Annual Financial Report

RNS Number : 8623H

QinetiQ Group plc

13 June 2017

 

13 June 2017

QINETIQ GROUP PLC

Availability of Annual Report and Accounts 2017 and Notice of 2017 Annual General Meeting

QinetiQ Group plc has today published the following documents:

·      QinetiQ 2017 Annual Report and Accounts;

·      Notice of 2017 Annual General Meeting; and

·      Chairman's Letter to Shareholders.

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

In compliance with Listing Rule 9.6.1, copies of the above documents, together with a copy of the Form of Proxy for the 2017 Annual General Meeting, have been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM.

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

The 2017 Annual General Meeting will be held at 11.00 am on Wednesday, 19 July 2017 at the offices of Ashurst LLP, Broadwalk House, 5 Appold Street, London EC2A 2HA.

In compliance with paragraph 6.3.5 of the Disclosure Guidance and Transparency Rules, the information in respect of Principal Risks, Related Party Transactions and the Directors' Responsibility Statement, contained in the Appendix, is extracted from the Annual Report and Accounts and should be read in conjunction with the Group's preliminary results announcement of 25 May 2017 (the 'Preliminary Results') which can be viewed on the Company's website at www.qinetiq.com/investors.  The information in the Appendix and the Preliminary Results together constitute the material required by DTR 6.3.5 to be communicated in unedited full text through a Regulatory Information Service.  This is not a substitute for reading the full Annual Report and Accounts.  Page and note references in the Appendix refer to page numbers and notes in the 2017 Annual Report and Accounts.

Enquiries:

Jon Messent - Company Secretary	[phone]
Press Office	[phone]
Ian Brown - Group Head of Investor Relations	[phone]

APPENDIX

  PRINCIPAL RISKS

Effective risk management is key to delivering our strategic objectives and realising our vision.  The Board is accountable for effective risk management across the Group. Board-level oversight is discharged through two committees:

-       Audit Committee: focuses on risks where the primary impact is financial; and

-       Risk & CSR Committee: focuses on risks where the primary impact is non-financial.

The reports of the Audit Committee and Risk & CSR Committee can be found on pages 59 to 65.  Details of the Group's system of risk management and internal control can be found in the Corporate Governance statement on pages 54 to 58.

Risk appetite

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

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

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

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

Commercial appetite

These three categories are then used within the context of the business strategy to define the Board's commercial appetite as:

Delivery/capabilities	+	Markets/Customers	=	Commercial appetite
Proven		Existing		Eager
Proven		New		Eager/balanced
New		Existing		Balanced
New		New		Balanced/cautious

Risk register

The Group Risk Register consists of material risks relating to effective delivery of our strategy.  The Board recognizes that some risks may be affected by factors outside the control of the Company and also recognises that however good the risk management processes are they cannot provide absolute assurance and unknown risks may manifest without warning; the Company has processes in place to deploy appropriate management to such risks.

Strategic risks

UK defence test and evaluation strategy	International strategy	Innovation strategy	Transformation	Recruitment and retention
Risk	Risk	Risk	Risk	Risk
UK Government budget constraints lead to reduced spending in the core markets in which the Group operates. EU exit causes a loss of market confidence and reduction in collaborative EU funding.	Failure to execute the international strategy.	Failure to sustain a culture of innovation or to invest adequately in, or create value from, our innovation investment.	The transformation does not result in change that embeds customer focus and creates value from increased innovation and competitiveness.	The Group operates in many specialised engineering, technical and scientific domains where a lack of domain-specific graduates leads to a future skills shortage.
Impact	Impact	Impact	Impact	Impact
A reduction in revenue and associated profitability from the Group's T&E contracts.	Failure to execute this strategy would negatively impact future growth.	Negative impact on the Group's market position, competitiveness, and future growth.	An internal culture which leads to sub-optimal performance.	Key capabilities and competences may be lost. The UK workforce has a skewed age distribution which creates risk on future skills shortage.
Mitigation	Mitigation	Mitigation	Mitigation	Mitigation
Positive stakeholder engagement. QinetiQ monitors and responds to potential opportunities arising from the MOD's actions to deliver improved value for money by making proactive proposals that deliver the desired customer outcomes.	The Group's Integrated Strategic Business Planning process is used to articulate clearly strategy, appropriate objectives and metrics. The Group has established and is investing in a new International business.	Innovation will be driven through cultural change, investment in, and application of, our core competences for our customers' advantage in defence and commercial markets. Internal Research and Development (IRAD) investment process.	Our way of working has been designed to support the delivery of our strategy to increase customer focus, improve our competitiveness and deliver collaboration across the Company. Leadership Development training to upskill teams on how to implement a high-performance culture.	Implemented a talent management review across the Group to include succession planning at Executive Committee level and ensuring our resourcing pipelines are focused on our critical skills for the future, including Early Careers.
Metrics	Metrics	Metrics	Metrics	Metrics
Customer satisfaction All financial KPIs	All financial KPIs	Customer satisfaction Employee Engagement Metrics under development as part of CFO review IRAD investment rate	Customer satisfaction Employee engagement Transformation scorecard	Employee engagement Apprentices and graduates Voluntary employee turnover
Responsibility	Responsibility	Responsibility	Responsibility	Responsibility
Group Director Business Development	Managing Director International	Group Director Engineering & Operations Chief Technology Officer	Chief Financial Officer Group Director Human Resources	Group Director Human Resources
Risk appetite	Risk appetite	Risk appetite	Risk appetite	Risk appetite
Eager	Cautious	Eager	Eager	Balanced
Likelihood/Impact	Likelihood/Impact	Likelihood/Impact	Likelihood/Impact	Likelihood/Impact
Medium/High	Medium/High	Medium/High	Medium/High	Medium/High
Proximity/Velocity	Proximity/Velocity	Proximity/Velocity	Proximity/Velocity	Proximity/Velocity
2+yrs/Low	2+yrs/Low	1-2yrs/Low	0-1yr/Medium	0-1yr/Low

Operational risks

Single source contract regulations	Security and IT systems	Significant breach of relevant laws and regulations	A material element of the Group's revenue is derived from one contract
Risk	Risk	Risk	Risk
Group performance is adversely affected by application of the UK Government regulations for profit rates of contracts awarded without competition.	A breach of data security, cyber attack or IT systems failure could have an adverse impact on our customers' operations.	The Group operates in highly regulated environments and recognises that its operations have the potential to have an impact on a variety of stakeholders.	The Long Term Partnering Agreement (LTPA) is a 25-year contract to provide test, evaluation, and training services to the MOD. UK Government budget constraints could lead to a material change to the contract.
Impact	Impact	Impact	Impact
The regulations could have an adverse impact on the Group's profitability.	Significant reputational damage, as well as the possibility of exclusion from some types of government contracts resulting in reduced orders, revenue and profit.	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 the QinetiQ brand.	The LTPA directly contributes a material proportion of the Group's revenue and earnings.
Mitigation	Mitigation	Mitigation	Mitigation
QinetiQ is supporting a joint industry position in the Single Source Regulations Office (SSRO) consultation of the Profit Rate methodology. The contract and orders pipeline is regularly reviewed to identify qualifying contracts. We will continue to focus on the efficient and effective delivery of contracts for the benefit of all stakeholders.	Data security is assured through a multi- layered approach that provides a hardened environment, including robust physical security arrangements and data resilience strategies. Information systems are designed with consideration to single points of failure and comply with relevant accreditation standards. Cyber security is monitored using an internal cyber dashboard.	The Group has robust policy, procedures and training in place. The QinetiQ Code of Conduct defines clear expectations for the Group and its employees. Key areas of focus for the Group include the following: safety of product and services; health, safety & environmental; bribery & ethics, and international trade controls.	In December 2016, the Group signed a £1bn, 11-year amendment to the Long Term Partnering Agreement (LTPA). The next scheduled 're-pricing' point for areas beyond the amendment is scheduled for March 2018.
Metrics	Metrics	Metrics	Metrics
Customer satisfaction All financial KPIs	All financial KPIs Cyber dashboard Security dashboard	All financial KPIs Health & safety Mandatory training compliance Commercial intermediary monitoring	All financial KPIs except orders Customer satisfaction LTPA as a % of total Group revenue
Responsibility	Responsibility	Responsibility	Responsibility
Chief Financial Officer	Group Director Engineering and Operations	Company Secretary/Group General Counsel	Group Director Business Development Group Director Test & Evaluation
Risk appetite	Risk appetite	Risk appetite	Risk appetite
Balanced	Cautious	Cautious	Balanced
Likelihood/Impact	Likelihood/Impact	Likelihood/Impact	Likelihood/Impact
High/High	Medium/High	Medium/High	Medium/High
Proximity/Velocity	Proximity/Velocity	Proximity/Velocity	Proximity/Velocity
2+yrs/Low	0-1yr/High	0-1yr/High	1-2 years/Low

RELATED PARTY TRANSACTIONS

This statement is extracted from note 16 in respect of non-current investments which can be found on page 124 of the Annual Report and Accounts. 

During the year ended 31 March 2017 there were sales to associates of £3.4m (2016: £3.2m).  At the year end there were outstanding receivables from associates of £0.4m (2016: £0.4m).

DIRECTORS' RESPONSIBILITY STATEMENT

This statement is in compliance with DTR 4.1.12 and relates to and is extracted from page 95 of the Annual Report and Accounts and is signed by order of the Board by Jon Messent, Company Secretary.  Details of the Board of Directors of QinetiQ Group plc can be found on pages 48 and 49 of the Annual Report and Accounts.  Responsibility is for the full Annual Report and Accounts and not the extracted information presented in this announcement or in the Preliminary Results.

Responsibility statement of the Directors in respect of the Annual Report

The Directors in office as at the date of this report confirm that to the best of their knowledge:

·       the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company, and the undertakings included in the consolidation taken as a whole; and

·       the management report (which includes the Strategic report and the Directors' report) includes a fair review of the development and performance of the business, and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

 

END

 

 

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