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. This ‘Value Pipeline’ approach gives the Group full visibility of and direction over, its assets and capabilities, which combine to set it apart from competitors in helping to meet its customers’ biggest challenges.

Overview

Core c 85% revenue

These are the Group’s Sustainable and defensible core capabilities, mostly comprising EMEA Services, and operating largely in the aerospace, defence and security markets. It is focused on growing and retaining 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 c 10% revenue

QinetiQ’s ‘Explore’ businesses are high potential, emerging businesses, typically with a proven competitive offering in a growth market. They represent the best opportunities for future growth, to at least $100 million of revenue per annum, from both the Group’s services and products divisions. These are established, commercially viable businesses that have proven technology and customers, but have yet to prove that they can achieve significant scale.

Overview

Test for value c 5% revenue

QinetiQ’s ‘Test for Value’ offerings are early-stage options that are typically based around innovative technology or know-how that have yet to demonstrate commercial viability. Investment is required to achieve commercialisation: outcome most likely licence revenue/partnership, discontinuation; or, in certain exceptions, move to ‘Explore’.

The Key Elements

Core c 85% revenue

QinetiQ’s core businesses are focused on relatively resilient sectors in which the deep domain expertise of our people is used to provide trusted independent advice and solutions for customers’ critical operations. Much of the revenue is derived from longer-term contracts, with known dates for renewal and re-tender. These contracts exhibit relatively low-risk characteristics with low capital requirements and strong, predictable cash flows.

QinetiQ’s core businesses retain and win market share by applying the technical expertise of their people, as well as their detailed understanding of customer domains, to provide support for customers’ ongoing and developing needs. Core businesses 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 platform of EMEA Services or Global Products capability. These businesses generate cash that can be invested in the Group for future growth, and a strong portfolio of IP that is initially collected and categorised in ‘Test for Value’ and managed through a ‘Value Pipeline’ which includes a range of new capabilities at various stages of maturity.

The Key Elements

Explore c 10% revenue

The Group is ‘nurturing’ a select number of these opportunities to determine their ability to deliver both UK and international growth. The challenge they face is to demonstrate a compelling business model that is scalable to a significant and sustainable size, in order to become value-accretive core businesses which increase the diversification of the Group. The Group is selectively investing in these businesses to create a broader base of significant and, therefore, core businesses for the future.

The Key Elements

Test for Value c 5% revenue

These technologies are often proven under customer-funded programmes, so the portfolio can be likened to a drug pipeline for a pharmaceutical company, except that development takes place in partnership with a customer who provides the majority of ‘early-stage’ funding. The Group evaluates emerging technologies to determine their potential for value.

Investment is required to achieve full commercialisation, so the IP is often licensed out to reduce implementation and sales risks, or taken to market with partners.

Over the medium term, these early-stage technologies are managed rigorously to resolution. They can be moved to ‘Explore’ and receive investment, or divested, closed or traded through until project completion.

Progress in 2014

EMEA Services

The Air business was awarded a £16m contract to support the conversion of Merlin helicopters for maritime use and won its first major engineering services contract to extend the life of an RAF aircraft type. The year also saw the first flight of the Watchkeeper Unmanned Air System (UAS) from Boscombe Down, which QinetiQ operates and manages for the MOD.
The Weapons business was awarded a 4 year contract to provide research and advice through the Weapons and Science Technology Centre.
The Maritime business won a £5m contract from a competitor to deploy and maintain the MOD’s mobile underwater targets as well as securing a contract from Daewoo Shipbuilding to support the development of the Republic of Korea’s new KSS-III attack submarine.
C4ISR was awarded two new research enabling contracts, unseating the incumbent supplier to win an enabling contract for defence logistics research, and winning the next stage of the contract under which it leads research into secure information infrastructure.
QinetiQ Australia won positions on new government framework contracts known as ‘panels’ and grew its footprint in the maritime market by supporting the Hydrographic Systems, Frigates and Helicopter Dock Program Offices.

Global Products

$20m of TALON® robots delivered to Iraq and $8m to Pakistan more than doubling international sales.
Under a $18m contract the business delivered its Q-Net® vehicles survivability product to Oshkosh to fit to M-ATV vehicles.
Delivery of the shoulder-Worn Acoustic Targeting System (SWATS™) to Germany.
Progress in 2014

EMEA Services

The Cyber business was awarded a multi-year contract by the Ministry of Justice to provide protective monitoring of its networks. It was also awarded an £8m contract to provide data security services to the UK Government’s smart meter programme.
A new leadership team has successfully commercialised Cyveillance®, with a renewed focus on the delivery of higher margin, repeatable security services to commercial markets. During the year, the business increased its revenue from US Fortune 500 customers as companies, particularly in regulated markets such as finance, energy and healthcare, established threat intelligence centres to predict and combat cyber risks.
The Group has also established a new Procurement Advisory Services business to deliver government procurement advice including tender assessment, cost and risk advisory services.
The Training business consolidated its position in the UK market during the year, increasing revenue on its flagship Distributed Synthetic Air Land Training (DSALT) programme at RAF Waddington and securing a two-year extension for the Defence Simulation Centre it has established for Joint Forces Command. It also won the re-compete of a £4m underpinning contract with the UK’s Defence Science and Technology Laboratory (Dstl).

Global Products

The OptaSense® business has been accelerated by the acquisition of Redfern Integrated Optics (RIO), a market leading supplier of low noise semi-conductor lasers, with a turnover of $5m in 2013.
OptaSense® won the oil and gas industry’s first multi-year 4D distributed acoustic sensing contract for the vertical seismic profiling of up to 12 oil wells simultaneously in Oman. In the rail market OptaSense® is partnering with Deutsche Bahn under an 18-month contract. In the infrastructure security market, OptaSense® won three key orders to protect over 1,600km of pipeline in the Middle East. OptaSense® also won Queens Awards for Export and Innovation.
As a partner in the European Space Agency (ESA) the Space business signed an agreement that ensured the long-term development of the facility at Redu, Belgium as a strategic focus for European space activities. The business is also a member of a Belgian consortium that won a contract to design and build an agriculture monitoring satellite for the Vietnam Academy of Science and Technology.
Progress in 2014

Global Products

The Modular Electronic Warfare System (MEWS™) received a £4m order from the government of a NATO country.
The secured navigation systems currently being proven on ESA’s Galileo programme and stealth wind turbine technology, which achieved its first licence sale during the year.
In addition a pilot of the Linewatch™ power line sensor system, that precisely measures voltage and current on power grids, is currently under way with a major North American hydro-electric company to support its smart metering programme.
Priorities in 2015
Invest in key capabilities
Drive market share growth in existing markets
Deploy capabilities into new sectors and/or geographical territories
Priorities in 2015
Invest in opportunities for growth
Develop requisite business models
Drive profitable growth
Partner appropriately
Priorities in 2015
Sustain the rigour in the evaluation of emerging offerings
Continue to assess viability of technology and markets
Develop partnerships to commercialise options
Monetise IP through licensing
QinetiQ People Who Know How
QinetiQ Strategy