QinetiQ Strategy

The Value Pipeline consists of a portfolio of present and future earnings streams. The Group’s principal role is to manage the value pipeline for optimal returns, in large part by regulating the resource flows through the cycle. Common features across the portfolio are consistent application of the QinetiQ brand; implementation of a common set of business processes and robust corporate governance; all supported by shared services and functional resources that deliver efficiently and effectively in support of the business.

Overview

Core c 90% revenue

Sustainable and defensible businesses, focused on growing market share. This is the ‘engine’ on which the Group’s reputation and customer relationships are built, the driver for continual renewal of its expertise and technology, and the source of the majority of its profit and cash flow.

Overview

Explore c8% revenue

High potential emergent businesses, typicallywith a proven competitive offering in agrowth market, for which the challenge isto demonstrate a business model scalableto significant and sustainable size in orderto become value accretive ‘Core’ businesseswhich increase diversification of the Group.

Overview

Test for Value c2% revenue

Portfolio of less mature options, typicallybased around innovative technology/knowhowwhich must be tested and managedrigorously for commercial viability. Investmentis required to achieve commercialisation:outcome most likely licence revenue/partnership, discontinuation; or, in certainexceptions, move to ‘Explore’.

The Key Elements

Core c 90% revenue

These businesses are focused on relatively resilient sectors in which the deep domain expertise of QinetiQ’speople is used to provide trusted independent advice and solutions for customers’ critical operations. Theseare the Group’s core capabilities, mostly comprising UK and US Services, and operating largely in the aerospace,defence and security markets. They exhibit relatively low risk characteristics with low capital requirements and strong, predictable cash flows. Much of the revenue is derived from longer-term contracts, with known dates for renewal and re-tender.

QinetiQ’s core businesses retain and win market share by applying their technical expertise and their detailedunderstanding of customer domains to provide support for customers’ ongoing and developing needs. Core businesses will receive investment on a sustainable basis as these opportunities emerge and where existing expertise can be deployed in adjacent sectors and geographic markets, from the proven platformof UK or US capability.

QinetiQ’s less mature businesses will be managed through a ‘Value Pipeline’ with a range of new capabilities at various stages of business readiness.

The Key Elements

Explore c8% revenue

These are businesses that have proven technology and customers, but have yet to prove that they can achieve significant scale. Examples include Cyveillance®, which delivers cyber intelligence solutions principally for US Fortune 500 customers, the OptaSense® fibre-optic sensing business, and Training & Simulation Services, which is using commercial-off-the-shelf technology to meet customer requirements to reduce the cost of training.

The Group will selectively invest in these businesses to create a broader base of significant and, therefore,core businesses for the future.

The Key Elements

Test for Value c2% revenue

These are businesses with proven technologies but that have yet to prove commercial viability. In some cases,the technology is being developed for a customer-funded programme, such as the E-X-Drive® hybrid electric drive transmission which is being developed as part of a consortium for the technology development phase of the US Army’s Ground Combat Vehicle Program.In other cases, the intellectual property is licensed out to reduce implementation and sales risks, with revenue dependent on third-party sales channels.

Over the medium term, these early-stage technologies will be managed rigorously to resolution, whether through investment, divestment, closure or trade-through, until project completion.

Progress in 2013

Progress in 2013
• Re-pricing of the LTPA contract
• Performance improvement in Australia with increased revenue and margin
• 5-year £7m Royal Navy contract for optimisation of ship and submarine stealth characteristics
• New £6m framework contract for C4ISR research

US Services
• $17m condition-based maintenance award for the US Army
• $80m Tomahawk contract award by Naval Air Systems Command
• Revenue continued to increase on the NASA Engineering Services Contract at the Kennedy Space Center
• $46m infrastructure support contract extension for the Customs and Border Protection Agency

Global Products
• Two key orders totalling $44m for Q-Net®
• New customer contracts from Poland and the Czech Republic for Talon®
• $13m US Government order for Dragon Runner™ 10 robot

Progress in 2013

OptaSense®
• £10m follow-on contract with Shell

Training & Simulation Services
• £7m extension to Distributed Synthetic Air Land Training (DSALT) programme at RAF Waddington
• £4m enhancement to Army predeployment training contract

Cyveillance®
• Grew year-on-year with improvement in productivity

Protective Monitoring
• Cabinet Office GPG13 Accreditation Space
• Successful launch of Proba V satellite for European Space Agency

Progress in 2013

Progress in 2013
• Sale of Zephyr® to EADS Astrium
• Energy from Waste refocused on core military customers
• Integrated Warrior SystemTM pipeline opportunities
• New orders for ALARMTM
• Smart Sensor SystemsTM selected by British Columbia Hydro to support its smart metering programme
• Partnerships developed for GAJTTM GPS and MEWSTM to take products to market

Progress in 2014

Priorities in 2014
• Maximise the Core by winning market share in existing markets and marketing capabilities into new sectors and/or geographical markets
• Assist MOD with its defence transformation programme

Progress in 2014

Priorities in 2014
• Scale the Explore portfolio
• Rigorous evaluation of investment priorities
• OptaSense® to capitalise on end of exclusivity period with Shell
• Training & Simulation Services to build on its position on the approved companies list for a $2bn IDIQ contract
• Cyveillance to focus on delivery of commercial services, larger and higher margin contracts
• Scale up the Space business

Progress in 2014

Priorities in 2014
• Continue to assess viability of technology and markets
• Sustain the rigour in Test for Value
• Focus on non-conflict technologies
• Monetise intellectual property

QinetiQ People Who Know How
QinetiQ Strategy