Shareholder Executive

QinetiQ

Purpose

QinetiQ Group plc is an international defence and security company that develops cutting-edge technology for the UK's Armed Forces and provides technological advice and services to the Ministry of Defence, other Government departments, the US Department of Defense, and non-Government customers.

Legal Status and Ownership

QinetiQ Group plc (formerly QinetiQ Holdings Limited) is a company incorporated under the Companies Act which is listed on the London Stock Exchange. The MoD retains an 18.9% stake and a Special Share to safeguard defence and security interests of the UK. MoD also nominates a non-executive director to the QinetiQ Board.

Objectives

QinetiQ's vision is to be the world's leading provider of defence and security technology-based solutions and services. It seeks to deliver this vision in the following ways:

• continuing to build its businesses in North America
• building on its powerful UK defence franchise
• building valuable new market positions in selected EMEA (Europe, Middle-East and Australasia) markets outside the UK
• taking selected defence technologies into new markets.

Financial Performance

£m	2008	2007	2006
Turnover	1,366	1,150	1,052
Operating Profit	131	107	91
Profit/(Loss) for the year	47	69	60
Net Cash flow	7	(46)	54
Net Operating Assets	1,041	936	798
RONA	12.6%	11.4%	11.4%
Shareholders' Funds	533	477	363
Dividends	25	23	-

Commentary

2008 was another year of strong operating and financial performance for QinetiQ.

QinetiQ North America (QNA) delivered significant organic growth, supplemented by five further acquisitions. The range of products and services offered to customers continued to grow and diversify. QNA was the fastest growing part of the group.

Within EMEA (Europe, Middle-East and Australasia), the UK remains as the primary market served by QinetiQ. EMEA delivered good growth in both Managed Services and Consulting and continues to see opportunities in Integrated Systems and Applied Technologies, including further penetration in overseas markets. The restructuring into fewer business units will improve customer focus and deliver measurable benefits to profit margins.

Opportunities for technology ventures have developed and seven ventures were spun out into a separate fund with an external partner. QinetiQ believes that its selective and targeted approach to investment will generate attractive returns over the medium term.

Revenue for the year increased 19% to £1,366m, including organic growth of 8.6%. Underlying operating profit increased by 20% to £127m. Underlying earnings per share increased by 19% to 13.4p per share. QinetiQ is proposing to increase its total dividend for the year to 4.25p per share – an increase of 16% over the last year.

Admiral Edmund Giambastiani Jr joined the board in February 2008 as an independent non-executive Director replacing George Tenet. George Tenet joined the QNA board. Doug Webb left the Group at the end of May 2008 to join the London Stock Exchange. His successor from August 2008 as Chief Financial Officer was David Mellors, who joined the board from Logica plc.