked in the year.

Rationale

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.

Performance this year

Orders in the year (excluding LTPA amendments) were £972.1m, up 19% on an organic basis. This increase was driven by a strong performance in both divisions, with strong order growth through the EDP framework and large multi-year contracts including R-GNS and Altius.

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. International revenue (£m)

£333.4m (FY19: £273.7m)

2020 2020 2019 2019 2018 2018

Description

This represents revenue derived from non-UK customers, recognised in the period.

Rationale

International revenue demonstrates the Group's ability to win and deliver work outside of the UK. Building a global defence and security business is a core pillar of our strategy.

Performance this year

Non-UK revenue grew by 22% (£59.7m). Excluding the £37.0m contribution from businesses acquired during the year, £15.2m inorganic contribution from businesses acquired in the prior year and including a £3.3m contribution from joint ventures organic growth was 4% (£10.8m).

Link to strategy

Growing international revenues and accessing higher growth, international markets is a key part of our strategy. International revenue was used as a performance measure for the FY20 Deferred Share Plan, but for executive remuneration was adjusted to exclude businesses acquired during the year.

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.

Rationale

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.

Performance this year

Revenue grew by 10% on an organic basis, with 5% organic growth in Global Products and 12% organic growth in EMEA Services, driven by a strong performance in all our business units, in particular our Cyber, Information and Training division.

Link to strategy

Delivering long-term sustainable growth is critical to our success. Our organic growth rate reflects the successful execution of a relevant and consistent strategy.

Underlying operating profit* (£m)

£133.2m

(FY19: £124.9m1 )

2020	£133.2m
2019	£124.9m
2018	£122.5m

Description

The earnings before interest and tax, excluding all specific adjusting items. See note 35 for definition.

Rationale

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-onyear.

Performance this year

Underlying operating profit increased by 7% (£8.3m). This includes a £3.4m contribution from the acquisitions of MTEQ and NSC, as well as the inorganic contribution from acquisitions made in the prior year. On an organic basis underlying operating profit increased by 2% (£2.0m).

Underlying earnings per share (EPS)* (p)

20.0p (FY19: 19.7p)

2020	£133.2m	2020	20.0p	2020
2019	£124.9m	2019	19.7p	2019	£135.3m
2018	£122.5m	2018	19.3p	2018	£126.5m

Description

The underlying earnings, net of interest and tax, expressed in pence per share excluding all specific adjusting items. See note 35 for definition.

Rationale

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.

Performance this year

Underlying earnings per share grew by 2% (0.3p) with the higher growth in underlying operating profit partially offset by a higher effective tax rate (see note 8).

Underlying net cash flow from operations* (£m)

£177.8m (FY19: £135.3m1 )

£133.2m	20.0p	£177.8m
£124.9m	19.7p	£135.3m
£122.5m	19.3p	£126.5m

Description

This represents net cash flow from operations before cash flows of specific adjusting items and capital expenditure.

Rationale

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.

Performance this year

Underlying net cash flow from operations was particularly strong, growing by 31%. This reflects strong receivables collections in the run up to year-end.

Link to strategy

Collectively these measures indicate the efficiency of the Group's activities. Underlying operating profit and underlying earnings per share provide an indication of the profitability of the Group's operations while underlying net cash flow from operations provides an indication as to the Group's cash generative performance. Underlying operating profit and underlying net cash flow from operations are used in the Bonus Banking Plan, but for executive remuneration purposes are adjusted to exclude businesses acquired during the year.

* Definitions of the Group's alternative performance measures can be found in the glossary on page 183.

1 Prior year comparatives for 2019 have been restated due to a change in accounting policy in respect of leases. See note 37 page 172 for more details.

Principal risks

How we protect our business

Successful management of current and emerging risks is critical to achieving our company goals. Our Group Head of Enterprise Risk Management is responsible for designing and facilitating the risk management processes across the organisation, provides risk expertise and support to the businesses and reports risk information across the Group including to the Global Leadership Team, Audit and Risk & CSR Committees and the Board.

We utilise the Group-wide risk management framework to inform our decision-making at both the strategic and operational levels, adopting a top-down/bottom-up process. This enables us to fully leverage its benefits and subsequently support the long-term

success of our business. Our application of risk management continues to evolve with our customers' approach to risk, the rapidly changing external environment in which we operate and internal changes, thus ensuring we are best placed to pursue opportunities and deliver results, whilst simultaneously innovating for our customers' advantage. Over the past 12 months, risk and opportunity management has been extensively supported by the roll-out of a new risk management tool.

Risk management and assurance activity

Three lines of defence model

Our risk management and assurance activity is formed of three lines of defence, each reporting to the Global Leadership Team, and to the relevant Board Committees. The first line of defence is performed by our businesses and functions, through managing activities in accordance with established operating principles; the second line is performed by the assurance functions, including the enterprise risk management and safety and governance teams; and the third line is performed by the internal audit team and external providers.

Emerging risk

The Group Risk Register consists of material risks relating to effective delivery of our strategy. The Board and Global Leadership Team look to assess these principal risks from a number of different perspectives, including both individually and collectively. We also actively consider emerging risks as part of the risk assessment process. The Board recognises that some risks may be affected by factors outside the control of the company and also recognises that despite the robustness of the risk management processes they cannot provide absolute assurance and unknown risks may manifest without warning. We have proven processes in place to rapidly deploy appropriate management to such risks and utilise lessons learned across the organisation as part of our ongoing drive for continuous improvement.

Over the past 12 months our Group risk profile has changed owing to changes in our external environment, the ongoing development of our strategy and robust, focused mitigation. In light of this both the Single Source Regulations impacts on our revenue and the risk around recruitment and retention have been mitigated to a level such that they are no longer considered to pose principal risks to the organisation. However owing to the increased volume of M&A activity across our portfolio a new risk has been included. In addition, as the impact of COVID-19 has escalated we have included a risk that our operations are further disrupted by the pandemic.

QinetiQ risk appetite

The Board identifies and reviews its tolerance 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.

	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

Principal risks continued

Strategic risks

UK Defence Test & Evaluation strategy

UK Government budget constraints lead to reduced spending in core markets in which we operate. This and the ever increasing pace of modernising ways of evaluating capability results in a risk that our approaches/offerings may not remain relevant. There remains the potential for this risk to be exacerbated by the impact of COVID-19 on Government spending and the EU exit should the UK experience a loss of market confidence and further reduction in collaborative EU funding.

Impact

A reduction in revenue and associated profitability from the Group's Government and Defence contracts.

Mitigation

Our strategy is focused on leading and modernising UK Test & Evaluation in support of our customers' objectives. This includes ongoing proactive engagement with our major customers to enable us to support their objectives.

Our focused investment into contracts enhances 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 continue to deliver new types of evaluation and are increasingly moving towards modelling and synthetics, as well as embracing the next generation digital transformation.

We are expanding our global Test & Evaluation business and post Brexit will maintain relationships with the UK Government to support bilateral relationships within Europe; there is increased recognition that T&E is an enabler to military capability and prosperity.

International strategy

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

Unable to realise expected growth in the planned timeframes.

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.

Innovation strategy

Failure to create a culture of innovation, develop relevant technology and business models or to attract and retain the right talent, to enable the realisation of new ideas for our customers and our organisation.

Impact

Negative impact on the Group's market position, competitiveness and future growth.

Mitigation

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

We continue to mature our innovation approach, including clear articulation across the organisation, to ensure the importance of innovation to both our organisation and our customers is clearly understood and initiatives are supported.

Specific innovation activities in FY21 will strengthen and improve our innovation approach across the organisation.

Metrics Customer satisfaction All financial KPIs

Responsibility Group Function Director Business Development

Likelihood/Impact Medium/Medium Likelihood/Impact High/High

Proximity/Velocity 1–2 yrs/Medium Proximity/Velocity 0–1 yrs/Medium

See our strategy on page 18.

Metrics All financial KPIs International revenue as % of total revenue

Responsibility Group MD International

Risk appetite Eager Risk appetite Balanced to Eager

Metrics Customer satisfaction Employee engagement

Responsibility

Group Function Director Strategy & Planning Group Function Director Business Development Group Function Director Technical

Risk appetite Balanced

Likelihood/Impact High/High

Proximity/Velocity 1–2yrs/Low

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

The Long Term Partnering Agreement (LTPA) is a 25-year partnering contract with the MOD to provide test, evaluation, and training services. UK Government budget constraints could lead to a material change to the contract.

Impact

The LTPA directly contributes a material proportion of the Group's revenue and earnings.

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 & Evaluation. Our increased customer focus is evidenced in both the LTPA and EDP programmes.

Ensuring frameworks such as the LTPA enable agility and pace to the Front Line in a rapidly changing threat environment strengthens the rationale for their use.

Our investment into contracts continues to ensure they meet our customers' expectations and remain relevant in an evolving threat environment.

Mergers and Acquisitions (M&A)

M&A activity forms a key element of our strategic growth plans in order to expand our customer offerings. New acquisition selection and integration is key to realising the maximum potential benefits.

Impact

Adverse impact on the Group's financial performance.

Mitigation

We have robust governance in place regarding this risk including the M&A Committee and relevant Integration Steering Committees.

All planned acquisitions are carefully considered to ensure good strategic alignment, extensive due diligence is undertaken and integrations are run as individual projects, ensuring they receive the focus and support necessary to facilitate a smooth transition.

Transformation

The transformation programme does not realise the expected benefits.

Impact

The introduction of new ways of working disrupts business delivery.

Mitigation

The programme is designed around three transformational themes (Performance culture, Global & Digital) to support the delivery of our global strategy, improve customer focus, competitiveness, and global collaboration across the company.

Significant engagement with leaders across the organisation to catalyse the change in behaviours necessary to allow the transformation work to deliver benefit.

Assessment of "capacity to change" and phased approach to transformation in each part of the business to maximise effectiveness.

Metrics All financial KPIs except orders Customer satisfaction

Responsibility Group MD Maritime & Land Group MD Air & Space

Risk appetite Balanced Risk appetite Balanced Risk appetite Eager

Metrics Inorganic growth Revenue & profit

Responsibility Group Function Director Strategy & Planning Group Managing Directors

See our operating review on page 20. See our operating review on page 20. See our strategy on page 18.

Metrics Customer satisfaction Employee engagement All financial KPIs

Responsibility Group Function Director Business Transformation & Services

Likelihood/Impact Medium/High Likelihood/Impact High/High Likelihood/Impact Medium/Medium

Proximity/Velocity 0–1 yrs/Low Proximity/Velocity 1–2yrs/Low Proximity/Velocity 0–1 yrs/Medium

Principal risks continued

Operational risks

Significant breach of relevant laws and regulations

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.

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.

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 in place, 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, bribery and ethics; where the company adopts a zero tolerance approach to bribery and corruption

Security and IT systems

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

COVID-19 pandemic

The COVID-19 pandemic disrupts QinetiQ operations.

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

Data security is assured through a multilayered 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.

Mitigation

Impact

QinetiQ's crisis management process is well embedded, flexible and exercised. It operates at strategic, tactical and operational levels across the Group allowing the company to respond rapidly to the pandemic and governmental requirements in all the countries in which it operates. The process has been held under regular review and modification enacted where required to ensure an effective response to the pandemic. The company has engaged with all relevant stakeholders including government, customers, suppliers and employees as the pandemic has progressed. Ways of working have been adapted to facilitate remote working from home where possible and to meet public health requirements where not.

The disease and public health management strategies require QinetiQ, our customers and suppliers to stop or delay some activities.

Metrics

Health, Safety & Environment Mandatory training compliance Commercial intermediary monitoring

Responsibility Company Secretary/Group General Counsel

Proximity/Velocity 0–1 yrs/High Proximity/Velocity 0–1 yrs/High

Metrics Cyber dashboard Security dashboard

Responsibility Group Function Director Business Transformation & Services

Risk appetite Cautious Risk appetite Cautious

Likelihood/Impact Medium/High Likelihood/Impact Medium/High

Metrics

Customer satisfaction Employee Engagement All financial KPIs

Responsibility CEO

Risk appetite Cautious

Likelihood/Impact High/Medium

Proximity/Velocity 0–1 yrs/High

See Chief Executive's Statement on page 10.

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;
• 1. An annual budget process that covers the first year of the five-year planning horizon in detail;
• 1. A bi-annual forecast process to update the view of the first budget year (the year which would be in progress);
• 1. A rolling monthly 'latest best estimate' process to assess significant changes to the budget/forecast for the year in progress; and
• 1. The financial impact of principal risks (individually and cumulative), together with mitigating actions.

The corporate planning process is underpinned by assessing scenarios and risks that encompass a wide spectrum of potential outcomes, both favourable and adverse. The downside risk scenarios are designed to explore the resilience of the Group to the potential impact of all the significant risks set out on pages 34 to 36, or a combination of those risks.

The scenarios are designed to be severe but plausible, and take full account of the availability and likely effectiveness of the mitigating actions that could be taken to avoid or reduce the impact or occurrence of the underlying risks, and that realistically would be open to them in the circumstances. In considering the likely effectiveness of such actions, the conclusions of the Board's regular monitoring and review of risk and internal control systems, as discussed on page 73, is taken into account.

Alongside the annual review of risk scenarios applied to the strategic plan, performance is rigorously monitored to alert the Board and Global Leadership Team to the potential crystallisation of a key risk.

Subsequent to the standard planning activities noted above and in response to the COVID-19 crisis that started to escalate just prior to the Group's current year end, specific scenarios have been run to model a variety of potential impacts of COVID-19 on the Group. This has been informed by a further month of trading post year end whilst employees are working during social distancing restrictions and by revised financial forecasts for the 2021 fiscal year prepared by each business unit within the Group.

We consider that this stress-testing based assessment of the Group's prospects is reasonable in the circumstances of the inherent uncertainty involved.

The period over which we confirm longer-term viability

The period over which the Directors consider it possible to form a reasonable expectation as to the Group's longer-term viability is the five-year period to 31 March 2025. This is the period covered by our strategic planning process and is subject to stress-testing and scenario planning around potential risks. It has been selected because it presents the Board and readers of the Annual Report with a reasonable degree of confidence whilst still providing an appropriate longer-term outlook.

Confirmation of longer-term viability

As noted on page 113, the Directors confirm that their assessment of the principal and emerging risks facing the Group was robust. Based upon the robust assessment of the principal risks facing the Group and their stress testing based assessment of the Group's prospects, all of which are described in this statement, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period to 31 March 2025.

Going concern statement

The Group's activities, combined with the factors that are likely to affect its future development and performance, are set out on pages 20 to 37. The Chief Financial Officer's review on pages 24 to 27 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. Note 24 on page 146 to the financial statements also provides details of the Group's hedging activities, financial instruments, and its exposure to liquidity and credit risk.

The Group meets its day-to-day working capital requirements through its available cash funds and its bank facilities. The COVID-19 crisis has introduced considerably more uncertainty across markets globally. As such the market conditions in which the Group operates are expected to be challenging as spending from the Group's key customers comes under pressure. Despite these challenges, and considering the decisive action already

taken by management to maintain the strength of our business, the Directors believe that the Group is well positioned to manage its overall business risks successfully.

After making enquiries, the Directors 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' section on pages 32 to 36. 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 to be sufficiently material to prevent the Group from continuing as a going concern for at least the next 12 months.

Jessica Ciccozzi, General Manager People and Capability, with one of our graduates in Australia.

Our people

Creating a high performing and inclusive culture

We recognise that to support our strategy we must embed the right culture, where employees are engaged, empowered and clear about how they contribute to our success. It is an integral part of our ongoing global transformation programme.

Our approach to developing a high performing and inclusive culture is focused on five key areas:

For more information please see:

• Non-financial key performance indicators: pages 28 and 29.

• Risk: pages 32 to 36.

• Related policy in the non-financial information statement: pages 54 and 55.

Improving the safety, health and wellbeing of our people 1.

Performance in FY20:

• Our leaders have a collective objective for safety as part of their incentivisation; to improve our safety culture through increased engagement.
• Driven by greater engagement, safety performance has improved with an overall reduction in both Group wide LTI and UK reportable incidents.

Lost Time Incident (LTI) Rate1

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.

2. We were recommended by BSI for transition to the 2018 ISO 45001 (safety) standard for the UK.

3. We updated our global Environmental, Health and Safety (EHS) strategy and commitment to driving continuous improvement in EHS performance through the next four years and beyond.

4. There were no prosecutions, prohibition notices or improvement notices issued by regulators in the UK during the last financial year.

5. Building on an initial cohort of 11 Mental Health First Aiders (MHFA) in Australia, a further 65 MHFA have been trained with a further 150 employees becoming Mental Health Champions across the Group.
6. Wellbeing has now been incorporated into core training programmes and leadership events.
7. Safety and wellbeing issues are part of a regular governance timetable, monthly through Managing Director meetings, quarterly through Global Leadership Team meetings and Risk & CSR committee meetings, with six monthly summary reports to the Board.

Supporting our people through COVID-19

We have adapted quickly to support our people in response to COVID-19. Our priority is the physical, mental and financial wellbeing of our employees and their families. We have a number of key workers and have developed strategies to support those who must be at work to ensure it is safe for them to do so. For the majority of employees who are now working from home, we have focused on providing guidance on how to do so safely and securely as well as support for their health and wellbeing.

Our People continued

Creating a diverse and inclusive environment 2.

We are creating an inclusive environment where we benefit from a diverse range of thinking from varied backgrounds and people at different stages in their careers; this is essential for our business performance.

Performance during the year includes:

• Training: A range of new training has been implemented, including mandatory unconscious bias training for all employees; Inclusive Leadership training for over 300 managers; a high impact interactive session for senior leaders; development of a 'language and banter' toolkit working as part of an industry group led by the Royal Academy of Engineering.
• Employee networks: Building on the success of our LGBTQ+, 'Just-LikeQ', and Neurodiversity employee led networks we launched a Gender Balance network and a menopause network.
• Awareness campaigns on autism, dyslexia, mental health, women in STEM, gender balance and the menopause and increased focus on disability.
• Focus on gender balance: We were delighted we retained our Employer of Choice for gender equality in Australia. We are sponsors of International Women in Engineering Day (INWED) and of the 'Innovation' category of the Women in Defence Awards.
• Collaboration: Our Just-LikeQ network hosted a celebration event, bringing together LGBTQ+ networks from across the defence industry and MOD during LGBT history month.
• Reverse mentoring: Successful launch of our first reverse mentoring programme.
• Gender diversity: We submitted our gender diversity data to the Hampton Alexander programme, with two women in an executive team of 15 (13%) and 29 women of our 99 direct executive reports (29%). We ranked highest in Aerospace and Defence in 2019.

Gender diversity

	Female	Male
Board Directors1	2 (22%)	7 (78%)
Senior managers2	54 (17%)	267 (83%)
All employees3	1,384 (20%)	5,080 (80%)

1 For more information on Board diversity see page 78.

2 Excluding senior managers who are also Board Directors (CEO and CFO).

3 Excluding senior managers.

Reverse mentoring

In FY20 we worked with our early careers community to develop a new programme of reverse mentoring. The aim is to encourage partnerships between junior and senior communities, where the junior person is the mentor. The programme will provide opportunities for both mentee and mentor to learn new skills, listen and share perspectives and value our differences. The first cohort included 10 senior leaders as mentees including two members of our Global Leadership Team.

See more online at www.qinetiq.com

3. Engaging with our people

Employee engagement forms an integral part of our strategy and is a key non-financial KPI.

For more on our KPIs see page 29.

• We measure engagement quarterly across the Group and receive regular feedback from our people so that we can identify the top priorities for us to address via our Engagement in Action plan.
• We established our employee engagement baseline in February 2019 (a score of 6.3) and have been pleased to see this increase by 10% to 6.9 in January 2020, with an average participation rate of 75%.

Employee engagement baseline

• The score improved for all aspects of engagement measured, with a key success being the greatest improvement in areas where our employees indicated that we needed to focus. For example, see reward on page 43.
• We share progress with our people and demonstrate through action, that their feedback is listened to. We are also supporting and developing managers, to ensure that they can create a high performing and inclusive culture with engaged employees.
• We regularly communicate with our people through a range of channels (e.g. blogs and roadshows) so we can ensure that across the Group employees understand our strategic priorities, know how they can contribute and are supported to deliver our goals.

Employee voice

• The Employee Engagement Group (EEG) is a well established and diverse group representing the voice of employees within QinetiQ Ltd. The EEG have built trusted relationships across all levels, and have been proactive in providing employee insight on projects associated with the strategic aims of the company. Their focus remains on challenging the business to provide the best employee experience of working at QinetiQ and in supporting a high performing and inclusive culture. For example they have provided employee insight during the development of key projects such as the next phase of the LTPA. They have also been key as we have developed our COVID-19 response. Our German colleagues are supported by a works council.
• The EEG Chair and Deputy Chair actively participate at the monthly Leadership community events. The Chair and Deputy Chair along with other EEG representatives have met with the Chairman and Remuneration Committee Chair twice during the year along with another two other Board members (see page 65).

Our People continued

4.

Developing our people

Our learning and talent management programmes drive a high performing environment, unlocking the potential of our workforce. Programmes are underpinned by QinetiQ's values, behaviours and an emphasis on employee wellbeing.

Focus this year has included:

• A new Global Competency Framework and a suite of resources to support professional competencies across all disciplines.
• Our new 'Enabling Managers' programme included an interactive conference, experiential workshops, coaching and a two-day 'Team essentials' leadership programme.
• The launch of a new digital coaching and mentoring platform.
• Collaboration with industry, e.g. the UK Defence Growth Partnership and STEM futures, focusing on future skills.
• Maturing our Talent Management approach in areas of assessment and our long-term capability planning using a Strategic Workforce Planning framework to mature our skills and resourcing strategy for the medium and long-term as we globalise and grow.

Early careers

Our early careers programme supports the development of apprentices, graduates, placement students and interns. We need to strengthen our talent pipeline to mitigate risk in a competitive resourcing market and address the Science, Technology, Engineering and Maths (STEM) skills gap.

• We have undertaken an extensive review of our programme to ensure we have the skills and capabilities needed to successfully deliver customer requirements and enable delivery of our global business strategy.
• In Australia the new 2019 Graduate Development Programme was the first of its kind in the Australian business and launched with seven engineering graduates for the 18 month program. The 2020 programme will build on this, increasing not only the number of graduates, but also the number of disciplines.
• Two of our apprentices won Gold and Silver medals at the World Skills UK finals event this year.

• Our early careers community are positive role models and are highly active in our outreach programmes and reverse mentoring.
• For our outreach programmes see page 47.
• For reverse mentoring see page 40.

As a member of The 5% Club, we commit to publishing a breakdown of our early careers (graduate and apprentice) numbers.

As well as providing apprenticeships for employees early in their career, we are also actively supporting 23 colleagues at later stages of their careers to undertake apprenticeships.

In FY21 we plan to:

• Focus on local vs. global training to meet cultural and legislative differences.
• Increase focus on coaching to enable leaders and their teams to embed a high performance culture.
• Develop early careers talent across our home territories, by sharing learning materials and facilitating secondment opportunities.
• Update our Early Careers placement approach to ensure skills are developed that support business capabilities and a new development framework, providing personal and business skills development.

Rewarding and recognising our people 5.

Reward and recognition is key to ensuring that all our people are able to share our success and are recognised for their achievements and behaviours.

• Our new All Employee Incentive Scheme rewards employee contribution and enables everyone to share success based on financial performance. All employees are eligible to receive a bonus of between £500 and £1,000 depending on Group operating profit. In the first year of operation (FY19), the scheme paid £1,000 to every eligible employee in QinetiQ, and for FY20 the payment is £740 reflecting another strong year of profit performance.
• Following feedback via our employee engagement survey, our reward team undertook Reward Roadshows covering reward and financial wellbeing support. This was well received and we have seen a 15% improvement in our employee survey results on reward and recognition (see page 41 on engagement).
• We hosted our third annual global gala dinner to recognise and reward outstanding employee performance in our business. This year's winners showcased the breadth and depth of what we do across the whole of the company.

CATHY KANE

In addition our 'Thank Q' peer to peer recognition programme allows employees to nominate individuals or teams who make a difference, focusing on the capabilities and behaviours that are vital to our future success.

• As part of our employee engagement the Chair of the Remuneration Committee met with the EEG to ensure a link with employees and to bring the employee voice to the table (see page 65).
• Our mean gender pay gap for FY19 (reported in March 2020) was 14.8% (16.6% in the previous year) and is primarily due to the proportion of men who have senior roles. We recognise it will take time to reduce the gap but we are committed to doing so.
• Also responding to employee feedback we introduced Pay and Progression panels in FY20 in order to make our process more agile and transparent.
• We reported the CEO pay ratio on page 104.

Responsible & sustainable business

Our values are at the heart of how we deliver a responsible and sustainable business.

Strategy, materiality and governance

In FY20 we undertook a materiality assessment to ensure that our corporate responsibility and sustainability (CR&S) strategy reflects those issues that are material to our business. There are some elements which will always be business priorities, such as the safety of our people and our approach to governance. Through listening to our stakeholders we can focus on meeting their expectations on issues such as climate change and the Sustainable Development Goals and we can also ensure that we are able to anticipate and understand emerging issues such as social value in UK public procurement.

Our CR&S framework is focused around five themes:

• Stakeholder engagement;
• How we do business;
• Our people (see pages 39 to 43);
• Environmental stewardship; and
• Community investment.

We have Board and executive level commitment to CR&S through the Group Risk & CSR Committee and this ensures delivery of responsible business practice, driven by leadership and governance. The Committee receives reports and briefings on all material CR&S issues including business ethics, anti-bribery and corruption, health and safety, environment, reputational risk and human rights (see page 80). Further Executive chaired committees include the Business Ethics Committee.

For more information please see:

• Non-financial key performance indicators: pages 28 and 29.
• Risk: pages 33 to 36.
• Related policy in the non-financial information statement: pages 54 and 55.

Stakeholder engagement

Understanding the current priorities of our stakeholders (primarily customers, investors and our people) is achieved through regular dialogue such as investor meetings, involvement in the MOD-Industry Sustainable Procurement Working Group and our employee engagement (page 41). We are actively engaged with industry and trade body working groups on topics such as skills, environment and ethics.

How we do business

Business ethics – doing business the right way

Our Code of Conduct lays out our ethical standards, providing clear direction and guidance on how we do business. It also contains information on ethical decision-making and how to seek help. We review it 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. 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 provide ways for them to seek help or raise concerns. They are encouraged to 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. We have provided responses to all queries received via our ethics email advice services and confidential reporting line. We provide guidance for managers in creating an open and inclusive environment where our people feel confident to raise concerns, and how to listen to and support anyone who may come to them with an issue. Our ethics programme is overseen by our Business Ethics Committee, chaired by our Chief Ethics Officer (the Company Secretary). We are participants in the ethics forum hosted by our trade association, ADS, where members can share best practice on ethics, human rights and anti-bribery.

Anti-bribery and corruption

We have a zero-tolerance approach to bribery and corruption, with robust policy and procedures in place, overseen by our Chief Ethics Officer. These are regularly reviewed against changing regulations and industry guidance. Bribery risks are addressed in our international business risk management process and in our business relationships, with specific focus on commercial intermediaries, who are subject to comprehensive risk-based due diligence, using both in-house expertise and recognised specialist third party due diligence providers. Anti-bribery training forms part of our mandatory business ethics training for all of our people, and, additionally, we provide face-to-face training for our people in roles with a higher potential exposure to bribery and corruption risks with bi-annual refresher training. We have undertaken a review both of our higher risk roles and our training material and have commenced a new targeted programme of training delivery.

Human rights

As part of our ongoing programme to address modern slavery, we have provided more in-depth training to people in key roles and developed new supporting resources for all employees. We have updated our policy and continue to review our approach to risk in the supply chain. Our Supplier Code of Conduct helps to ensure our suppliers have clarity of their responsibilities on human rights. Our annual modern slavery and human trafficking statements are published on our website.

See more online at www.QinetiQ.com

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, trading policy, international business risk management process and export controls process. We monitor the application of these policies and procedures through our business 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.

Modern Slavery event

In FY20, working with 'Unseen', the anti-slavery charity we ran a supplier event on Modern Slavery to discuss the issues and explore ways we can collaborate to combat such forms of slavery. Modern Slavery and human trafficking have been growing in public and business awareness. The introduction of the Modern Slavery Act in the UK and similar in US and Australia has created a impetus for business. One of our ongoing commitments is to find effective ways to engage with our supply chain. During the event we discussed not only the impact of slavery on individuals but the likely impact on business when it occurs. The output of the event was the development of shared resources and a new online group to exchange ideas and challenges.

Supply chains

Our supply chain is an extension of our own organisation. We ensure that it is committed to the same standards of safety, security and governance as we are. We have a Supplier Code of Conduct and our on-boarding and vetting process ensures that suppliers understand the issues important to us. We are signatories to the Prompt Payment Code, and report our payment details as required by legislation. In FY20 we ran supplier events to raise awareness of issues such as safety and modern slavery (see case study). Working in collaboration with wider industry we foster and develop ecosystems which draw together communities to answer complex science, engineering and technology challenges, supporting our customer offering. Through this approach we enable access to opportunities of Small to Medium Sized Enterprises and non-traditional defence suppliers, removing barriers of entry and promoting inclusive procurement.

Environmental stewardship

As part of our EHS (Environment, Health and Safety) Strategy we are working to protect and sustain our environment while delivering for our customers. Underpinning our approach is our ISO 14001 certification in the UK and Canada. Environmental issues are reviewed by the EHS Committee and the Risk & CSR Committee. A new EHS strategy is planned for launch in FY21.

Our waste target is to increase the annual proportion (%) of waste re-used and recycled from our underlying waste production. We have implemented Waste Management Action Plans at our significant waste producing sites which account for 95% of waste produced. Performance increased with 84.7% (FY19: 81.6%) of underlying waste reused or recycled.

During the year we have communicated with our people on a range of environmental issues, explaining our approach to environmental stewardship and encouraging participation. We used World Environment Day as an opportunity to launch our new environmental volunteering programme.

Many of the sites we run on behalf of the UK MOD have significant conservation protection and so our Sustainability Appraisal approach ensures we are able to effectively balance complex trials with careful protection of rare flora and fauna.

Responding to Climate Change

The Task Force on Climate-related Financial Disclosures (TCFD) provides a framework for companies to demonstrate their resilience not just to the physical risks associated with climate change but also 'transition risk' as the world decarbonises. We have run workshops bringing together subject matter experts in risk, strategy, governance, energy management, environment and supply chain, and continue to develop our approach against the recommended framework of governance, strategy, risk management and metrics/targets. Since 2011, we have undertaken climate change risk assessments on priority sites which we manage on behalf of the MOD, to understand what the key issues might be. In FY20 we undertook a further series of new assessments based on recent climate projection data, working in partnership with the MOD.

Sustainable solutions

QinetiQ will play a key role in maximising European Capabilities in Operational Earth Operation, through the development and assembly of the 'ALTIUS' (Atmospheric Limb Tracker for Investigation of the Upcoming Stratosphere) satellite. ALTIUS will be launched in 2023 and will monitor and map the distribution and evolution of stratospheric ozone at a very high vertical resolution as well as measuring greenhouse gasses. ALTIUS is comprised under the European Space Agency Earth Watch Programme, with the objective of developing new scientific Earth Observation satellite missions and data exploitation schemes to advance science and knowledge of the planet.

Responsible & sustainable business continued

Greenhouse gas emissions and energy management

This has been our first year operating under our new 2025 Energy Strategy and in FY20 we achieved a 13.4% reduction in our total Group Scope 1 and Scope 2 emissions footprint target against our FY19 figures.

We are delighted with the progress against our target to reduce our Group carbon emissions by 25% by 2025 against the FY19 baseline. Over half of the emissions saving was achieved from a reduction in electricity use across the business, coming from both a substantial reduction in usage of the wind tunnel facility in Farnborough plus efficiencies achieved across the wider business. The reduction in the UK electricity carbon intensity factor accounted for 32% of our total emissions saving.

During FY20 we submitted a commitment letter to the Science Based Targets initiative (SBTi) to start the process of verifying our Group target against the goal of limiting global warming to 1.5°C. We are publicly listed as committed on the SBTi website.

PricewaterhouseCoopers LLP (PwC) carried out a limited assurance engagement on selected GHG emissions data for year ending 31 March 2020 in accordance with International Standard on Assurance Engagements 3000 (revised) and 3410, issued by the International Auditing and Assurance Standards Board. A copy of PwC's report and our methodology is on our website: A summary of our Scope 1 and Scope 2 emissions is shown below.

The figures that have been covered by this assurance process are indicated in the table below by the following symbol: . We also publish here our energy performance and examples of energy action taken in the year, meeting the new SECR (Streamlined Energy and Carbon Reporting) requirements.

We have delivered a number of energy efficiency programmes during FY20 to drive greater energy efficiency and improved energy management across the business.

• We have recently incorporated our Ashford site into the scope of our ISO 50001 certification and undertaken Energy audits in our sites in Germany identifying significant opportunities to create efficiencies.

• We have delivered significant improvements to the facilities at Rosyth Dockyard, including upgrading insulation, external cladding and new LED lighting. Since completion at the end of 2019 this refurbishment has resulted in a 25% reduction in electricity consumption compared to the same period in FY19.
• We have upgraded the cooling systems in our data centre facilities in Malvern. The upgrade has seen an improvement of free cooling from 25% to 75% and improved the power usage efficiency (PUE) from between 1.8 to 2.2 to between 1.3 to 1.5. We anticipate further improvements as the systems are optimised ahead of the summer.
• We launched a new 'Battle of the Baseload' campaign to target overnight and weekend energy consumption during the winter months in the UK. The campaign is a combination of behavioural and operational interventions to focus on shut down protocols. From September to March, the campaign resulted in electricity reductions of almost 233MWh (2%) compared to the same period in FY19.
• We made major investment at our Farnborough site, in replacing the boilers which provide heating and hot water. The new boilers are far more efficient and when we have completed commissions and protocol integration we anticipate gas efficiencies of about 15%.
• More information on our energy programme can be found on our website.

In FY21 we plan to:

• Continue delivering the strategy, working to drive continuous improvement in energy efficiency through the ISO50001 energy management system.

See more online at www.QinetiQ.com

FY20 FY19 Total Scope 1 Emissions (tCO2e) 19,289 20,096 Total Scope 2 Emissions (tco2e) 16,298 20,977 Total Scope 1 & 2 Emissions (tCO2e) 35,587 41,073 Intensity ratio (tCO2e per £m of revenue) 33 45 Energy consumption (kWh) resulting in above reported emissions 139,780,656 N/A Proportion of energy consumption arising from UK operations (%) 98% N/A Proportion of emissions arising from UK operations (%) 98% N/A

Figures subject to FY20 assurance process undertaken by PwC.

Investing in our community

Our aim is to make a positive impact and be a good neighbour in the communities where we operate. We focus on sustainable longterm partnerships and understanding where we can help with our professional skills.

Employee volunteering increases engagement through rewarding and meaningful experiences, this supports employee wellbeing, and volunteers can develop their skills. A significant focus is on STEM Outreach as there is clear evidence that giving young people the opportunity to engage with business has a positive impact on their employability. This benefits our future recruitment pipeline and the wider socio-economic wellbeing of our communities. We value our work with partners to deliver outreach, and which help us to reach a specific, longer term or wider audience. Partners include Primary Engineer, Jon Egging Trust and UK Space Agency in the UK; In Australia we are a supporter of the Re-Engineering Australia (REA) Foundation and their Formula 1 in Schools and Subs-in-Schools programmes, providing engineering mentoring and judging competitions.

Highlights this year include:

• Launch of the Jon Egging Trust partnership in Wiltshire.
• Our STEM Ambassadors engaged with over 90 schools and youth groups, and approximately 3,200 young people in the UK, through activities such as inspirational projects with our STEM Ambassadors, visits to our sites, mentoring, support with extra-curricular coding clubs, and careers fairs. We have also engaged with approximately 18,000 people at larger events such as the Royal International Air Tattoo.
• QinetiQ Australia volunteer mentors supported F1-in Schools Team.
• A number of our sites in the UK and locations across the Group also choose a local or regional charity to support each year. Any other sponsorships are aligned with three key themes of Innovation, Skills (including young people) and supporting our Armed Forces.

In FY21 we plan to:

• We will continue to focus and grow outreach and maximise the partnership with the Jon Egging Trust.
• In FY21 we will begin a new charity partnership in the UK with SSAFA, which supports our Armed Forces covenant commitments.

Supporting the armed forces

As a signatory to the Armed Forces Covenant and Gold Award winners in the MOD Defence Employer Recognition Scheme, we are proud to support the armed forces, our own employees who serve as reservists, cadet force adult volunteers, forces spouses and cadets.

Jon Egging Trust

In 2019 QinetiQ started a new, three-year corporate partnership with the Jon Egging Trust (JET) in Wiltshire. JET delivers accredited learning programmes to develop young people's life and work skills by providing access to inspirational role models and life-changing opportunities linked to aviation, engineering and science. The programme includes five sessions, covering teamwork, communication, resilience and goal setting to help improve confidence and life skills in young people from disadvantaged backgrounds. The programme also includes an inspirational visit to QinetiQ at MOD Boscombe Down. The image shows students from the first cohort.

Stakeholder engagement

Creating value for our stakeholders is at the heart of our strategy and knowing what matters to them informs our decisions.

Stakeholder	Why they are important to us	What matters to them			How we engaged/listened to them in FY20
Our 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 and so invest time in understanding and responding to their needs.	QinetiQ customers value the relationships we build with them and the time we invest in understanding their needs. They appreciate the depth and breadth of knowledge we apply to providing them mission critical solutions and the flexibility we show in helping them reach their goals. They expect delivery to be on time, every time and to the highest standards.		•		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 customers' views on our performance and relationships through our formal customer research systems.
Our investors	Our investors' ongoing support is key to enabling us to deliver and sustain our strategy. Their support enables us to invest in our business to support our customers and deliver appropriate returns.	Our investors value sustainable and long-term growth delivered through the successful execution of our strategy. As part of this, they expect us to do business in a sustainable and ethical manner taking in to account other key stakeholders.		•		We engage with our shareholders during the year through 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. Our Chair of the Remuneration Committee also met with several shareholders to seek their views on remuneration policy.
Our people	We are a people business and our employees are critical to our success. We want to ensure our people are highly engaged as we know this is beneficial for their personal wellbeing and productivity, which will underpin successful delivery to customers and the growth of our business.	Our people want a safe environment to work in, successful and rewarding careers and to do work that is meaningful. They also want to know that the company will listen to their concerns and feedback.		•	Glass Door.	Our methods of engagement include: Quarterly Peakon surveys, Q-talks, Global roadshows led by our CEO, our Employee Engagement Group (EEG) and other engagement forums (e.g. works councils) and indirectly through feedback such as
Partners and suppliers	We occupy a unique position in defence where we are able to build powerful partnerships with a range of small and large companies, academia and customers. Our aim is to be the 'Partner of Choice' as many of our critical programmes are delivered utilising partnership models.	A collaborative environment in which all partners and suppliers can contribute and add value. They also want to be treated fairly regardless of their respective size.		• •	meetings.	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 with the executive team and their counterparts in other key industry partners. We also engage with our suppliers through industry tools (Defence contracts online), 'meet the buyer' events and regular review
Communities and society	We strive to be a good neighbour in the communities in which we operate. It's where our people live, a source of future talent and local suppliers. We also consider wider society.	Our communities want us to be considerate neighbours but also a source of future employment and opportunities.		•	community liaison.	We engage via a variety of community investment activity such as outreach, volunteering, supporting local charities and
Regulators	Some aspects of our business will have oversight by regulators, for example on safety and environmental issues.	Our regulators expect us to meet high standards of safety and environmental stewardship and legal requirements.		•		We engage with regulators via meetings, audits and reports.

• In line with statutory reporting requirements, we are highlighting the engagement activities we undertake, how we use this information in Board decision-making and our reporting on stakeholder engagement.
• With many stakeholders it is important that we understand how to engage and listen effectively and we must balance our approach (direct and indirect) so that we have the best outcome for all and focus on what is most material.
• Our approach to engagement will evolve as we grow, with new acquisitions in new territories requiring us to consider both new stakeholders but also different priorities.

Stakeholder Why they are important to us What matters to them	How we engaged/listened to them in FY20	The outcome/impact of that engagement
Our customers are at the centre of our vision and the QinetiQ customers value the relationships we build Our customers foundation of our success. We strive to apply our strengths with them and the time we invest in understanding to their advantage and so invest time in understanding and their needs. They appreciate the depth and breadth of responding to their needs. knowledge we apply to providing them mission critical solutions and the flexibility we show in helping them reach their goals. They expect delivery to be on time, every time and to the highest standards.	• 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 customers' views on our performance and relationships through our formal customer research systems.	• 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.
Our investors Our investors' ongoing support is key to enabling us to Our investors value sustainable and long-term growth deliver and sustain our strategy. Their support enables us delivered through the successful execution of our to invest in our business to support our customers and strategy. As part of this, they expect us to do business deliver appropriate returns. in a sustainable and ethical manner taking in to account other key stakeholders.	• We engage with our shareholders during the year through 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. Our Chair of the Remuneration Committee also met with several shareholders to seek their views on remuneration policy.	• We greatly value our shareholders' feedback which is shared with the executive team and the Board. The feedback received during the year has influenced our strategic thinking in addition to informing our approach to remuneration. • We have continued to place great emphasis on ESG related matters and are improving our disclosure accordingly.
Our people We are a people business and our employees are critical Our people want a safe environment to work in, to our success. We want to ensure our people are highly successful and rewarding careers and to do work engaged as we know this is beneficial for their personal that is meaningful. They also want to know that the wellbeing and productivity, which will underpin successful company will listen to their concerns and feedback. delivery to customers and the growth of our business.	• Our methods of engagement include: Quarterly Peakon surveys, Q-talks, Global roadshows led by our CEO, our Employee Engagement Group (EEG) and other engagement forums (e.g. works councils) and indirectly through feedback such as Glass Door.	• The identification of priority focus areas including reward and career pathways. • By listening to our people we have been able to make improvements in these areas which have been acknowledged in our Peakon survey.
Partners We occupy a unique position in defence where we are A collaborative environment in which all partners and able to build powerful partnerships with a range of small suppliers can contribute and add value. They also want and suppliers and large companies, academia and customers. Our aim to be treated fairly regardless of their respective size. is to be the 'Partner of Choice' as many of our critical programmes are delivered utilising partnership models.	• 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 with the executive team and their counterparts in other key industry partners. • We also engage with our suppliers through industry tools (Defence contracts online), 'meet the buyer' events and regular review meetings.	• 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 strive to be a good neighbour in the communities in Our communities want us to be considerate neighbours Communities and society which we operate. It's where our people live, a source of but also a source of future employment and opportunities. future talent and local suppliers. We also consider wider society.	• We engage via a variety of community investment activity such as outreach, volunteering, supporting local charities and community liaison.	• Our community investment activity is viewed positively. Through our community liaison, particularly for trials sites, our regular updates have ensured local people are aware of our activity.
Regulators Some aspects of our business will have oversight by Our regulators expect us to meet high standards regulators, for example on safety and environmental issues. of safety and environmental stewardship and legal requirements.	• We engage with regulators via meetings, audits and reports.	• Through engagement we are able to ensure we continue to meet the high standards expected by regulators.

Section 172 (1) statement

We welcome our responsibilities to promote the success of the company in accordance with section 172 of the 2006 Companies Act.

Our Board ensures that all decisions are taken for the long term, and collectively and individually aims to always uphold the highest standard of conduct. Similarly, our Board acknowledges that the business can only grow and prosper over the long-term if it understands and respects the views and needs of the company's investors, customers, employees, suppliers and other stakeholders to whom we are accountable, as well as the environment we operate within.

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.

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 mediumterm (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.

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 & CSR Committee and Remuneration Committee agenda items.

For more information see pages 72 to 81.

Regularly scheduled Board presentations and reports, by way of example: customer engagement, risk register reports, health & 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.

See pages 62 to 71.

Engagement with the company's stakeholders.

See pages 48 and 49.

Corporate responsibility, including business ethics, antibribery 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.

For more information see pages 44 to 47.

Effect and impact – principal Board decisions and how the Board considered stakeholders views:

1. Response to COVID-19

With significant uncertainty created by the COVID-19 pandemic the Board oversaw the Group's response with the aim of ensuring we emerge from the crisis well positioned for long-term success, whilst supporting our employees and their safety and continuing to deliver for our customers. For more details on our priorities in response to the crisis, please see page 10.

Consideration	Outcome/impact
Employees
Considered the health, safety and wellbeing of all QinetiQ employees. In particular, for those still required to be on-site to support customer delivery, the Board deliberated the safety measures to protect their wellbeing. For those able to work from home the Board considered the infrastructure to support this and their working efficiency. Given the increase in homeworking consideration was also given to the increased risk of cyber attacks and data breaches and how to mitigate this. A range of scenarios whereby QinetiQ experiences subdued demand or inability to deliver for a period of time were debated, with consideration given to how QinetiQ could manage the workforce to match this, whilst protecting our employees' interests and engagement and retaining their expertise within the business for the long-term.	The Board was satisfied that sufficient measures were in place to protect the health, safety and wellbeing of our people and continue to monitor the situation. Additional security measures were deployed to enhance the security of our networks further, in light of homeworking. Actions were taken to reduce costs and minimise the impact on employees, with discretionary costs being reduced, Non-Executive Directors agreeing to lower their fees and the senior leadership community agreeing to pay cuts.
Customers
Considered continuity plans and our ability to continue delivering for our customers in the event of a significant proportion of the workforce being unable to work due to sickness. The Board also considered near-term demand and how customers' priorities might change over a longer period of time.	The Board were satisfied with the continuity plans in place to ensure the continued delivery of mission-critical work were a large proportion of the workforce to be absent. Particular attention was given to how we will respond to changing customer priorities over a longer time horizon.
Shareholders
Considered the current liquidity and financial position of the business and various scenarios whereby cash flow deteriorates.	Concluded that the Group was in a strong financial position, but given the considerable uncertainty it was prudent to reduce discretionary cash outflows where possible, to ensure that the Group emerges well positioned to deliver long-term sustainable growth for shareholders. In addition to a range of actions taken to reduce cash outflows detailed on page 11, the Board took action to delay the decision around the dividend payment until there is more clarity around the true liquidity requirements over the coming months.
Suppliers
Considered the financial health of suppliers, in particular SMEs and their ability to continue supporting QinetiQ in delivering for our customers over the long-term.	The Board supported the acceleration of supplier payments to SMEs to help minimise the impact of the pandemic on their financial health to ensure they can continue supporting us in delivering for our customers over the long-term.

Section 172 (1) statement continued

2. Acquisition of MTEQ

In December 2019 we completed the acquisition of US-based Manufacturing Techniques Inc. (MTEQ). The Board concluded that this acquisition would promote the success of the Group over the long-term by substantially growing our US business and enhancing our capabilities in sensing technology, positively contributing to overall growth.

Consideration	Outcome/impact
Customers
The Board considered the impact on customer offering and the quality of delivery for both MTEQ and QinetiQ customers. The Board also considered the impact of operating under a Special Security Agreement (SSA), this being a new and amended US governance structure to the previous Proxy regime.	The Board concluded the combination of existing robotics and autonomy capabilities with the advanced sensing solutions of MTEQ would enhance our customer offering in the US. The Board recognised that the new governance structure would enable us to better leverage Group-wide capabilities and that with the right retention plans in place to retain key individuals, the acquisition will benefit customers over the long-term.
Shareholders
Considered the strategic fit, financial merits and valuation of MTEQ as well as our ability to successfully integrate MTEQ over a long period of time.	Concluded there was a strong strategic fit and the deal should deliver attractive returns in excess of our cost of capital over the long-term.
Employees
Considered the retention of key MTEQ & QinetiQ employees and approved an integration plan, detailing the Groups strategy to retain key employees. Also considered the cultural fit of MTEQ and the type of work the combined entities could deliver and whether employees will have the required skills to deliver such projects.	Concluded the two organisations were culturally aligned and that the addition of MTEQ's focus on mission-led innovation will enhance our high performance customer focused culture. The Board was satisfied that the combined entities have the skills to deliver the sort of work the combined entities could win.
Suppliers
With an ambition to move MTEQ towards larger production volumes, the ability of MTEQ's existing supply chain to support larger orders was considered.	The Board was satisfied that the existing supply chain could deliver larger quantities with adequate planning and within reason.
Governance
The Board considered the importance of the governance structure under which MTEQ would operate for all stakeholders. This extended to considering the environmental credentials of MTEQ.	The move to a 'Special Security Agreement' was concluded to be a positive to our ability to effectively govern our US operation.

3. QinetiQ pension scheme buy in

The QinetiQ Pension Scheme completed a bulk annuity insurance buy-in with Scottish Widows for £690m, covering approximately 33% of the Scheme's liabilities. The Board concluded that a buy-in would remove risk and better position the Group for future longterm success.

Consideration	Outcome/impact
Shareholders
The Board considered the potential liabilities arising from the pension scheme.	Concluded that the buy-in would reduce possible future calls on the company and therefore strengthen our financial profile, having a positive long-term effect on the company.
Members of the pension scheme
The Board considered the impact of a buy-in on the members of the pension scheme and the security of the benefits promised.	Concluded that the buy-in represents a significant step in securing the benefits promised to the scheme's members as Scottish Widows, as a large insurance provider, is better positioned to manage risks associated with the pension scheme.

Note: The QinetiQ Pension Scheme buy-in was announced on 10 April 2019. Therefore whilst the transaction took place in FY20, the Board discussions around its approval actually occurred in FY19. However, given the impact of the transaction on stakeholders in FY20 it has been included in the above statement.

4. Acquisition of Newman & Spurr Consultancy Limited (NSC)

In February 2020 we acquired NSC. The members of the Board were satisfied that the acquisition would result in a long-term positive effect for the company with the combination of live and virtual training environments creating further opportunities for growth.

Consideration	Outcome/impact
Customers
The Board considered the impact of QinetiQ ownership on NSC relationships and also considered the impact on overall customer value proposition.	Concluded that the combination of live and virtual training environments supports our customers in achieving value for money from their training programmes. Given our existing relationships with many NSC customers the Board concluded there to be limited risk as a consequence of QinetiQ's ownership of NSC.
Shareholders
The Board considered the strategic fit, financial merits and valuation of NSC and our ability to integrate and leverage NSC's capabilities over a long period of time.	Concluded that the acquisition would enhance our offering in the training domain, a key area of growth for QinetiQ, ultimately resulting in value creation for our shareholders.
Employees
Considered the retention of key NSC employees as well as the cultural fit of NSC and impact of our ownership on NSC employees.	The Board approved the integration plans and concluded a strong customer focus meant the businesses were culturally aligned, with our existing employee engagement strategies likely to continue to motivating NSC employees.
Environment
Considered how the use of NSC's expertise in virtual training could potentially reduce the use of live training.	The Board concluded this to be a net benefit to the environment, with lower carbon emissions resulting from virtual training.

Non-financial information statement

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.

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	12–13
Policies	Non-financial information statement	54–55
Principal risks	Risk review	33
	Principal risk management	34–36
	Risk performance	32–36
Key performance indicators	Key performance indicators	28–31

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. There are details on ethical decision making and also how to seek help. 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 our business, regulations and best practice.
Health and safety	Our Health and Safety policy outlines our commitment to continuously improving standards of safety management and compliance. 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 meetings and Risk and CSR Committee meetings, with a six-monthly summary overview to the Board.
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 KPI with monthly oversight by our executive as well as regular oversight by the Risk and CSR Committee.

The environment

Policy statement	Description
Environmental management	We are committed to embedding an environmentally sustainable approach to business because we know its importance to our business and our stakeholders. The effectiveness of the policy is governed through our assurance process and our six-monthly self certification. Environmental issues are part of a regular governance timetable, monthly through MD meetings, quarterly through GLT meetings and Risk and CSR Committee meetings, with a six-monthly summary overview to the Board. We are certified to ISO 14001 and so are subject to external audit.
Energy and carbon management	Underpinning our ISO 50001 certified energy management system is our energy and carbon management policy, which creates the framework for our Energy Management Action plans. Our policy is part of regular governance review and self certification as well as external audit to ensure we are meeting certification requirements.
Waste management	We recognise that reducing waste meets our sustainability goals, and improves efficiency. The effectiveness is governed via our assurance processes and KPI with monthly oversight by our executive as well as regular oversight by the Risk and CSR 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.

Community and Society

Policy statement	Description
Volunteering policy	Our policy provides guidance for employees to use company time to use their skills to make a positive difference in the community. 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 apprentice school 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.
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 and was audited this year by our internal audit team who were content and made some minor suggestions for improvements.

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. We monitor the application of these policies through our business assurance processes and regular self assessment. We believe that this integrated approach is effective in ensuring our business acts responsibly and respects human rights.
Modern slavery	Our Modern Slavery policy was reviewed and updated this year. 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. The effectiveness is monitoring via our assurance programme and leadership oversight (Exec 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.
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 policy. The effectiveness is monitoring via our assurance programme and leadership oversight (Exec and board).

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 has significant senior oversight at Executive and Board level, is managed via our assurance processes and self certification and there are regular internal audits.
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 has executive 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 executive and Board oversight, is subject to our assurance process and self certification.

Governance

Corporate governance statement	58
Board of Directors	60
Governance framework	62
Audit Committee report	72
Nominations Committee report	76
Risk & CSR Committee reports	79
Directors' remuneration report	82
Remuneration at a glance	84
Directors' remuneration policy	88
Annual Report on Remuneration	97
Directors' report	110
Independent auditors' report	114

Corporate governance statement

An introduction from our Chairman

"I believe that as a Board we have a wide ranging combination of diversity, skills, experience and knowledge, required to steer the Company through the next years."

Dear Shareholder,

I am pleased to present this year's corporate governance statement. As in previous years, this report should be read in conjunction with the section on how we have complied with the UK Corporate Governance Code on pages 62 to 109.

Response to COVID-19

In dealing with the fast developing COVID-19 pandemic emergency, the Board and I ensured we took swift actions to protect the health and wellbeing of our employees and their families, (further information can be found on page 11), to ensure that we continued to deliver critical work for our customers and in doing so maintaining the strength of QinetiQ for the long-term and protecting our stakeholders.

One of our first actions as a Board, was to call an additional Risk & CSR Committee meeting, of which further information can be found on page 79. We used this meeting to test and confirm a strategy of necessary actions to be taken going forward.

We considered several ways of protecting the Company and all our stakeholders, and by way of example decided to postpone the decision to propose a dividend until later in the year. You can read more about this in the CFO's section on page 27.

Our CEO and CFO immediately agreed a temporary salary reduction of around 33%, and in addition, the Global Leadership Team and senior leaders volunteered temporary salary reductions of up to 25%. The Non-Executive Directors and I also volunteered to temporarily reduce our fees by 25%.

In order to limit the spread of COVID-19 through public gatherings, we also took the difficult decision to not allow shareholders to attend this year's AGM in person. However, we want to ensure that shareholders are able to exercise their rights to vote and to ask questions on the business of the meeting. The details of how this will be facilitated are described further on page 67.

Further information of the Code can be found on www.frc.org.uk

Purpose, Values and Strategy

The 2018 UK Corporate Governance Code (the Code) became effective for us from 1 April 2019. The Board and its Committees have spent considerable time reviewing the 2018 Code to ensure our compliance. This has proved invaluable during the year in considering our purpose and values and progressing with the delivery of our strategy, and in testing and supporting the Board's and our Executives' decision making, a process which is further described in the Section 172 Statement on pages 50 to 53.

Understanding our Stakeholders

The Board continues to take account of the impact of its decisions on all our stakeholders, as set out in the 172 Statement on pages 50 to 53 and the examples of our Stakeholder engagement on pages 48 to 49 and 66 to 67. The 2018 UK Corporate Governance Code emphasises the need for boards to develop effective relationships with all stakeholders, including understanding their views. In particular, boards are encouraged to ensure they find ways to hear the voice of employees. My fellow Directors and I have worked extensively on our approach to these important matters, to ensure that all voices – those of shareholders, employees, customers and communities – find their way to the Boardroom. More information about how the Board and the Company considers stakeholders, can be found on pages 66 and 67 and a deep-dive into the interaction between the Board and the Group's workforce can be found on pages 64 to 66.

Management Changes

It is now 13 months since I joined QinetiQ, initially as a Non-Executive Director. It has been a pleasure to get to know my new colleagues on the Board and I believe that as a Board we have a wide ranging combination of diversity, skills, experience and knowledge, required to steer the Company through the next years. At the AGM in July we will be saying good bye to Paul Murray. Paul has made valuable contributions during his tenure through his leadership of the Audit Committee. In May 2020 we welcomed Shonaid Jemmet-Page to the Board. Shonaid is an experienced Non-Executive Director in the energy and financial sectors and will be taking on the role as Audit Committee Chair when Paul Murray steps down in July.

In July 2019, Michael Harper stepped down as the Chair of the Remuneration Committee, and I would like to take this opportunity to thank him for his work and dedication to this role. Michael continues to serve as the Deputy Chairman and Senior Independent Director on the Board and its Committees.

Susan Searle, who has been a valuable member of the Board as a Non-executive Director since 2014, took on the responsibility as the Chair of the Remuneration Committee when Michael stepped down. In addition to her experience from the QinetiQ Board, Susan also brings to this challenging role previous and current experience as the Remuneration Committee Chair of other listed companies.

The Nominations Committee continues to review the skills that we need whilst always considering diversity and the need for independent thinking and challenge. The Committee will also continue to review the size of the Board and confirm that it is appropriate with a good mix of skills, experience and knowledge and the ability to maintain appropriate oversight of the Executive, including providing constructive challenge and support.

Culture

During my time at QinetiQ, my initial very positive impressions of its culture and values have been further confirmed. By spending time with the business and its people 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, and with a strong desire to learn and develop. A priority for my Chairmanship is to see that the Board continues to help sustain and evolve this positive culture by having the right capability around the table and the right engagement with stakeholders outside the boardroom.

Remuneration

At the 2020 AGM we are bringing a new and continued robust Remuneration Policy to the vote of the shareholders. Susan Searle has been working tirelessly with the Remuneration Committee over the year to develop a fair, flexible, stretching and aligned Remuneration Policy, of which further information can be found on pages 88 to 108.

Conclusion

I would especially like to thank the CEO, his Executive team and my fellow Directors for their work during the year. QinetiQ has an exciting future ahead and I believe that the right team is in place to take the Company forward and transition into a global business.

Neil Johnson Non-Executive Chairman

Board of Directors

The Chairman considers all of the Directors to contribute valuably, and to continue to be paramount to the Company's long-term sustainable success.

Neil Johnson Chairman

Skills, competence and experience: Neil's former CEO experience and current roles as a plc Chairman 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 Chairman of Motability Operations and Centaur Media plc.

Other appointments: Chairman of Synthomer Plc (and Chair of its Nominations Committee) and Electra Private Equity plc. Senior Independent Non-Executive Director of the Business Growth Fund.

Steve Wadey Chief Executive Officer

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 Co-Chair of the UK Defence Growth Partnership, 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.

Other appointments: Chair of the Defence Industry Liaison Board of the UK Department for International Trade, Defence & Security Organisation.

David Smith Chief Financial Officer

Skills, competence and experience: David provides significant expertise to the Group from his broad and comprehensive executive experience in blue-chip companies and work in the aerospace and defence, technology, and automotive sectors.

David is an Associate of the Chartered Institute of Management Accountants and a member of its Advisory Panel. He was previously the CFO of Rolls-Royce Holdings plc, having joined as CFO of its Aerospace Division. Prior to that, David was CFO of Edwards Group and CEO of Jaguar Land Rover, having previously been its CFO. He has also held a variety of roles with the Ford Motor Company.

Other appointments: Motability Operations Group plc.

Michael Harper Deputy Chairman and Senior Independent Non-Executive Director

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, amongst 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 Chairman of Ricardo plc, Vitec Group plc, and BBA Aviation plc, having previously been its CEO. He was Senior Independent Director of Catlin Group Limited. In addition, he was a Director of Williams plc and CEO of Kidde plc.

Other appointments: Non-Executive Director of the Aerospace Technology Institute.

Lynn Brubaker Independent Non-Executive Director

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), 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. and Hexcel Corp.

Admiral Sir James Burnell-Nugent Independent Non-Executive Director

Skills, competence and experience: Sir James brings to the Board unique senior experience from the armed forces and of contracting with government. During a 37 year career in the Royal Navy, which culminated in his appointment as Commander-in-Chief Fleet, he commanded the aircraft carrier HMS Invincible and three other ships and submarines.

Between operational duties, Sir James held several positions at the MOD and gained cross-Whitehall experience while on secondment to HM Treasury.

Other appointments: N/A

Audit Committee Membership Key

Ian Mason Independent Non-Executive Director

Skills, competence and experience: Ian brings to the Board extensive experience in strategy, business transformation, eCommerce and international business development. His current and previous experience as a CEO and Non-Executive Director, enables him to provide the Board with highly relevant business and board experience. His advice continues to be particularly valuable for the Board and the leadership team in the work of implementing and enhancing the transformation and strategy of the Company.

Previously Ian was Group Chief Executive of Electrocomponents plc. He has also worked for the Boston Consulting Group and served as a Non-Executive Director of Sage Group plc.

Other appointments: Chief Executive Officer of Domestic & General Group Limited and subsidiaries.

Paul Murray Independent Non-Executive Director

Skills, competence and experience: Paul's broad range of experience in finance and corporate governance has been of significant value to the Board. As a result of his previous roles as Group Finance Director of a number of plc companies and a plc Audit Committee Chair, he has gained a deep understanding of governance, financial reporting, and regulatory issues.

Paul has held positions as Non-Executive Director and Chair of the Audit & Risk Committee at Royal Mail Group plc, Senior Independent Director of Taylor Nelson Sofres plc, Non-Executive Director of Thomson SA, Tangent Communications plc and Independent Oil & Gas plc. He has also been Group Finance Director of Carlton Communications plc and LASMO plc, and Treasurer of Pilotlight.

Other appointments: Director of Ventive Ltd and Naked Energy Ltd.

Shonaid Jemmet-Page Independent Non-Executive Director

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 extensive financial experience, makes her the ideal candidate to take over as Chair of the Audit Committee in the summer.

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 Chairman of Greencoat UK Wind plc, Senior Independent Director of ClearBank Ltd and Non-Executive Director of Caledonia Investments plc.

Susan Searle Independent Non-Executive Director

Skills, competence and experience: Susan brings to the Board essential experience of investing in growing technology businesses, acquisitions and exploitation of new technologies. Her experience as a plc Remuneration Committee Chair enables her to efficiently and valuably chair the 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. Previously, she held a variety of commercial and business development roles with Shell Chemicals, the Bank of Nova Scotia, Montech (Australia), and Signet Group plc.

Other appointments: Senior Independent and Non-Executive Director and Chair of the Remuneration Committee of both Benchmark Holdings plc and Horizon Discovery Group plc. Chair of Schroder UK Public Private Trust plc.

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 Secretarial experience in other FTSE 250 companies.

Corporate governance statement

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 whilst having regard to all necessary matters. The Company's success depends on the Board's continued commitment to high standards of corporate governance and a strong, positive culture across the business, whilst managing effectively the risks and uncertainties of the markets in which it operates.

The significance of our purpose, values and culture

Purpose – why we do what we do, and what we do

The Board has established the Group's purpose which is outlined on page 12.

Values – underpin who we are and what we do

We weave our values into everything we do and living our values is fundamental to our success and the delivery of our strategy. Our values are outlined on page 9.

Culture – how we work together

As a Board we recognise that the cultural tone of our business comes from the Boardroom. At QinetiQ we see the benefits of a strong culture in the success of delivering our strategy, in becoming a chosen partner and our employees' engagement, retention and productivity.

The Board monitors and assesses the culture of the Group receiving regular updates on culture strategy and progress, by taking part in the meetings of the Leadership Community (further described on page 65) and reviewing the outcomes of the Peakon Employee Engagement surveys (more details on page 41). The Board also assesses cultural indicators such as management's attitude to risk, behaviours, and compliance witihin the Group's policies and procedures.

Board activity

An insight into the year – practicing good governance

Information about how the members of the Board discharge their duties in relation to Section 172 of the 2006 Companies Act can be found on pages 50 to 53.

Topic	Key activities
Strategy	– Reviewed and considered the Company's purpose, values and strategy. Further information about the purpose can be found on page 12 – Approved the FY21 component of the Group's five-year Integrated Strategic Business Plan – Approved the Group's overall five-year Integrated Strategic Business Plan – Approved the acquisition of Manufacturing Techniques Inc. (MTEQ) – Approved the acquisition of Newman & Spurr Consultancy Limited (NSC) – Received presentation from management in relation to business strategy and performance – In-depth reviews of the M&A pipeline and specific M&A opportunities
Operations and business performance oversight	– Approved the annual budget, business plan and KPIs (further details of the KPIs can be found on pages 28 to 31) – Reviewed and approved the Group's full year and half year results (including dividends), as well as its quarterly trading updates – Approved the Group's Annual Report (including its fair, balanced and understandable status) and Notice of AGM
Internal control and risk management	– Reviewed the Group's risk management framework and principal risks (further details can be found on pages 32 to 36) – Reviewed and confirmed the Group's Viability Statement and going concern status (further details can be found on page 37) – Reviewed and validated the effectiveness of the Group's systems of internal control and risk management (further details can be found on page 71)
Leadership, people and culture	– Continued focus on the composition, balance and effectiveness of the Board. The Effectiveness review can be found on pages 69 and 70 – Received regular updates from the Nominations Committee on the recruitment process of Shonaid Jemmet-Page as a Non-Executive Director – Reviewed the key operational roles and identified gaps in experience needed to deliver the Group's strategy – Considered the outcomes and approved the actions arising from the Board evaluation process (further details of this process can be found on pages 69 and 70 – Reviewed the Group's people strategy, culture, vision and values, including receiving reports on cultural change throughout the business – Approved the Board skills matrix – Reviewed and approved the Non-Executive Directors' fees – Held separate Non-Executive Director sessions with the Chairman after each Board meeting to discuss leadership and other Board matters
Governance and legal	– Annual exercise to review who the Board's stakeholders are and methods of interaction - further information can be found on page 66 – Received and reviewed regular updates on the corporate governance developments and legal and regulatory issues, including the 2018 Corporate Governance Code and the Companies (Miscellaneous Reporting) Regulations 2018 – Approved the Group's fourth annual Modern Slavery Statement for publication on the Group's website – Received reports on engagement with institutional shareholders, investor and other stakeholders throughout the year. Further details of the Board's engagement with stakeholders can be found on pages 65 to 67 – Approved the appointment of Numis to replace JP Morgan as the Company's joint corporate brokers
COVID-19	– Received regular reports on the strategic planning of the impact on the business of COVID-19. An additional Risk & CSR Committee meeting was called in March 2020, to ensure swift, prudent and responsible actions. Further information can be found on pages 10 and 11

Corporate governance statement continued

Management of US subsidiaries

During the year the Group acquired the US based company Manufacturing Techniques Inc (MTEQ), now known as QinetiQ Inc, a wholly owned company by the QinetiQ Group. QinetiQ Inc together with its subsidiaries Foster Miller Inc (FMI), formerly referred to as QinetiQ North America (QNA), and QinetiQ Special Projects Inc (QSPI), manage the Group's US Global Product division, which contributed approximately £124m to the Group's revenue in FY20. QinetiQ is operating in accordance with the terms of a Special Security Agreement (SSA), which will shortly be formally entered into with the US Defence Counterintelligence & Security Agency (DCSA), and which governs how the rest of the QinetiQ group interfaces, collaborates and works with QinetiQ Inc and QSPI. FMI operates its business under an existing Proxy agreement with DCSA. To ensure consistent operations and governance across QinetiQ's US defence and security business interests, by agreement with DCSA, it is intended that the Proxy agreement will be terminated once the SSA is formally in place, and that FMI will operate under the SSA arrangement from that point.

US Global Products business and the SSA

QinetiQ Inc. and its subsidiaries have been placed under a SSA as is required by the US National Industry Security Program for main facility security clearances and to be insulated from foreign ownership, control or influence. Under the SSA, QinetiQ Inc. and the US Department of Defense (DoD) are parties to the SSA that regulates the management and operation of these two entities.

QinetiQ Inc and its subsidiaries operate under a SSA, as required by the US National Industry Security Program for main facility security clearances, to appropriately mitigate foreign ownership, control or influence to the extent that it could adversely affect the interests of US national security. QinetiQ Group plc, QinetiQ Inc and the US Department of Defense (DoD), represented by the DCSA, are parties to the SSA, which establishes procedures that regulate the management and operation of the US business to achieve that mitigation. Under the SSA, the Board of Directors of QinetiQ Inc is comprised of three types of Directors, all nominated by QinetiQ Group plc, as the foreign owner of QinetiQ Inc. The DCSA has approved all these appointments. The three types of Directors are Outside Directors, Inside Directors and Officer of the Board of QinetiQ Inc.

The Inside Directors are the means by which QinetiQ maintains appropriate visibility of the management and operations of QinetiQ Inc. These positions are held by Steve Wadey, as the CEO of QinetiQ Group plc, and David Smith, as the CFO of QinetiQ Group plc. The Inside Directors serve as a minority representative of the foreign owner, i.e. QinetiQ Group plc, to ensure there is no undue control or influence on the actions of QinetiQ Inc. Inside Directors need not be US citizens and are excluded from access to US classified and export-controlled information in possession of QinetiQ Inc.

The Officer Director is responsible for the day-to-day operations of QinetiQ Inc and serves as a liaison between the wider QinetiQ group and QinetiQ Inc. This position is held by Mary Williams, President of QinetiQ US. The Officer Director must ensure that the procedures and requirements of the SSA are effectively

implemented and has an obligation to maintain the security of classified and export-controlled information entrusted to QinetiQ Inc, as well QinetiQ Inc's ability to perform on classified contracts and participate in classified programmes. This individual must be a resident US citizen who either has or is eligible to possess personal US security clearance.

Outside Directors must be resident US citizens who are objective Individuals, who had no prior relationship with QinetiQ, and possess personal US security clearance. Our appointed Outside Directors are John Hillen, Chair of the QinetiQ Inc Board, Pamela Drew and Tom Mills. The number of Outside Directors must outnumber the number of Inside Directors. The Outside Directors also form the Government Security Committee that is in place to ensure US national security interests are upheld.

Colleague Engagement

The Group has a long-standing commitment to the importance and value of colleague engagement. Our colleagues drive our success. More information about our commitment to colleagues and the importance of our culture can be found on pages 39 to 43.

One of the focuses of the Code is the Board's engagement with the Company's workforce, as outlined in Provision 5 of the Code. The Board recognises that achieving the Company's strategy depends on the people of our business.

During the year the Chairman, as the member of the Board designated for workforce engagement, and the Non-Executive Directors attended on a rotational basis the meetings of the EEG. The EEG is a workforce advisory panel acting as the collective voice of the workforce, including the wider workforce affected by the Board's decision making. The Directors attending the meeting subsequently report back to their fellow Directors at their next Board meeting.

The EEG provides the Board a valuable mechanism for Directors to engage directly with colleagues on topics of strategic interest affecting QinetiQ and the workforce; and offering our colleagues a greater understanding of the Board's role. The outputs reported back to the Board influenced its considerations during the year on these important topics.

The Board find visits to various Companies sites and involvement in the Company's leadership community meetings (further information below), to be excellent opportunities to meet the workforce and to gain an understanding of how the Company's culture and values are embedded within the business. The Board will continue these important visits in FY21.

The Leadership Community meetings are meetings for senior managers across the business, which are held four times a year. The Members of the Board each attend two of these meetings annually. In addition, the members of the Board are invited to attend the annual Employee Recognition Gala. These are further opportunities for the Board to engage with employees.

Statement from William Bowers, EEG Chair:

As part of the Chairman's role as the Non-Executive Director designated for workforce engagement, he met with members of the EEG on numerous occasions during the year. Each time he was accompanied by a different additional Board member, one of which was the Senior Independent Director whom provided engagement on Executive Director remuneration. The Chairman was interested in how the EEG operates, and how the shift in focus to a global Company is affecting UK employees. We explained how transformation and initiatives are experienced differently in various parts of the UK business depending on culture, and what drives the culture. Keen to seek validation on employees' behalves to ensure that the employee voice brought by the EEG is valued by leaders, he committed to challenging the Global Leadership Team on how the Employee Voice has shaped direction and priorities. The EEG welcomes the collaboration with the Chairman and the members of the Board, benefiting both parties, and as such the employees of the Group.

Visiting the business – Meeting our people

During FY20 the Board held two of its seven meetings at operational locations, enabling the Board to see first-hand how our operations are run and, importantly, engage with local teams at all levels. These are invaluable opportunities for the Board to experience 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. All other Board meetings were held at the London office.

Farnborough, UK – meeting with the Employment Engagement Group

In November 2019 the Board conducted a two-day meeting at QinetiQ's offices and technical facilities in Farnborough. During its visit, the Board was able to meet members of the Employee Engagement Group (EEG) informally over lunch. Further information about the EEG can be found on page 40.

The visit, which was scheduled over two days, included opportunities for the Board to meet with and liaise with the local employees and teams, and to receive presentations from the management team.

"Our meetings with the EEG are of fundamental importance to the Board's engagement with the Group's employees. The Board greatly benefited from the opportunity to meet informally over lunch gaining an understanding of the issues that matters to our people."

Michael Harper

Non-Executive Director

Portsdown Technology Park (PTP), Portsmouth, UK – site tour of new facilities

For over 45 years PTP has integrated and tested combat and communications equipment and software for all Royal Navy warships prior to their deployment at sea. In 2019, the Board held its September meeting at PTP, taking the opportunity to attend the 'topping out' ceremony of the new site development to create a modern National Maritime Systems Centre. The new development will sustain the current jobs at the site and create up to 100 new jobs. It also enables PTP to continue its work and enable an even greater degree of innovation. For instance, the National Maritime Systems Centre will be able to test new software for a radar tracking system that spots otherwise difficult to detect missiles. This testing will ensure that when installed at sea, the software will work first time, enabling continued protection of onboard personnel and military assets.

In addition the Board spent time with local employees and management, gaining valuable feedback on how QinetiQ's culture and values are operating at a local level.

"The visit at PTP brought alive the significant value of the new site development. How it enables local job sustainability, creating value for our customers, investors and local community."

Neil Johnson Chairman

Corporate governance statement continued

How we comply

For the year ended 31 March 2020 QinetiQ has applied the principles and been compliant with the provisions as set out in the 2018 UK Corporate Governance Code (the Code). The Remuneration Committee report on pages 82 to 109 outlines the details on how the Company has complied with Section 5 in relation to Remuneration of the Code. A copy of the Code can found on frc.gov.uk.

Board leadership and Company purpose

Role of the Board

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

• Effective in providing challenge, advice and support to management
• Provides checks and balances and encourages constructive challenge
• Drives informed, collaborative and accountable decision making
• Creates long-term sustainable success and value for our shareholders, having regard to all our stakeholders.

Culture

Our Integrated Strategic Business Plan sets out the Group's People and Culture strategies by way of a five year plan to deliver a Group-wide approach, supported by a global mindset to deliver business growth and performance, and with three programmes being the main drivers: (1) the HR Global Transformation Programme, (2) the High Performance and Inclusive Culture Programme and (3) deliver and embed a Strategic Workforce Planning approach.

Confidential reporting process

QinetiQ has in place a confidential reporting process which is detailed on our intranet and in our Code of Conduct (see page 44 for further details). 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 regularly reported to the Board. The Board reviewed the effectiveness of the Group's confidential reporting processes during the year.

Stakeholder engagement

QinetiQ seeks to deliver value for all our stakeholders and the Board is aware that its actions impact all stakeholders of the Company and the communities we operate within. Effective engagement strengthens the business and helps to deliver a positive result for all stakeholder groups. The Board is committed to engage closely with the Company's diverse range of stakeholders and to take their views into account. During the year the Board undertook a rigorous review of the Company's current stakeholder activities. The review considered:

• Who the Group's key stakeholders are
• The Board's engagement activities with each key stakeholder and the appropriateness of this engagement
• The information the Board receives on the Group's stakeholders, including details on the outcome of the engagement activities
• Whether appropriate stakeholder feedback loops are in place
• Whether there was a need for greater engagement with any stakeholders at Board level
• The outcome and effect of stakeholder engagement.

More information on the Group's stakeholders can be found on pages 48 and 49.

Specific details about the Board's workforce and colleague engagement is outlined on the previous page.

Investor Engagement

The Board places clear importance on communications with shareholders, both institutional investors and individual shareholders. QinetiQ has a comprehensive investor relations programme, managed by a professional and well-respected Investor Relations team, who provide day-to-day contact with our investors. The CEO, and the CFO supplement this programme by way of regular meetings with the Company's institutional investors. The Board is continuously informed about the views of key shareholders, including noting any concerns. In addition, the Chairman proactively offers to attend meetings with key stakeholders, and he met with a number of the Company's major shareholders during the year.

Throughout the year investor roadshows were attended by the CEO, CFO and Investor Relations team, who collectively met with nearly 50% of the Company's share register. Our Board members also make themselves available to engage with shareholders as required. Our Chairman was particularly proactive in trying to understand shareholders views, meeting with approximately 35% of the share register. Live webcasts of results presentations were provided and briefings for analysts and investors took place in conjunction with these. An investor seminar was also held to explain key aspects of QinetiQ's strategy in more depth.

The Chairman and the Chair of the Remuneration Committee, also regularly engaged with major shareholders throughout the year on the Company's executive remuneration matters, including the Remuneration Policy, which will be presented to the shareholders for their vote at the 2020 AGM. Further detail on this can be found in the report of the Remuneration Committee on pages 82 to 109.

The information about major shareholders can be found on page 111 and the analysis of shares held can be found on page 184.

Constructive use of the Annual General Meeting (AGM)

The health and wellbeing of our employees, shareholders and the wider community which we operate within is of paramount importance to us. In light of the outbreak of the Coronavirus (COVID-19) the 2020 AGM is scheduled to be held at our registered office at Cody Technology Park, Ively Road, Farnborough, Hampshire, GU14 0LX at 11am on 14 July at QinetiQ's offices.

Regrettably, as a consequence of the COVID-19 pandemic, it will not be possible for shareholders to attend the AGM in person and shareholders will not be permitted entry. We very much regret the need to impose this restriction on attendance as we regard the AGM as an important opportunity to engage with shareholders. However it is paramount that we, our employees and our shareholders comply with the law, latest guidelines and restrictions on non-essential travel, public gatherings and social distancing, and that we prioritise the steps needed to slow down the spread of the virus .

The AGM will be purely functional in format with employee shareholders attending to satisfy the quorum requirement, but, importantly, we will ensure that shareholders are able to vote and raise question on the business of the meeting. Therefore the Board strongly recommends shareholders to appoint the Chairman of the Meeting as their proxy by submitting a proxy appointment in accordance with the Notice of AGM (the Notice). In addition, the Board encourages shareholders to submit their questions relating to the business to be conducted at the AGM in advance, by email to investors@qinetiq.com, no later than 5pm on 10 July 2020. We will consider all questions received and, if appropriate, address them at the AGM. Questions submitted and the answers to them, will be made available on our website. There will also be an opportunity for shareholders to attend the AGM electronically via webcast, of which further details will be included in the Notice.

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 in the 'Investors' section on the Group's website.

Conflict of interest

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.

Corporate governance statement continued

Division of responsibilities

Roles on the Board

Executive and Non-Executive Directors share the same duties. However, in line with the principles of the Code, a clear division of responsibilities has been established. The Chairman is responsible for:

• Leading the Board and its overall effectiveness
• Demonstrating objective judgement
• Promoting a culture of openness and constructive challenge and debate between all Directors
• Facilitating constructive Board relations and the effective contribution of all Non-Executive Directors
• Ensuring Directors receive accurate, clear and timely information.

Further information about the Board's structure and the day-today management of the Group can be found on page 62.

The Chairman and the CEO

The roles of the Chairman and CEO are separate, clearly established, set out in writing, and agreed by the Board. The Chairman is responsible for the operation of the Board and the CEO is responsible for leading and managing the business within the authorities delegated by the Board.

Non-Executive Directors

The Non-Executive Directors provide effective oversight and scrutiny, strategic guidance and constructive challenge, whilst holding the Executive Directors to account against their agreed performance objectives. The Non-Executive Directors, led by the Nominations Committee, have primary responsibility for the appointment and removal of the Executive Directors.

Senior Independent Director

Michael Harper is Senior Independent Director and Deputy Chairman. In this role, Michael provides advice and additional support and experience to the Chairman as required, and is available to act as an intermediary for the other Directors if necessary. He is also available to address shareholders' concern should it occur that these have not been resolved through the normal channels of communication with the Chairman, CEO or CFO.

Board and Committee attendance – 1 April 2019 to 31 March 2020

Information provided to the Board

The Board has a formal schedule of matters specifically reserved for its decision, which can be seen at www.QinetiQ.com.

The Chairman, working with the Company Secretary sets the agenda for the Board meetings and encourages an open and constructive debate.

The Chairman, working in conjunction with the Company Secretary, ensures that the Board receives accurate, timely and clear information, allowing the Board to make sound decision and promote the success of the Company. Working together with the Chairman, the Company Secretary is responsible for ensuring good governance and information flow, ensuring an effective Board.

All Directors have access to the advice of the Company Secretary. Directors may take independent professional advice at the Company's expense where they judge it necessary to do so in order to discharge their duties as Directors.

The appointment and removal of the Company Secretary are matters requiring Board approval.

Attendance

The Board has seven scheduled meetings for Board and Committee business throughout the year, and these are held over two days. Additional Board sub-Committee meetings and conference calls are held between the scheduled meetings as required.

The Chairman meets with the Non-Executive Directors, without the Executive Directors present, after each Board meeting. The Non-Executive Directors, led by the Senior Independent Director, meet with the Directors at least once a year without the Chairman being present, to evaluate the Chairman's performance. Further details can be found on page 70.

Directors are expected to attend every Board meeting. In FY20, attendance was strong, both at scheduled meetings and additional meetings (including those called at short notice), reflected in the table below.

Members	Board	Audit Committee	Nominations Committee	Remuneration Committee	Risk & CSR Committee
Lynn Brubaker	7/7	4/4	6/6	8/8	5/5
Admiral Sir James Burnell-Nugent	7/7	4/4	6/6	8/8	5/5
Michael Harper	7/7	3/4*	6/6	8/8	5/5
Neil Johnson	7/7	–	6/6	8/8	5/5
Ian Mason	7/7	4/4	6/6	8/8	5/5
Paul Murray	7/7	4/4	5/6#	7/8#	4/5#
Susan Searle	7/7	4/4	6/6	8/8	5/5
David Smith	7/7	–	–	–	5/5
Steve Wadey	7/7	–	–	–	5/5

* Michael Harper was unable to attend the Audit Committee meeting on 11 November 2019 due to a prior engagement.

Paul Murray was unable to attend the Nominations Committee meeting, the Remuneration Committee meeting and the Risk & CSR Committee meeting on 21 January 2020 due to a prior engagement.

• Shonaid Jemmett-Page was appointed to the Board of Directors on 19 May 2020.

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 executive management team during the year. Full biographical details of all the Directors appear on pages 60 and 61.

Independence

A majority of the Board is comprised of independent Non-Executive Directors, as is required by the Code. The independence of the Non-Executive Directors is considered annually by the Nominations Committee, using the independence criteria set out in the Code. As part of this process, the Board keeps under review the length of the tenure of all Directors, as this is a factor when assessing independence. The Chairman was independent upon his appointment in April 2019.

The independence of Michael Harper, Ian Mason and Susan Searle, all of whom have served on the Board for more than six years, was subject to a rigorous review as recommended by the Code. The Board remains satisfied that the length of their tenures has no impact on their respective levels of independence or their respective contributions.

Admiral Sir James Burnell-Nugent has this year served 10 years as Non-Executive Director and Chairman of the Risk & CSR Committee. The Nominations Committee has during the year worked with Russel Reynolds, an external executive search firm, to find candidates with relevant Senior Crown Servant experience, equivalent to that of Sir James. More information on this process and the challenges to find a suitable candidate to replace Sir James can be found on page 77. At the date of this report Sir James has agreed to continue in his role for the foreseeable future until this occurs. In accordance with Provision 10 of the Code, the Nominations Committee has undertaken a rigorous review, without Sir James in attendance, to determine his continued independence. Following this review, the Nominations Committee was satisfied that he remains independent, and advised the Board as such. The Nominations Committee based its decision on its view that Sir James is able to demonstrate independence and integrity in his advice and challenge, and has been, and continues to contribute strongly to the Board in his role as Non-Executive Director and Chairman of the Risk & CSR Committee, all of which is evidenced by the annual Board and Committee evaluations.

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 his or her 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 Chairman 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 going forward. 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.

The Chairman, Neil Johnson, who was appointed to the Board on 2 April 2019, holds two other Chairmanships. One of them is Electra Private Equity, a former private equity firm which has returned over £2bn to shareholders in recent years and is now running off its final few investments prior to closing the fund, at which point he will also resign from this position. Neil will remain the Chairman of Synthomer Plc. In considering his appointment, the Board gave careful consideration to Neil's other appointments, how they would reduce in time, and subsequently concluded he would be able to give the Company the time and commitment necessary.

Composition, succession and evaluation

The Company has a Nominations Committee, the purpose and activities which are described on pages 76 to 78.

Board appointments

The Nominations Committee oversees the appointments to the Board and regularly reviews the composition of the Board, its Committees and senior management team, the GLT. Further details can be found in the report of the Nominations Committee on page 78.

Disclosure on diversity can be found pages 40 and 78.

Evaluation

Every three years an external Board effectiveness review of the Board itself and its Committee is carried out. Following an external evaluation in 2019, the Chairman worked closely with the Company Secretary in 2020, to conduct a thorough in-house evaluation of the Board and the Committees' work during the financial year. The evaluation was administered by way of a questionnaire. The external review undertaken in 2019 was performed by Duncan Reed of Condign Board Consulting, neither of which has any other connection with the Board or the Group.

The outcome of the evaluation of the Committees of the Board can be found in the respective Committee Reports further below in this corporate governance statement. The Report of the Nominations Committee, see pages 76 to 78, also describes in detail its effect on the composition of the Board.

Corporate governance statement continued

Progress against prior year's review	Outcome
Enhanced focus on matters that will be transformative in relation to results and performance and with applicability beyond individual countries, projects, companies or sites	Revisiting and setting the purpose of the Company has allowed the Board to focus its attention on matters which have the potential to drive significant growth, both domestically and globally.
Agree key issues and new priorities for the Board mandate for the upcoming year	The Board has an agreed 'deep dive' calendar for the year. The deep dives held this year included consideration of a wide range of topics, covering selected individual business units as well as Group-wide matters such as transformation, customer engagement, investor relations, costbase, culture and risk profile.
Cultural discussions – ensure a greater emphasis on experiences and examples to support the Board's debate	The Group Human Resources Director reported twice to the Board on QinetiQ's cultural strategy and focus, and outlined QinetiQ's five year people and culture strategy. The focus was on performance from leadership, cultural, structural and engagement perspectives, which will enable a step change in sustainable performance. In addition, a strategic workforce planning approach was agreed. This will embed and sustain talent management, develop more agile end to end resourcing approaches to support growth and develop the right skills and capabilities for today and tomorrow.
Extend the programme of guests at the Board with the aim of gaining further understanding of stakeholders and competitors	At its March and May meetings the Board agreed a schedule of outside speakers on specialist subjects for the Board meetings and/or Board dinners.

Priorities for the coming year:

The Board effectiveness review concluded that it was clear the Board was seen to be effective, engaging and helpful to the organisation.

The effectiveness review took in commentary from a broad population, comprising Board members, senior Executives who have high exposure to the Board and Committees, and some of its professional advisors. This has provided the Board and the Chairman with a comprehensive picture of its strengths and opportunities as it continues to develop, and to help drive forward the Company's strategy.

The Chairman's individual performance

As part of our annual evaluation process, Michael Harper, as Senior Independent Director, led a review of the Chairman's performance. At a private meeting, the Non-Executive Directors, with input from the Executive Directors, assessed his ability to fulfil his role as Chairman. It was concluded that the Chairman showed effective leadership of the Board and his actions continued to influence the Board and the wider organisation positively.

The Directors' individual performances

The Chairman 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, the Chairman confirmed to the Nominations Committee that each Director demonstrated commitment to the role, that their performance continued to be effective, and that they have sufficient time available to perform their duties.

Induction

New Directors receive a comprehensive induction on joining the Board, which is tailored to their experience and background, and their role on the Board. The induction schedule is designed to provide the new Directors with an understanding of how the Group works and key issues that it faces. The Company Secretary consults the Chairman when preparing a new induction schedule, giving consideration to the needs of the new Director.

Neil Johnson, who was appointed Chairman in FY19, has during the year completed his induction. As part of this process, he has met with investors, the members of the GLT, certain other senior members of staff, the EEG (further information on page 65) and attended Leadership events (further information on page 65).

Training

The Company Secretary organises site visits and training to suit Directors' individual requirements. This year Director site visits included Portsmouth Technology Park in Portsmouth, and the Group's facilities in Farnborough. External training was conducted by Ashurst LLP on relevant corporate governance matters. The Company Secretary also keeps the Board briefed on relevant regulatory changes.

Audit, Risk and Internal Control

Accountability

The Board has established processes to ensure that all reports and information, which 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. Details of the process for ensuring that this is the case, are set out on page 73. The Board considers that the Annual Report 2020, 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.

The going concern statement and viability statement are included on page 37, and a summary of the statements of Directors' responsibilities in respect of the Annual Report and the financial statements is set out on page 113.

Risk Management and Internal Control

The Board oversees the systems of risk management and internal control through the Audit Committee (financial risk) and the Risk & CSR Committee (non-financial risk) in conjunction with the risk management and assurance processes detailed in this report. These processes are underpinned by an appropriate mix of techniques used to obtain the level of assurances required by the Board. All Board members attend these Committee meetings, either as a Committee member or as a guest, so as to receive at first-hand the findings of the Committees. Matters of particular concern are escalated for presentation at Board meetings.

The internal audit function, which is independent of the business and has a direct reporting line to the Audit Committee, provides assurance to the Board and its Committees over the effectiveness of the internal control environment. The internal audit function prioritises its work according to risk, including those risks identified by the Group through its risk management processes. Additionally, regular discussions are held between the internal audit function and the external auditor regarding internal audit reports, internal audit plans and the wider control environment.

The Board routinely challenges management to ensure that the systems of internal control are constantly improving in order to maintain their effectiveness. At its meeting in March 2020, the Board reviewed the effectiveness of the systems of internal control that were in operation during the year. Further to this meeting, the Board confirms that it has carried out a robust risk assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency and liquidity.

The report of the Audit Committee can be found on pages 72 to 75 and the report of the Risk & CSR Committee can be found on pages 79 to 81.

The Strategic Report contains details of the Company's principal risks and uncertainties (see pages 2 to 55), their impact on the Company and how they are managed, including the Company's Three Lines of Defence Model (see page 32).

Audit Committee and Auditors

The Audit Committee is comprised entirely of independent Non-Executive Directors and is chaired by Paul Murray. In May 2020 Shonaid Jemmett-Page was appointed as a Non-Executive Director to the Board. She will take on the role as Audit Committee Chair at the conclusion of the AGM in July 2020, as Paul Murray will not stand for re-election following nine years in post as the QinetiQ Audit Committee Chair. Further details of Shonaid's background and experience, making her the right candidate to take over after Paul and fulfilling the Code requirement of recent and relevant experience from the financial sector, can be found on www.qinetiq.com. The Board considers the members of the Committee to be independent, and in accordance with the Code, the Board concludes that the Committee as a whole possesses competence relevant to the Company's sector, having a range of financial and commercial experience in the industry and the commercial environment in which QinetiQ operates.

The Group Chairman, CEO, CFO, Group Financial Controller, Group Head of Internal Audit and representatives of PwC attended all Committee meetings by invitation during the year.

The Committee met PwC and the Group Head of Internal Audit on two separate occasions during the year, without Executive Directors present, to discuss the audit process and assure itself regarding resourcing, auditor independence and objectivity.

Remuneration

The Company has a Remuneration Committee, the purpose and activities of which are described on pages 82 to 109.

The Board has delegated responsibility for the consideration and approval of the remuneration arrangements of the Chairman, the Executive Directors, other senior Executives and certain Group employees to the Remuneration Committee. The Remuneration Committee, considers remuneration policies and practices, seeks to ensure that they support the Company's strategy and promote the long-term success of the business, and that they are aligned to the successful delivery of the Group's strategy. All Executive Directors and senior management remuneration policies are developed in accordance with the Group's formal and transparent procedures (ensuring that no Director is involved in deciding his/ her own remuneration outcome) and having regard to workforce remuneration and related policies, and the alignment of incentives and rewards with culture.

All Remuneration Committee members demonstrate independent judgement and discretion when determining and approving remuneration outcomes. The Board as a whole, with the Non-Executive Directors abstaining, considers the fees paid to Non-Executive Directors.

Audit Committee report

"The Committee continues to operate on the basis of an open but challenging dialogue with management and with the internal and external auditors, and the application of an appropriate level of scrutiny."

Dear Shareholder,

I am pleased to present the report of the Audit Committee on the work carried out by the Committee during FY20. This report should be read in conjunction with the section on how we have complied with the UK Corporate Governance Code on pages 62 to 71. The Committee continues to operate on the basis of an open but challenging dialogue with management and with the internal and external auditors, and the application of an appropriate level of scrutiny.

The main responsibilities of the Committee are set out in this report. It details the activities, discussions and decisions which enabled the Audit Committee to fulfil its objectives effectively during the year of reporting.

I will be stepping down as Chairman of the Audit Committee and Non-Executive Director of the Board at the 2020 AGM, having served in these roles for just over nine years. Shonaid Jemmett-Page, who joined the Board in May 2020, will be taking on the role as the Chairman of the Audit Committee.

I would like to take this opportunity to thank my current and previous fellow Committee members for their work and support during the year and during my tenure, and to wish Shonaid well in her new role.

Paul Murray Audit Committee Chair

Activities during the year

The Committee has an annual calendar of activities, and in addition, it identifies particular areas on which the Committee wishes to focus on.

The significant issues that the Committee considered during the year are set out in the table below:

Areas of focus: Longer-term viability assessment

Action taken by the Committee: The Committee scrutinised and challenged the process for assessing the prospects of the Group, including the stress-testing applied to the financial forecasts through various identified risks (as described on pages 32 to 36). Noting that the Group's Integrated Strategic Business Plan was prepared prior to the unfolding of the COVID-19 crisis, the Committee specifically requested to review an updated financial forecast for the full year to 31 March 2021.

Following such 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. The statement can be found in full on page 37.

Financial reporting

Action taken by the Committee: As a standing agenda item, the Committee focused on understanding the reasonableness of provisions and liabilities, both in terms of consistency of policy application and as key judgements made by management and professional advisors. Comprehensive discussions were held by the Committee throughout the year where the Committee reviewed whether suitable accounting policies had been adopted, and whether management had made the appropriate estimates and judgements. In addition, support and assessment were sought from the external auditor. To facilitate this process, the Committee received presentations from the CFO and the Group Financial Controller and also received reports from the external auditor covering the key risk areas addressed during the interim review and the year end audit, and the auditors' view of key judgements made by management.

Specific issues addressed by the Committee for the periods ended 30 September 2019 and 31 March 2020 include the following:

• The basis for, and judgements made by management in determining, the liabilities recorded for onerous contracts and risks. Specific items discussed include the financial gains/losses reported as 'specific adjusting items' (see note 4 to the financial statements) and 'nonrecurring' trading items included within the reported underlying operating profit (including a £4m benefit in respect of finalising business rates agreements, a £3m benefit related to cost recovery on a major contract in the EMEA Services division and a number of other contract-related releases/charges).
• The carrying values of the Group's cash-generating units (CGUs) and the impairments to goodwill in respect of Germany and Advisory Services that were reflected in the year. The major assumptions impacting on the net present value of future expected cash flows were also discussed (specifically considering the potential impact of COVID-19), noting the standard impairment reviews conducted in January 2020 were revisited and updated post year end in light of the COVID-19 pandemic. Certain discount rate assumptions and market growth forecasts were advised by external consultants.
• Assumptions used to value the net pension asset of £309.7m (as advised by the Company's external actuaries), noting additional disclosures in respect of market volatility exacerbated by the COVID-19 pandemic.
• The disclosures in the interim statement, the preliminary announcement and Annual Report and Accounts, in particular those relating to 'specific adjusting items', 'non-recurring trading items' and risk.
• The disclosures and key accounting judgements in respect of the acquisition of QinetiQ Inc. (formerly Manufacturing Techniques Inc.) and Newman & Spurr Consultancy Limited were reviewed. The valuations of acquired intangible assets were undertaken by an external firm of specialists.
• The financial impact, and associated disclosures, in respect of the implementation of IFRS16 'Leases'.
• The Company's response to a letter from the Financial Reporting Council (FRC) in respect of the FY19 Annual Report & Accounts and the disclosure enhancements subsequently implemented in the FY20 financial statements. The FRC had reviewed the Group's 2019 Annual Report & Accounts in accordance with their operating procedures. Such review was of limited scope and had inherent limitations, providing no assurance that the Report and Accounts are correct in all material aspects. Several queries raised in the FRC's letter, primarily in respect of revenue recognition on various types of contracts, were closed off through detailed explanation in a response letter from the Company, following which the FRC confirmed that their enquiries were now closed. Other queries raised have been addressed by specific disclosure enhancements made to the accounting policies note in the 2020 Annual Report & Accounts; specifically in respect of 'specific adjusting items' and 'non-recurring items', and in respect of significant accounting judgements.

Based upon the business assurance process and discussions with management and the external auditor, the Committee was satisfied that the accounting disclosures and assumptions were reasonable and appropriate for a business of the Group's size and complexity, that the external auditor had fulfilled its responsibilities in scrutinising the financial statements for any material misstatements and that the disclosures were satisfactory.

Areas of focus: Fair, balanced and understandable:

Action taken by the Committee: The Committee was required to provide advice to the Board on whether the 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 process established and reported on in previous years, and in forming its opinion, the Committee reflected on the information it had received and its discussions throughout the year. 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. Following its review, the Committee was of the opinion that the FY20 Annual Report and Accounts were representative of the year and present a fair, balanced and understandable overview, providing the necessary information for shareholders to assess the Group's position and performance, business model and strategy. The Board's statement in this respect can be found on page 37.

Audit Committee report continued

Financial reporting process

The Committee regularly reviews the effectiveness of the financial risk management framework, including reviewing key financial risks and assessing the effectiveness of management's remedial action plans.

The Company operates a financial management and control framework, comprising a system of targets, reporting (external and internal), and controls, that is embedded throughout the businesses and on which progress is reported to the Audit Committee and to the Board. The finance function consists of various financial reporting teams who report to the CFO. The Group Finance team comprises qualified and experienced accountants, and is responsible for the preparation of the halfyear and annual reports and for internal financial reporting to senior management and the Board. To ensure consistency of approach and accuracy in financial reporting, the team provides advice on accounting and financial reporting issues to QinetiQ's businesses and sets the Group's accounting policies, which are contained in the Finance Accounting Manual. The team also liaises with the external auditor.

The internal control and risk management systems described on page 71 apply to the Company's process of financial reporting and the preparation of consolidated accounts. The internal audit and external audit functions, and the reviews by the Audit Committee and the Board, provide a structured approach to the review and challenge of financial information and financial reporting.

Internal controls

During the year under review, the Committee monitored the effectiveness of the systems of internal control to gain assurance that an effective control framework was maintained. Reports on the effective operation of the control framework were received from management and reviewed by the Committee along with key policies and processes.

As in previous years, particular attention was given to the timely and effective implementation of remedial actions, either identified by the business directly, or by the internal audit function, with updates on improvement actions being scheduled for follow up at a later meeting during the year.

During the year of reporting the process of monitoring the effectiveness of internal controls in respect of Foster Miller Inc (FMI), formerly referred to as QinetiQ North America, was adjusted to take into account the Proxy agreement (further explained on page 64) which it operates under. The CEO had regular contact with the Chair of the Proxy Board and US Executive Management, and the Group's internal controls were applied as far as possible within the terms of the Proxy agreement. In addition, the internal audit function worked closely with US management to gain assurance that an effective control environment was in place. FMI is now a subsidiary of QinetiQ Inc, as described on page 64, and going forward, this process in respect of QinetiQ Inc, FMI and QinetiQ Special Projects Inc, will be governed by a Special Security agreement, which is also further explained on page 64.

The Committee confirms its view that it has received sufficient, reliable and timely information from management in the last financial year to enable it to fulfil its responsibilities.

Internal audit

The Group Head of Internal Audit reported on four occasions to the Committee on the operation of internal control and risk management processes. The internal audit function's risk-based annual plan was presented, and formally reviewed twice during the year by the Committee to provide assurance that resources were adequate and directed towards key risk areas. The annual plan is structured to ensure that all significant financial and non-financial risks are reviewed within a rolling three-year period. The audits cover financial systems, programmes and projects, as well as reviews of specific risks identified through the Group's risk management processes. During the year the internal audit function audited the controls in place over a range of key functions across the Group in line with the risk based plan. Particular areas of focus were imports and sanctions, financial controls in subsidiary businesses, and the management of general health and safety risks and hazardous activities across the Group.

The Board Assurance Map ('BAM') continues to provide further assurance to the Committee. The BAM is based on the three lines of defence framework (set out on page 32) and addresses the following:

• It identifies and documents relevant compliance and assurance providers across the Group
• It exposes potential gaps in compliance assurance coverage as well as any duplication of effort and identifies whether improved assurance coverage can be achieved by leveraging more of the second defence activities currently being undertaken
• It enables an objective review through each line of defence to support senior management and the Board to establish an appropriate level of assurance of a system of internal controls in the Group.

Internal audit activity in the year continued to indicate that, overall, an effective control environment was in place, with an open culture of continuous improvement being demonstrated by regular management requests for internal audits to be undertaken.

Audit Committee effectiveness review

The evaluation of the effectiveness of the Committee was conducted alongside the Board effectiveness review and carried out by way of a questionnaire. Further details of this process can be found on page 69.

The following actions had been noted from the 2019 effectiveness review:

• Continued focus on the development of the internal audit function by way of extended support from the Audit Committee and the senior finance team
• Enhanced presentation time from the CFO to enable the Audit Committee to further support the finance function.

These items were covered during the year under review.

The effectiveness of the Committee continued to be rated highly. It was agreed that the Committee should focus on the following areas over the coming year:

• The transition to the new Audit Committee Chair
• Enhanced focus on the Group's international businesses.

External audit

Policy on the regulation of non-audit work and safeguarding auditor independence

The Company views it as essential that the external auditor is both independent of any conflict of interest and perceived to be so. To safeguard auditor independence and objectivity, the following process is operated by the Company.

The Company has a Code of Practice applicable to all employees which sets out the principles for regulating the award of nonaudit work to the external auditor. During the year the Code of Practice was updated to reflect PwC's own amended practice in this area. PwC has made a voluntary commitment to stop providing non-audit services to FTSE 350 companies whom they audit, unless these are services closely related to the audit, i.e. services that meet the definition of 'independent audit or assurance with or without an opinion'.

The Code of Practice clearly articulates the non-audit services which are prohibited, the non-audit services which can be purchased and the key approvals that are necessary prior to the provision of non-audit work.

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 PwC employee may be appointed to a senior position within the QinetiQ Group without the prior approval of the CFO.

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 had 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. Details of the external auditor's remuneration can be found in note 8 on page 112.

	2020		2019
	£m	% of audit fee	£m	% of audit fee
Audit fees	0.8		0.7
Non-audit:
Audit-related assurance services	0.1	10%	0.1	12%
All other non-audit services	0.0	5%	0.0	6%
Total non-audit fees	0.1	15%	0.1	17%

Fees related to non-audit work services amounted to £123k, including £81k for audit related assurance services (2019: £111k including £74k for audit related assurance services.

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 the learnings to be fed into the current year's planning process. At its May meeting, the Committee again reviewed the effectiveness and the independence of the external auditor during the year. The members of the Committee have declared themselves satisfied with the performance of PwC as the Company's auditor in the last financial year.

Audit appointment

PricewaterhouseCoopers LLP, as the external auditor, is engaged to conduct a statutory audit and express an opinion on the Company's financial statements. Its audit includes the review and testing of the data which is used to produce the information contained in the financial statements. PwC was appointed as auditor of the Group at the 2018 AGM following a tender process.

The current external audit engagement partner is Julian Gray, Senior Statutory Auditor, who has held his role since 2018. The time line for the mandatory appointment of a new external audit lead partner is five years. Under the EU audit reform legislation, companies are required to have a mandatory rotation of auditors after ten years, or 20 years if there is compulsory re-tender at ten years.

The Committee and the Board will be recommending PwC's reappointment at the 2020 AGM.

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.

Nominations Committee report

QinetiQ's Gender Pay Gap data can be found on our website – www.QinetiQ.com

Main 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

"The make-up of the Board has evolved, and I expect this to continue in the future as we seek to ensure that we have the right balance of skills, experience and diversity on the Board."

Dear Shareholder,

I am pleased to present the Nominations Committee report covering the Committee's key activities during the year of reporting. This report should be read in conjunction with the separate report on compliance with the UK Corporate Governance Code, which can be found on pages 62 to 71.

The make-up of the Board has evolved, and I expect this to continue in the future as we seek to ensure that we have the right balance of skills, experience and diversity on the Board. Whilst the effectiveness review of the Board and its Committees, further described on page 69, shows that the Board currently has an appropriate mix of skills, knowledge and experience to operate effectively, and whilst we will always need a cadre of members of with global experience from similar industries, the Nominations Committee recognises that different specialist skills may also be valuable in the future.

In order to ensure that the composition of the Board continuous to evolve and to broaden our approach in finding the right talents, the Committee took the opportunity to appraise the market to identify the most suitable executive search firm to find candidates with the right technical capabilities and cultural/style attributes. This process, which is described below in this report, resulted in the decision to use MWM Consulting Ltd (MWM) for this year's Board recruitment.

The Committee also oversaw the implementation of the new Global Leadership Team (the GLT).

In FY21 the Committee will focus on the implementation of the changes to the corporate governance framework, Non-Executive Directors' succession planning, diversity and findings of the Board and Committee evaluation.

Neil Johnson Nominations Committee Chair

Board succession planning

Paul Murray will be stepping down as Chairman of the Audit Committee at the conclusion of the 2020 AGM. In October 2019, a process was launched to identify a Non-Executive Director to replace Paul. The candidate specification for this role was carefully prepared by the Committee as a whole, underpinned by the Board Diversity Policy, and as such ensuring that it was specific to skills and experience, appropriately neutral, and supportive of QinetiQ's diversity and inclusion strategy.

To ensure that we would be able to capture the clear benefits of greater diversity of background and opinion, the Committee recognised that a fresh perspective on Board recruitment would be beneficial. Having used Zygos (now part of Russell Reynolds) as the independent external search firm for some time, the Committee considered three potential external executive search firms, all of international standard and fully conversant with the benefits of what diversity and inclusion brings. MWM was chosen to conduct the search and they produced a diverse list of candidates. MWM does not have any connection to QinetiQ or any of the Directors other than to assist with searches for Non-Executive Directors. The members of the Committee individually met with all candidates and based on merit, the Committee ultimately established Shonaid Jemmett-Page, being the third female Director on the Board, to be the best candidate for the position as Non-Executive Director and Chair of the Audit Committee.

Upcoming changes to the Board

The search for a candidate with relevant Senior Crown Servant experience, equivalent to that of Admiral Sir James Burnell-Nugent, has continued this year. As described in the 2019 Annual Report and Accounts, the guidance from the Advisory Committee on Business Appointments (ACOBA) restricts appointments of former Senior Servants to the Crown from working in the UK defence market for two years from their last day in post. In addition, work as a consultant or advisor in the defence sector, can also not be undertaken under the same time limit. Owing to this restriction, the Committee has thus far not identified a candidate who would provide the requisite experience and be available in the near term. In light of this, Sir James has agreed to continue his role for the foreseeable future. A description of the independence assessment of Sir James can be found on page 69.

The Committee acknowledges the tenure of a number of current Board Directors and will in FY21 continue to focus on Board succession planning. Non-Executive Directors are appointed for an initial three year term, subject to annual re-election at the AGM. Following assessment by the Committee they may be appointed for a further three year term. Non-Executive Directors may then continue to serve beyond six years, subject to a maximum tenure of nine years.

Name	Appointment date	6-year date	9-year date
Admiral Sir James Burnell-Nugent	10 Apr 2010	10 Apr 2016	10 Apr 2019*
Paul Murray #	25 Oct 2010	25 Oct 2016	25 Oct 2019
Michael Harper	22 Nov 2011	22 Nov 2017	22 Nov 2020
Susan Searle	14 Mar 2014	14 Mar 2020	14 Mar 2023
Ian Mason	3 June 2014	3 June 2020	3 June 2023
Lynn Brubaker	27 Jan 2016	27 Jan 2022	27 Jan 2025
Neil Johnson	2 Apr 2019	2 Apr 2025	2 Apr 2028
Shonaid Jemmett-Page	19 May 2020	19 May 2026	19 May 2029

* Details of the succession plan for Admiral Sir James Burnell-Nugent are described above in this report.

Paul Murray will not stand for re-election at the 2020 AGM.

Board experience and balance

The Committee annually reviews the composition of the Board and its Committees, taking the following into account:

• Diversity, including age, gender and ethnicity
• Background, professional skills and experience
• The number and balance of Executive and Non-Executive Directors
• Committee memberships
• Length of tenure
• Independence.

The Committee considered how well the skills, knowledge and experience of the Board continued to ensure that it remains supportive to the business to deliver effectively against our strategy, both now and in the future. The Committee also discussed emerging requirements for skills and experience on the Board.

Following this review the Committee is satisfied that the Board currently has an appropriate mix of skills, knowledge and experience to operate effectively. The Directors, individually, bring a range of skills gained in diverse business environments and have excellent track records obtained from working in a number of sectors. Further details about the particular skills, knowledge and experience each Director brings to the Board can be found in the Directors' biographies on pages 60 to 61.

Nominations Committee report continued

Executive succession planning

Executive succession is a key consideration and during the year the Committee closely monitored the status and progress of QinetiQ's strategies for attracting and retaining the best talent. The Committee played an important role in the management changes at executive level by overseeing the transformation of the Executive Committee into a smaller, more empowered Global Leadership Team (the GLT). The Committee recognises that the GLT has the latent strengths needed to deliver further and to drive the next stage of our growth. The GLT came into effect on 1 April 2020.

As in previous years, the Committee has spent substantial time discussing the important area of senior management succession planning and career development, receiving regular updates from the Group Human Resources Director on this topic, also taking into account the immediate, emerging and longer-term succession plans for these roles. Particular focus included hearing about how the Company is making best use of the many highly talented individuals employed throughout the Group and that the Company is ensuring that we use such individuals to create a culture that supports a diverse and inclusive working environment. The Committee was satisfied that the plans were sufficiently robust to fill vacancies on a short to medium-term interim basis, as well as taking into account individuals of sufficient calibre to fill vacancies on a longer-term basis. The Committee also sought to ensure that the succession plans provide sufficient support in developing a diverse pipeline of candidates for Directors and senior management vacancies.

Diversity and inclusion

Board diversity policy

QinetiQ recognises the value of and welcomes the current discussions around diversity in the boardrooms of UK companies. The Board Diversity Policy can be found on www.QinetiQ.com. The objective of this policy affirms the Board's belief in the benefits of diversity and inclusion in the Boardroom as well as throughout the business. The policy applies to the Board, the GLT and direct reports to the GLT. Additional policy is in place to address diversity and inclusion for the whole workforce.

The Board continues to have regard to the Hampton-Alexander Review recommendations to improve gender diversity among FTSE boards and leadership teams, and the Parker Review on ethnic diversity on UK boards. The Board aspires to meet the voluntary targets set out in those reports.

Objectives and progress

As at the date of this Annual Report the Board comprises 30% women. This number will change to 33% when Paul Murray steps down from the Board at the conclusion of the 2020 AGM. The Board is delighted that the number of female Directors on the Board has increased from 22% from last year, as a consequence of the appointment of Shonaid Jemmett-Page.

All members of the Board are British citizens, with the exception of Lynn Brubraker who is a US citizen. All members of the Board are of white background.

Further details about the gender balance of the Executive Committee, now known as the Global Leadership Team (GLT), and their direct reports can be found in 'Our People' section on pages 41. The Committee is pleased to note that the new GLT comprises 25% women, in comparison to the previous Executive Committee which comprised 14% women.

The Board is committed to progress against the targets as set out in the Board Diversity Policy. 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 ethnical backgrounds, while we remain focused on recruiting the best candidate for any role based on merit. The recruitment process for Shonaid Jemmett-Page is an example how the Board Diversity Policy was applied in practice.

Page 40 describes the progress of our Diversity and Inclusion Programme in relation to employees and other diversity policies and procedures of the Company. Succession plans are continually being reviewed in light of opportunities to develop high calibre employees and improve diversity.

Effectiveness of the Committee

The effectiveness of the Committee is monitored and assessed regularly by Neil Johnson, as the Chairman of the Committee and Chairman of the Board, and as part of the Board performance evaluation. The overall outcome of the FY20 review of the Committee was positive (further details of this process can be found on page 69).

Risk & CSR Committee report

Main responsibilities:

The Committee has three primary functions:

• To oversee the sound operation of the Company's risk management systems
• To monitor non-financial risk exposures, including security, trade controls, ethics, corporate responsibility and health, safety and environment
• To monitor adherence to the generic MOD compliance system.

"At QinetiQ we realise that our business has an impact on the communities and environment in which we operate."

Dear Shareholder,

I am pleased to report that, during the year, the Committee continued to effectively oversee the operation of non-financial risk management processes within the Group. Building on our work from last year, the Committee continued to focus on indepth reviews of 'red' risks, and deep-dives into key risk areas.

The review of the Group Risk Register, which is described further on pages 33 to 36, continues to be fundamental for the Committee to undertake its duties. This year the Committee spent further time on ensuring that the Group Risk Register remains relevant and accurate. 'Red' risks are made the subject of a report to the Committee or become the subject of a deep-dive review as part of the Company's risk management processes.

The Committee meets four times a year, however in March 2020, the Committee scheduled an emergency meeting to discuss the serious situation of COVID-19. The Committee discussed in-depth QinetiQ's risk exposure, strategy going forward, as well as the health and well-being of the Company's employees and stakeholders in relation to COVID-19, which is further described in the Strategic Report on pages 10 & 11 and 51.

At QinetiQ we realise that our business has an impact on the communities and environment in which we operate. We recognise the importance of leading a responsible and sustainable company and were pleased to receive reports from the Group Director Corporate Responsibility and Sustainability during the year, covering areas such as environment, business ethics and code of conduct, emerging reputational risk, diversity and inclusion, stakeholder engagement, trading policy and Modern Slavery Act reporting. You can read more about all of the above in the 'Our people' section on pages 39 to 43 and Responsible and 'Sustainable Business' pages 45 to 47.

Details of risk management and internal control processes and the Company's principal risks and uncertainties can be found on page 71 and 32 to 36, respectively. In addition, further details about internal controls and financial risks, can be found in the Report of the Audit Committee on pages 72 to 75.

This report should be read in conjunction with the section on compliance with the UK Corporate Governance Code, which can be found on pages 62 to 71.

Admiral Sir James Burnell-Nugent

Risk & CSR Committee Chair

Risk & CSR Committee report continued

Good governance supporting the Group's risk management activities

During the year the Committee met on five occasions. All the members of the Board attend the Committee meetings as a Committee member. In addition, the Group Director, Governance and Safety Assurance and the Group Head of Internal Audit are invited to attend and present at each meeting. Other senior leaders, such as the Group Director Corporate Responsibility and Sustainability, the Group Head Enterprise and Risk Management, and the Group Director Health, Safety and Environment are also regular attendees. 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' 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 GLT and monthly performance reviews feed into the Group strategy at the Executive and Board level.

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	• Review of risk register and key exposures
monitoring	• Health, Safety & Environmental Performance
	• Internal Audit reports
	• International business governance
	• Anti-bribery and corruption
	• Cyber & Security
Corporate responsibility and	• Corporate Responsibility and Sustainability Programme and focus including:
sustainability	• CR&S reporting and stakeholder engagement
	• Ethics, including code of conduct training
	• Modern Slavery Act
	• Diversity and inclusion
	• Community investment
Deep-dives	• Marine operations – BUTEC
	• Aviation Boscombe Down – Non-ionising radiation
	• Section 5 Firearms – Pendine

Self-certification process

An annual process of hierarchical self-certification on the effectiveness of internal controls has been established. This process provides a documented and auditable trail of accountability for the operation of the system of internal control in operation. It is informed by a rigorous and structured selfassessment that addresses compliance with Group policy, and provides for successive assurances to be given at increasingly higher levels of management and, finally, to the Board. The selfcertification process, which is carried out at the full year and the half year, is reported to the Committee by the Group Director, Governance and Safety Assurance.

The self-certification process continues to be a valuable tool in assessing the effectiveness of internal controls in all functions and business units across the Group.

Generic MOD compliance system

A key aspect of the Committee's work is the oversight of the UK Ministry of Defence's (MOD) generic compliance system. This is integral to the work of QinetiQ in its relationship with the UK Government.

The system is designed to give the MOD customer confidence that QinetiQ is able to provide impartial advice during any competitive evaluation of a procurement opportunity where the Group wishes to operate on both the 'buy' and the 'supply' sides. The aim is to achieve a balance between meeting the needs of the procurement customers in the MOD (principally Defence Equipment & Support) and the need to allow QinetiQ the flexibility to commercialise research into the supply chain and pursue its planned business activities, without compromising the defence or security interests of the UK. The Board nominates two senior executives to act as Compliance Implementation Director (CID) and Compliance Audit Director (CAD).

Oversight of the operation of the compliance system is provided by the Committee. During the year the Committee received an annual report from the Group Director, Safety and Governance and the internal audit function on the compliance areas that it monitored. A typical report includes a summary of the scope and an Executive summary of the findings with an audit opinion, with agreed associated time-bound action plans.

Effectiveness review

The evaluation of the effectiveness of the Committee during FY20 was conducted internally, by way of a questionnaire (further details of the review process can be found on page 69).

The performance of the Committee was rated highly overall. The following action for the Committee was agreed for the upcoming year:

• Continued focus on COVID-19 situation.
• Continued focus on Cyber Risk and resilience.

REPORT OF THE SECURITY COMMITTEE

There was no requirement for the Committee to meet during the year.

Membership and attendance during the year

The Security Committee is chaired by Admiral Sir James Burnell-Nugent and the other Committee members during the year were Michael Harper, Neil Johnson, Ian Mason, Paul Murray, Susan Searle, David Smith and Steve Wadey.

Main responsibilities

The Committee was established in June 2009 to enable UK nationals on the Board to consider matters of a UK national security dimension that have an impact on QinetiQ's UK business. The Committee's full terms of reference can be found in the Governance section of the QinetiQ website at www.QinetiQ.com.

Directors' remuneration report

Chair's Statement

Dear Shareholder,

I am pleased to have taken over as Remuneration Committee Chair in October 2019 having served on the Committee since March 2014. Michael Harper, former Chair remains on the Committee and I would like to thank him for his continued support. The Board considered it appropriate that the Committee Chair sees a Directors' Remuneration Policy through from consultation and implementation to the next cycle in three years' time. I have the experience, and sufficient tenure ahead of me, to achieve that.

As the Group Chairman has outlined in his statement on page 8, building on a strong first half of the financial year, the Group has continued to perform in line with our expectations during the remainder of FY20, despite the impact of COVID-19. However, as part of our strategy to reduce fixed costs, the CEO and CFO have agreed to a temporary base salary reduction of 34% and 32% respectively, and Non-executive Directors agreed to a 25% reduction in fees. The company has also decided to pay all FY20 annual incentive payments (including the Executive Directors' FY20 Bonus Banking Plan) in shares to be held for one year and agreed that there will be no base salary increases in FY21 to manage costs and cash outflows.

"These are unprecedented times and the company took swift action to reduce fixed remuneration costs to ensure that the business could weather the challenges ahead."

In FY20 strong progress has been made by the CEO and the Global Leadership Team during the fourth year of our ambitious strategy to modernise and grow our business. This progress is evident in four successive years of organic revenue growth and a 2% increase in FY20 organic operating profit.

The annual contribution to the Bonus Banking Plan (BBP) pool for FY20 for the CEO and CFO are 87.5% and 86.9% of the maximum respectively, reflecting another excellent year for the company. As noted above, these payments will be delivered as shares to be held for one year.

The third award under the Deferred Share Plan (DSP) will be not be granted as the FY20 performance underpin was not achieved. Based on the FY20 performance target, the level of non-UK revenue growth was above the threshold of £20m growth on FY19, but the margin delivered on that growth was lower than that achieved in FY19, so the pre-grant margin underpin was not achieved. This is a disappointing result which is misaligned with the strong overall performance of the Group during FY20. As mentioned below, the Committee has revised the FY21 DSP strategic growth performance measure to incentivise the delivery of growth across the whole Group.

The FY20 CEO single figure on page 97 is some 15% lower than that for FY19 (£1,985,298 and £2,339,474 respectively) largely due to a smaller award vesting in FY20 from the legacy Performance Share Plan (PSP). The 2017 PSP award to the CEO was the last one under that plan.

The business context and incentive outturn for FY20

Four years ago we launched a strategy to deliver sustainable, profitable growth. The strategy focused on leading and modernising UK test and evaluation, becoming a more international company and effectively applying commercial and technological innovation. Since implementing this strategy, we have turned around five years of revenue decline and we continued to deliver strong and sustainable organic growth in FY20.

The Committee considered the FY20 BBP out-turn and agreed that it was appropriate not to exercise discretion to amend the outcome. However, in light of the current situation, it was agreed that the 50% due in June 2020 will be paid in shares which must be held for one year rather than as cash. The other 50% is deferred into the BBP, where it will remain at risk of forfeiture for a further one year and then paid in shares. These deferred amounts are already reported as remuneration in the year they were earned.

As noted above, the FY20 DSP award will not be granted as the performance target was not met reflecting the fact that stretching targets were set by the Committee.

Implementation for FY21

Temporary salary reductions have been implemented and other interventions have been made to reduce costs and conserve cash as part of our immediate response to COVID-19.

The Bonus Banking Plan for FY21 is based on the same financial metrics as in FY20 (orders, profit and cash) with stretch targets set against the delivery of the Integrated Strategic Business Plan (ISBP). Financial metrics have a 75% weighting and non-financial targets have a 25% weighting based on the achievement of collective and personal objectives. Payment for target performance is 50% of the maximum.

In support of the ISBP, the FY21 DSP strategic growth performance measure is organic revenue growth across the Group. This change for FY21 (international revenue growth was used for FY19 and FY20) was made to incentivise our senior leaders to collaborate across the Group to deliver sustainable profitable growth. Underpins ensure that FY21 profit margins are strong and Group operating profitability must be at least equal to FY21 performance in FY24 for full vesting, as detailed on page 108. The targets have been set to be stretching taking into account the anticipated impact of COVID-19 on our business in FY21.

Employee engagement and reward

QinetiQ's employees are key to the delivery of the strategy. The CEO and the Group HR Director have held regular discussions with our Employee Engagement Group on reward matters. The people section on page 39 details our employee engagement activity.

I have met the Chair and the Deputy Chair of the Employee Engagement Group during the year and I have found the discussions very helpful in terms of understanding employee views. I understand that they have also found the meetings helpful to build their awareness of the Remuneration Committee's approach to executive remuneration. 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 fixed amount if the Company achieves a level of operating profit within a predetermined range from target to stretch. I am pleased to confirm that the AEIS will pay £740 in shares to each employee for FY20, aligning employees and shareholder interests by incentivising and rewarding profitable growth. The Company will operate the AEIS again for FY21 and thereafter.

The Directors' Remuneration Policy

The Directors' Remuneration Policy is presented for the triennial binding vote at the AGM in July 2020.

Engagement with our largest shareholders in preparation for the vote provided a general view that the current Policy is robust, resulting in pay that is commensurate with the performance of the business. This view is shared by the Remuneration Committee and hence the Committee is proposing limited changes to the current Policy at our 2020 AGM.

In light of the Corporate Governance Code and shareholders' feedback and views, two areas of the Policy which we will change are:

• Pension allowances all new Executive Directors will receive a 10.5% pension allowance payment which aligns with the wider UK workforce. For current Executive Directors, the pension allowance will be maintained at 20% of salary for the three-year life of the 2020 Policy; it will thereafter be reduced in phases to 10.5% of salary over the three-year life of the 2023 Policy.
• Post-employment shareholdings Executive Directors will have a post-employment shareholding requirement of 100% of salary for one year after they leave employment, reducing then to 50% of salary for a further one year.

Otherwise, the operation of the Policy is the same as the previous Policy in force. To further explain the Policy, this report contains a Policy Q&A and the Policy itself. We have tried to present our Policy clearly and simply.

Conclusion

Preparing for the triennial binding Policy vote at the 2020 AGM and implementing the Policy in FY20 in the interests of shareholders have been the primary areas of focus of the Remuneration Committee in FY20.

FY20 was a strong year for QinetiQ delivering growth in a difficult environment, particularly towards the end of the year when the COVID-19 pandemic took hold. The Remuneration Committee carefully scrutinises financial performance as it relates to incentive payments and is satisfied that FY20 payments are appropriate and fair, reflecting performance in the year.

As we look to FY21, the world is clearly a very different place given the global impact of the COVID-19 crisis. These are unprecedented times and the company took swift action to reduce fixed remuneration costs to ensure that the business could weather the challenges ahead.

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 Policy and the Annual Report on Remuneration at the AGM on 14 July 2020.

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

21 May 2020

Directors' remuneration report continued

Remuneration at a Glance

Components, alignment, application and changes

Fixed pay	Link to strategy	Application in FY21
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%, in line with the wider workforce.
Medium-term variable pay

The Bonus Banking Plan (BBP)

The BBP is a partially deferred annual bonus scheme where a maximum award of 200% of salary is available. Reward is 75% weighted on financial metrics (for FY21 orders, operating profit and operating cash flow – equally weighted) and 25% weighted on non-financial metrics (key strategic, operational and personal objectives).

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 75% 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.

Long-term variable pay

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 in to 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 lowmargin 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 vesting period, and 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. A postemployment shareholding requirement for Executive Directors of 100% of salary for one year post-cessation and then 50% of salary for a further one year is proposed.

Medium-term variable pay (One to Four Years)

Long-term variable pay (One to Six Years)

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.

Single Figure FY20 (£'000)

Long-term variable pay

Illustration of FY21 potential (£'000)

Minimum – Fixed Pay (FY20 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

£2,109

TOTAL £2,634

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).

Remuneration in context

Our remuneration principles

Flexible

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

Stretching

Targets are set by the Committee to ensure executives are incentivised to outperform, whilst delivering sustainable levels of performance.

Aligned

Whilst 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.

Directors' remuneration report continued

2020 Directors' Remuneration Policy Q&A

What are the principles of QinetiQ's Directors' Remuneration Policy?

QinetiQ's remuneration principles are 'Flexible', 'Stretching' and 'Aligned'. This means we aim to select targets each year that are stretching and ensure our executives are incentivised to drive the successful implementation of our strategy. This also means we can be agile in responding to market conditions as they arise, while also ensuring reward is deferred over the long-term to align with our shareholders' interests and deliver sustainable financial performance.

How does the Policy align executive pay with the interests of shareholders?

Both QinetiQ's annual incentive scheme and share plan are long-term in nature, with approximately 70% of variable pay being deferred as shares or notional shares in any year. In our annual bonus scheme, 50% of the award is deferred and held as notional shares and is therefore subject to share price exposure. In our Deferred Share Plan there is a four year vesting period after which the minimum level of profitability that gave rise to the award must be maintained, incentivising executives to drive sustainable growth. There is then a further two year holding period.

How does your Policy reward the implementation of company strategy?

Our strategy, as detailed in our five year Integrated Strategic Business Plan ('ISBP'), aims to deliver sustainable and long-term growth in our business and to increase value to our shareholders. Our Remuneration Policy aligns with our strategy by providing us with the flexibility to set relevant and stretching annual targets (aligned to year 1 of our ISBP), the rewards for which are deferred over several years. We have the ability to change the Deferred Share Plan metric when we feel there is a more relevant strategic priority, so believe our reward framework is closely linked to its successful implementation.

How does the policy drive improvement in the corporate culture?

Our annual bonus scheme includes a 25% weighting towards non-financial metrics. These focus on things like improving employee engagement and embedding new safety programmes. Given our history in the public sector transforming our corporate culture to develop our business winning capabilities and become more commercial has been critical to delivering improved financial returns for our shareholders. Ultimately, we believe that good governance and a strong corporate culture deliver improved financial returns over the long-term, which is rewarded by our Policy.

How does the Bonus Banking Plan (BBP) work?

• The Bonus Banking Plan is a medium-term (four year) plan with an initial annual measurement period, with deferred awards based on profit and share price performance;
• A maximum award of 200% of salary is available each year;
• At the end of the first year 50% of the award is paid as a cash bonus;
• The remaining 50% is deferred and held in a 'pot' as notional shares, which are subject to share price exposure;
• At the end of the next year, any award is added to the 'pot' and 50% of the 'pot' will be paid as cash-based notional shares, with the remaining proportion again deferred;
• At the end of year four, the entire remaining pot is paid in shares;
• The financial metrics used for the BBP are orders, operating profit and operating cash flow, each with a weighting of 25%;
• The non-financial metrics carry a collective weighting of 25% and include priorities such as implementing new safety programmes and transforming the culture and engagement levels within the business. This supports longterm sustainable growth.

How does the Deferred Share Plan (DSP) work?

• The Deferred Share Plan is a six year long-term incentive scheme that aims to reward success against the long-term strategy;
• The maximum award is 125% of salary;
• There are various underpins throughout the scheme with an initial contingent share award grant based on the achievement of a key strategic growth measure aligned to our strategy;
• If the margin underpin on this growth measure is not achieved, 100% forfeiture will occur and the initial award will not be made regardless of the growth achieved;
• At the end of the four year period, as long as the level of profit that was achieved in the year of award is maintained, the initial award of shares will vest;
• These vested shares are subject to a further two year holding period;
• The DSP shares which vest will only appear in the single figure at year four, as this is when the auditors view the performance obligations of the award as having been satisfied;
• Should the minimum profitability level not be maintained at year four, the initial award is subject to at least 50% forfeiture, at the discretion of the Remuneration Committee.

How has the company improved the approach to remuneration since the 2017 AGM vote?

The Remuneration Committee noted the vote (63.8% 'For') when the Policy was approved at the 2017 AGM. In response, we have –

• Improved the disclosure in the Annual Report on Remuneration since the 2017 vote to be more transparent and enable shareholders to review decisions taken as we implement the Policy;
• Changed the DSP performance measure (in response to initial shareholder concerns over 'double-dipping' on profit in FY18);
• Made every effort to engage with major shareholders to explain the Policy and the positive impact on company performance;
• Enhanced the Remuneration Committee target-setting process (which resulted in the FY20 stretch targets being revised upwards to reflect exceptional FY19 performance).

How have you focused on employee engagement on QinetiQ?

Our employees share in the Company's success following the introduction of an All-Employee Incentive Scheme in FY19 which pays up to £1,000 to all eligible employees on the basis of the Company's annual operating profit performance; this plan is important to us as a driver to embed cultural change and is in place for FY21 and thereafter.

Our Employee Engagement Group (EEG), representing our UK employees, is deeply engaged across the company provide an employee voice at the table (including regular interactions with the Chairman, Remuneration Committee Chair, CEO and the Group HR Director). We listen to the views and level of engagement of our employees and we monitor this through a quarterly survey using a marketleading dynamic tool (Peakon).

What changes will you be making to the Policy at the 2020 AGM?

The Remuneration Committee has conducted a detailed review and our view is that the Directors' Remuneration Policy is working as it is driving results, provides contingent shares to our senior leaders and has strong shareholder alignment. Therefore we believe that the Policy should remain in place for another three-year cycle, with no increase in the quantum of the remuneration package.

However, the Committee is aware that there are two areas where we are not aligned with current regulatory/ shareholder requirements:

Pension allowance – the Committee agreed to reduce the allowance for new Executive Directors (currently 15% of base salary as per our 2017 Policy) to be aligned with the pension for employees (a maximum of 10.5% in QinetiQ UK).

It is proposed that the approach for current Executive Directors (20% of base salary) be maintained at this level for the 2020 Policy vote. However, the Committee will commit, as part of this 2020 Policy approval, to reducing the pension allowance to 10.5% (our UK employee contribution) over the life of the 2023 Policy.

Post-employment shareholding – the Committee has agreed a post-employment shareholding requirement of 100% of salary for one year post-cessation, then 50% of salary for a further one year.

Note that the DSP already has a two-year holding period post-vesting. This will dovetail with the new requirement, as the DSP holding period continues in force after cessation of employment for Executive Directors.

Directors' remuneration report continued

Directors' remuneration policy

Introduction

Just over four years ago, QinetiQ launched an ambitious strategy to deliver long-term and sustainable growth for shareholders. In parallel to this, the Remuneration Committee developed an innovative Directors' Remuneration Policy to incentivise our leadership team, align their interests with shareholders, and ensure we created the right cultural changes to sustain our strategy. This Directors' Remuneration Policy was first approved by shareholders at the 2017 AGM.

The development of our Directors' Remuneration Policy remains built on three guiding principles:

• Flexible: To ensure that executives are incentivised to deliver against each stage of our strategy in light of the prevailing market environment;
• Stretching: Targets are set to ensure executives are incentivised to outperform, whilst delivering sustainable performance;
• Aligned: The Directors' Remuneration Policy aligns executives' interests with those of shareholders, this is achieved through the long-term nature of our Policy, a focus on rewarding through deferred shares and various underpins relating to sustained financial performance.

The review process

The Committee led the review process throughout, taking account of market practice, the views of the Committee members, executives and external advisers as appropriate to help shape our thinking. No individual is involved in the decision making on their own remuneration.

We then engaged with many of our largest shareholders and the general view was that the current Directors' Remuneration Policy is robust, resulting in pay that is commensurate with the performance of the business. This view is shared by the Remuneration Committee and hence the Committee is proposing limited changes to the current Directors' Remuneration Policy at our 2020 AGM.

However, in light of the Corporate Governance Code and shareholders' feedback and views, two areas of the Directors' Remuneration Policy which we will change are:

• Pension allowances all new Executive Directors will receive a 10.5% pension allowance payment which is the maximum available to the wider UK workforce. For current Executive Directors, the pension allowance will be maintained at 20% of salary for the three-year life of the 2020 Policy; it will thereafter be reduced in phases to 10.5% of salary over the three-year life of the 2023 Policy.
• Post-employment shareholdings Executive Directors will have a post-employment shareholding requirement of 100% of salary for one year after they leave employment, reducing then to 50% of salary for a further one year.

Otherwise, the operation of the Policy is the same as the previous Policy in force.

The Committee undertook further consultation to understand the reasons behind the vote (63.8% 'For') when the Directors' Remuneration Policy was approved at the 2017 AGM. In light of the shareholder feedback we received, we have improved the disclosure in the Annual Report on Remuneration since the 2017 vote to enable shareholders to review decisions taken as we implement the Policy. The Remuneration Committee has also developed a new process for target setting given that a concern expressed by shareholders was that QinetiQ's incentive arrangements are heavily dependent on annual performance measurement. We have also made every effort to engage with major shareholders to explain the Policy and the positive impact on company performance and culture. The Remuneration Committee therefore seeks approval for the Policy at the AGM on 14 July 2020.

Scope of policy

The Policy applies to Executive Directors, the Group Chairman and Non-executive Directors. Reference may also be made to the Global Leadership Team who, while not Directors, fall within the Remuneration Committee's remit, although the policy is not binding for these individuals.

Duration of policy

The Directors' Remuneration Policy will be put forward for a binding vote at the AGM on 14 July 2020 and will be effective from that date. The Policy is expected to remain in effect until the 2023 AGM.

Discretion

The Committee has discretions in several areas of Policy as set out in this report. The Committee may also exercise operational and administrative discretions under relevant plan rules as set out in those rules. In addition, the Committee has the discretion to amend the Directors' Remuneration Policy with regard to minor or administrative matters where it would be, in the opinion of the Committee, disproportionate to seek or await shareholder approval; the Committee commits to communicating to shareholders when discretion is used.

Approach to incentives

The Committee conducted an extensive review of the Directors' Remuneration Policy which has resulted in the Committee proposing to retain the incentive arrangements, made up of two elements (collectively the Incentive Plan):

• Bonus Banking Plan with no change to the current terms and conditions and a maximum opportunity of 200% of salary.
• Deferred Share Plan to with no change to the current terms and conditions and a maximum opportunity 125% of salary.

Initial awards under the Deferred Share Plan will continue to be based on challenging strategic financial growth objectives set by the Committee each year in line with the Company's Integrated Strategic Business Plan.

Approach to incentives continued

The initial award of contingent shares under the Deferred Share Plan is subject to a three-year vesting period, where the award remains at risk based on a performance underpin and during which the participant must remain employed by the Company; then the vested shares are subject to a further two-year holding period. The Deferred Share Plan is, therefore, a six-year incentive plan with a strong link to the long-term shareholder experience.

The rationale for the Incentive Plan is to:

• provide a simple cohesive design, that incentivises delivery of the Integrated Strategic Business Plan;
• recognise that the Integrated Strategic Business Plan will evolve, therefore providing the Board with the opportunity to manage the incentives annually to ensure the evolution continues to be incentivised;
• reward participants as shareholders by the build-up of a long-term retained shareholding; and
• ensure a focus on long-term sustainable performance through the deferral in equity. Based on the maximum incentive opportunity of 325%, half of the Bonus Banking Plan opportunity (100%) and all of the Deferred Share Plan opportunity (125%) is treated as deferred equity.

When considering the review of the Policy, the Committee was mindful of UK Corporate Governance Code provisions which say that the Committee should address issues of clarity, risk, predictability, proportionality and alignment with culture. The Policy is now well established and broadly a roll-forward of the existing Policy meaning that the operation, and therefore outcomes, will be proportionate and predictable. Risk continues to be managed through the operation of a broad suite of performance measures and targets, the use of deferral, holding periods and malus and clawback provisions and the close interaction with the Audit and Risk & CSR Committees. Our drive for better clarity means we have endeavoured to present our Directors' Remuneration Policy in a simple and succinct manner to be as transparent as possible. The tailored design of our incentives has helped the Chief Executive to change ways of working and QinetiQ's culture.

Executive Directors' Remuneration Policy

The Executive Directors' Remuneration Policy is put forward for approval at the AGM on 14 July 2020. This Policy covers the three year period commencing 1 April 2020 and complies with the Large and Medium-sized Companies and Groups (Accounting and Reports) (Amendment) Regulations 2013.

Element	Purpose and link to strategy	Operation and performance measures	Maximum opportunity
Base salary	To attract and retain the talent needed to lead our business.	An Executive Director's base salary is set on appointment and reviewed annually or when there is a change in position or responsibility. 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; and • when the Committee determines a benchmarking exercise is appropriate, salaries paid by the companies in the comparator groups used. Individuals who are recruited or promoted to the Board may, on occasion, have their salaries set below the targeted policy level until they become established in their role. In such cases subsequent increases in salary may be higher than the general rises for employees until the target positioning is achieved.	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. The Committee ensures that maximum salary levels are positioned in line with companies of a similar size to QinetiQ and validated against other companies in the industry, so that they are competitive against the market. The Committee intends to review the comparators periodically and may add or remove companies from the group as it considers appropriate. Any changes to the comparator groups will be set out in the section headed Implementation of Remuneration Policy, in the following financial year.
Pension	To ensure that Executive Directors' total remuneration remains attractive and competitive.	The Company provides a pension contribution allowance in line with practice relative to its comparators to enable the Company to recruit and retain Executive Directors with the experience and expertise to deliver the Group's strategy. This allowance will be a non-consolidated allowance and will not impact any incentive calculations.	The maximum policy pension contribution allowance is 20% for existing Executive Directors; however, any new Executive Directors will have a maximum contribution which is aligned with the maximum level available to all UK employees (which is currently 10.5% of salary). The Company will set out in the section headed Implementation of Remuneration Policy, in the following financial year the pension contributions for that year for each of the Executive Directors.

Directors' remuneration report continued

Purpose and Element link to strategy		Operation and performance measures	Maximum opportunity
Benefits	To ensure that Executive Directors' total remuneration remains attractive and competitive.	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 (the Executive Directors will also be eligible to participate in any other all employee plan operated by the Company from time to time).	The maximum is the cost of providing the relevant benefits.
		The Committee recognises the need to maintain suitable flexibility in the benefits provided to ensure it is able to support the objective of attracting and retaining personnel in order to deliver the Group strategy. Additional benefits may therefore be offered such as relocation allowances on recruitment.
Incentive Plan	The Incentive Plan provides a significant incentive to the Executive Directors linked to the achievement	An award under the Incentive Plan is subject to satisfying financial and strategic/ operational performance/personal performance conditions and targets initially measured over a period of one financial year.	Maximum 325% of salary. Bonus Banking Plan
	of delivering targets that are closely aligned with the Company's strategy and the creation of value	A minimum of 50% of the incentive shall be based on financial performance measures.	Maximum = 200% of salary. Target = 80%–120% of salary. Threshold = 0% of salary.
	for shareholders.	The Incentive Plan consists of two parts –	Deferred Share Plan
	In particular, the Incentive Plan supports the Company's objectives by: • Allowing the setting of annual targets based on the business's strategic objectives at that time, meaning that a wider range of performance metrics can be used that are relevant and suitably stretching whilst also providing sufficient incentive linked to potential to be achievable; and • Providing substantial long-term deferral in shares and ongoing adjustment by requiring a threshold level of performance to be achieved during the deferral period. Amounts deferred in shares are also forfeitable on a Director's voluntary cessation of employment which provides an effective lock-in.	• Bonus Banking Plan. Annual Company contributions are earned based on the satisfaction of the performance conditions. Contributions will be made for three years with payments made out of the plan over four years. 50% of the value of a participant's bonus account will be paid out annually in cash after the pool has been marked to the Company's share price and credited with dividend equivalents. 50% of the unpaid balance of a participant's bonus account is at risk of annual forfeiture based on the achievement of a financial performance threshold with 100% of the residual value paid out at the end of year four as shares. • Deferred Share Plan. Deferred conditional share-based element initially awarded based on the satisfaction of pre-grant annual performance assessment. The conditional award vests after three years, subject to continued service, where the initial award remains at risk based on the achievement of a performance underpin, then a further two-year holding period is applied. A minimum 50% (Remuneration Committee has discretion to increase subject to performance) of the initial award is at risk of forfeiture for three years. Malus and clawback provisions apply to the Incentive Plan. The Committee will normally provide dividend equivalents on vested shares under the Incentive Plan. In exceptional circumstances the Committee retains the discretion to: • Change the performance measures and targets and the weighting attached to the performance measures and targets part way through a performance year if there is a significant and material event which causes the Committee to believe the original measures, weightings and targets are no longer appropriate; for example adjustments for: • Acquisitions and disposals; • Restructuring costs; • Business structure changes; • Restated corporate allocations; • Foreign currency exchange rates; and • Board approved budget adjustments. • Make downward or upward adjustments to the amount of incentive earned	Maximum = 125% of salary. Target = 30%-75% of salary. Threshold = 0% of salary. –
		resulting from the application of the performance measures, if the Committee believe that the incentive outcomes are not a fair and accurate reflection of business performance. • Adjust the grant share price for incentive awards if there were to be a
		substantial Company share price fall, if it were to be appropriate to exercise such discretion at a future time.
		Any adjustments or discretion applied by the Committee will be fully disclosed in the following year's Directors' Remuneration Report.

Element	Purpose and link to strategy	Operation and performance measures	Maximum opportunity
Minimum shareholding requirements – during and after employment	To align Executive Directors' interests with those of shareholders through the build-up and retention of a personal holding in QinetiQ shares.	Executives have five years to accumulate the required shareholding. 300% of base salary for the CEO. 200% of base salary for other Executive Directors. Executive Directors will have a post-employment shareholding requirement of 100% of salary for the first year post cessation, then 50% of salary for the second year post cessation of employment.	The Committee has adopted formal shareholding requirements to encourage the Executive Directors to build up over a five-year period and then subsequently hold a shareholding equivalent to a percentage of base salary. Adherence to these guidelines is a condition of continued participation in the equity incentive arrangements. This policy ensures that the interests of Executive Directors and those of shareholders are closely aligned. Executive Directors are required to retain 50% of the post-tax amount of vested shares from the Company incentive plans until the minimum shareholding
			requirement is met and maintained. Vested awards under the Deferred Share Plan element of the Incentive Plan must be retained by the participant for two-years post-vesting to further support the post-employment shareholding requirement where an Executive Director leaves the Company. The Committee retains the discretion to increase the shareholding requirements.

Notes to the policy table

Performance measures and targets

The performance measures and targets, financial and non-financial, are determined annually based on the Company's strategy. Targets are set taking into account a variety of inputs including but not limited to the strategic plan, the annual plan and brokers' forecasts. The measures and, where possible, the targets will be disclosed after the end of the relevant financial year in that year's remuneration report.

Remuneration policy for all employees

All employees of QinetiQ are eligible to base salary, benefits and pension.

The link between performance and reward cascades down from the Executive incentive plans with the Leadership and Business Development Communities typically invited to participate in the Company's formal annual incentive arrangements. All other employees may receive a discretionary bonus based on Company and individual performance. Participation in long-term incentive plans is available to Executive Directors, Global Leadership Team members, Leadership Community and selected other employees. Share ownership is further encouraged via the QinetiQ Share Incentive Plan.

Recruitment policy

The Company's principle is that the remuneration of any new recruit will be assessed in line with the same principles as for the current Executive Directors (with the exception of pension allowance). The Committee is mindful that it wishes to avoid paying more than it considers necessary to secure a preferred candidate with the appropriate calibre and experience needed for the role. In setting the remuneration for new recruits, the Committee will have regard to guidelines and shareholder sentiment regarding one-off or enhanced short-term or long-term incentive payments as well as giving consideration for the appropriateness of any award. The Company's detailed policy when setting remuneration for the appointment of new Directors is summarised in the table below:

Remuneration element	Recruitment policy
Salary, benefits and pension	These will be set in line with the policy for existing Executive Directors, except for pension allowance which will be capped at 10.5% of salary.
Incentive Plan	Maximum annual participation will be set in line with the Company's policy for existing Executive Directors and will not exceed 325% of salary. Depending on the timing of the appointment, the performance measures and targets used for the first award may differ to that of the existing Executive Directors. If different, they will be explained in detail in the following relevant Directors' Remuneration Report.
Maximum variable remuneration	The maximum variable remuneration which may be granted is 325% of salary (excluding any buy-outs).

Directors' remuneration report continued

Remuneration element	Recruitment policy
'Buy Out' of incentives forfeited on cessation	Where the Committee determines that the individual circumstances of recruitment justifies the provision of a buyout, the equivalent value of any incentives that will be forfeited on cessation of an Executive Director's previous employment will be calculated taking into account the following:
of employment	• The proportion of the performance period completed on the date of the Executive Director's cessation of employment; • The performance conditions attached to the vesting of these incentives and the likelihood of them being satisfied; and • Any other terms and condition having a material effect on their value ('Lapsed value').
	The Committee may then grant up to the same value as the lapsed value, where possible, under the Company's incentive plan. To the extent that it was not possible or practical to provide the buyout within the terms of the Company's existing incentive plan, a bespoke arrangement would be used. To be clear, the value of any buy-out will be limited to the value being forfeit from the previous employer.
Relocation policies	In instances where the new Executive Director is required to relocate or spend significant time away from their normal residence, the Company may provide one-off compensation to reflect the cost of relocation for the Executive Director. The level of the relocation package will be assessed on a case-by-case basis but will take into consideration any cost of living differences/housing allowance and schooling.

Where an existing employee is promoted to the Board, the policy set out above would apply from the date of promotion but there would be no retrospective application of the policy in relation to subsisting incentive awards or remuneration arrangements.

Service contracts

Current Executive Directors have open-ended service contracts terminable by the Company immediately without notice upon breach by the individual or by the Company giving to the individual 12 months' written notice or, at its discretion, payment in lieu of salary, pension and benefits only during that notice. The payment in lieu of notice may be made in staged payments and may either reduce or cease completely where the departing Executive Director gains new employment. The Executive Director may terminate his contract by giving the Company 12 months' written notice. Contracts for new Executive Directors will be limited to 12 months' notice by both parties (or payment in lieu of notice in respect of the Company).

Copies of the service contracts are available for inspection at the Company's registered address.

The Chairman and the non-Executive Directors have letters of appointment and are appointed for initial fixed terms of three years, subject to re-election at each Annual General Meeting. The Chairman and the Non-Executive Directors are not entitled to any payment in lieu of notice or any compensation for loss of office.

The dates of the service contracts, letters of appointment and unexpired term periods are set out in the Annual Report on Remuneration (page 106).

Loss of office and change of control policy

When determining any loss of office payment for a departing Executive Director the Committee will always seek to minimise the cost to the Company while complying with the contractual terms and seeking to reflect the circumstances in place at the time. The Committee reserves the right to make additional payments where such payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an obligation); or by way of settlement or compromise of any claim arising in connection with the termination of an Executive Director's office or employment.

Remuneration element	Approach	Application of Committee discretion
Salary and benefits	In the event of termination by the Company, there will be no compensation for loss of office due to misconduct or normal resignation.	The Company has discretion to make a lump sum payment in lieu.
	In other circumstances, Executive Directors may be entitled to receive compensation for loss of office which will be a maximum of 12 months' salary.
	Such payments will be equivalent to the monthly salary and benefits that the Executive Director would have received if still in employment with the Company. These will be paid over the notice period. Executive Directors will be expected to mitigate their loss within a twelve month period of their departure from the Company.
Pension	Pension contributions or payments in lieu of pension contribution will be made during the notice period.	The Company has discretion to make a lump sum payment in lieu.
Bonus Banking Plan (on	For the year of cessation Good leavers: Performance conditions will be measured at	For the year of cessation Discretion: the Remuneration Committee has the following elements of discretion:
cessation of employment)	the measurement date. The Company incentive contribution will normally be pro-rated for the period worked during the financial year.	• To determine that an Executive Director is a good leaver. It is the Committee's intention to use this discretion only in circumstances where there is an appropriate business case which will be explained in full to shareholders; and
	Other leavers: No Company incentive contribution payable for year of cessation.	• To determine whether to pro-rate the Company incentive contribution to time. The Remuneration Committee's normal policy is that it will pro-rate for time. It is
	Deferred balances in participant's Plan Account Good leavers: The balance in the participants' Plan account	the Remuneration Committee's intention to use discretion to not pro-rate only in circumstances where there is an appropriate business case which will be explained in full to shareholders.
	will be payable on cessation of employment. Other leavers: The balance in the Participants' Plan account	Deferred balances in participant's Plan Account Discretion: the Remuneration Committee has the following elements of discretion:
	will be forfeited on cessation of employment.	• To determine that an Executive Director is a good leaver. It is the Remuneration Committee's intention to only use this discretion in circumstances where there is an appropriate business case which will be explained in full to shareholders;
		• To determine whether the payment of the balance of the participant's Plan Account should be in cash or shares or a combination of both;
		• To determine whether to pro-rate the balance of the participant's Plan Account payable on cessation. The Committee's normal policy is that it will not pro-rate. The Remuneration Committee will determine whether to pro-rate based on the circumstances of the Executive Director's departure.
Bonus Banking Plan (on change	For the year of the change of control Performance conditions will be measured at the date of the change of	For the year of the change of control Discretion: the Remuneration Committee has the following element of discretion:
of control)	control. The Company incentive contribution will normally be pro-rated to the date of the change of control.	• To pro-rate the Company bonus contribution to time. The Remuneration Committee's normal policy is that it will pro-rate for time. It is the Remuneration Committee's
	Deferred balances in participant's Plan Account The balance in the participant's Plan Account will be	intention to only use discretion to not to time pro-rate in circumstances where there is an appropriate business case which will be explained in full to shareholders.
	payable on the change of control.	Deferred balances in participant's Plan Account Discretion: the Remuneration Committee has the following elements of discretion:
		• To determine whether the payment of the balance of the participant's Plan Account should be in cash or shares or a combination of both;
		• To determine whether to pro-rate the balance of the participant's Plan Account payable on change of control. The Committee's normal policy is that it will not pro-rate. The Remuneration Committee will determine whether to pro-rate based on the circumstances of change of control.

Directors' remuneration report continued

Remuneration element	Approach	Application of Committee discretion
Deferred Share Plan (on cessation of employment)	For the year of cessation Good leavers: Performance conditions will be measured at the measurement date. The Deferred Share Plan award will normally be pro-rated for the period worked. Other leavers: No Deferred Share Plan award for year of cessation. Subsisting awards Good leavers: Deferred Share Plan awards will vest on their original vesting dates and remain subject to the sale restrictions. Other leavers: Deferred Share Plan awards will be forfeited on cessation of employment.	For the year of cessation Discretion: the Remuneration Committee has the following elements of discretion:– • To determine that an Executive Director is a good leaver. It is the Committee's intention to only use this discretion in circumstances where there is an appropriate business case which will be explained in full to shareholders; • To determine whether to pro-rate the Company award to time. The Remuneration Committee's normal policy is that it will pro-rate for time. It is the Remuneration Committee's intention to only use discretion to not pro-rate in circumstances where there is an appropriate business case which will be explained in full to shareholders; and • To determine whether the Deferred Share Plan award will vest on the date of cessation or the original vesting date. The Remuneration Committee will make its determination based amongst other factors on the reason for the cessation of employment; and to determine whether to provide the Deferred Share Plan award in the form of cash or shares. Subsisting Deferred Share Plan awards Discretion: the Remuneration Committee has the following elements of discretion: • To determine that an Executive Director is a good leaver. It is the Remuneration Committee's intention to only use this discretion in circumstances where there is an appropriate business case which will be explained in full to shareholders; • To determine whether to pro-rate the Deferred Share Plan award to the date of cessation. The Committee's normal policy is that it will pro-rate. It is the Remuneration Committee's intention to only use discretion to not pro-rate in circumstances where there is an appropriate business case which will be explained in full to shareholders; To determine whether the Deferred Share Plan award will vest on the date of cessation or the original vesting date. The Remuneration Committee will make its determination based amongst other factors on the reason for the cessation of employment.
Deferred Share Plan (on change of control)	For the year of the change of control Performance conditions will be measured at the date of the change of control and the award will normally be pro-rated to the date of the change of control. Subsisting awards The awards will vest on the date of the change of control and the sale restrictions will fall away.	For the year of the change of control Discretion: the Remuneration Committee has the following element of discretion: • To determine whether to pro-rate the Deferred Share Plan award to time. The Remuneration Committee's normal policy is that it will pro-rate for time. It is the Remuneration Committee's intention to only use discretion to not pro-rate in circumstances where there is an appropriate business case which will be explained in full to shareholders. Subsisting Deferred Share Plan awards Discretion: the Remuneration Committee has the following elements of discretion: • To determine whether the satisfaction of Deferred Share Plan awards should be in cash or shares or a combination of both; and • To determine whether to pro-rate Deferred Share Plan awards on change of control. The Committee's normal policy is that it will not pro-rate. The Remuneration Committee will determine whether to pro-rate based on the circumstances of change of control.
Other contractual obligations	There are no other contractual provisions other than those set out above agreed that could impact quantum of the payment.	None.

A 'good leaver' is a person whose cessation of employment is for one of the following reasons:

• Death; Ill-health; Injury or disability; Redundancy; Retirement; Employing company ceasing to be a Group company; Transfer of employment to a company which is not a Group company; and where the person is designated a good leaver at the discretion of the Committee (as described above).

A person who ceases employment in circumstances other than those set out above is designated as an 'other leaver'.

Malus and clawback

Malus provisions apply to both the Bonus Banking Plan and the Deferred Share Plan. Malus is the adjustment of Bonus Banking Plan contributions or the balance in a participant's account or unvested Deferred Share Plan contingent awards because of the occurrence of one or more circumstances. The adjustment may result in the value being reduced to nil.

Clawback is the recovery of payments made under the Bonus Banking Plan or vested Deferred Share Plan awards as a result of the occurrence of one or more circumstances. Clawback may apply to all or part of a participant's payment under the Deferred Share Plan or Deferred Share Plan award and may be effected, among other means, by requiring the transfer of shares, payment of cash or reduction of awards or bonuses.

The circumstances in which malus and clawback could apply are as follows:

• Discovery of a material misstatement resulting in an adjustment in the audited accounts of the Group or any Group company;
• The assessment of any performance condition or condition in respect of a payment or award under the Incentive Plan was based on error, or inaccurate or misleading information;
• The discovery that any information used to determine the Bonus Banking Plan or Deferred Share Plan award was based on error, or inaccurate or misleading information;
• Action or conduct of a participant which amounts to fraud or gross misconduct; or
• Events or the behaviour of a participant have led to the censure of a Group company by a regulatory authority or have had a significant detrimental impact on the reputation of any Group company provided that the Board is satisfied that the relevant participant was responsible for the censure or reputational damage and that the censure or reputational damage is attributable to the participant.

The following table sets out the periods during which malus and clawback may be effected.

	Bonus Banking Plan	Deferred Share Plan
Malus	Up to the date of a payment.	Any time prior to vesting.
Clawback	Three years post the date of any payment.	Three years from the date of vesting.

Pay and performance scenario analysis

The proposed Directors' Remuneration Policy is illustrated in the following charts showing what each Director could expect to receive in FY21 under different performance scenarios, based on the following definitions:

Scenario	Fixed	Linked to performance
50% share price appreciation		Stretch plus 50% share price growth (on 50% of BBP and 100% of DSP)
Stretch 100% of Bonus Banking Plan opportunity (200% of salary)
	100% of Deferred Share Plan (125% of salary)
Target	50% of Bonus Banking Plan opportunity (100% of salary)
		50% of Deferred Share Plan (62.5% of salary)
Minimum		No variable pay

CEO (£'000)

CFO (£'000)

+50%	22%	18%		60%	2,634
Stretch	28%	22%	50%	2,109
Target	44%	17%	39% 1,352
Minimum	100%	595

Directors' remuneration report continued

Policy for the Chairman and the Non-executive Directors

The Company's policy when setting fees for the appointment of the Group Chairman and new Non-executive Directors is to apply the policy which applies to current incumbents.

Element	Purpose and link to strategy	Operation and performance measures	Maximum opportunity
	Chairman and Non-executive Directors
Fees	To attract and retain Non executive Directors of the calibre required to assist	The Executive Directors and the Group Chairman are responsible for setting the remuneration of the Non executive Directors.	The fees for Non-executive Directors and the Group Chairman are broadly set at a competitive level against the
	the Company in setting and delivering its strategy.	The Board, minus the Chairman, is responsible for setting the Chairman's fees.	comparator group. In general the level of fee increase for the Non-executive Directors
		Non-executive Directors are paid an annual fee and additional fees for chairmanship of Committees and any other additional duties, and the Company retains the flexibility to pay fees for the membership of Committees. The Chairman does not receive any additional fees for	and the Group Chairman will be set taking account of any change in responsibility and the general rise in salaries across employees.
		membership of Committees.	The Company will pay reasonable
		Fees are reviewed annually based on equivalent roles in the comparator group used to review salaries paid to the Executive Directors.	expenses incurred by the Non executive Directors and Group Chairman and may settle any tax incurred in relation to these.
		An additional fee is payable to those Non-executive Directors attending meetings outside of their country of residence.
		Non-executive Directors and the Group Chairman do not participate in any variable remuneration or benefits arrangements.
		Fee levels may be increased on a temporary basis for a significant increase in time commitments (e.g. assuming an executive position for an interim period)

Consideration of shareholder and employee views

The Chair of the Committee and the Group Chairman consult with key shareholders on remuneration matters from time to time, and particularly in seeking views on the Directors' Remuneration Policy in preparation for the triennial vote at the AGM. Any concerns expressed by shareholders are reported to the Committee and these are taken into account as the Committee develops and implements its Policy. Any comments received from shareholders outside these consultation exercises are also reported to the Committee, and the Committee takes account of general views on remuneration expressed by shareholders and their representative bodies.

The Remuneration Committee is grateful for shareholders' comments and engagement during the Directors' Remuneration Policy consultation process. At the end of this process, the Remuneration Committee was pleased that the majority of the shareholders consulted expressed support for the Policy being operated for a further three years.

The Committee has not formally consulted with employees in forming this Policy. However, Our Employee Engagement Group (EEG), representing all of our UK employees, is deeply engaged across the company to provide an employee voice at the table on all relevant issues, including remuneration (regular interactions are held with the Group Chairman, Remuneration Committee Chair, CEO and the Group HR Director). The company takes the views of employees very seriously and we monitor this through a quarterly survey using a market-leading dynamic tool (Peakon).

The Committee is cognisant of employment conditions when determining Executive Director pay. In particular, the annual salary increase available to the rest of the workforce is an important factor in determining any salary increase for the Executive Directors. The Committee reviews the CEO pay ratio and considers it in the broader context of pay trends within the business.

FY20

Total

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 2020.

AUDITED INFORMATION

Executive Directors' single total figure of remuneration

Executive Director	Year	Salary £'000	Benefits £'000	Pension £'000	Bonus Banking Plan £'000	Deferred Share Plan £'000	Performance Share Plan £'000	Total remuneration £'000
	2020	610	49	122	1,069	–	136	1,986
Steve Wadey (CEO)	2019	596	48	119	1,126	–	450	2,339
	2020	462	36	92	803	–	–	1,393
David Smith (CFO)	2019	451	34	90	841	–	–	1,416

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.

Fixed pay Salary Salaries are normally reviewed effective 1 September, which is the same timing for the rest of the UK employee population. The company has agreed that there will be no base salary review in FY21 to manage costs as part of the response to COVID-19. Benefits Benefits comprise a car allowance, travel allowance, private medical expenses insurance, life assurance, income protection, and taxable expenses Salary as at August 2019 £'000 Increase in the year Salary as at September 2019 £'000 Pro-rated salary £'000 Steve Wadey 603 2.2% 616 610 David Smith 456 2.2% 466 462 Taxable expenses £'000 Car allowance £'000 Insurance benefit £'000 benefits £'000 Steve Wadey 15 19 15 49 David Smith 6 13 17 36

Pensions

Neither of the Executive Directors participate in the QinetiQ pension scheme for FY20 or have done so in prior years. The pension figure consists of cash in lieu of pension equating to 20% of base salary.

	Cash in lieu of pension £'000	Total in lieu of pension £'000
Steve Wadey	122	122
David Smith	92	92

Bonus Banking Plan

The Bonus Banking Plan operates on three-year performance cycle mirroring the financial year, with a four-year payment cycle, i.e. running from 1 April to 31 March. FY20 represents the third year of the current cycle as detailed on page 100.

Each year any incentive award earned is added to the total plan balance, with 50% of the total plan balance normally being paid in cash in June following the FY, for FY20 this will be paid in shares with a one year holding period. The remaining 50% is held in the plan in notional shares. In year four, the total remaining plan balance is paid in shares.

	BBP balance brought forward £'000	Dividend equivalent payment £'000	BBP award in year £'000	June 2020 payment in shares (50% value) £'000	BBP balance carried forward £'000
CEO	863	19	1,069	975	975
CFO	646	14	803	732	732

Deferred Share Plan

No Deferred Share Plan award to be made in June 2020 as the FY20 pre-grant performance underpin was not achieved.

2017 Performance Share Plan (legacy plan)

The PSP award made to the CEO in 2017 achieved 38.35% vesting in 2020 based on TSR performance as detailed on page 101. The £3.46 share price is based on three months to 31 March 2020, the actual value will be the share price at vesting on 22 June 2020.

For FY19, the PSP figure represents the actual vesting of the 2016 award which has been trued-up replacing the estimate provided last year. The share price at vesting was £2.80 and the FY19 figure includes £27,473 paid as income in respect of a dividend equivalent payment.

	Shares Awarded	Vesting %	Shares Vesting	Value at £3.46 per share £'000
Steve Wadey	102,136	38.35%	39,169	135,525

Directors' remuneration report continued

Bonus Banking Plan

FY20 performance measures and operation

For the year ended 31 March 2020 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 2020, the CEO 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 (%)

AUDITED INFORMATION

FY20 performance outcomes

	Weighting (%)	Threshold	Target	Stretch	Actual	% of maximum reward achieved	CEO contribution	CFO contribution
CEO/CFO financial performance measures:
Orders1	25%	£650m	£725m	£825m	£946.8m	100.0%	£305,178	£230,910
Underlying operating profit1, 2	25%	£112m	£124m	£136m	£129.8m	74.2%	£226,341	£171,258
Underlying net cash flow from operations1, 2	25%	£122m	£124m	£136m	£177.6m	100.0%	£305,178	£230,910
CEO/CFO shared strategic and operational objectives (as detailed on page 99):
Strategy: – Performance against key stretching objectives relating to the UK business, international and innovation	12.5%	40%	50%	100%	62%	62%	£94,605	£71,582
Operational: – Performance against stretching objectives relating to transformation and organisational development		40%	50%	100%
CEO individual personal objectives: – Performance against stretching objectives relating to growth and leadership	12.5%	40%	50%	100%	90%	90%	£137,330
CFO individual personal objectives: – Performance against stretching objectives relating to business support and operational performance	12.5%	40%	50%	100%	85%	85%		£98,137
CEO overall results							87.5% £1,068,633
CFO overall results						86.9%		£802,797

1 Performance measures exclude the contribution from businesses acquired during the year.

2 Definition of underlying measures and performance can be found in the glossary on page 183.

Bonus Banking Plan continued

AUDITED INFORMATION

Financial performance measures (75% award)

The three key measures of orders, underlying operating profit and underlying net cash flow from operations are given an equal 25% weighting.

Reconciliation of measures used in determining remuneration to Group KPIs

The difference below is the contribution from businesses acquired in the year, notably MTEQ.

	Orders	Underlying operating profit	Underlying cash flow
Per KPIs on page 30	£972.1m	£133.2m	£177.8m
Metric used for BBP	£946.8m	£129.8m	£177.6m
Difference	£25.3m	£3.4m	£0.2m

Shared strategic and operational measures (12.5% award)

Measures	FY20 Performance	Outcome (% maximum)
Strategic
Safety Culture – 40% weighting	Stretch performance levels were surpassed to improve the Safety First culture through safety engagement including high visibility safety tours and leading safety engagements.
Employee Engagement – 30% weighting	Employee engagement improved by 10% in FY20 as measured by the independent Peakon tool, a leadership diversity and inclusion event was delivered with strong engagement and feedback, Q-talk and Employee Roadshow attendance improved significantly and the Enabling Managers programme was delivered.
Productivity & Efficiency – 30% weighting	Threshold performance was achieved on recoveries budget and improved utilisation through enhanced collaboration.

Total 62%

Personal objectives (12.5% award)

CEO Organic growth delivered through record orders, completion of strategic acquisitions (most Growth notably MTEQ), delivery of Global Campaigns, transition to a high performance culture and delivery of the Global Operating Model Initial Operating Capability. Leadership Developed people and organisation with the new Global Change Network and Global Engagement Network, coached and developed team dynamic and individual Global Leadership Team members, led the transformation of the business. Total 90% CFO Strategic Matured the strategic development of the Group through the Integrated Strategic Business Plan, delivered strategy to enhance Group financial performance metrics. Drove right decisions on investment plans and M&A, worked with JVs to deliver consistent Growth operational performance. Improved rates recovery and resourcing model to drive performance, expanded Business Operational Services to deliver business efficiency and delivered IT and Property construction projects. 85% Total	Objectives	FY20 Performance	Outcome (% maximum)

Directors' remuneration report continued

Bonus Banking Plan continued

How the plan operates

• The Plan operates on a fixed three-year performance cycle with a four-year vesting cycle. FY20 represents year three of Cycle 2. 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 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.

* Single figure BBP value for a Plan/financial year.

AUDITED INFORMATION

Operation during FY20

Cycle 2

	Notional shares on account at start of Plan year 2 (1 April 2019)	30-day average share price as at measurement date (£)	Share value as at measurement date (£)	Bonus plan contribution for Plan year 3 (£)	Dividend equivalent payment (£)	Bonus pool total value as at measurement date (£)	Gross payment in shares for Plan year 3 (£)	Bonus pool total value following cash payment (£)	Notional shares on account at end of Plan year 3 (31 March 2020)
CEO	281,322	3.07	862,533	1,068,633	18,849	1,950,014	975,007	975,007	318,006
CFO	210,753	3.07	646,169	802,797	14,120	1,463,086	731,543	731,543	238,598

FY20 Payment in Shares

As noted in the Committee Chair's statement, to manage cash outflow in June 2020, all FY20 incentive payments including BBP payments to the CEO and CFO, which would normally be paid in cash, will be paid in 'net settled' shares which are subject to a one year holding period.

Forfeiture

For BBP Cycle 2 the CEO and 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 £100m for FY20. FY20 Group underlying operating profit was £130m (excluding contribution from acquisitions) therefore no notional shares were forfeited.

Discretion

For BBP Cycle 2, for the year ended 31 March 2020, targets were achieved or exceeded providing a contribution of 175.1% and 173.8% of base salary for the CEO and for the CFO respectively. £1,068,633 and £802,797 has been reported in the single figure table which represents the additional contributions to the plan related to FY20 performance. No discretion was applied to these contributions as the Committee considers them appropriate reflecting strong performance.

Deferred Share Plan (DSP)

Scheme interests awarded during the financial year ended 31 March 2020

The Deferred Share Plan was approved by shareholders at the 2017 AGM. A maximum award of 125% of salary may be made to the CEO and CFO 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.

Setting performance targets FY20

The FY20 DSP performance measure was non-UK revenue growth. Calibration was set with a maximum of 125% of salary available for achieving stretch and 35% of the maximum payable at target performance. The performance targets were set by the Remuneration Committee so as to be stretching.

AUDITED INFORMATION

FY20 performance outcome

The FY20 Deferred Share Plan award was measured against FY20 absolute growth in non-UK revenue with the following calibration.

Measure	Weighting	Threshold	Target	Stretch	Actual	% Max award achieved	% Salary awarded	Total £'000
Non-UK revenue (FY19+)	100%	£20.0m	£40.0m	£70.0m	£24.1m	N/A	0
CEO								0
CFO								0

The FY20 DSP award was also subject to a pre-grant performance underpin that FY20 profit margins are higher than the profit margin on non-UK revenue in FY19.

Non-UK revenue growth achieved at £24.1m was above threshold performance. However, as noted above, the FY20 DSP Award was also subject to a pre-grant performance underpin. This underpin was not achieved and no DSP award of contingent shares will be made in relation to FY20 performance

Legacy Performance Share Plan (PSP)

2017 PSP

The 2017 PSP award was measured 50% based on EPS growth of 3% to 10% per annum (25% vesting at threshold, 100% at maximum, with linear vesting between these points), and 50% based on TSR performance against the FTSE 250 (30% vesting at median performance, 100% at upper quartile performance, with linear vesting between these points).

The 2017 PSP award measurement period was to 31 March 2020 and the Committee reviewed performance against the EPS and TSR performance measures at the May 2020 meeting.

				Performance		% Max award
Measures	Weighting	Performance conditions	Threshold	Stretch	Actual	achieved
EPS	50%	Between 3% and 10% per annum	19.8p	24.1p	16.9p	0%
TSR	50%	Between FTSE 250 median and upper quartile	11.5%	49.2%	36.6%	76.7%

Based on audited EPS performance and TSR performance analysis provided by the independent advisor to the Committee (FIT Remuneration Consultants), it was determined that the EPS test was not met and that the TSR element (50% weighting) will vest at 76.7% on the third anniversary of grant (22 June 2020), resulting in an aggregate vesting of 38.35% of the initial award to the CEO. The Remuneration Committee was satisfied with the formulaic result and did not exercise discretion.

Directors' remuneration report continued

Performance condition adjustments during 2020

As in prior years, the Committee adjusted the performance conditions for the Performance Share Plan to reflect continuing operations so performance is measured on a like-for-like basis.

Reconciliation of measures used in determining remuneration to Group KPIs

	EPS p
Per KPIs on page 31	20.0p
Metric used for PSP	16.9p
Difference	3.1p
Which relates to:
– Constant number of shares
– Excluding profit after tax of acquired businesses

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 does not currently meet the minimum shareholding requirement; with a current holding equivalent to 197% of base salary using a share price of £3.46 (three-month average to 31 March 2020). This reflects his appointment date as CEO and the limited opportunity for share-based awards to vest.

The CFO does not currently meet the minimum shareholding requirement; with a current holding equivalent to 61% of base salary using a share price of £3.46 (three-month average to 31 March 2020). This reflects his recent appointment as CFO and the lack of any opportunity for share-based awards to vest.

The Remuneration Committee continues to monitor progress towards the shareholding requirement.

	Shares beneficially owned	Shares subject to performance conditions	Shares not subject to performance conditions	Total shares held at 31 Mar 2020
Steve Wadey	350,885	566,571	–	917,456
David Smith	81,808	352,376	–	434,184
Mark Elliott (resigned 24 July 2019)	145,000	_	_	_
Michael Harper	40,000	–	–	40,000
Admiral Sir James Burnell-Nugent	15,567	–	–	15,567
Paul Murray	83,214	–	–	83,214
Susan Searle	25,000	–	–	25,000
Ian Mason	10,000	–	–	10,000
Lynn Brubaker	12,000	–	–	12,000
Neil Johnson	50,000	–	–	50,000

Shares beneficially owned comprise shares held under the Share Incentive Plan (SIP) (including matched shares) and shares owned by the Director and any connected persons.

On 9 April 2020 Steve Wadey and David Smith purchased 60 shares each, then on 11 May 2020 they purchased 64 shares each, through their participation in the SIP.

Shares subject to performance conditions comprise awards made under the Performance Share Plan (CEO only) and Deferred Share Plan as detailed on page 103. Notional shares held by the CEO and CFO in the BBP Cycle 2 do not appear in the table above as they are not actual shares at 21 May 2020.

AUDITED INFORMATION

Total scheme interests summary

Total scheme interests, including those awarded during the financial year ended 31 March 2020, are as follows.

Steve Wadey

Plan name	Date of grant	Number 1 April 2019	Granted in year (maximum potential of awards)	Vested in year	Lapsed in year	Number 31 March 2020	Share price on date of grant	Vest date
PSP 2016	1 Jul 16	476,190	–	150,952	325,238	-	224.4	1 Jul 19
PSP 2017	22 Jun 17	102,136	–	–	–	102,136	281.0	22 Jun 20
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
		799,111	243,650	150,952	325,238	566,571

David Smith

Plan name	Date of grant	Number 1 April 2019	Granted in year (maximum potential of awards)	Vested in year	Lapsed in year	Number 31 March 2018	Share price on date of grant	Vest date
DSP 2018	8 Jun 18	167,975	–	–	–	167,975	206.0	8 Jun 21
DSP 2019	28 Jun 19	–	184,401	_	–	184,401	304.0	28 Jun 22
		167,975	184,401	–	–	352,376

No contingent shares will be awarded in relation to the 2020 DSP as the pre-grant performance target was not achieved.

The contingent share award in relation to the 2019 DSP was calculated based on awards of 124.2% of base salary and a share price of £3.04 (based on 30 day average to 31 March 2019).

The average three month market share price of the CEO's 2017 PSP was £3.46, leading to an estimated gain of £25,460 based on share price appreciation of the 39,169 shares due to vest on 22 June 2020.

There have been no other changes to the interests shown above between 31 March 2020 and 21 May 2020.

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.

Directors' remuneration report continued

Performance review

The ten-year and three-year charts show the Company's Total Shareholder Return over the period from 31 March 2010 to 31 March 2020 and 31 March 2017 to 31 March 2020 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. This comparator group is also used to measure TSR performance in the PSP (under which no future awards will be made).

CEO remuneration

The table below shows the CEO's remuneration over the same performance period as the Total Shareholder Return chart (31 March 2010 to 31 March 2020):

Year ended 31 March	CEO	Salary/fees	Single figure	Annual bonus (% of maximum)	Long-term incentives (% of maximum vesting)
2020	Steve Wadey	610,357	1,985,298	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	2,177,742	77.0%	15.4%
2013	Leo Quinn	593,050	3,992,001	100.0%	40.3%
2012	Leo Quinn	580,000	1,495,284	100.0%	–
2011	Leo Quinn	580,000	1,327,156	100.0%	–

CEO Pay Ratio

The calculation below is based on the FY20 'single figure' for the CEO of £1,985,298 and similar calculations for the UK workforce (i.e 'Option A' as defined by the Companies (Miscellaneous Reporting) Regulations 2018).

Total remuneration

	Ratio of the CEO's pay to UK employees			Total pay of UK employees
Year	25th Percentile	Median	75th Percentile	25th Percentile	Median	75th Percentile
FY20	56 : 1	41 : 1	31 : 1	£35,732	£48,965	£64,620

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 minimum of £740 to all eligible employees for FY20.

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 2020 and the preceding year.

	Salary/fees £'000		Benefits £'000		£'000	Committee Chair fees	£'000	US/UK attendance fee	Single figure £'000
Non-executive Director	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019
Lynn Brubaker	51	49	9	11	–	–	25	24	85	84
Admiral Sir James Burnell-Nugent	51	49	2	2	10	9	0	3	63	63
Mark Elliott	77	242	27	75	–	–	–	–	104	317
Michael Harper	51	49	0	2	12	19	0	3	63	72
Neil Johnson	187	–	1	–	–	–	–	–	188	–
Ian Mason	51	49	1	1	–	–	0	3	52	53
Paul Murray	51	49	0	1	10	9	0	3	61	62
Susan Searle	51	49	1	1	8	–	0	3	60	53

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.

Mark Elliott, the former Chairman, and Lynn Brubaker are US residents. Mark was entitled to an accommodation allowance of £75,000 and Lynn is 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 includes a payment of £10,000 as Senior Independent Director.

Percentage change in CEO remuneration

The following table compares change in CEO remuneration with an employee comparator group (averaged per capita). The comparison group (4,000 employees) represents the employees in the UK principal businesses in service between 1 April 2019 and 31 March 2020.

	CEO			Comparison group
	2020	2019	% change	2020	2019	% change
Base salary	£610,357	£596,422	2.3%	£46,261	£44,010	5.1%
Benefits	£49,813	£47,874	4.0%	£1,313	£1,298	1.1%
Annual bonus	£1,068,633	£1,125,747	-5.1%	£2,797	£3,446	-18.8%

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 managers 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 FY20 the Company element of the AEIS achieved a level between Target and Stretch resulting in a payment of £740 to every eligible employee, plus the opportunity to earn an additional payment based on personal performance. The AEIS will be operated again in FY21 and thereafter.

The Committee reviews (but does not decide) the general reward policy for all employees and of any significant changes proposed.

Directors' remuneration report continued

Gender related pay

QinetiQ is subject to gender pay reporting for UK employees and a copy of our 2019 report is available on the Company's website.

Relative importance of spend on pay

The graph below shows actual spend on all employee remuneration, shareholder dividends and buybacks and any other significant use of profit and cash within the previous two financial years.

Total Employee remuneration

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. Nonexecutive 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 76).

Director	Date appointed	Arrangement	Notice period
Lynn Brubaker	27 January 2016	Initial term of three years from date of appointment until the conclusion of the Annual General Meeting approximately three years from that date, subject to annual reappointment at the AGM.	1 month
Admiral Sir James Burnell-Nugent	10 April 2010	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.	–
Neil Johnson	2 April 2019	Initial term of three years from date of appointment, subject to annual reappointment at the AGM.
Ian Mason	04 June 2014	Initial term of three years from date of appointment until the conclusion of the Annual General Meeting approximately three years from that date, subject to annual reappointment at the AGM.	1 month
Paul Murray	25 October 2010	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 until the conclusion of the Annual General Meeting approximately three years from that date, subject to annual reappointment at the AGM.	–
David Smith	01 March 2017	Service contract	12 months
Steve Wadey	27 April 2015	Service contract	12 months

Implementation of Policy for the year ended 31 March 2020

Fees

Non-executive Directors' fees were reviewed and increased effective 1 July 2019 as follows -

• Basic fee increased from £49,000 to £52,000
• Committee chair fee increased from £9,000 to £10,000
• Senior Independent Director fee remains at £10,000

The Non-executive Group Chairman receives a fee of £250,000 per annum.

Fees are reviewed in line with Policy.

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 does not hold any Non-executive directorships in other companies. David Smith was appointed Non-Executive director of Motability Operations Group plc on 1 July 2010. Non-Executive director fees, as reported in the 2019 Motability Operations Group plc annual report, were £50,000 per annum which are retained.

	Fees effective 1 July 2019 £
Group Chairman	250,000
Basic fee for UK Non-executive Director	52,000
Additional fee for chairing a Committee	10,000
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

Implementation of Policy for the year ending 31 March 2021

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 2020 acquisitions)	Relative weighting(%)
Bonus Banking Plan	Underlying operating profit	25.0%
Target performance 100% of base salary	Underlying net cash flow from operations	25.0%
Stretch performance 200% of base salary	Orders	25.0%
	Collective objectives	12.5%
	Personal objectives	12.5%

For FY21, the Remuneration Committee set the target level of performance at 50% of stretch for the financial measures, collective and personal objectives. 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 FY21 the strategic growth performance measure is organic revenue growth across the Group compared to FY20. This change for FY21 (international revenue growth was used for the FY19 and FY20 awards) was made to incentivise our senior leaders globally to collaborate across the Group to deliver sustainable profitable growth. There will be a pre-grant margin underpin to ensure that profit performance remains strong.

The Remuneration Committee has discussed and will continue to discuss the impact of the COVID-19 crisis on performance and remuneration. Performance metrics have been set for FY21 based on the ISBP FY21. 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, particularly in this unusual and challenging year, the rewards overall to executives are balanced and fair in the context of the shareholder journey.

Directors' remuneration report continued

The FY21 DSP award will be subject to a performance underpin before vesting:

• Group underlying profit outturn for FY21 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 FY21 DSP award, this will be the actual underlying operating profit (£m) for FY21 which must be achieved in FY24

Awards of contingent shares will be made in June 2021 based on FY21 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.

Salary and benefits

Salaries would normally be reviewed effective from 1 September 2020, but there will be no base salary review in FY21 as part of the cost saving measures taken in response to COVID-19. No changes are envisaged to the implementation of benefits policy.

Remuneration Committee meetings, activities and decisions FY20

The following table provides a summary of all the key activities during the year. The attendance at each meeting is detailed on page 68. The membership of the Remuneration Committee in FY20 was Susan Searle (Chair from October 2019), Michael Harper (Chair to September 2019), Neil Johnson, Lynn Brubaker, Admiral Sir James Burnell-Nugent, Ian Mason, Paul Murray and Mark Elliott (resigned July 2019) .

Base salary	Incentives	Share awards	Governance	Resourcing
May 2019	FY19 final results for BBP and DSP	2016 PSP vesting 2019 DSP awards	Executive Director and Executive Committee base salary reviews Approve Directors' Remuneration Report.
July 2019			AGM Preparation Directors' Remuneration Policy initial discussion for 2020 AGM
October 2019			Review of latest investor voting guidance Directors' Remuneration Policy discussion for 2020 AGM
November 2019	Trends in executive remuneration FY20 half year forecast	FY20 half year forecast	Review of Executive Committee shareholdings Review of Company reward practices Directors' Remuneration Policy discussion for 2020 AGM
January 2020	FY21 incentive measures		Directors' Remuneration Policy discussion for 2020 AGM	Global Operating Model implementation
March 2020	FY20 provisional results FY21 target setting	2017 PSP provisional vesting	Directors' Remuneration Policy discussion for 2020 AGM

Effectiveness review

In 2020, the effectiveness review was conducted in-house via a questionnaire distributed by the Company Secretary. This process is described further on page 78.

Remuneration consultants

The Committee has appointed FIT Remuneration Consultants LP, 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 following a competitive tendering exercise. Fees paid during the year for services provided were £52,721.

FIT provided the following additional services during the year:

• Implementation support for the Company on executive share plans; and
• TSR performance monitoring for Performance Share Plan awards.

The Committee is satisfied the scale and nature of this work does not impact on the objectivity and independence of the advice it receives from FIT.

Statement of voting

Annual Report on Remuneration – 2019

Votes for	398,773,134 (88.3%)
Votes against	53,016,701 (11.7%)
Total votes cast	451,789,835 (79.6% of share capital)
Abstained	2,594,018

			2017 % of votes (%)
--	--	--	---------------------	--	--

Votes against

Directors' Remuneration Policy – 2017 Votes for 255,350,780 (63.8%)

Votes against	145,182,781 (36.3%)
Total votes cast	400,533,561 (70.6% of share capital)
Abstained	53,828

Details on the voting on all resolutions at the 2020 AGM will be announced via the RNS and posted on the QinetiQ website following the AGM.

Susan Searle

Remuneration Committee Chair

21 May 2020

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	58
Directors' details	60
Directors' conflict of interest	67
Directors' interests in shares	102
Employees	39
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	146 note 24
Greenhouse gas emissions	46
Likely future developments in the business of the Company or its subsidiaries	2 to 55
Results	24 to 27

Disclosure specifically required pursuant to the Companies (Miscellaneous Reporting) Regulations 2018 can be found on the following pages:

Statement in the Strategic Report of how Directors have complied with their duty to have regard to the matters in the 2006 Companies Act section 172(1) a – f	Page 52
Statement in the Directors' Report summarising how Directors have engaged with employees and taken account of their interests	Page 64
Statement in the Directors' Report about the corporate governance arrangements applied by the Company	Page 66
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	Page 104
Illustration of the effect of future share price increases on executive pay outcomes in the Directors' Remuneration report	Page 85

Management report

The Strategic report on pages 2 to 56 and the Directors' report, as detailed on pages 110 to 113, 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 £292.3m (2019: £298.9m) of total R&D-related expenditure, of which £270.8 m (2019: £272.9m) was customer-funded work and £21.5m (2019: £26.0m) was internally funded. Additionally, £2.1m (2019: £3.1m) of late-stage development costs were capitalised and £1.4m (2019: £1.1m) 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. The legal definition of that term is, however, quite broad and may have the effect of covering a number of normal business activities that would not commonly be perceived to be political donations, such as sponsorship of events.

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 2020, the Company had an allotted and fully paid up share capital of 571,757,121 ordinary shares of 1p each with an aggregate nominal value of £5.7m and one Special Share with a nominal value of £1. The ordinary share total includes 3,794,743 shares held exclusive of voting rights in treasury and 595,063 shares held by employee share trusts.

Details of the shares in issue during the financial year are shown in note 26 on page 153.

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. For the arrangements of this years AGM, please see page 67 for further details.

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 26 on page 133.

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 2020, the Trust held 595,063 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:

Name of shareholder	At 31 March 2020 % of issued share capital*	At 14 May 2020* % of issued share capital
Schroders	9.62%	9.62%
Majedie Asset Management Limited	5.03%	5.03%
Silchester International	4.96%	4.96%
Investec	4.95%	4.95%
Standard Life Aberdeen plc	4.81%	4.81%
Norges Bank	4.02%	3.99%

* 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. All such indemnity provisions are in force as at the date of this Directors' report. 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.

Directors' report continued

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, that expires on 27 September 2024, with an option to extend to a final maturity to 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 98.

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 2019, the shareholders passed resolutions which authorised the Directors to allot relevant securities up to an aggregate nominal value of £3,786,037 (£1,893,019 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 2020 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 2020 AGM.

Annual General Meeting

The Company's AGM will be held on Tuesday 14 July 2020 at 11.00am at Cody Technology Park, Ively Road, Farnborough, Hampshire GU14 0LX.

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

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 judgments 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 and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation.

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

Directors' confirmations

The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company's position and performance, business model and strategy.

Each of the Directors, whose names and functions are listed on pages 60 and 61 confirm that, to the best of their knowledge:

• The Company's financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 'Reduced Disclosure Framework', and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company
• The Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group
• The Directors' report includes a fair review of the development

and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that it faces

• In the case of each Director in office at the date the Directors' report is approved
• So far as the Director is aware, there is no relevant audit information of which the Group and Company's auditors are unaware
• They have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Group and Company's auditors are aware of that information.

Scope of the reporting in this Annual Report

The Board has prepared a Strategic report which provides an overview of the development and performance of the Group's business in the year ended 31 March 2020.

For the purposes of DTR 4.1.5R(2) and DTR 4.1.8 the Directors' report, the Directors confirm that, so far as they are aware, there is no relevant audit information of which the Company's auditor is unaware, and that they have taken all steps that they ought to have taken as Directors to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

By order of the Board.

Jon Messent

Company Secretary and Group General Counsel 21 May 2020

Independent auditors' report to the members of QinetiQ Group plc

Report on the audit of the financial statements

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 2020 and of the Group's profit and cash flows for the year then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union;
• 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 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

We have audited the financial statements, included within the Annual Report and Accounts (the 'Annual Report'), which comprise: the Consolidated and Company balance sheets at 31 March 2020; the Consolidated income statement and Consolidated comprehensive income statement, the Consolidated cash flow statement, and the Consolidated and Company statements 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 to the Group or the Company.

Other than those disclosed in note 8 to the financial statements, we have provided no non-audit services to the Group or the Company in the period from 1 April 2019 to 31 March 2020.

Our audit approach

Overview

• Overall Group materiality: £6.2 million (2019: £6.1 million), based on 5% of underlying profit before tax.
• Overall Company materiality: £4.8 million (2019: £4.8 million), based on 1% of total assets.
• We conducted full scope audit work in the UK over QinetiQ Limited, the main trading entity of the Group which provided 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. (QNA) and QinetiQ Target Systems Limited.
• We performed procedures over accounts receivable and accounts payable in Manufacturing Techniques Inc. (MTEQ).
• We performed procedures over revenue and associated balances in QNA.
• We performed procedures over goodwill, intangible assets, share-based payments, pensions, the implementation of IFRS 16, taxation and testing of the consolidation at a Group level.
• Long-term contract accounting
• Provisions and contingent liabilities
• Impairment of goodwill and acquired intangibles
• Accounting for tax research and development expenditure credits
• Acquisition accounting
• Impact of COVID-19

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.

Capability of the audit in detecting irregularities, including fraud

Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and regulations related to relevant tax legislation, 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 preparation of the financial statements such as the Companies Act 2006.

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 regulation 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 reports to relevant regulatory authorities;
• Challenging assumptions and judgements made by management in their significant accounting estimates, in particular in relation to long-term contract accounting and the impairment of goodwill and intangible fixed assets (see related key audit matter below);
• Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations or posted by senior management; and
• Incorporating elements of unpredictability into the audit procedures performed.

There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. 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.

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.

Independent auditors' report to the members of QinetiQ Group plc continued

Long-term contract accounting

Refer to page 73 (Report of the Audit Committee) and page 162 (note 35, Significant accounting policies – Revenue from contracts with customers) and page 128 (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 contracting 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 the 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.

Key audit matter How our audit addressed the key audit matter

We evaluated the contract governance policies and controls in place within the business, and tested the design and operating effectiveness of key controls in place 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 reviews. These detailed reviews involved meeting with key financial and non-financial personnel 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 recalculated revenue recognised and agreed both revenue, costs and associated balance sheet positions to the underlying general ledger
• We obtained evidence to corroborate management estimates and judgements, particularly around costs to complete and risk contingencies. Where necessary, we obtained correspondence with the customer to evidence progress made on the contract during the year and remaining obligations
• We validated costs incurred and allocated to contracts during the year to supporting documentation on a company-wide basis

For remaining untested low-risk contracts, we selected a sample and performed testing over revenue, 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.

Additional testing was performed, where not sufficiently covered by the above, over amounts recoverable under contract and billed in advance balance sheet positions. These have been sample tested and agreed to supporting documentation.

No material exceptions were found.

Provisions and contingent liabilities

Refer to page 73 (Report of the Audit Committee) and page 162 (note 35, Significant accounting policies – Other payables, provisions and contingent liabilities), page 143 (note 21, Provisions) and page 160 (note 30, Contingent liabilities and assets).

QinetiQ Group plc holds provisions in respect of legal, regulatory and environmental issues. (Note: Project and contract related provisions are covered within the 'long-term contract accounting' matter above).

The Group operates in regulated environments and a failure to comply with particular regulations could result in fines and/or penalties. There is judgement required in determining the significance of any instances of potential non-compliance and potential liability based on management's assessment of the most likely outcome.

The financial statements should disclose any contingent liabilities in respect of contractual, regulatory or legal issues which have not been provided for on the basis that they are not considered to qualify for recognition as provisions

We have assessed management's processes and controls over legal and regulatory claims and issues and made enquiries with in-house legal counsel.

We tested the appropriateness of management's assumptions by reference to third party evidence for key provisions recorded at the year end and movements in the year. In doing this, we concluded on whether our understanding of the business gained throughout the audit process corroborated the provisions recorded.

We challenged management's estimate of the most likely outcomes by critically evaluating the range of possible outcomes to determine if the amounts provided are appropriate.

We assessed the adequacy of the Group's financial statement disclosures and adherence to accounting standards.

We found that the judgements formed by management were within an acceptable range and disclosures made in the financial statements are materially correct.

Impairment of goodwill and acquired intangibles

Refer to page 73 (Report of the Audit Committee), page 162 (note 35, Significant accounting policies – Business combinations and related goodwill, page 136 (note 12, Goodwill) and page 138 (note 13, Intangible assets).

The business has a material amount of acquired intangible assets and goodwill, including for recent acquisitions. There is an increased risk of impairment where the post-acquisition performance of businesses acquired is behind expectations from the time of the original acquisition.

Management perform a discounted cash flow analysis based on the Board approved five year budget plans to assess whether the goodwill and intangible assets are supported by future cash projections.

Impairment charges have been recognised in the QinetiQ Germany and Advisory Services CGUs during the year.

Key audit matter How our audit addressed the key audit matter

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 growth and discount rates used in this impairment calculation, by comparing the Group's assumptions to external data. We concluded that the Group's assumptions were appropriate.

We have understood the rationale for the model used, the term of which is consistent with the internal budgeting and forecasting process and the long-term viability assessment, and agreed that this has been appropriately approved by the Board.

We challenged the cash flow projections used within the model by reference to current level of sales and analysis of management's historic forecasting accuracy. We have held discussions with financial and non-financial personnel, corroborating explanations to supporting documentation, including third party evidence, where possible.

We tested the sensitivity of the impairment calculation to changes in the underlying assumptions and concluded that there is sufficient headroom within the model such that no further impairments are required.

Where impairment charges have been recognised, we have challenged the basis and accuracy of the impairment, and have ensured that sufficient and appropriate disclosure is made in the financial statements.

We assessed whether the Group's disclosures regarding sensitivity of the outcome of the impairment assessment to changes in key assumptions properly reflected the risks inherent in the valuation of goodwill.

Through review of the impairment assessment performed by management and the disclosures made, we did not identify any material misstatements.

Accounting for tax research and development expenditure credits

Refer to page 162 (note 35, Significant accounting policies – Taxation), page 133 (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.

Measurement of current tax includes RDEC and requires judgements as to the probable amount of tax payable after the preparation of tax filings and potential challenge by relevant tax authorities.

We have reviewed management's accounting policy for RDEC and disclosure (note 9, Taxation) of its impact on the Group's underlying effective tax rate. Management has made a judgement as to whether RDEC should be accounted for under IAS 12 or IAS 20 and we consider the disclosures made sufficient to enable a user of the accounts to identify and understand the impact of management's accounting policy.

We have used our tax specialists to challenge the appropriateness of management's assumptions and estimates in relation to tax positions, including RDEC, by critically assessing the range of possible outcomes. We obtained the latest correspondence with the relevant tax authorities to corroborate management's conclusions.

We found that judgements made by management in regards to RDEC were within an acceptable range.

We have reviewed the disclosures made in respect of tax, in particular around estimates and uncertainties and are satisfied that the disclosures made are appropriate.

Acquisition accounting

Refer to page 73 (Report of the Audit Committee), page 162 (note 35, Significant accounting policies – Business combinations and related goodwill), and page 134 (note 11, Business Combinations).

QinetiQ Group plc has completed two acquisitions in the year; Manufacturing Techniques Inc. and Newman & Spurr Consultancy.

Business combinations are inherently of greater risk as they are oneoff and unique in nature. Management have applied key judgements, including assessing the fair value of assets and liabilities acquired.

A material amount of goodwill has resulted from these transactions, creating a risk that this may be impaired if it is unsupported by the forecast performance of the businesses acquired.

We have obtained and reviewed the purchase agreements to ensure that all terms have been considered and accounted for appropriately.

We used our internal valuation experts to assess the appropriateness of the fair value of acquired intangibles and other assets and liabilities, as calculated by management's experts.

We agreed consideration paid to supporting documents and ensured that the resulting goodwill is calculated accurately and supported by the expected future performance of the acquired businesses.

We obtained supporting evidence over Accounts Receivable and Accounts Payable balances at MTEQ at the acquisition date.

We reviewed the disclosures made in respect of acquisitions, in particular around estimates and uncertainties, and are satisfied that the disclosures made are appropriate.

Independent auditors' report to the members of QinetiQ Group plc continued

Impact of COVID-19

Refer to page 73 (Report of the Audit Committee) and page 10 (Chief Executive's statement) and page 36 (Principal risks).

QinetiQ Group plc continue to deliver customer contracts and consider the impact of COVID-19 to be limited.

Management have taken precautionary action in implementing a series of temporary measures, including a reduction in senior salaries and Board fees, in addition to postponing the decision on the dividend. Measures to temporarily close sites and furlough workers have also been taken to respond to the short-term impact of the pandemic.

Forecasts for FY21 and beyond have been revisited to ensure that any necessary revisions to the year end balance sheet are made. The impairment to QinetiQ Germany's Goodwill arose as a result of this reforecasting exercise and is detailed in that Key Audit Matter above.

Whilst management consider the Group to remain resilient, attributed to a strong order book and net cash position at the year end, a range of possible outcomes continues to be modelled depending on the duration and extent of measures such as social distancing and restrictions on international travel.

The third party engaged by management to value pension assets have included a material valuation uncertainty clause in their report. This clause highlights that there is less certainty attached to the valuation as a result of the COVID-19 pandemic. This represents a significant estimation uncertainty in relation to the valuation of pension assets.

Key audit matter How our audit addressed the key audit matter

We have discussed the impact of COVID-19 in each meeting held with management at multiple levels across the Group.

Our audit work over long term contracts described above included obtaining an understanding of COVID-19 risks on each contract and agreeing that risk assumptions within the contract accounting were supportable to corroboratory evidence.

We have evaluated and challenged management's revised forecasts and agreed these to supporting documentation and correspondence with customers where applicable. The revised forecasts, and assumptions that underpin them, are supportable.

We have reviewed the disclosures made in respect of COVID-19 and are satisfied that they are sufficient and consistent with procedures performed. In particular, we considered the adequacy of the disclosures made in notes 36 (Critical accounting estimates and judgements) and 28 (Post-retirement benefits) to the financial statements, which explain that there is significant estimation uncertainty in relation to the valuation of the following pension assets included in the balance sheet as at 31 March 2020; the property portfolio of £167.0m and the unquoted equities of £47.3m. We obtained management's assessment and gathered sufficient appropriate audit evidence around the valuation in the statement of financial position and the sufficiency of the disclosures made.

We determined that there were no key audit matters applicable to the Company to communicate in our report.

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.

The only financially significant component within the Group is QinetiQ Limited. The audit of this entity's complete financial information was performed by the Group audit team in the UK. This provided sufficient coverage over all financial statement balances, except inventory. We performed additional audit procedures over inventory balances at two further entities to ensure sufficient coverage over that financial statement line item. One entity was located within the UK and work was performed by the Group audit team. The other entity was 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 Foster Miller Inc., located in the US which was performed by our local PwC component audit team.

Additional procedures were also performed by the Group audit team over accounts receivable and accounts payable balances within Manufacturing Techniques Inc.

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 complete financial information of QinetiQ Limited, accounted for 69% of total Group revenue and 90% of underlying profit before taxation.

To supplement our audit work on QinetiQ Limited, we performed audit procedures over: Inventory in two other locations, Accounts Receivable and Accounts Payable in MTEQ and Revenue and associated balance sheet accounts within QNA. This, along with work performed at Group level, obtained coverage of 77% or total Group Revenue and 86% of total Group assets.

The combination of the work referred to above, together with additional procedures performed at Group level, including testing of significant journals posted within the consolidation and significant adjustments made to the financial statements, gave us the evidence we needed for our opinion on the financial statements as a whole.

How we tailored the audit scope continued

Only one component auditor, located in the US, was involved in the audit as all other audit procedures were performed by the Group audit team. The US business operates under a Proxy Board which is required to carry on business with the US Department of Defence. This Proxy Board places certain restrictions on access to, and communication of, information outside of the US borders. We planned our audit to ensure US personnel completed the audit work within the US and obtained approvals for transfer of information in advance of undertaking the audit work. The Group engagement leader discussed and agreed the audit plan with our US component audit team, in addition to agreeing the format and content of communications. We determined the level of involvement we needed to have in the audit work at this reporting entity to be able to conclude whether sufficient appropriate evidence had been obtained as a basis for our opinion on the financial statements as a whole. As the procedures performed by this component were limited to revenue and associated balances; and inventory only, this included discussions with the component team and attending the audit close meeting by video conference call, at which the outcome of all audit findings was discussed. The Group audit team have reviewed the working papers of the US component team and are comfortable that sufficient and appropriate procedures have been performed.

The Company audit was performed by the Group audit team. Audit procedures were performed over the complete financial information and disclosures for statutory audit purposes only. Audit work over the Company was not required for the Group audit as all significant balances within the Company are eliminated on consolidation.

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:

	Group financial statements	Company financial statements
Overall materiality	£6.2 million (2019: £6.1 million).	£4.8 million (2019: £4.8 million).
How we determined it	5% of underlying profit before tax.	1% of total assets.
	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	We believe that total assets is the primary measure used by the shareholders in assessing the performance of this entity, and is a generally accepted auditing benchmark for non-trading entities. This materiality relates to the audit for
Rationale for benchmark applied	specific adjusting items due to the nature of these balances as disclosed in note 4 to the Financial Statements.	the statutory entity 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 £3.0 million and £5.9 million. Certain components were audited to a local statutory audit materiality that was also less than our overall Group materiality.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £300,000 (Group audit) (2019: £300,000) and £240,000 (Company audit) (2019: £240,000) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.

In addition, we agreed with the Audit Committee that we would report to them misstatements identified during our audit of the Directors' Remuneration Report above £1,000, as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.

Going concern

In accordance with ISAs (UK) we report as follows:

Reporting obligation	Outcome
We are required to report if we have anything material to add or draw attention to in respect of the Directors' statement in the financial statements about whether the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements and the Directors' identification of any material uncertainties to the Group's and the company's ability to continue as a going concern over a period of at least 12 months from the date of approval of the financial statements.	We have nothing material to add or to draw attention to. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group's and company's ability to continue as a going concern.
We are required to report if the Directors' statement relating to Going Concern in accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.	We have nothing to report.

Independent auditors' report to the members of QinetiQ Group plc continued

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. 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 the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 (CA06), ISAs (UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as described below (required by ISAs (UK) unless otherwise stated).

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 2020 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. (CA06)

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. (CA06)

The Directors' assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity of the Group We have nothing material to add or draw attention to regarding:

• The Directors' confirmation on page 113 of the Annual Report that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity.
• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
• The Directors' explanation on page 37 of the Annual Report as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they 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 of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

We have nothing to report having performed a review of the Directors' statement that they have carried out a robust assessment of the principal risks facing the Group and statement in relation to the longer-term viability of the Group. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the Directors' process supporting their statements; checking that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the 'Code'); and considering whether the statements are consistent with the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit. (Listing Rules)

Other Code Provisions

We have nothing to report in respect of our responsibility to report when:

• The statement given by the Directors, on page 113, that they consider the Annual Report taken as a whole to be fair, balanced and understandable, and provides the information necessary for the members to assess the Group's and Company's position and performance, business model and strategy is materially inconsistent with our knowledge of the Group and Company obtained in the course of performing our audit.
• The section of the Annual Report on page 72 describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee.
• 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.

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. (CA06)

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 set out on page 112, 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.

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 received 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 three years, covering the years ended 31 March 2018 to 31 March 2020.

Julian Gray

Senior Statutory Auditor

for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Southampton

21 May 2020

Financial statements

Consolidated income statement	124
Consolidated comprehensive income statement	125
Consolidated statement of changes in equity	125
Consolidated balance sheet	126
Consolidated cash flow statement	127
Notes to the Financial Statements	128
Company balance sheet	176
Company statement of changes in equity	177
Notes to the Company Financial Statements	178
Five year record	180
OTHER INFORMATION
Additional Financial Information	181
Glossary	182
Shareholder Information	184

Consolidated income statement &RQVROLGDWHGLQFRPH VWDWHPHQW

For the year ended 31 March

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Consolidated comprehensive income statement &RQVROLGDWHGFRPSUHKHQVLYHLQFRPHVWDWHPHQW

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Consolidated balance sheet &RQVROLGDWHG EDODQFHVKHHW

As at 31 March

All figures in £ million	Note	2020	$2019$ *	$2018^*$
Non-current assets
Goodwill	12	180.8	148.6	101.5
Intangible assets	13	138.9	88.5	41.1
Property, plant and equipment	14	375.6	323.2	295.4
Other financial assets	22	1.0	0.9	0.3
Equity accounted investments	15	3.6	4.5	2.2
Retirement benefit surplus	28	309.7	259.1	316.2
Deferred tax asset	16	13.3	7.8	6.4
		1,022.9	832.6	763.1
Current assets
Inventories	17	52.3	40.1	38.1
Other financial assets	22	6.7	0.5	16.9
Trade and other receivables	18	250.0	208.5	150.3
Investments			L.	0.7
Current tax receivable	19	0.2	1.5	$\overline{\phantom{a}}$
Assets held for sale	14	$\overline{a}$	1.9	1.2
Cash and cash equivalents	22	105.8	190.8	254.1
		415.0	443.3	461.3
Total assets		1,437.9	1,275.9	1,224.4
Current liabilities
Trade and other payables	20	(379.8)	(346.6)	(334.9)
Current tax payable	19	(4.1)	(8.5)	(8.9)
Provisions	21	(1.8)	(6.2)	(6.0)
Other financial liabilities	22	(8.9)	(10.8)	(9.4)
		(394.6)	(372.1)	(359.2)
Non-current liabilities
Deferred tax liability	16	(101.3)	(72.7)	(66.0)
Provisions	21	(9.7)	(10.7)	(14.3)
Other financial liabilities	22	(19.9)	(20.9)	(23.9)
Other payables	20	(25.3)	(20.5)	(18.7)
		(156.2)	(124.8)	(122.9)
Total liabilities		(550.8)	(496.9)	(482.1)
Net assets		887.1	779.0	742.3
Equity
Share capital	26	5.7	5.7	5.7
Capital redemption reserve		40.8	40.8	40.8
Share premium		147.6	147.6	147.6
Hedging reserve		0.4	(0.2)	(1.8)
Translation reserve		8.3	3.8	(0.4)
Retained earnings		681.9	579.1	550.2
Capital and reserves attributable to shareholders of the parent company		884.7	776.8	742.1
Non-controlling interest		2.4	2.2	0.2
Total equity		887.1	779.0	742.3

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All figures in £ million Note	2020	2019
Gain on sale of property	14.0	0.2
Pension past service cost in respect of GMP equalisation		(0.7)
Acquisition transaction costs	(7.4)	(1.3)
Acquisition integration costs	(0.1)	(0.7)
Acquisition-related remuneration costs	(0.5)
Specific adjusting items profit/(loss) before interest, tax, depreciation and amortisation	6.0	(2.5)
Impairment of property		(3.7)
Impairment of goodwill	(14.1)
Amortisation of intangible assets arising from acquisitions	(7.5)	(3.9)
Specific adjusting items operating loss	(15.6)	(10.1)
Gain on sale of investments		1.1
Defined benefit pension scheme net finance income	6.5	8.2
Specific adjusting items loss before tax	(9.1)	(0.8)
Specific adjusting items $-$ tax 9	1.9	3.2
Total specific adjusting items (loss)/profit after tax	(7.2)	2.4

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Underlying profit after tax $-$ total Group	113.7	111.5
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Total profit for the year	106.5	113.9

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	2020 Number	2019 Number	2020 Number	2019 Number
EMEA Services	5.456	5,170	5,335	5,134
Global Products	.331	891	932	860
Total	6,787	6,061	6,267	5,994

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All figures in £ million	Note	2020	2019
Wages and salaries		335.9	303.1
Social security costs		33.5	27.4
Pension costs		42.9	40.2
Share-based payments costs	27	7.5	6.1
Total employee costs		419.8	376.8

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All figures in £ million	Customer relationships Other		Development	Other costs intangibles ^	Total
Cost
At 1 April 2019	90.2	76.0	25.8	52.3	244.3
Re-classification from PPE		-	0.1	0.2	0.3
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Additions - recognised on acquisition (see note 11)	24.5	20.3	0.7		45.5
Foreign exchange	2.8	2.4	(0.5)	2.9	7.6
At 31 March 2020	117.5	98.7	27.4	68.2	311.8
Accumulated amortisation and impairment
At 1 April 2019	38.4	59.5	20.6	37.3	155.8
Amortisation charge for year	5.3	2.2	1.4	2.9	11.8
Foreign exchange	0.7	2.1	(0.4)	2.9	5.3
At 31 March 2020	44.4	63.8	21.6	43.1	172.9
Net book value at 31 March 2020	73.1	34.9	5.8	25.1	138.9

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All figures in £ million	Customer relationships	Other	Development	Other costs intangibles ^	Total
Cost
At 1 April 2018	52.7	62.6	22.3	47.0	184.6
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Additions - recognised on acquisition	36.4	10.5	$\overline{\phantom{0}}$	-	46.9
Foreign exchange	1.1	2.9	0.4	0.2	4.6
At 31 March 2019	90.2	76.0	25.8	52.3	244.3
Accumulated amortisation and impairment
At 1 April 2018	33.8	55.4	19.3	35.0	143.5
Amortisation charge for year	2.7	1.2	1.1	2.1	7.1
Foreign exchange	1.9	2.9	0.2	0.2	5.2
At 31 March 2019	38.4	59.5	20.6	37.3	155.8
Net book value at 31 March 2019	51.8	16.5	5.2	15.0	88.5

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All figures in £ million	Land and	Plant. machinery buildings and vehicles	Computers and office	Assets under equipment construction	Land and buildings	Plant, machinery and vehicles	Computers and office equipment	Total
Cost
At 1 April 2019 restated (see note 37)	306.9	237.2	62.9	53.4	56.6	15.7	0.4	733.1
Additions $-$ purchased *	8.1	16.6	2.1	58.6	1.0	3.0	$\qquad \qquad -$	89.4
Additions - recognised on acquisition	0.8	0.7	$\overline{\phantom{0}}$		2.5		$\overline{\phantom{0}}$	4.0
Re-classification from intangibles	-	$\qquad \qquad -$	$\qquad \qquad -$	(0.3)	-	-	$\qquad \qquad -$	(0.3)
Re-classification	9.6	10.3	7.2	(27.1)	-	$\overline{\phantom{a}}$	-
Disposals		(1.4)	(1.8)		(4.2)	(1.2)	-	(8.6)
Foreign exchange	0.2	0.8	0.1	-	0.2	0.1	$\overline{\phantom{0}}$	1.4
At 31 March 2020	325.6	264.2	70.5	84.6	56.1	17.6	0.4	819.0
Accumulated depreciation and impairment
At 1 April 2019 restated (see note 37)	174.0	155.6	35.3	-	35.7	9.1	0.2	409.9
Charge for year	9.7	13.2	8.8	-	5.1	4.5	0.1	41.4
Impairment reversal		(0.4)				$\overline{\phantom{0}}$		(0.4)
Disposals		(1.4)	(1.8)		(4.2)	(1.2)	-	(8.6)
Foreign exchange	0.2	0.8	0.1	-		-	$\overline{\phantom{0}}$	1.1
At 31 March 2020	183.9	167.8	42.4	$\qquad \qquad -$	36.6	12.4	0.3	443.4
Net book value at 31 March 2020	141.7	96.4	28.1	84.6	19.5	5.2	0.1	375.6

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				Owned assets			Right of use assets
All figures in £ million	Land and	Plant, machinery buildings and vehicles	Computers and office	Assets under equipment construction	Land and	Plant, machinery buildings and vehicles	Computers and office equipment	Total
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At 1 April 2018	303.1	193.8	50.3	50.8				598.0
Adjustment for change in accounting policy (note 37)			-	$\overline{\phantom{m}}$	53.2	9.4	0.4	63.0
Restated opening balance	303.1	193.8	50.3	50.8	53.2	9.4	0.4	661.0
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Disposals		(1.2)	(0.3)	(1.4)			-	(2.9)
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At 31 March 2019	306.9	237.2	62.9	53.4	56.6	15.7	0.4	733.1
Accumulated depreciation and impairment
At 1 April 2018	161.2	140.2	27.6				-	329.0
Adjustment for change in accounting policy (note 37)				-	30.7	5.8	0.1	36.6
Restated opening balance	161.2	140.2	27.6	-	30.7	5.8	0.1	365.6
Charge for year	8.7	13.0	7.7	-	5.0	3.3	0.1	37.8
Impairment	3.7	2.7						6.4
Disposals		(1.2)	(0.3)				-	(1.5)
Foreign exchange	0.4	0.9	0.3	-	-	-	-	1.6
At 31 March 2019	174.0	155.6	35.3	-	35.7	9.1	0.2	409.9
Net book value at 31 March 2019	132.9	81.6	27.6	53.4	20.9	6.6	0.2	323.2

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All figures in £ million	2020	2019
Current tax receivable	0.2	1.5
Current tax payable	(4.1)	(8.5)
	(3.9)	(7.0)

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All figures in £ million	2020	2019
Trade payables	65.0	61.2
Other tax and social security	37.6	31.8
Contract liabilities	143.9	123.6
Accrued expenses and other payables	133.3	130.0
Total current trade and other payables	379.8	346.6
Contract liabilities	2.7	4.3
Other payables	22.6	16.6
Total non-current trade and other payables	25.3	20.9
Total trade and other payables	405.1	367.5

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All figures in £ million	Property	Other	Total
At 1 April 2019	13.1	3.8	16.9
Created in year	1.3	0.5	1.8
Released in year	(5.1)	(0.6)	(5.7)
Unwind of discount	0.1	-	0.1
Reclassified to other account	(0.1)	-	(0.1)
Utilised in year	(1.2)	(0.2)	(1.4)
Foreign exchange	$\overline{\phantom{0}}$	(0.1)	(0.1)
At 31 March 2020	8.1	3.4	11.5
Current liability	1.2	0.6	1.8
Non-current liability	6.9	2.8	9.7
At 31 March 2020	8.1	3.4	11.5

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As at 31 March
----------------	--

			2020			2019*
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	-	(8.6)	(8.6)		(9.7)	(9.7)
Derivative financial instruments	6.3	(0.3)	6.0	0.1	(1.1)	(1.0)
Total current financial assets/(liabilities)	6.7	(8.9)	(2.2)	0.5	(10.8)	(10.3)
Non-current assets/(liabilities)
Deferred financing costs	0.9		0.9	0.9		0.9
Lease liabilities	$\qquad \qquad -$	(19.3)	(19.3)	$\qquad \qquad -$	(20.6)	(20.6)
Derivative financial instruments	0.1	(0.6)	(0.5)	$\qquad \qquad -$	(0.3)	(0.3)
Total non-current financial assets/(liabilities)	1.0	(19.9)	(18.9)	0.9	(20.9)	(20.0)
Total financial assets/(liabilities)	7.7	(28.8)	(21.1)	1.4	(31.7)	(30.3)
Cash	48.8	$\overline{\phantom{0}}$	48.8	99.6	-	99.6
Cash equivalents	57.0	$\overline{\phantom{0}}$	57.0	91.2	$\qquad \qquad -$	91.2
Total cash and cash equivalents	105.8	$\qquad \qquad -$	105.8	190.8	-	190.8
Total net cash as defined by the Group			84.7			160.5

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Within one year	5.2	5.9
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	18.1	22.7

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All figures in £ million	2020	2019*
Land and buildings	19.5	20.9
Plant, machinery and vehicles	5.2	6.6
Computers and office equipment		0.2
	24.8	27.7

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All figures in £ million	2020	2019
Current	8.6	9. 1
Non-current	19.3	20.6
	27.9	30.3

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All figures in £ million	2020	$2019*$
Depreciation charge
Land and buildings	5.1	5.0
Plant, machinery and vehicles	4.5	3.3
Computers and office equipment	0.1	0.1
Total depreciation charge	9.7	8.4
Interest expense (included in finance cost)	1.0	1.1
Expense relating to short-term leases (included in operating costs)	1.6	1.6
Total lease and sub-lease expense charged to profit before tax	12.3	11.1

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All figures in £ million	2020	2019*
Within one year	8.6	9.7
In the second to fifth years inclusive	17.8	18.1
Greater than five years	1.5	2.5
	27.9	30.3

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The following table presents the Group's assets and liabilities that are measured at fair value as at 0DUFK

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The following table presents the Group's assets and liabilities that are measured at fair value as at 0DUFK

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rate:	Total	Drawn	Undrawn
			£m
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		Contractual	vear			More than
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Trade and other payables (excluding contract liabilities)	(258.5)	(258.5)	(235.9)	(22.6)
Leases	(27.9)	(29.9)	(9.2)	(7.2)	(11.7)	(1.8)
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Forward foreign currency contracts $-$ cash flow hedges	(0.9)	(0.9)	(0.3)	(0.3)	(0.3)
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Trade and other payables (excluding contract liabilities)	(239.6)	(239.6)	(223.0)	(16.6)
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Derivative financial liabilities
Forward foreign currency contracts $-$ cash flow hedges	(1.4)	1.4	1.1	$^{\prime}$ 0.1	(0.2)	$\overline{\phantom{0}}$
	(271.3)	(274.6)	(233.7)	(23.5)	(13.5)	(3.9)

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All figures in £ million	2020	$2019*$
Profit after tax for the year	106.5	113.9
Adjustments for:
Taxation expense	16.6	9.3
Net finance income	(5.5)	(7.3)
Gain on sale of investment		(1.1)
Gain on sale of property	(14.0)	(0.2)
Impairment (reversal)/charge in respect of property, plant and equipment	(0.4)	6.4
Impairment of goodwill	14.1
Acquisition transaction costs not paid as at year end		1.3
Acquisition related remuneration costs not paid as at year end	0.5
Pension past service cost		0.7
Amortisation of purchased or internally developed intangible assets	4.3	3.2
Amortisation of intangible assets arising from acquisitions	7.5	3.9
Depreciation of property, plant and equipment	41.4	37.4
Profit on disposal of plant and equipment	(1.6)	(5.5)
Share of post-tax loss/(profit) of equity accounted entities	0.7	(0.6)
Share-based payments charge	7.4	6.1
Retirement benefit contributions in excess of income statement expense	(4.3)	(1.8)
Net movement in provisions	(5.4)	(3.6)
	167.8	162.1
Increase in inventories	(11.3)	(0.5)
Increase in receivables	(25.5)	(48.7)
Increase in payables	35.5	21.7
Changes in working capital	(1.3)	(27.5)
Net cash flow from operations	166.5	134.6

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Net cash flow from operations	166.5	134.6
Add back specific adjusting item: acquisition related remuneration costs	3.8
Add back specific adjusting item: acquisition transaction costs	7.5
Add back specific adjusting item: acquisition integration costs	$\overline{\phantom{0}}$	0.7
Underlying net cash flow from operations	177.8	135.3
Add: proceeds from disposal of plant and equipment	1.6	6.9
Less: tax and net interest payments	(10.5)	(11.1)
Less: purchases of intangible assets and property, plant and equipment	(109.4)	(87.6)
Free cash flow	59.5	43.5

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Underlying operating profit $=$ £ million	133.2	124.9
Underlying net cash flow from operations $-$ £ million	177.8	135.3
Underlying cash conversion ratio $-$ %	133%	108%

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		Ordinary shares of 1p each (equity)		Special Share of £1 (non-equity)		Total
		Number		Number		Number
At 1 April 2019 and 31 March 2020	5,717,571 571,757,121				5,717,572 571,757,122

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	2020 Number of awards	2019 Number of awards
Outstanding at start of the year	4,758,085	2,518,384
Difference between actual awards in year and amount provisionally awarded in prior year	368,558	(219,315)
Lapsed during the year	(245, 566)	(95, 577)
Provisionally awarded during the year		2,554,593
Outstanding at end of the year	4,881,077	4,758,085
Provisional awards outstanding	$\overline{\phantom{0}}$	2,554,593
Awards outstanding	4,881,077	2,203,492
Outstanding at end of the year	4,881,077	4,758,085

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	2020	2019
	Number of	Number of
	awards	awards
Outstanding at start of the year	44,014	$\overline{\phantom{m}}$
Granted during the year	47.291	132,155
Exercised during the year	(14,908)	(88, 141)
Lapsed during the year	(5,042)	$\overline{\phantom{0}}$
Outstanding at end of the year	71.355	44.014

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	2020 Number of awards	2019 Number of awards
Outstanding at start of the year	399,708	$\qquad \qquad -$
Granted during the year	-	399,708
Lapsed during the year	(56, 443)	$\equiv$
Outstanding at end of the year	343.265	399,708

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All figures in £ million	2020	2019
Total market value of assets $-$ see table below for analysis by category of asset	1.912.3	1.963.6
Present value of Scheme liabilities	(1.602.6)	(1,704.5)
Net pension asset before deferred tax	309.7	259.1
Deferred tax liability	(63.8)	(48.6)
Net pension asset after deferred tax	245.9	210.5

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All figures in £ million	2020	2019
Net finance income	6.5	8.2
Past service cost	richte in	(0.7)
Administrative expenses		(0.9)
Total net income recognised in the income statement (gross of deferred tax)	5.3	6.6

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All figures in £ million	2020	2019
Opening net pension asset	259.1	316.2
Net finance income	6.5	8.2
Net actuarial gain/(loss)	39.8	(66.4)
Administrative expenses	(1.2)	(0.9)
Past service cost	$\qquad \qquad -$	(0.7)
Contributions by the employer	5.5	2.7
Closing net pension asset	309.7	259.1

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			2020			2019
All figures in £ million	Quoted	Not quoted in an active market	Total	Quoted	Not quoted in an active market	Total
Equities	113.5	47.3	160.8	127.0	51.8	178.8
I DI investment	347.5	$\overline{\phantom{m}}$	347.5	690.8	$\overline{\phantom{0}}$	690.8
Asset backed security investments	465.0	$\qquad \qquad -$	465.0
Corporate bonds	-			96.0	-	96.0
Alternative bonds*	215.3	$\overline{\phantom{0}}$	215.3	304.4	-	304.4
Property funds	-	167.0	167.0	-	145.6	145.6
Cash and cash equivalents	-	15.8	15.8	-	75.1	75.1
Insurance buy-in policy	-	546.0	546.0	-	566.4	566.4
Outstanding payment due in respect of buy-in	-	$\overline{\phantom{m}}$		-	(96.0)	(96.0)
Derivatives	-	(5.1)	(5.1)	-	2.5	2.5
Total market value of assets	1,141.3	771.0	1,912.3	1,218.2	745.4	1,963.6

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Name of company	Country of incorporation	Registered office
Subsidiaries 1
BJ Trustee Limited	England & Wales	Farnborough 4
Boldon James Holdings Limited	England & Wales	Farnborough 4
Boldon James Limited	England & Wales	Farnborough 4
Commerce Decisions Limited	England & Wales	Farnborough 4
Commerce Decisions Pty Ltd	Australia	Level 33, 101 Collins Street, Melbourne, VIC 3000, Australia
CueSim Limited	England & Wales	Farnborough 4
Foster-Miller Canada Limited	Canada	318 Roxton Drive, Waterloo, Ontario, N2T 1R6, Canada
Foster-Miller Inc 2	US	350 2 nd Avenue, Waltham, Massachusetts, MA 02451 1104, USA
Graphics Research Corporation Limited	England & Wales	Farnborough 4
Gyldan 10 Limited	England & Wales	Farnborough 4
Inzpire Group Limited 1	England & Wales	Farnborough 4
Inzpire Holdings Limited 1	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 4
Metrix UK Limited	England & Wales	Farnborough 4
Newman & Spurr Consultancy Ltd	England & Wales	2 Meadows Business Park, Station Approach, Blackwater, Camberley, Surrey GU17 9AB
Optasense Canada Limited 2	Canada	3 Robert Speck Parkway, Suite 900, Mississauga ON L4Z 2GS, Canada
Optasense Holdings Limited	England & Wales	Farnborough 4
Optasense Inc 2	US.	5885 Trinity Parkway, Suite 130, Centreville, Virginia 20120-1969, USA
Optasense Limited	England & Wales	Farnborough 4
Precis (2187) Limited	England & Wales	Farnborough 4
Precis (2188) Limited	England & Wales	Farnborough 4
Qinetic Limited	England & Wales	Farnborough 4
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 4
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. 2	Canada	5300 Commerce Court West, 199 Bay Street, Toronto ON M5L 1A9, Canada
QinetiQ Group Holdings Limited	England & Wales	Farnborough 4
QinetiQ Holdings Limited	England & Wales	Farnborough 4
QinetiQ Inc 2, 8	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 4
QinetiQ Novare Pty Ltd	Australia	Petrie House, level 6, 80 Petrie Terrace, Brisbane QLD 400, Australia
QinetiQ Overseas Holdings Limited	England & Wales	Farnborough 4
QinetiQ Overseas Trading Limited	England & Wales	Farnborough 4
QinetiQ Pension Scheme Trustee Limited	England & Wales	Farnborough 4
QinetiQ PFP Limited Partnership 5	Scotland	50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ, Scotland
QinetiQ Philippines Company, Inc	Philippines	22 nd 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 th 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
OinetiO Sweden AB	Sweden	Advokatfirman Delphi, Box 1432, Stockholm, Sweden
QinetiQ Target Services Limited	England & Wales	Farnborough 4

Notes to the Financial Statements continued 1RWHVWRWKH)LQDQFLDO6WDWHPHQWV

For the year ended 31 March )RUWKH\HDUHQGHG0DUFK

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Name of company	Country of incorporation	Registered office
QinetiQ Target Systems Limited	England & Wales	Farnborough 4
QinetiQ US Holdings, Inc.	US.	5885 Trinity Parkway, Suite 130, Centreville, Virginia 20120-1969, USA
Redu Operational Services S.A 1	Belgium	Rue Devant les Hetres, 2B, 6890 Transinne, Belgium
RubiKon Group Pty Limited	Australia	Level 33, 101 Collins Street, Melbourne, Victoria 3000, Australia
Sensoptics Limited	England & Wales	Farnborough 4
TSG International LLC	US	350 Second Avenue, Waltham, Massachusetts 02451, USA
Associates 3
Redu Space Services S.A	Belgium	Rue Devant les Hetres, 2B, 6890 Transinne, Belgium
Joint venture 6
BQ Solutions QSTP-LLC 7	Qatar	Qatar Science & Technology Park, Innovation Centre Building, Office 307. Doha, Qatar
Houbara Defence & Security LLC 7	United Arab Emirates	503 Al Wahda Commercial Tower, Abu Dhabi, PO box 128220
OinetiO Dar Massader ODM Limited 7	Saudi Arabia	Al Nakhla Tower, 3026-Prince Saud Bin Mohamed Bin Mugin Road, PO Box 2985, Riyadh 13321, Kingdom of Saudi Arabia

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		2020
All figures in £ million	If applying IAS 17	Applying IFRS 16	presented	As As originally presented	Applying IFRS 16	Restated
Assets
Property, plant and equipment	350.8	24.8	375.6	298.0	25.2	323.2
Deferred tax assets	13.3	-	13.3	7.8		7.8
Other assets	1,049.0	-	1,049.0	944.9	-	944.9
	1,413.1	24.8	1,437.9	1,205.7	25.2	1,275.9
Liabilities
Trade and other payables	(405.1)	-	(405.1)	(367.1)	-	(367.1)
Other financial liabilities	(0.9)	(27.9)	(28.8)	(3.7)	(28.0)	(31.7)
Deferred tax liability	(101.3)		(101.3)	(73.1)	0.4	(72.7)
Other liabilities	(15.6)		(15.6)	(25.8)	0.4	(25.4)
	(522.9)	(27.9)	(550.8)	(469.7)	(27.2)	(496.9)
Net Assets	890.2	(3.1)	887.1	781.0	(2.0)	779.0
Equity
Retained earnings	685.0	(3.1)	681.9	581.1	(2.0)	579.1
Share capital and other reserves	202.8	-	202.8	197.7	-	197.7
Non-controlling interest	2.4	$\overline{\phantom{0}}$	2.4	2.2	$\qquad \qquad -$	2.2
Total equity	890.2	(3.1)	887.1	781.0	(2.0)	779.0

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	2020					2019
All figures in £ million	If applying IAS 17	Applying IFRS 16	presented	As As originally presented	Applying IFRS 16	Restated
Net cash as defined by the Group (see glossary)	12.6	(27.9)	84.7	188.5	(28.0)	160.5

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	2020
All figures in £ million	If applying IAS 17	Applying IFRS 16	presented	As As originally presented	Applying IFRS 16	Restated
Net cash inflow from operations	155.8	10.7	166.5	125.6	9.0	134.6
Others	(8.8)		(8.8)	(9.4)		(9.4)
Interest paid	(0.7)	(1.0)	(1.7)	(0.7)	(1.0)	(1.7)
Net cash inflow from operating activities	146.3	9.7	156.0	115.5	8.0	123.5
Net cash outflow from investing activities	(185.5)	-	(185.5)	(121.0)		(121.0)
Others	(39.0)		(39.0)	(57.9)		(57.9)
Capital element of lease payments		(9.7)	(9.7)	(0.4)	(8.0)	(8.4)
Net cash outflow from financing activities	(39.0)	(9.7)	(48.7)	(58.3)	(8.0)	(66.3)
Decrease in cash and cash equivalents	(78.2)		(78.2)	(63.8)		(63.8)
Free cash flow (as defined by the Group $-$ see glossary)	49.8	9.7	59.5	35.5	8.0	43.5

IFRIC 23 'Uncertainty over income tax treatments'

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Company balance sheet As at 31 March &RPSDQ\ EDODQFHVKHHW

All figures in £ million	Note	2020	2019
Fixed assets
Investments in subsidiary undertaking	2	482.5	475.0
		482.5	475.0
Current assets
Debtors	3	-	13.2
		-	13.2
Current liabilities
Creditors: amounts falling due within one year	$\overline{4}$	(70.6)	(91.8)
Net current liabilities		(70.6)	(78.6)
Total assets less current liabilities		411.9	396.4
Net assets		411.9	396.4
Equity
Share capital	5	5.7	5.7
Capital redemption reserve		40.8	40.8
Share premium		147.6	147.6
Retained earnings		217.8	202.3
Total equity		411.9	396.4

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Five Year Record )LYH<HDU5HFRUG

For the years ended 31 March (unaudited)		2020	$2019^2$	2018	2017	2016
EMEA Services	£m	797.4	687.7	651.4	613.5	616.4
Global Products	£m	275.5	223.4	181.6	169.6	139.3
Revenue	£m	1,072.9	911.1	833.0	783.1	755.7
EMEA Services	£m	100.6	96.8	94.3	92.7	93.8
Global Products	£m	32.6	28.1	28.2	23.6	15.1
Underlying operating profit 1	£m	133.2	124.9	122.5	116.3	108.9
Underlying operating margin 1	%	12.4	13.7	14.7	14.9	14.4
Operating profit	£m	117.6	114.8	141.0	132.7	75.3
Underlying profit before tax 1	£m	132.2	124.0	122.1	116.1	108.7
Profit before tax	£m	123.1	123.2	144.8	131.5	97.7
Profit attributable to owners of the Company	£m	106.3	113.9	138.1	123.3	106.1
Underlying basic EPS 1 attributable to owners of the Company	Pence	20.0	19.7	19.3	18.1	16.3
Basic EPS attributable to owners of the Company	Pence	18.7	20.1	24.4	21.5	18.1
Diluted EPS attributable to owners of the Company	Pence	18.6	20.0	24.3	21.3	18.0
Dividend per share	Pence	2.2	6.6	6.3	6.0	5.7
Underlying net cash flow from operations 1	£m	177.8	135.3	126.5	111.9	133.4
Net cash as defined by the Group	£m	84.7	160.5	266.8	221.9	274.5
Average number of employees		6,267	5,994	6,143	6,114	6,266
Orders excluding LTPA amendments	£m	972.1	776.4	587.2	675.3	659.8

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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 2020	12 months to 31 March 2019
$E/US\$ - opening	1.30	1 40
$E/US\$ - average	1 2 7	1 31
$E/US\$ - closing	1 24	1.30
$E/AS$ – opening	1 83	1 83
$E/AS$ - average	186	1 R.N
$E/AS - closing$

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 24. 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 which expires on 27 September 2024 with an option to extend one further year.

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 2020 were £10.0m.

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 accelerated capital allowances) but for which there is no corporation tax paid in the year. Together, these result in the cash paid being £6.6m less than the total expense charged to the income statement.

Glossary Glossary

AGM	Annual General Meeting	LTPA	Long Term Partnering Agreement – 25-year contract
BBP	Bonus Banking Plan		established in 2003 to manage the MOD's Test and Evaluation ranges
CAGR	Compound Annual Growth Rate	MDP	Modernising Defence Programme
C4ISR	Command, control, communications, computers, intelligence, surveillance and reconnaissance	MOD	UK Ministry of Defence
COTS	Commercial off the shelf	MSCA	Maritime Strategic Capability Agreement
CPI	Consumer Price Index	NCSISS	Naval Combat System Integration Support Services
CR	Corporate Responsibility	OHSAS	Occupational Health and Safety Advisory Services
CRC	Carbon Reduction Commitment	PDR	Performance development review
CSR	Corporate Social Responsibility	PBT	Profit before tax
DE&S	MOD's Defence, Equipment and Support organisation	PSP	Performance Share Plan
DHS	US Department of Homeland Security	QNA	QinetiQ North America
DSP	Deferred Share Plan	QSOS	QinetiQ Share Option Scheme
DoD	US Department of Defense	QTS	QinetiQ Target Systems
EBITDA	Earnings before interest, tax, depreciation and	R&D	Research and development
	amortisation	RDEC	Research and development expenditure credit
ED&I	Equality, diversity and inclusion	SE	Strategic Enterprise
EDP	Engineering Delivery Partner	SPA	Special protection area
EEG	Employee Engagement Group	SSRO	Single Source Regulations Office
EMEA	Europe, Middle East and Australasia	SSSI	Site of Special Scientific Interest
EPS	Earnings per share	STEM	Science, Technology, Engineering and Maths
ESA	European Space Agency	T&E	Test and Evaluation
ESOS	Energy Savings Opportunity Scheme	T&R	Training and Rehearsal
EST	Engineering, Science and Technical	TSR	Total shareholder return
FAR	Federal Acquisition Regulations	UAV	Unmanned aerial vehicle
FCA	Financial Conduct Authority		UK Corporate Governance Code
FMI	Foster-Miller, Inc. – the legal entity through which the QNA business operates		Guidelines of the Financial Reporting Council to address the principal aspects of corporate governance in the UK
	Funded order backlog The expected future value of revenue from contractually committed and funded customer orders	UK GAAP	UK Generally Accepted Accounting Practice
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

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 ratio of underlying net cash from operations to underlying 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 22
Specific adjusting items	Amortisation of intangible assets arising from acquisitions; impairment of property; gains/losses on disposal of property, investments and intellectual property; net pension finance income; pension past service costs; acquisition costs; tax impact of the preceding items and significant non-recurring deferred tax movements.	Note 4

Shareholder Information 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

The Company offers shareholders the option to receive documentation and communications electronically, via the Company's website. 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 2020 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 2020

By type of holder	Total number of holdings	Percentage of holders	Total number of shares	Percentage issued capital
Individual	5,667	88.94%	5,254,036	0.92%
Institutions and others	705	11.06%	566,503,085	99.08%
Total	6,372	100%	571,757,121	100%
By size of holding
1-500	4,308	67.61%	829,458	0.15%
501-1,000	516	8.10%	414,316	0.07%
1,001-2,500	601	9.43%	1,060,335	0.19%
2,501-5,000	340	5.34%	1,238,820	0.22%
5,001-10,000	152	2.39%	1,110,976	0.19%
10,001-100,000	219	3.44%	7,619,779	1.33%
Over 100,000	236	3.70%	559,483,437	97.85%
Total	6,372	100%	571,757,121	100%

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.
• 1. Do not get into a conversation, note the name of the person and firm contacting you and then end the call.
• 1. Check the Financial Services Register from www.fca.org.uk to see if the person and firm contacting you is authorised by the FCA.
• 1. Beware of fraudsters claiming to be from an authorised firm, copying its website or giving you false contact details.
• 1. Use the firm's contact details listed on the Register if you want to call it back.
• 1. 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.
• 1. Search the list of unauthorised firms to avoid at www.fca.org.uk/scams.
• 1. 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.
• 1. Think about getting independent financial and professional advice before you hand over any money.
• 1. 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

14 July 2020	Annual General Meeting
30 September 2020	Half-year financial period end
19 November 2020	Half-year results announcement
February 2021	Trading update (provisional date)
31 March 2021	Financial year end
27 May 2021	Preliminary results announcement (provisional date)

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.

Company Information and Advisors

Registered office

Cody Technology Park Ively Road Farnborough Hampshire GU14 0LX Tel: +44 (0) 1252 392000 Company Registration Number: 4586941

Independent auditors

PricewaterhouseCoopers LLP Savannah House 3 Ocean Way Southampton SO14 3TJ

Registrar

Equiniti Aspect House Spencer Road Lancing West Sussex BN99 6DA

Corporate brokers

Barclays 1 Churchill Place London EC14 5HP

Numis 10 Paternoster Square London EC4M 7LT

Principal legal advisor

Ashurst LLP London Fruit and Wool Exchange 1 Duval Square London E1 6PW

Cody Technology Park Ively Road Farnborough Hampshire GU14 0LX

Tel: +44 (0) 1252 392000 Company Registration Number: 4586941