Final Results

RNS Number : 6281M

QinetiQ Group plc

27 May 2010

 



QinetiQ Group plc

Preliminary Results for year ended 31 March 2010

Restoring QinetiQ to Strength

		2010	2009
Business Performance
Revenue		£1,625.4m	£1,617.3m
Organic change at constant currency		(3)%	7%
Underlying operating profit*		£120.3m	£151.6m
Underlying operating margin*		7.4%	9.4%
Underlying profit before tax*		£85.7m	£130.2m
Underlying net cash from operations* (post capex)		£174.3m	£169.8m
Underlying cash conversion ratio*		145%	107%
Net debt		£457.4m	£537.9m
Underlying earnings per share*		11.1p	15.9p
Dividend per share		1.58p	4.75p
Statutory Reporting
Operating (loss)/profit		£(25.3)m	£128.1m
(Loss)/profit before tax		£(66.1)m	£114.0m
Earnings per share		(9.7)p	14.3p

Headlines

§ Difficult year - sales disappointing, margins weakened;

§ Markets remain challenging;

§ Review of operations complete - priorities agreed;

§ Programme underway to restore QinetiQ to strength over next two years;

§ Immediate drive on debt reduction to reduce net debt:EBITDA from 2.5x⁺ to a target of below 2x⁺ by decisive internal programme to restore value; and

§ Board recommending suspension of dividend for 12 months.

Leo Quinn, Chief Executive Officer of QinetiQ Group plc, said "This has been a difficult year for QinetiQ, with challenging conditions in our core markets and considerable internal change.

Our markets are likely to remain uncertain for some time, but we now have a decisive programme of self-help to restore value. We are acting to make our costs more competitive, our productivity better and our debt lower. We are changing our structure to benefit from QinetiQ's overall strengths. Most of all, we are working to transform our culture into one based on leadership, accountability and empowerment of what is an outstanding group of people.

With these immediate steps, the Board believes that it will meet its expectations for the current year. At the same time our goal is to build the right foundation for a return to profitable and sustainable growth in the future.

Other Information

There will be a presentation of the preliminary results to analysts at 0900 hours UK time on 27 May 2010 at UBS Investment Bank, 1 Finsbury Avenue, London, EC2M 2PP. If you wish to watch our web cast please register in advance at www.QinetiQ.com/investors. There will also be an audiocast of the event which can be heard using the following numbers:

Local London:    0208 817 9301

UK freephone:    0800 634 5205

International:      [phone]

The presentation will also be available at our investor relations page www.QinetiQ.com/investors on the morning of our results.

For further information please contact:

Media relations:	David Bishop, QinetiQ	[phone]
	Brian Hudspith, Maitland	[phone]
	Liz Morley, Maitland	[phone]
Investor relations:	Lucinda Davies, QinetiQ	[phone]

Disclaimer

All statements other than statements of historical fact included in this document, 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 document should be regarded as a profit forecast.

* Definitions of underlying measures of performance can be found in the glossary. Underlying financial measures are presented as the Board believes these provide a better representation of the Group's long term performance trends. Specific non-recurring items include amounts relating to gain on business divestments, impairments of goodwill, intangibles and investments and EMEA reorganisation costs.

Prior year comparatives have been restated to show the finance elements of the IAS 19 pension cost in the finance income and expense lines. There is no impact on reported profit before tax from this restatement.

+ The gearing ratio (adjusted net debt:EBITDA) is the ratio of net borrowings at the balance sheet date translated at average exchange rates for the period, to EBITDA generated in the 12 month period to balance sheet date, annualised and calculated in accordance with the Group's credit facility ratios.

Group Overview

Group revenues were flat at £1,625.4m (2009: £1,617.3m), including a £43m benefit from the strengthening US dollar exchange rate. The overall organic decline in US revenues at constant currency was 4%, with the decline in higher margin product sales partially offset by growth in services. The UK businesses suffered from a reduction in the historic concentration of Ministry of Defence (MOD) order flow towards the year end, although this impact was partially masked at the revenue level by higher pass through revenues, resulting in a 1% organic decline in EMEA revenues.

As a result of the reduction in higher contribution revenues, underlying operating profit* decreased to £120.3m (2009: £151.6m), resulting in an underlying margin* of 7.4% (2009: 9.4%). The EMEA underlying margin decreased to 7.5% (2009: 10%) and the QNA underlying margin fell to 8.5% (2009: 10.8%). Losses for the Ventures division reduced as a result of the partial disposal of Cody Gate Ventures in the prior year. Underlying profit before tax* was £85.7m (2009: £130.2m).

The Group incurred impairment charges on goodwill of £50.1m, intangible assets and investments of £14.6m and tangible assets of £24.0m. Other non-recurring items include a profit on business divestments of £5.1m (2009: £13.0m) and a charge for reorganising the EMEA business, announced in May 2009, of £42.1m. The resulting statutory loss before tax was £66.1m (2009: Profit of £114.0m).

The Group achieved a strong underlying operating cash conversion* of 145% (2009: 107%) due to a continued focus on cash generation. Cash flow from operations increased to £204.6m (2009: £202.2m), before the costs of the EMEA reorganisation announced in May 2009.

Net debt, as at 31 March 2010, was £457.4m (31 March 2009: £537.9m), resulting from strong cash flow from operations and the beneficial translation impact of the US dollar exchange rate, as the majority of the Group's debt is drawn in US dollars. The Group's gearing ratio⁺ at 31 March 2010 was 2.5x⁺ (31 March 2009: 2.2x⁺), well inside the covenant level of 3.5x⁺.

Full year underlying earnings per share* were 11.1p, (2009: 15.9p).

The Board is confident that the programme announced today will restore the Group to strength over the next 24 months, including the rapid pay down to a target gearing ratio of below 2x⁺. For this reason, the Board is recommending that no payment be made either of a final dividend for the year just ended or of an interim dividend for the current year. It is the Board's expectation that the Group will pay a final dividend with respect to the financial year ending 31 March 2011.

Board Changes

During the year, Sir John Chisholm retired and was replaced as chairman by Mark Elliot on 1 March 2010. Graham Love left the Group and was replaced as Chief Executive Officer by Leo Quinn on 16 November 2009. David H. Langstaff was appointed to the QinetiQ Board on 5 August 2009 and Admiral Sir James Burnell-Nugent KCB, CBE, MA joined the Board on 10 April 2010, both as independent Non Executive Directors. Non Executive Director Dr Peter Fellner stepped down from the Board at the close of the Company's AGM on 4 August 2009.

* Definitions of underlying measures of performance can be found in the glossary.

⁺ The gearing ratio is adjusted net debt:EBITDA and the definition can be found in the glossary.

Review of Operations and Processes

Since his appointment as QinetiQ's Group Chief Executive Officer (CEO), Leo Quinn has led a review of the Group's operations and processes which has reached the following principal conclusions:

■     QinetiQ's rapid acquisition-based growth and its efforts to find applications for its intellectual property in new industrial markets have not created value for investors to date. The decision to enter the US market was sound, but returns as yet have been lower than expected and the Group's balance sheet has become over-stretched.  Internally, the organisation has become fragmented and overly complex and its processes weak. Insufficient strategic focus and transparency have led to a high level of cost and loss-making activity. These issues, combined with external market conditions - which are likely to remain difficult while the UK and US Governments develop policies to address their spending and deficit challenges - have caused the Group's performance over recent years to fall below its potential.

■     QinetiQ predominantly comprises service businesses, positioned to advise and support customers to achieve efficiency and effectiveness in their national markets. These businesses are based on - and continue to refresh - the deep domain and technical expertise of QinetiQ's people in the aerospace, defence and security sectors, and are capable of providing relatively stable and predictable income streams.

■     The Group also possesses a smaller proportion of product businesses with differentiated technology offerings which have been developed in-house. These activities are capable of global application, but necessarily have a less predictable pattern of revenue generation and have been managed with insufficient commercialisation or sharing of intellectual property between the UK and US businesses.

■     In order to strengthen its foundations and build a future path to sustainable and profitable growth, QinetiQ must now:

-   Set a clear direction which reduces the span of focus and matches both customer needs and core QinetiQ strength;

-   Simplify and align structure with this direction, removing unnecessary layers;

-   Increase transparency and control through all levels;

-   Upgrade leadership to ensure a commercial, value-oriented mindset;

-   Create a strong performance culture of both accountability and empowerment in its people;

-   Establish a lower level of cost base to enable future competitiveness;

-   Ensure a more unified approach Group-wide to exploit key opportunities;

-   Drive for cash generation to strengthen the Group's balance sheet.

Priorities

■     The Board has agreed a clear action plan to deliver these objectives including:

■     Moving to a new structure comprising 3 divisions: US Services, UK Services and Global Products, to ensure efficient leverage of expertise, technology, customer relationships and business development skills;

■     Introducing standardised management reporting and regular reviews of key business drivers such as talent, innovation, cost reduction and portfolio focus;

■     Assessing the top leaders Group-wide, setting targets for performance and behaviours which reflect Group objectives for profit and cash, and providing appropriate incentives;

■     Installing a Group-wide performance management system and increasing communication and engagement with employees to maximise their contribution, underpinned by a tracked and measured productivity programme;

■     Rigorously examining business processes, key supplier contracts and, in the UK, legacy employee terms and conditions, to remove structural cost from the business to ensure competitiveness and enable investment in key opportunities;

■     Introducing a unified QinetiQ approach which leverages existing assets to capitalise on global opportunities;

■     Eliminating loss-making activities and driving cash generation, including tight measurement of working capital, to reduce the gearing ratio to a target of below 2x⁺;

■     Suspending payment of dividends on QinetiQ's Ordinary Shares for 12 months, with the intention of paying a final dividend with respect to the financial year ending 31 March 2011.

These changes are essential to return the Group to a solid foundation.  The Board believes that QinetiQ's deep customer relationships in the UK and US, two of the leading markets in its core areas, together with the world-class expertise and innovation of its employees, provide the capability for longer term profitable growth once the Group's operations and processes have been returned to strength.

Trading Environment and Outlook

In both the UK and the US, the defence markets remain challenging as a result of the economic environment. Additionally in the UK, the impending Strategic Defence and Security Review adds uncertainty to forecasts for defence spending.

The Board has concluded its review of the operations and reset the priorities of the Group. The new management is taking action over the next 24 months to reduce costs, improve productivity and drive cash generation, both to reduce the Group's net debt rapidly and to refocus and reposition its businesses over the medium term for a return to profitable growth.

In the current financial year, the performance of QinetiQ's service businesses is likely to remain steady overall.  The product businesses, whose performance is by nature more variable, should benefit from the release of some orders in the US delayed from prior period, although this will be partially offset by the weaker UK environment. 

The Board believes that it will meet its expectations for the current year.

Operations overview

QNA

	2010	2009
	£m	£m
Revenue
Mission Solutions	354.7	289.5
Systems Engineering	273.3	244.5
Technology Solutions QNA	172.1	231.6
Total	800.1	765.6
Underlying operating profit*	67.7	83.0
Underlying operating profit margin*	8.5%	10.8%
Funded Orders
Mission Solutions	326.6	283.2
Systems Engineering	251.0	267.5
Technology Solutions QNA	183.0	187.9
Total	760.6	738.6
Book to bill ratio	1.0:1	1.0:1
Backlog	326.3	415.0

Revenues declined 4% on an organic basis at constant currency to £800.1m (2009: £765.6m). Within this, the services businesses (Mission Solutions and Systems Engineering), which account for c80% of QNA's revenue, grew by 7% on an organic basis. This was offset by the slowdown in Technology Solutions' military product sales as the new US Administration completed many of its key Department of Defense (DoD) leadership appointments and finalised its strategy for the continued involvement in Afghanistan. Underlying operating profit* decreased to £67.7m (2009: £83.0m) delivering an underlying margin* of 8.5% (2009: 10.8%). The decline in operating margin is principally reflective of the composition of QNA's revenue, which included a smaller proportion of its higher margin product sales.

The Mission Solutions business grew organically by 8% and continued to broaden its customer base with contract wins from a number of new customers, including the US Department of State, the US Secret Service and a contract with the US Federal Emergency Management Agency. The five-year $100m Janus II contract was awarded in August 2009 to replace and upgrade the Department of State's telecommunications systems at American embassies and other locations worldwide. The Systems Engineering business grew organically by 6% with increased demand on a number of contracts from customers across the US Army, Navy, Marines and Special Forces. In addition, the Systems Engineering business continues to successfully deliver Iraqi flight training services. The fourth option year of this contract was recently exercised by the customer. Towards the end of the year, the services businesses experienced some delays and curtailments in Government orders.

The slowdown in Technology Solutions QNA resulted in a 31% decrease in organic revenues against a very strong comparable prior year. From an international perspective, the Australian Department of Defence placed a AUD$23m contract for TALON® robots and replacement parts to support the Australian Defence Force deployed on operations. A key contract win for Technology Solutions QNA this year was the $31m Q-NETS contract, a vehicle survivability product, for the MRAP Lite fleet.

In July 2009 the Group acquired Cyveillance, Inc. for an initial cash consideration, including costs, of £26.1m ($42.2m). A potential further payment to a maximum of £26.4m ($40m) will be made depending on performance during the two year period ending 31 December 2010. Cyveillance develops and operates online monitoring technology to identify and track data on the internet providing proactive preventative solutions for customers in the cyber security market.

EMEA

	2010	2009
	£m	£m
Revenue
Managed Services	384.3	370.7
Consulting	142.6	145.1
Technology Solutions EMEA	291.9	326.5
Total	818.8	842.3
Underlying operating profit *(2)	61.1	84.2
Underlying operating margin* (2)	7.5%	10%
Orders
Managed Services	237.0	186.6
Consulting	128.7	315.7
Technology Solutions EMEA	269.3	348.9
Total	635.0	851.2
Book to bill ratio (1)	1.0:1	1.3:1
Backlog (1)	839.2	802.0

(1)       Excludes remaining £4.3bn (31 March 2009: £4.5bn), in respect of LTPA contract

(2)       Restated 2009 to reclassify pension finance credit £3.4m into the finance cost line of the income statement

Revenue for the period was £818.8m (2009: £842.3m), a 1% decline on an organic basis. The UK budget pressures and delays in contract awards resulted in lower utilisation of employees in Q4 than has been the case in prior years. This impact was masked to a degree on the revenue line by higher levels of pass through revenue on certain programmes; however it resulted in underlying operating profit* decreasing to £61.1m (2009: £84.2m). Orders received were down 25% against the prior year, which included the £150m 15-year Maritime Strategic Capability Agreement.

Both Consulting and Technology Solutions EMEA have previously benefited from a seasonal pick-up in a large number of small value contracts in Q4 as MOD closed out its financial year. This year the volume of such contracts was much reduced and consequently Consulting reported revenues declined by 3% on an organic basis. In Technology Solutions EMEA the equivalent decline was 7%, exacerbated by a decrease in MOD research revenues. During the period Technology Solutions EMEA worked with QNA in enabling transfer of technologies across the Atlantic, as evidenced by the sale of Dragon Runner™ Unmanned Ground Vehicles (UGVs) to the UK MOD.

Managed Services revenue for the period increased organically by 6% over the prior period, enhanced predominantly by some pass through revenues on the LTPA contract and the £31m Defence Training Review (DTR) Early Training Transformation contract, signed in August 2009. Package 1 of the UK MOD DTR is progressing. During the period £11.2m of bid costs were capitalised, bringing the total amount of bid costs capitalised as at 31 March 2010 to £30.8m (2009: £19.6m). The programme has been submitted to the MOD Investment Appraisal Board ("Main Gate") which has indicated that MOD may continue to develop the transaction in parallel with the Strategic Defence and Security Review. The MOD's expectation for financial close is currently in mid 2011.

The EMEA restructuring programme announced in May 2009 was largely completed this financial year. The cost of this programme was £42.1m, all of which has been expensed to the income statement in the year as a non-recurring item.

During the period the EMEA business disposed of a number of non-core assets, including the Underwater Systems business in September 2009 (for a cash consideration before costs of £23.5m) and ASAP Calibration Services Limited in July 2009 for a nominal consideration.

Ventures

	2010	2009
	£m	£m
Revenue	6.5	9.4
Operating loss	(8.5)	(15.6)

The Ventures portfolio in the year comprised of three businesses: Tarsier (Foreign Object Detection), GPS Enabled Telematics (a high sensitivity business which delivers tracking solutions in difficult operational environments) and Optasense (an acoustic sensing detection solution). The prior year loss included £7.2m of equity accounted losses from Cody Gate Ventures Fund prior to the Group's part disposal of the fund in March 2009.

Financial Items

Tax

The Group's underlying effective tax rate* was 15% (2009: 20.5%). The reduction on prior year is due to the combination of the cessation of equity accounted losses of Cody Gate Ventures and certain favourable outcomes and settlements to date, coupled with lower reported profits in QinetiQ North America. The Group continues to benefit from the availability of research and development relief and in future years, the Group will benefit from enacted tax law changes impacting US State taxes. Overall, the Group effective tax rate is not anticipated to rise significantly in the medium term, subject to any future tax legislation changes.

Earnings per share

Underlying earnings per share* were 11.1p compared with 15.9p for the year to 31 March 2009.  Basic earnings per share reduced to (9.7p) (2009: 14.3p) over the same period.

Dividend

The Group paid an interim dividend of 1.58 pence per share and the Board is recommending that no final dividend be paid (2009: total dividends 4.75 pence per share). 

Cash flow, net debt and liquidity

The Group's underlying operating cash conversion* post capital expenditure was 145% (2009: 107%), as a result of a keen focus on cash generation. At 31 March 2010, net debt was £457.4m compared with £537.9m at 31 March 2009. As the Group's borrowings are largely drawn in US dollars, the impact of the movement in the period of £/US$ exchange rate reduced the reported net debt by £26.2m since 31 March 2009. The Group's borrowings remained comfortably within its banking covenants.

The total committed facilities available to the Group, at 31 March 2010, were £877m. The earliest maturity date of the Group's committed facilities is August 2012.

Foreign exchange

	12 months to 31 March 2010	12 months to 31 March 2009
£/US$ - average	1.59	1.68
£/US$ - closing	1.52	1.44
£/US$ - opening	1.44	1.99

Pensions

The net pension liability under IAS 19, after deferred tax, was £106.1m as at 31 March 2010 (31 March 2009: £75.8m).The increase in the net pension liability is primarily driven by reductions in the corporate bond rate which reduces the extent by which the pension liability is discounted.

The key assumptions used in the IAS 19 valuation of the scheme are:

Assumption	31 March 2010	31 March 2009
Discount rate	5.6%	6.5%
Inflation	3.6%	3.1%
Salary increase	4.6%	4.1%
Life expectancy - male  (currently aged 40)	89	89
Life expectancy -  female (currently aged 40)	90	90

Each assumption is selected by the Group in consultation with the Company actuary and taking account of industry practice amongst comparator listed companies.  The sensitivity of each of the key assumptions is shown in the table below.

Assumption	Change in assumption	Indicative effect on scheme liabilities (before deferred tax)
Discount rate	Increase / decrease by 0.1%	Decrease/increase by £23m
Inflation and salary increase	Increase / decrease by 0.1%	Increase/decrease by £22m
Life expectancy	Increase by 1 year	Increase by £22m

The market value of the assets at 31 March 2010 was £915.9m (31 March 2009:  £647.4m) and the present value of scheme liabilities was £1,063.2m (31 March 2009:  £752.6m).

During the period, the Group has elected to align the treatment of the Group's IAS 19 pension charge with that of its peer listed companies by showing the finance element of the pension charge in the finance costs line and the service cost remaining in operating expenses. In prior reported periods these elements had been combined and reported in operating costs. IAS 19 Employee Benefits permits both treatments. The Group's comparative figures have been restated to reflect this change although there is no impact on the Group's profit before tax or retained profit. This pension liability sits within the EMEA business and therefore the operating segment comparatives have also been restated.

* Definitions of underlying measures of performance can be found in the glossary.

⁺ The gearing ratio is adjusted net debt:EBITDA and the definition can be found in the glossary.

Consolidated income statement

for the year ended 31 March

		2010			2009
all figures in £ million	note	Before  acquisition  amortisation and  specific non- recurring items	Acquisition   amortisation   and specific   non-recurring   items*	Total	Before acquisition amortisation and specific non- ecurring items (restated)**	Acquisition   amortisation   and specific   non-recurring   items*	Total (restated)**
Revenue	2	1,625.4	-	1,625.4	1,617.3	-	1,617.3
Other operating costs excluding depreciation and amortisation		(1,465.8)	(42.1)	(1,507.9)	(1,424.0)	-	(1,424.0)
Share of post-tax loss of equity accounted joint ventures and associates		0.2	-	0.2	(7.2)	-	(7.2)
Other income		6.9	-	6.9	7.9	-	7.9
EBITDA (earnings before interest, tax, depreciation and amortisation)		166.7	(42.1)	124.6	194.0	-	194.0
Depreciation and impairment of property, plant and equipment		(35.1)	(24.0)	(59.1)	(33.5)	-	(33.5)
Amortisation and impairment of intangible assets		(11.3)	(79.5)	(90.8)	(8.9)	(23.5)	(32.4)
Group operating (loss)/profit		120.3	(145.6)	(25.3)	151.6	(23.5)	128.1
Gain/(loss) on business divestments and impairment of investments	4	-	(6.2)	(6.2)	-	7.3	7.3
Finance income	5	48.1	-	48.1	59.1	-	59.1
Finance expense	5	(82.7)	-	(82.7)	(80.5)	-	(80.5)
(Loss)/profit before tax		85.7	(151.8)	(66.1)	130.2	(16.2)	114.0
Taxation	6	(12.9)	15.7	2.8	(26.7)	6.3	(20.4)
(Loss)/profit for the year attributable to equity shareholders		72.8	(136.1)	(63.3)	103.5	(9.9)	93.6
Earnings per share
Basic	8			(9.7)p			14.3p
Diluted	8			(9.7)p			14.3p

*    Specific non-recurring items include amounts relating to gain/(loss) on business divestments and unrealised impairments of investments and in 2010 the  impairment of plant, property and equipment, impairment of intangible assets and EMEA reorganisation costs. See note 3.

**   Restatement relates to the transfer of the finance element of the IAS19 pension cost, totalling a net £3.4m credit to the finance income and expense lines. This was previously reported in other operating costs.

Consolidated statement of comprehensive income

for the year ended 31 March

all figures in £ million		2010	2009
(Loss)/profit for the year		(63.3)	93.6
Other comprehensive income:
Effective portion of change in fair value of net investment hedges		28.7	(107.6)
Foreign currency translation differences for foreign operations		(30.8)	181.6
Decrease in fair value of hedging derivatives		(0.2)	(17.6)
Reclassification of hedging derivatives to the income statement		6.6	-
Movement in deferred tax on hedging derivatives		(1.8)	4.7
Fair value gains on available for sale investments		1.7	0.9
Actuarial loss recognised in defined benefit pension schemes		(60.2)	(95.8)
Increase in deferred tax asset due to actuarial movement in pension deficit		16.9	34.1
Other comprehensive income for the year, net of tax		(39.1)	0.3
Total comprehensive income for the year attributable to equity holders		(102.4)	93.9

Consolidated statement of changes in equity

for the year ended 31 March

all figures in £ million	Issued share capital	Capital redemption reserve	Share premium	Hedge reserve	Translation reserve	Retained earnings	Total	Minority interest	Total equity
At 1 April 2009	6.6	39.9	147.6	(16.7)	56.5	368.7	602.6	0.1	602.7
Total comprehensive income for the year	-	-	-	4.6	(2.1)	(104.9)	(102.4)	-	(102.4)
Dividends paid	-	-	-	-	-	(31.6)	(31.6)	-	(31.6)
Purchase of own shares	-	-	-	-	-	(0.8)	(0.8)	-	(0.8)
Share-based payments	-	-	-	-	-	5.8	5.8	-	5.8
Deferred tax on share-based payments	-	-	-	-	-	-	-	-	-
At 31 March 2010	6.6	39.9	147.6	(12.1)	54.4	237.2	473.6	0.1	473.7
At 1 April 2008	6.6	39.9	147.6	(3.8)	(17.5)	360.1	532.9	0.1	533.0
Total comprehensive income for the year	-	-	-	(12.9)	74.0	32.8	93.9	-	93.9
Dividends paid	-	-	-	-	-	(28.9)	(28.9)	-	(28.9)
Purchase of own shares	-	-	-	-	-	(0.8)	(0.8)	-	(0.8)
Share-based payments	-	-	-	-	-	5.6	5.6	-	5.6
Deferred tax on share based payments	-	-	-	-	-	(0.1)	(0.1)	-	(0.1)
At 31 March 2009	6.6	39.9	147.6	(16.7)	56.5	368.7	602.6	0.1	602.7

 

 

Consolidated balance sheet

as at 31 March

all figures in £ million	note	2010	2009
Non-current assets
Goodwill		579.7	638.5
Intangible assets		141.7	164.2
Property, plant and equipment		285.5	332.4
Other financial assets		10.0	11.6
Equity accounted investments		0.9	0.7
Other investments		4.8	15.7
Deferred tax asset		28.7	-
		1,051.3	1,163.1
Current assets
Inventories		79.8	68.3
Other financial assets		7.8	3.1
Trade and other receivables		423.8	532.9
Current tax		-	8.6
Investments		2.3	0.6
Assets classified as held for sale		5.1	1.8
Cash and cash equivalents		63.9	262.1
		582.7	877.4
Total assets		1,634.0	2,040.5
Current liabilities
Trade and other payables		(396.4)	(447.2)
Current tax		(7.5)	-
Provisions		(16.1)	(4.3)
Other financial liabilities		(8.9)	(22.1)
		(428.9)	(473.6)
Non-current liabilities
Retirement benefit obligation	13	(147.3)	(105.2)
Deferred tax liability		(10.8)	(8.9)
Provisions		(7.9)	(8.8)
Other financial liabilities		(530.2)	(792.6)
Other payables		(35.2)	(48.7)
		(731.4)	(964.2)
Total liabilities		(1,160.3)	(1,437.8)
Net assets		473.7	602.7
Capital and reserves
Ordinary shares		6.6	6.6
Capital redemption reserve		39.9	39.9
Share premium account		147.6	147.6
Hedging and translation reserve		42.3	39.8
Retained earnings		237.2	368.7
Capital and reserves attributable to shareholders of the parent company		473.6	602.6
Minority interest		0.1	0.1
Total shareholders' funds		473.7	602.7

Consolidated cash flow statement

for the year ended 31 March

all figures in £ million	note	2010	2009
Net cash inflow from operations before EMEA reorganisation cost	10	204.6	202.2
Net cash outflow relating to EMEA reorganisation		(35.4)	(27.0)
Cash inflow from operations		169.2	175.2
Tax received/(paid)		1.5	(2.5)
Interest received		0.4	1.0
Interest paid		(36.8)	(21.3)
Net cash inflow from operating activities		134.3	152.4
Purchases of intangible assets		(6.2)	(3.3)
Purchases of property, plant and equipment		(24.1)	(29.1)
Costs from sale of property, plant and equipment		(0.7)	(1.2)
Equity accounted investments and other investment funding		(1.1)	(5.8)
Purchase of subsidiary undertakings	9	(46.3)	(92.9)
Net cash acquired with subsidiary undertakings		0.7	3.7
Proceeds from sale of equity accounted investment		-	13.7
Proceeds from sale of interests in subsidiary undertakings		21.1	7.2
Net cash outflow from investing activities		(56.6)	(107.7)
Cash outflow from repayment of loan notes		-	(0.5)
(Repayment)/proceeds from bank borrowings		(232.1)	13.3
Proceeds from US Private Placement		-	210.4
Payment of deferred finance costs		-	(1.5)
Settlement of forward contracts designated as net investment hedges		(14.3)	-
Purchase of own shares		(0.8)	(0.8)
Dividends paid to shareholders		(31.6)	(28.9)
Capital element of finance lease rental payments		(2.8)	(2.8)
Capital element of finance lease rental receipts		3.0	3.0
Net cash (outflow)/inflow from financing activities		(278.6)	192.2
(Decrease)/increase in cash and cash equivalents		(200.9)	236.9
Effect of foreign exchange changes on cash and cash equivalents		(0.5)	5.7
Cash and cash equivalents at beginning of year		262.1	19.5
Cash and cash equivalents at end of year		60.7	262.1
Cash and cash equivalents	11	63.9	262.1
Overdrafts	11	(3.2)	-
Cash and cash equivalents at the end of year		60.7	262.1

Reconciliation of movement in net debt

for the year ended 31 March

all figures in £ million	note	2010	2009
(Decrease)/increase in cash and cash equivalents in the year		(200.9)	236.9
Cash flows from repayment/(drawdown) of loans, private placement and other financial instruments		246.2	(226.1)
Change in net debt resulting from cash flows	11	45.3	10.8
Other non-cash movements including foreign exchange	11	35.2	(168.8)
Movement in net debt in the year		80.5	(158.0)
Net debt at beginning of the year	11	(537.9)	(379.9)
Net debt at end of the year	11	(457.4)	(537.9)

Notes to the financial statements

1.   Significant accounting policies

Basis of preparation

The financial information in this preliminary announcement has been extracted from the Group's consolidated financial statements for the year ended 31 March 2010. The Group's consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards ('IFRSs') as adopted in the European Union ('EU') and those parts of the Companies Act 2006 ('the Act') that remain applicable to companies reporting under IFRS.

The financial information included within the preliminary announcement has been prepared using accounting policies consistent with International Financial Reporting Standards (IFRSs) as endorsed by the European Union. The accounting policies followed are the same as those published by the Group within its Annual Report for the year ended 31 March 2009 which is available on the Group's website, www.QinetiQ.com subject to the changes noted below. 

The preliminary announcement was approved by the Board of Directors on 26 May 2010. The financial information in this preliminary announcement does not constitute the statutory accounts of QinetiQ Group plc ('the Company') within the meaning of section 435 of the Act.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2010. The statutory accounts for 2010 are expected to be finalised and signed following approval by the Board of Directors on 2 June 2010 on the basis of the financial information presented by the Directors in this preliminary announcement. These statutory accounts will be delivered to the Registrar of Companies following the Company's Annual General Meeting on 29 July 2010. The financial information for 2009 is derived from the statutory accounts for 2009 which have been delivered to the Registrar of Companies. The auditors have reported on the 2009 accounts; their report was unqualified.

The group separately presents acquisition amortisation and specific non-recurring items in the income statement which, in the judgement of the Directors, need to be disclosed separately by virtue of their size and incidence in order for the reader to obtain a proper understanding of the financial information. Specific non-recurring items include amounts relating to gains and losses on business divestments, unrealised impairments of investments and in 2010 the impairment of plant, property and equipment, impairment of intangible assets and EMEA reorganisation costs.

Restatement of prior periods for finalisation of fair values arising on acquisitions

The fair values of the net assets of acquired business are finalised within 12 months of the acquisition date, with the exception of certain deferred tax balances. All fair value adjustments are recorded with effect from the date of acquisition and consequently may result in the restatement of previously reported financial results.

Recent accounting developments

The following EU endorsed new, revised and amended published standards and interpretations are effective for accounting periods beginning on or after 1 April 2009 and will be adopted on the annual report:

IFRS 8 Operating Segments replaces IAS 14 Segmental Reporting and requires an entity to present segment information on the same basis as used for internal management reporting as provided to the chief operating decision maker. Adoption of this standard did not affect the reportable segments, disclosures have been prepared in accordance with the new standard in the annual report.

IAS 1 (revised), Presentation of Financial Statementsrequires the Group to present a Statement of Comprehensive Income and Statement of Changes in Equity as primary statements. The Group has elected to present the Statement of Comprehensive Income and the Income Statement as two statements. The annual report will be prepared under the revised disclosure requirements.

Amendment to IFRS 7, Financial Instruments: Disclosuresrequires enhanced disclosures around fair value measurement and liquidity risk. The annual report will be prepared in accordance with the new standard.

The following EU endorsed amendments, improvements and interpretations of published standards are effective for accounting periods beginning on or after 1 April 2009 and will be adopted with no material impact on the Group's financial statements:

·      IAS 23 (revised), Borrowing Costs;

·      Amendments to IFRS1, First time adoption of IFRS andIAS27, Consolidation and separate financial statements;

·      Amendment to IFRS 2, Share-based payment;

·      Amendments to IFRS 7, Financial Instruments: Disclosures and IAS 39, Financial Instruments: Recognition and Measurement;

·      Amendments to IAS 32, Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements;

·      Amendments to IFRIC 9, Reassessment of Embedded Derivatives and IAS 39, Financial Instruments: Recognition and Measurement;

·      Improvements to IFRS;

·      IFRIC 13, Customer Loyalty Programmes;

·      IFRIC 15, Agreements for the Construction of Real Estate;

·      IFRIC 16, Hedges of a Net Investment in a Foreign Operation (early adopted); and

·      IFRIC 18, Transfers of Assets from Customers.

2.   Segmental analysis

Business segments

Year ended 31 March 2010
all figures in £ million	QinetiQ North America	Europe, Middle East & Australasia	Ventures	Total
Revenue
External sales (1)	800.1	818.8	6.5	1,625.4
Other information
EBITDA before share of equity accounted joint ventures and associates	74.3	98.5	(6.3)	166.5
Share of equity accounted joint ventures and associates	0.1	0.1	-	0.2
EBITDA	74.4	98.6	(6.3)	166.7
Depreciation of property, plant and equipment	(6.7)	(28.9)	(0.4)	(36.0)
Amortisation of purchased or internally developed intangible assets	-	(8.6)	(1.8)	(10.4)
Group operating profit/(loss) before acquisition amortisation and specific non-recurring items(2)	67.7	61.1	(8.5)	120.3
EMEA reorganisation	-	(42.1)	-	(42.1)
Impairment of plant, property and equipment	-	(23.0)	(1.0)	(24.0)
Amortisation of intangible assets arising from acquisitions	(20.2)	(5.9)	-	(26.1)
Impairment of intangible assets	(42.2)	(7.9)	(3.3)	(53.4)
Group operating (loss)/profit	5.3	(17.8)	(12.8)	(25.3)
(Loss)/gain on business divestments and unrealised impairment of investments				(6.2)
Net finance expense				(34.6)
Profit/(loss) before tax				(66.1)
Taxation				2.8
Profit/(loss) for the year				(63.3)

⁽¹⁾ There were internal sales of £12.5m from QinetiQ North America to EMEA during the year

⁽²⁾ Group operating profit/(loss) before acquisition amortisation is stated before specific non-recurring items. These comprise the EMEA reorganisation costs and impairment of plant property and equipment and intangible assets. This is the measure of profit presented to the chief operating decision maker.

Business segments

Year ended 31 March 2009
all figures in £ million	QinetiQ North America	Europe, Middle East & Australasia (restated)**	Ventures	Total (restated)**
Revenue
External sales (1)	765.6	842.3	9.4	1,617.3
Other information
EBITDA before share of equity accounted joint ventures and associates	89.5	118.1	(6.4)	201.2
Share of equity accounted joint ventures and associates	-	-	(7.2)	(7.2)
EBITDA	89.5	118.1	(13.6)	194.0
Depreciation of property, plant and equipment	(6.5)	(26.7)	(0.3)	(33.5)
Amortisation of purchased or internally developed intangible assets	-	(7.2)	(1.7)	(8.9)
Group operating profit/(loss) before acquisition amortisation	83.0	84.2	(15.6)	151.6
Amortisation of intangible assets arising from acquisitions	(18.0)	(5.5)	-	(23.5)
Group operating profit/(loss)	65.0	78.7	(15.6)	128.1
Gain on business divestments and unrealised impairment of investments				7.3
Net finance expense				(21.4)
Profit before tax				114.0
Taxation				(20.4)
Profit for the year				93.6

⁽¹⁾ There were internal sales of £4.0m from QinetiQ North America to EMEA during the year

**   Restatement relates to the transfer of the finance element of the IAS19 pension cost, totalling a £3.4m net credit to the finance income and expense lines. This was previously reported in other operating costs.

3. (Loss)/Profit before tax

The following items have been charged in arriving at (loss)/profit before tax in the column entitled "acquisition amortisation and specific non recurring items":

all figures in £ million	Note	2010	2009
EMEA reorganisation costs(1)		(42.1)	-
Impairment of plant property and equipment		(24.0)	-
Amortisation of intangible asset arising on acquisitions		(26.1)	(23.5)
Impairment of intangible asset		(3.3)	-
Impairment of goodwill(2)		(50.1)	-
Total goodwill and intangible impairment and acquisition amortisation		(79.5)	(23.5)
Gain/(loss) on business divestment	4	5.1	13.0
Unrealised impairment of investment	4	(11.3)	(5.7)
Gain/(loss) on business divestment and unrealised impairment of investment	4	(6.2)	7.3
Total non recurring items before tax		(151.8)	(16.2)

(1) The EMEA reorganisation programme announced in May 2009 largely completed this financial year.  The cost of this programme is £42.1m, all of which has been expensed to the income statement this year as a non - recurring item; the cash spent against this during the year was £35.4m.

(2) The goodwill impairment charge of £50.1m arises in three of the Group's Cash Generating Units (CGU): Technology Solutions in QNA (£11.4m), Mission Solutions in QNA (£30.8m) and Australia (£7.9m) in EMEA.

4.    (Loss)/gain on business divestments and impairment of investments

all figures in £ million	2010	2009
Gain on business divestments	5.1	13.0
Impairment of investments	(11.3)	(5.7)
	(6.2)	7.3

The gain on business divestments in the year relates to the disposal of two businesses. On 30 September 2009 the Group disposed of the Underwater Systems business, a division of QinetiQ Limited, to Atlas Elektronik UK Limited for a consideration before costs of £23.5m which resulted in a profit on disposal of £6.9m. On 31 July 2009 the Calibration business of the Group, including ASAP Calibration Ltd, was sold for proceeds before costs of £0.4m and resulted in a loss on disposal of £1.8m

The current year impairment of investments and associated committed costs relates to a £11.3m (2009: £5.7m) charge in respect of the impairment in the carrying value of investments held for sale.

5.   Finance income and expense

All figures in £ million	2010	2009 (restated)*
Receivable on bank deposits	0.4	1.0
Finance lease income	1.4	1.6
Expected return on pension scheme assets	46.3	56.5
Finance income	48.1	59.1
Amortisation of recapitalisation fee	(0.7)	(0.3)
Payable on bank loans and overdrafts	(7.9)	(13.8)
Payable on US dollar private placement debt	(23.2)	(10.7)
Finance lease expense	(1.1)	(1.4)
Unwinding of discount on financial liabilities	(1.0)	(1.2)
Interest on pension scheme liabilities	(48.8)	(53.1)
Finance expense	(82.7)	(80.5)
Net finance expense	(34.6)	(21.4)

*    Restatement relates to the transfer of the finance element of the IAS19 pension cost, totalling a net £3.4m credit to the finance income and expense lines. This was previously reported in other operating costs.

6.   Taxation

all figures in £ million	2010 Before acquisition amortisation and specific non-recurring items	2010 Acquisition amortisation and specific non-recurring items	2010 Total	2009 Before acquisition amortisation and specific non-recurring items	2009 Acquisition amortisation and specific non-recurring items	2009 Total
Analysis of charge
UK corporation tax		-	-	-	-	-
Overseas corporation tax	16.7	(8.8)	7.9	2.9	(5.8)	(2.9)
Total corporation tax	16.7	(8.8)	7.9	2.9	(5.8)	(2.9)
Deferred tax	(3.6)	(6.9)	(10.5)	23.1	(0.5)	22.6
Deferred tax in respect of prior years	(0.2)	-	(0.2)	0.7	-	0.7
Taxation (credit)/expense	12.9	(15.7)	(2.8)	26.7	(6.3)	20.4
Factors affecting the tax charge in year
The principal factors reducing the Group's current year tax charge/(credit) below the UK statutory rate are explained below:
(Loss)/profit before tax	85.7	(151.8)	(66.1)	130.2	(16.2)	114.0
Tax on (loss)/profit before tax at 28% (2009: 28%)	24.0	(42.5)	(18.5)	36.4	(4.5)	31.9
Effect of:
Expenses not deductible for tax purposes, research and development relief and non-taxable items	(19.6)	29.4	9.8	(17.8)	(0.1)	(17.9)
Unprovided tax losses of overseas subsidiaries, joint ventures and associates	(0.1)	-	(0.1)	1.4	-	1.4
Movements in unrecognised deferred tax assets in respect of tax losses	6.1	-	6.1	0.7	-	0.7
Deferred tax in respect of prior years	(0.2)	-	(0.2)	0.9	-	0.9
Effect of different rates in overseas jurisdictions	2.7	(2.6)	0.1	5.1	(1.7)	3.4
Taxation (credit)/expense	12.9	(15.7)	(2.8)	26.7	(6.3)	20.4

The tax rate on acquisition amortisation and specific non-recurring items in 2010 is lower than the Group rate as most of the elements do not attract tax relief. The tax rate on acquisition amortisation and specific non-recurring items in 2009 exceeds the overall Group tax rate as it primarily relates to items subject to the higher US tax rate.

Factors affecting future tax charges

The effective tax rate continues to be below the statutory rate in the UK primarily as a result of the benefit of research and development relief in the UK. The effective tax rate is expected to remain below the UK statutory rate in the medium term, subject to any future tax legislation changes.

7.  Dividends

An analysis of the dividends paid and proposed in respect of the years ended 31 March 2010 and 2009 are provided below:

	Pence per share	£m	Date paid/payable
Interim 2010	1.58	10.4	Feb 2010
Final 2010 (proposed)	-	-	-
Total for the year ended 31 March 2010	1.58	10.4
Interim 2009	1.50	9.8	Feb 2009
Final 2009	3.25	21.3	Sep 2009
Total for the year ended 31 March 2009	4.75	31.1

8.  Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity shareholders by the weighted average number of ordinary shares in issue during the year. The weighted average number of shares used excludes those shares bought by the Group and held as own shares. For diluted earnings per share the weighted average number of shares in issue is adjusted to assume conversion of all potentially dilutive ordinary shares arising from unvested share-based awards including share options. Underlying basic earnings per share figures are presented below in addition to the basic and diluted earnings per share as the Directors consider this gives a more relevant indication of underlying business performance and reflects the adjustments to basic earnings per share for the impact of specific non-recurring items, amortisation of acquired intangible assets and tax thereon.

For the year ended 31 March			2010	2009
Basic EPS
(Loss)/profit attributable to equity shareholders	£m		(63.3)	93.6
Weighted average number of shares	million		653.5	652.7
Basic EPS	pence		(9.7)	14.3
Diluted EPS
(Loss)/profit attributable to equity shareholders	£m		(63.3)	93.6
Weighted average number of shares	million		653.5	652.7
Effect of dilutive securities(1)	million		-	2.8
Diluted number of shares	million		653.5	655.5
Diluted EPS	pence		(9.7)	14.3
Underlying basic EPS
(Loss)/profit attributable to equity shareholders	£m		(63.3)	93.6
Reorganisation costs	£m		42.1	-
(Gain)/loss on business divestments, disposals and unrealised impairment of investments	£m		6.2	(7.3)
Impairment of property plant and equipment	£m		24.0	-
Amortisation of intangible assets arising from acquisitions and impairment of intangible assets	£m		79.5	23.5
Tax impact of items above	£m		(15.7)	(6.3)
Underlying profit after taxation	£m		72.8	103.5
Weighted average number of shares	million		653.5	652.7
Underlying basic EPS	pence		11.1	15.9

(1)  The loss attributable to equity shareholders in the year ended 31 March 2010 results in no effect of dilutive securities to the weighted average number of shares . If there had been a profit in the year ended 31 March 2010 the effect of dilutive securities would have been to increase the diluted number of shares by 4.2m. 

9. Business combinations

In the year to 31 March 2010 the Group acquired 100% of the issued share capital of Cyveillance, Inc. If this acquisition had been completed as at 1 April 2009 Group revenue for the year ended 31 March 2010 would have increased by £2.0m to £1,627.4m and Group loss before tax would have reduced by £0.1m to £66.0m.

Acquisitions in the year to 31 March 2010
all figures in £ million						Contribution post-acquisition
Company acquired	Date acquired	Cash    consideration(1)	Deferred consideration(4)	Goodwill	Fair value    of assets    acquired(2)	Revenue	Operating profit
QNA acquisitions
Cyveillance, Inc.	1 July 2009	26.1	0.4	19.1	7.4	5.9	0.9
Current year acquisitions		26.1	0.4	19.1	7.4	5.9	0.9
Deferred consideration in respect of prior year acquisitions (3)
ITS Corporation		6.2		-	-	-	-
Novare Services Pty Ltd		0.4		-	-	-	-
Spectro, Inc.		0.8		-	-	-	-
Dominion Technology Resources, Inc.		12.8		-	-	-	-
Total		46.3	0.4	19.1	7.4	5.9	0.9

(1)  Initial cash consideration includes acquisition costs and price adjustments for working capital and net debt.

(2)  Fair value of assets acquired are provisional.

(3)  Cash consideration paid in the year includes deferred consideration amounts in respect of prior year acquisitions as a result of payment criteria being met.

(4)  Deferred consideration of £0.4m has been recognised on the acquisition of Cyveillance, Inc. based upon the estimated payment to be made.  The maximum amount payable is $40m depending on the financial performance of Cyveillance in the two year period ending 31 December 2010.

Set out below are the allocations of purchase consideration, assets and liabilities of the acquisitions made in the year and the adjustments required to the book values of the assets and liabilities in order to present the net assets of these businesses at fair value and in accordance with Group accounting policies. These allocations and adjustments are provisional. There were no adjustments to the provisional fair values at 31 March 2009.

Acquisition in the year to 31 March 2010
all figures in £ million		Book value	Fair value adjustment	Fair value at acquisition
Intangible assets		-	16.0	16.0
Property, plant and equipment		0.4	-	0.4
Trade and other receivables		1.0	-	1.0
Other current assets		0.7	-	0.7
Trade and other payables		(0.2)	-	(0.2)
Cash and cash equivalents		0.7	-	0.7
Deferred tax liability		-	(6.3)	(6.3)
Other liabilities		(4.9)	-	(4.9)
Net assets acquired		(2.3)	9.7	7.4
Goodwill				19.1
				26.5
Consideration satisfied by:
Cash				25.6
Deferred consideration				0.4
Total consideration before costs				26.0
Related costs of acquisition				0.5
				26.5

The fair value adjustments include £16.0m in relation to the recognition of acquired intangible assets less the recognition of a deferred tax liability of £6.3m in relation to these intangible assets.

10. Cash flows from operations

all figures in £ million		Year ended 31 March 2010	Year ended 31 March 2009 (restated)*
(Loss)/profit after tax for the period		(63.3)	93.6
Adjustments for:
Taxation		(2.8)	20.4
Net finance costs		34.6	21.4
Loss/(gain) on business divestments and impairment of investments		6.2	(7.3)
Amortisation of purchased or internally developed intangible assets		11.3	8.9
Amortisation of intangible assets arising from acquisitions and impairments		79.5	23.5
Depreciation and impairment of property, plant and equipment		59.1	33.5
Share of post tax (profit)/loss of equity accounted entities		(0.2)	7.2
Retirement benefit obligations deficit payments		(13.0)	-
Net movement in provisions		10.9	(32.6)
		122.3	168.6
Increase in inventories		(13.1)	(2.9)
Decrease in receivables		89.9	4.4
(Decrease)/increase in payables		(29.9)	5.1
Changes in working capital		46.9	6.6
Cash generated from operations		169.2	175.2
Add back: cash outflow relating to EMEA reorganisation		35.4	27.0
Net cash flow from operations before EMEA reorganisation costs		204.6	202.2

*Restatement relates to the transfer of finance element of the IAS19 pension costs, totalling a net £3.4m credit to the income statement, tot the finance income and expense lines.

11. Analysis of net debt

all figures in £ million	Year ended 31 March 2009	Cash flow	Non cash movement	Year ended 31 March 2010
Due within one year
Bank and cash	262.1	(197.7)	(0.5)	63.9
Bank overdraft	-	(3.2)	-	(3.2)
Recapitalisation fee	0.7	-	-	0.7
Finance lease receivables	3.0	(3.0)	3.0	3.0
Finance lease payables	(2.8)	2.8	(2.8)	(2.8)
Derivative financial assets	0.1	-	4.7	4.8
Derivative financial liabilities	(20.0)	14.3	2.1	(3.6)
	243.1	(186.8)	6.5	62.8
Due after one year
Bank loan	(386.2)	232.1	10.4	(143.7)
Recapitalisation fee	1.6	-	(0.7)	0.9
US private placement	(393.0)	-	16.3	(376.7)
Finance lease receivables	11.6	-	(1.6)	10.0
Finance lease payables	(11.4)	-	1.7	(9.7)
Derivative financial assets	-	-	-	-
Derivative financial liabilities	(3.6)	-	2.6	(1.0)
	(781.0)	232.1	28.7	(520.2)
Total net debt as defined by the Group	(537.9)	45.3	35.2	(457.4)

12. Contingent liabilities and assets

The Group, including subsidiary undertakings, have given unsecured guarantees of £55.1m at 31 March 2010 (31 March 2009: £34.7m) in the ordinary course of business.

The Group is aware of claims and potential claims by or on behalf of current and former employees, including former employees of the MOD and DERA and contractors, in respect of intellectual property, employment rights and industrial illness and injury which involve or may involve legal proceedings against the Group. The Directors are of the opinion, having regard to legal advice received, the Group's insurance arrangements and provisions carried in the balance sheet, that it is unlikely that these matters will, in aggregate, have a material effect on the Group's financial position, results of operations and liquidity.

The Group has not recognised contingent amounts receivable relating to the Chertsey property which was disposed of during 2004 or the Fort Halstead property disposed of in September 2005. Additional consideration, subject to clawback to the MOD pursuant to the arrangements referred to in note 36 of the 2009 annual report, is potentially due upon the purchasers obtaining additional planning consents, with the quantum dependent on the scope of the consent achieved.

13. Post-retirement benefits

Set out below is a summary of the overall IAS 19 defined benefit pension schemes' liabilities. The fair value of the schemes' assets, which are not intended to be realised in the short term and may be subject to significant change before they are realised, and the present value of the schemes' liabilities, which are derived from cash flow projections over long periods, and thus inherently uncertain, were:

all figures in £ million	2010	2009	2008	2007
Total market value of assets	915.9	647.4	784.2	794.1
Present value of scheme liabilities	(1,063.2)	(752.6)	(807.6)	(884.9)
Net pension liability before deferred tax	(147.3)	(105.2)	(23.4)	(90.8)
Deferred tax asset	41.2	29.4	6.5	27.1
Net pension liability	(106.1)	(75.8)	(16.9)	(63.7)

Assumptions

The major assumptions (weighted to reflect individual scheme differences) were:

	2010	2009
Rate of increase in salaries	4.6%	4.1%
Rate of increase in pensions in payment	3.6%	3.1%
Rate of increase in pensions in deferment	3.6%	3.1%
Discount rate applied to scheme liabilities	5.6%	6.5%
Inflation assumption	3.6%	3.1%
Assumed life expectancies in years
Future male pensioners (currently aged 60)	87	87
Future female pensioners (currently aged 60)	89	89
Future male pensioners (currently aged 40)	89	89
Future female pensioners (currently aged 40)	90	90

Glossary

AGM		Annual General Meeting
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
CEO		Chief Executive Officer
Compliance Principles		The principles underlying the Compliance Regime, covering impartiality, integrity, conflicts, confidentiality and security
CR		Corporate Responsibility
DHS		US Department of Homeland Security
DoD		US Department of Defense
Dragon RunnerTM		A small, unmanned, man-portable ground vehicle intended for use in urban environments
DTR		MOD's Defence Training Review programme
EBITDA		Earnings before interest, tax, depreciation, amortisation, gains/loss on business divestments, unrealised impairment of investment and disposal of non-current assets
EMEA		Europe, Middle East and Australasia
EPS		Earnings per share
EU		European Union
Funded backlog		The expected future value of revenue from contractually committed and funded customer orders (excluding £4.3bn value of the remaining 18 years of LTPA contract)
Gearing ratio		The gearing is the ratio of net borrowings at the balance sheet date translated at average exchange rates for the period, to EBITDA generated in the 12 month period to balance sheet date, annualised and calculated in accordance with the Group's credit facility ratios.
IAS		International Accounting Standards
IFRS		International Financial Reporting Standards
IPO		Initial Public Offering
LIBID		London inter-bank bid rate
LIBOR		London inter-bank offered rate
LSE		London Stock Exchange
LTPA		Long-Term Partnering Agreement - 25 year contract established in 2003 to manage the MOD's test and evaluation ranges
MOD		Ministry of Defence
MRAP		Mine Resistant Ambush Protected - armoured vehicle
MSCA		Maritime Strategic Capability Agreement
NASA		National Aeronautics and Space Administration (USA)
OCI		Organisational Conflicts of Interest
Organic Growth		The level of year-on-year growth, expressed as a percentage, calculated at constant foreign exchange rates, adjusting comparatives to incorporate the results of acquired entities and excluding the results for any disposals or discontinued operations for the same duration of ownership as the current period
QNA		QinetiQ North America
R&D		Research & Development
Specific non-recurring items and acquisition amortisation		Major restructuring costs, disposal of non-current assets, business divestments, amortisation of intangible assets arising from acquisitions and impairment of investments
TALON®		Powerful, durable, lightweight tracked vehicles that are widely used for explosive ordinance disposal (EOD) and reconnaissance etc.
UAV		Unmanned Aerial Vehicle
UGV		Unmanned Ground Vehicle
UK GAAP		UK Generally Accepted Accounting Practice
Underlying basic earnings per share		Basic earnings per share as adjusted for gain/loss on business divestments, disposal of non-current assets, unrealised impairment of investments, major reorganisation costs and amortisation of intangible assets arising from acquisitions and tax thereon
Underlying effective tax rate		The tax charge for the year excluding the tax impact on gain/loss on business divestments, disposal of non-current assets, unrealised impairment of investments, major reorganisation costs, acquisition amortisation and any tax rate change effect expressed as a percentage of underlying profit before tax
Underlying net cash from operations		Net cash flow from operations before EMEA reorganisation costs and after capital expenditure
Underlying cash conversion ratio		The ratio of net cash flow from operations (excluding major reorganisations), less outflows on the purchase of intangible assets and property, plant and equipment to underlying operating profit excluding share of post tax result of equity accounted joint ventures and associates
Underlying operating margin		Underlying operating profit expressed as a percentage of revenue
Underlying operating profit		Earnings before interest, tax, gain/loss on business divestments, disposal of non-current assets, unrealised impairment of investments, major reorganisation costs and amortisation of intangibles arising on acquisitions
Underlying profit before tax		Profit before tax excluding gain/loss on business divestments, disposal of non-current assets, unrealised impairment of investments, major reorganisation costs and amortisation of intangible assets arising from acquisitions

 

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