ANNUAL REPORT AND ACCOUNTS 2005 Customer Contact T eam
QinetiQ
Cody T echnology Park
Ively Road, Farnborough
Hampshire GU14 0LX
United Kingdom
T el: +44 (0) 8700 100942
www.QinetiQ.com
© QinetiQ Group plc
QinetiQ/CM/MS/AR050038
Company Registration Number 4154556
Registered Office:
85 Buckingham Gate
London SW1E 6PD
Designed and produced by Pauffley Ltd  www.pauffley.com
Photography by Mike Ellis and Patrick Harrison. 
Images from MOD, Getty Images, The Science Photo Library
and Zefa Photo Library.
Printed by St Ives Westerham Press
CONTENTS
01 FINANCIAL HIGHLIGHTS
02 QINETIQ AT A GLANCE
04 CHAIRMAN’S STATEMENT
06 CHIEF EXECUTIVE OFFICER’S STATEMENT
09 FROM SCIENCE TO SOLUTIONS
28 CORPORATE RESPONSIBILITY
30 OPERATING AND FINANCIAL REVIEW
36 BOARD OF DIRECTORS
38 REPORT OF THE DIRECTORS
39 STATEMENT OF CORPORATE GOVERNANCE
42 REPORT OF THE REMUNERATION COMMITTEE
46 STATEMENT OF DIRECTORS’ RESPONSIBILITIES
47 INDEPENDENT AUDITORS’ REPORT
48 FINANCIAL STATEMENTS
QinetiQ is one of the world’s leading defence technology and security companies. 
In today’s world the challenges faced by governments to detect, identify and respond 
to both defence and homeland security threats requires the most advanced technical
capabilities science can offer.
QinetiQ is the world’s first top flight national defence laboratory to transition to 
the private sector. It gives customers access to the output of 50 years of national
investment at the forefront of technology. QinetiQ has developed rapidly into a
commercial organisation present in the UK and North America with a breadth and
depth of innovative technologies, services, customers, contracts and geographies.
Our technology plays an important role in enabling more effective and efficient use 
to be made of existing manpower and platforms in a world where agility, flexibility 
and adaptability have become the watchwords of defence and security provision.
From integrating legacy weapons systems with state-of-the-art sensors and software
for the British MOD, to fielding advanced robotic systems for the US Department
of Defense; providing port security products for the US Department of Homeland 
Security, or designing advanced security systems for many of the City’s computer
systems, QinetiQ is committed to delivering Brilliant Solutions to Important Problems.
C11968_QinetiQ _Covers.qxd  16/9/2005  9:58 AM  Page 2 QinetiQ Group plc  Annual Report 2005 1
FINANCIAL HIGHLIGHTS
● T urnover increase of 9.7% to £872.4m (2004: £795.4m)
● Two US acquisitions completed and integrated
successfully
● Continued improvement in operating margin* 
to 8.0% (2004: 6.6%) 
● Cash generation remains a real strength of the
business, with a cash inflow before financing
acquisitions, disposal of businesses and dividends
paid of £68.2m (2004: £131.2m) despite an increase
of £40m in short-term MOD-related working capital
05
04 795.4
03 774.9
Turnover (£m)
£77.0m (9.7%) increase
872.4 Defence & Technology 
Security & Dual Use 
North America
Turnover by Sector 
2005 (£m)
Turnover by Sector 
2004 (£m)
664.9 657.7
137.4
137.4
70.1 0.3
Headcount 2005 Headcount 2004 
Defence & Technology 
Security & Dual Use 
North America 
Corporate
6,931
349
1,320 22
1,628
6,899
349
1,806
Sector operating
profit* before
exceptionals 2005 (£m)
Sector operating
profit* before
exceptionals 2004 (£m)
Defence & Technology
Security & Dual Use
North America
12.4
9.2
5.1 (0.6)
48.0 43.5
05 69.6
04 52.3
03 36.1
Operating profit before exceptional items, amortisation
and impairment (£m)
£17.3m (33.1%) increase
Turnover by 
geographic
market 2005 (£m)
Turnover by 
geographic
market 2004 (£m)
United Kingdom 
North America 
Continental Europe
Rest of World
86.9
16.6
14.6
17.1
21.9 21.3
749.0 740.4
05 68.2
04 131.2
03 –42.4
Cash flow before financing acquisitions, disposals of businesses 
and dividends paid (£m)
£63.0m decrease
Turnover by
channel 2005 (£m) 
Turnover by
channel 2004 (£m) 
Research 
LTP A 
Other MOD 
Commercial defence
Civil
North America
223.4
227.1
176.3
70.1 0.3
60.1
115.4
45.2
114.2
173.8
220.8
241.1
*Operating profit before exceptionals and intangible amortisation and impairment as a percentage of group turnover.
C11968_Qinetiq_p01-09.qxd  20/9/2005  12:43 PM  Page 1 2 QinetiQ Group plc  Annual Report 2005
QINETIQ AT A GLANCE
SECTOR SUCCESSES  
● Research: QinetiQ continues its heritage as the MOD’s
premier supplier of critical technology research and has
created a significant inventory of world-class technology.
● QinetiQ benefits from the MOD’s 25-year £5.6bn Long
Term Partnering Agreement to supply, test and evaluate
and provide support services.
● Procurement support: QinetiQ delivers a growing amount
of the DPA’s annual needs in providing independent
support to defence equipment projects.
● Commercial: QinetiQ has developed a new market
injecting knowledge and technology into the UK defence
equipment supply chain.
● The world’s largest market for QinetiQ’s core offerings.
● Three-legged approach to the market, closely aligned to
traditional skills and seeking cross-selling opportunities:
– technology: similar to heritage research competencies
– systems engineering: similar to UK MOD advisory work
– Federal IT services: extending QinetiQ’s world-class
capabilities.
– assembling
advanced
technology mast
for HMS Ark Royal
(p10)
– researching
inflatable
technology 
to cross 
obstacles on 
the battlefield
(p14)
– development of
National X-ray
Certification T est
to monitor and
train security
screeners (p18)
– TALON™ robots
remove operators
from danger 
in a number 
of situations,
including
Explosive
Ordnance
Disposal (p22)
Andrew Sleigh
Managing Director
Defence & 
Technology Sector
Graham Love
CEO
North America Sector
DEFENCE & TECHNOLOGY
NORTH AMERICA
SECURITY & DUAL USE
Hal Kruth
Managing Director
Security & Dual 
Use Sector
● QinetiQ possesses leading technology products in the
high growth security and counter-terrorism markets.
● We are one of Europe’s foremost technology providers 
to the space industry.
● We have developed our technology into leading
commercial products with multiple routes to market.
● We leverage our technology through licensing agreements
and the creation of focused partnerships and joint
venture businesses.
“We have continued to progress our
strategic plan of building a complementary
platform and culture in North America 
and are rapidly becoming a leading
independent defence technology and
security company in the highest
growth region.”
“The Security & Dual Use sector draws from
the Company’s significant inventory of
intellectual property and world-leading
technology, leveraging these assets into
high growth, non-defence adjacent
markets.”
“We sit at the heart of innovation in
defence, supporting customers across the
UK MOD and the defence industry. We are
well matched to today’s defence priorities
of agility, flexibility and adaptability.”
C11968_Qinetiq_p01-09.qxd  16/9/2005  2:52 PM  Page 2 QinetiQ Group plc  Annual Report 2005 3
MOD Research
Playing a key role in
the defence supply
chain by using
research to prove the
ability of technology
to meet defence
requirements in 
both the short and
long term.
Technology
Provision of leading-edge
technology services to
the US defence market
from our US and UK
capabilities.
– Foster-Miller Inc. (FMI)
– QinetiQ Inc.
– QinetiQ Technology
Extension Corporation
Systems Engineering
Systems Engineering 
and Technical Assistance
(SETA) companies in the
US support defence and
security customers.
– Westar Aerospace &
Defense Group (Westar)
Other MOD
Providing acquisition
support to integrated
project teams in the
Defence Procurement
Agency (DPA) and the
Defence Logistics
Organisation (DLO),
parts of the MOD.
Commercial Defence
and Civil
Providing independent
technology solutions
to defence and
security problems,
exploiting advances 
in research.
Long Term Partnering
Agreement
QinetiQ continues 
to provide test and
evaluation services 
to the MOD across
more than 20 range
sites, meeting the
requirements of 
the contract.
National Security 
& Resilience
Contingency
planning including
business continuity,
crisis management
and exercising and
training continuity
teams. 
Business Security
Delivering both
physical and digital
security services,
creating fully
integrated
solutions. 
Managed Services
Bringing together
QinetiQ’s expertise 
in facilities and
asset management
to expand in
specialist managed
services areas.
Security & 
Intelligence
One of the leading
organisations in
information
assurance and
security technology
exploiting key
offerings to become
a leader in
international
security matters.
Technology &
Products
Promoting the
value of scientific
research to key
customers and
translating results
into commercial
solutions.
Space
A UK leader in
electric propulsion
and high altitude
unmanned aerial
vehicles. Advanced
technology in
spacecraft payloads,
mission design and
data exploitation.
Transport Security
Using advanced
technology to
enhance security
for airports, ports
and the transport
industry.
CAPABILITIES
C11968_Qinetiq_p01-09.qxd  16/9/2005  2:53 PM  Page 3 4 QinetiQ Group plc  Annual Report 2005
CHAIRMAN’S STATEMENT
This has been a landmark year for QinetiQ, registering
solid growth, increased profitability and positive cash
flow from operating activities. We have made strides
towards our strategic goals of maintaining our 
strong relationship with the UK MOD, growing 
our commercial defence business, establishing a
substantial presence in the United States (US) – the
world’s largest defence market – and leveraging our
technology and expertise into the non-defence arena.
Successful commercialisation of our technology in
new defence and related security and dual use
markets has accelerated. The purchase and integration
of two thriving defence companies in the US, Foster-
Miller and Westar, has diversified QinetiQ’s earnings
base, provided a scale entry point into, and contributed
to significant growth in, the critical American market.
It has also laid the base for QinetiQ’s long-term
development as a global solutions company with 
a continuing focus on defence and security but also
with significant business in civilian applications.
QinetiQ is realising its huge potential and our brand 
is achieving recognition.
QinetiQ’s unique position
The incoming government has recommitted to maintain Britain’s
position as a world leader in defence technology. In the debate on the
Queen’s Speech, Lord Drayson, Minister of State for Procurement in the
MOD, said: “Our defence scientists and engineers are at the cutting
edge of research in order to provide the best kit for our armed forces”.
In his address to the CBI Annual Conference this year, the Chancellor 
of the Exchequer proposed that industry and government should form
a partnership to agree on long-term investment in British science and
technology, asserting that, in an open global economy, the greatest
added value in society comes from innovation which is a driver of
economic growth. As I set out in my statement last year, QinetiQ
shares this vision, which is central to our strategy as a company. 
As a provider of technology solutions to problems in both the defence
and civilian spheres, QinetiQ is uniquely placed to contribute to the
realisation of both national priorities. In our view, defence Research
and Development (R&D), in which continuing government investment
is vital, will remain an important component of technological advance
with significant benefits to the economy as a whole. The funded
research QinetiQ does for the MOD lies at the core of our business
model. Its global quality is demonstrated by the progress we have
made in the last year in winning research contracts with the US
Government Defense Advanced Research Projects Agency (DARPA). 
T o disseminate QinetiQ-owned technologies derived from defence
research more effectively into the wider economy, we have developed
processes to fast-track them to market, thus releasing value more
rapidly into the economy as a whole. Defence partners are also
engaging us to help commercialise their own technologies and 
we believe that others will follow suit.
Many of the important problems we are asked to solve are of direct
interest to government, business and society now and in the future:
the development of waste management systems; improved cancer
diagnosis methods; enhanced safety mechanisms in cars; advanced
security for air travellers are but a few examples. We will work to
ensure that the research bedrock on which our technologies are 
based continues to be resourced.
Past year
This past year, the defence and security markets have confirmed their
strengths in the UK and the US. We have capitalised on this. In Britain,
Dame Pauline Neville-Jones
Chairman 
C11968_Qinetiq_p01-09.qxd  16/9/2005  2:53 PM  Page 4 QinetiQ Group plc  Annual Report 2005 5
our technological expertise is increasingly sought by the Defence
Procurement Agency (DPA) and the Defence Logistics Organisation
(DLO) of the MOD, while our commercial defence business has 
grown by a third. In the US, the Department of Defense (DoD) is 
now the Group’s second largest customer – testimony to the strategic
importance of our US acquisitions. The market for security technology
is maturing globally, with increasing emphasis on threat analysis and
the appropriate application of technology, both of which are among
QinetiQ’s core strengths. We have made progress in focusing our ability
to exploit our intellectual property to win business in non-defence
sectors, better understanding these markets, developing techniques 
to exploit them and building important long-term relationships.
Improving performance
We continue to focus on improving our financial and operational
performance. We have simplified the structure of our business to focus
on the three main markets of defence, security and civil applications,
and the US. We have further developed our corporate governance
structures to ensure compliance with the Combined Code. During the
course of the year, Richard Gillingwater, Head of the Government’s
Shareholder Executive, joined the QinetiQ Board as did Dr Peter Fellner,
Executive Chairman of Vernalis. Effective from 1 August 2005, Sir David
Lees, Chairman of Tate & Lyle, will also join. Taken together, these
appointments constitute a major strengthening of our Board and I am
delighted to welcome all three members. 
Our major shareholders, The Carlyle Group and the MOD, have
continued to work closely with us to support our business strategies at
this important time. At QinetiQ’s Public Private Partnership transaction
in February 2003, the MOD stated its intention of selling its remaining
shareholding interest some three to five years later, probably through
UK flotation. This remains the position in principle, although no
decisions have been taken about the timing or structure of any sale.
We and our shareholders continue to share the same vision, that a
flotation would be an important milestone in the long-term
development of the Group as a strong, vibrant and international
defence technology business.
Corporate responsibility
At QinetiQ, we take our responsibility as a corporate citizen seriously.
We recognise that we have an impact on the world around us: socially,
environmentally and ethically. We have used our business strengths 
in environmental issues to make a special contribution to the wider
community. We look after a number of valuable conservation areas
including 13 Sites of Special Scientific Interest (SSSIs), we have secured
accreditation with the National Energy Foundation for our energy
efficiency and have maintained our ISO14001 registration. We are
strongly supported in our determination to act with integrity in all our
business dealings by our highly accountable staff.
A workforce of which to be proud
I have commented before on the brilliance of our 10,400 people. In
QinetiQ’s case, this is no platitude. It is literally true in the extent and
quality of their professional qualifications. The Company’s success is
predicated on their achievements – on their passion, commitment
and effectiveness. We aim to recruit, retain and develop the best – 
a necessity for retaining our vibrancy and productivity – and to treat
our staff with the respect they deserve. At a time of transition and
restructuring, an inevitably unsettling process, we rely on our staff’s
loyalty and commitment more than ever. We are grateful for the
certitude shown by employees during this time, ensuring that we 
are in a strong position to accelerate the growth of the business.
A bright future
The Board looks to the future with well-placed confidence. We are
positioned to capitalise further on the continued strength of our core
markets, defence and security. Our expansion into the US, through
carefully targeted acquisitions, has been successful in terms of revenue
and profitability and provides a model to develop further. Our ability 
to work productively on both sides of the Atlantic with government
agencies and their contractors puts us in a strong position to generate
further business in these quarters. And, while the commercialisation
of technology is complex, our ‘fast-track’ process has the potential to
bring step-change technologies rapidly to market, capable of delivering
high returns both to ourselves and our customers.
Dame Pauline Neville-Jones
Chairman QinetiQ Group
28 June 2005
C11968_Qinetiq_p01-09.qxd  16/9/2005  2:53 PM  Page 5 6 QinetiQ Group plc  Annual Report 2005
CHIEF EXECUTIVE OFFICER’S STATEMENT
This has been a year of real progress for QinetiQ 
but also one of transition. We have now had two 
years following investment by The Carlyle Group, 
which took the Company into the private sector. 
The first year was devoted to sound performance,
demonstration of cash generation and examination 
of the strategic choices that our new freedoms 
offered. This second year has started to progress the
strategy we formulated. This is leading the Company
into areas of significantly greater growth potential 
and our people are responding magnificently to the
opportunities now before us.
Sir John Chisholm
Chief Executive Officer
Execution on strategy
In all our markets our strongest differentiator is that QinetiQ contains
within it the integrated result of 50 years of investment by one of the
most sophisticated defence nations in the world. No other similarly
advanced country has transitioned its national laboratories into the
private sector with the intention of giving them the opportunity of
fulfilling their potential to serve a broader range of customers, 
bringing their technology through to market leading products and
services, and growing and creating a new internationally-based
defence technology Group.
Last year, we announced that our strategic review had concluded that
the unparalleled capabilities that our newly private company had
inherited could best be exploited in the Defence and Security markets
and the greatest opportunities for expansion were in the US. This 
year, we have been executing that strategy beginning with a major
restructuring of the Group into three Sectors: the Defence &
Technology Sector, serving primarily the defence market in the UK; 
the Security & Dual Use Sector, which contains those technology
capabilities drawn from our Defence core markets as well as their
defence customers; and the North America Sector, focused primarily
on serving Defence and Security customers in the US.
North America is the world’s largest market for QinetiQ’s core
offerings, representing the most exciting growth arena and we have
executed our strategy to replicate the success of our UK model and
expand our presence significantly in the market. We will continue to
look for opportunities and new ways in which best to leverage our 
core skills and expertise in this exciting area in the future.
Financial review
Turnover for the year rose 9.7% to £872.4m due mainly to our
investments in the US defence market. Continued attention to
superior operational management moved margins faster than
turnover resulting in total operating profit (before exceptionals,
intangible amortisation and impairment) expanding 33.1% to 
£69.6m. Cash flow before financing, dividends, acquisitions and
disposals was also strong at £68.2m although less than last year’s
figure due primarily to an increase of some £40m in short-term
MOD-related working capital.
C11968_Qinetiq_p01-09.qxd  16/9/2005  2:53 PM  Page 6 QinetiQ Group plc  Annual Report 2005 7
We have more than 700 contracts valued between £100,000 and 
£5m that QinetiQ has undertaken for customers in the MOD including
370 research contracts, 91 test and evaluation contracts and 242
technical services contracts. Our field of activities ranges from a key
role in developing the MOD’s thinking with respect to Networked
Enabled Capabilities, to research into new Electronic Warfare sensors,
to proving our technology for automatic landing of Short Take-Off 
and Vertical Landing (STOVL) aircraft at sea, to procurement and
integration of new generation aerial targets, and on to extending 
the shelf life of munitions – providing the opportunity for 
enormous savings.
Responding to the defence and security environments
All major nations, including the UK, are faced with the challenge of
equipping their armed forces in an environment where sophisticated
modern defence systems take a decade or more to develop while the
missions they have to undertake emerge with little warning in a
matter of months. The resolution of this discrepancy in timing is
creating a seismic change in the international defence equipment
marketplace. QinetiQ, given its distinctive heritage, is well equipped 
to help customers respond to this challenge. Our core business 
in funded research work ensures our laboratories have available
demonstrations of leading-edge technology, while our practical
understanding of existing in-service equipment enables us to expedite
the insertion of new relevant capability into legacy platforms. 
The US armed forces face the same issues but on an even greater
scale. Being part of a Group with such a range of solutions to offer
customers was the key to persuading two very capable US defence
technology companies to join this year. Foster-Miller and Westar
Aerospace & Defense are two highly respected companies with 
strong, but different, customer positions.
In QinetiQ North America, Westar works predominantly directly for 
the Department of Defense (DoD) providing systems engineering and
technology services in the army aviation and missile defence fields. 
In its last complete year (to December 2004) it had a turnover of
$155.5m (£85.4m) and recorded an operating profit of $18.0m
(£9.9m). Foster-Miller is a longer-established company which had its
origins in a spin-out from Massachusetts Institute of Technology (MIT).
T oday it is engaged in advanced research for the DoD and the
application of its technologies, particularly in the automation,
materials and power engineering fields, into products for military and
commercial customers. It is particularly well known for its TALON™ and
SWORDS military robots, of which more than 250 have been sold, and
its LAST® appliqué armour which has been bought by 11 nations. In its
last full year (to July 2004) Foster-Miller reported turnover of $121.0m
(£68.9m) and operating profit of $20.1m (£11.4m).
With these acquisitions, QinetiQ’s staff numbers in the US have 
risen to 1,320 out of a Group total of 10,406 at March 2005. The
opportunities we are now pursuing are likely to mean that the US 
will make an even larger percentage contribution to the Group by the
end of the current financial year.
Positioned for growth
Our leading position in understanding research markets for the MOD
provides insight and positioning at the very birth of nascent defence
programmes. As the MOD’s partner for test and evaluation, through
the £5.6bn LTPA contract, we provide a technical advisory service to
new programmes and equipment updates. The intellectual property
and technical insight which these activities provide makes us
attractive technology partners for Original Equipment Manufacturers
(OEMs) bidding for major equipment supply roles and this is resulting
in a business in commercial defence which grew 33% this year.
Our defence technology has numerous applications outside the 
strictly defined defence market and many of these are the focus of our
Security & Dual Use (S&DU) Sector. The creation of this Sector, which
remains founded squarely on funded technologies drawn from our
defence capability and tested against the demands of our defence
customers, provides the Group with a critical mass of expertise in
taking technology products to commercial customers.
Its Security Division expanded work for intelligence customers by 
50% during the year and also continued to grow our business in
Information Security which has now reached £20.0m. The Space
Division, which focuses on low-cost access to space, also had a good
year, growing 12% through programmes such as the low-cost Earth
observation platform T opSat, our ‘near space’ unmanned autonomous
vehicle (UAV) Zephyr, and the Maps-on-Tap programme we won for the
Office of the Deputy Prime Minister.
In all our markets our strongest differentiator is
that QinetiQ contains within it the integrated 
result of 50 years of investment by one of the 
most sophisticated defence nations in the world
C11968_Qinetiq_p01-09.qxd  16/9/2005  2:53 PM  Page 7 8 QinetiQ Group plc  Annual Report 2005
CHIEF EXECUTIVE OFFICER’S STATEMENT CONTINUED
The UK Technology and Products Division houses some of QinetiQ’s
very best scientists and most advanced technology. This is reflected 
in our customers and the assignments they choose us to do. Intel
selected us to develop an indium antimonide transistor as a 
candidate solution to the end of the ‘Moore’s law’ era on silicon. 
We are working with DARPA on a low-cost means of monitoring 
units in a battlespace. US customers have bought early versions of 
our passive millimetre screening systems able to detect bomb and 
gun threats at stand-off distances.
One of the principal purposes in forming S&DU was to gather together
in a single part of the organisation the wealth of experience we have
developed in commercialising technology. Our capabilities in these
much sought-after skills are apparent both from the fact that other
major corporations seek our assistance, and also by the success of the
ventures we have launched. 
This year several of our early ventures have reached important goals.
We were able to recognise the value in pSiMedica, our venture based
on our invention of porous silicon, when we accepted an offer from 
the Australian company pSiVida which resulted in an overall gain for
the year of £14.8m represented in cash and listed stock. Quintel
Technology has now begun to take orders for its multi-network 3G
antenna following the start of serious build out of 3G networks in 
the UK. The problem of maximising coverage, while minimising the
proliferation of unpopular masts, is a worldwide issue and at the
current time we have the only proven solution.
Looking forward
QinetiQ occupies a unique place at the crossroads of three powerful
demand drivers:
● First, active deployment of UK and US military forces drives the 
need to develop, integrate and field new technologies to meet
emerging threats.
● Second, security and terrorist challenges place an urgency behind
discovering new means to prevent and protect society.
● Third, the recognition by UK, European and American businesses
that rapid technology innovation is the primary means to compete
successfully in the global economy which drives the resulting
demand for innovation-led solutions.
Our strategy is to grow in each of three target sectors. In Defence 
and Technology (D&T), we will build on our core franchise in research
and test and evaluation to transition our technology into equipment
and services programmes through partnerships with the OEMs. 
In S&DU, we will exploit our differentiated technologies into niche
markets by way of product and service offerings, partnerships,
ventures and licensing. In the US, we will continue our rapid growth
leveraging the Group’s incomparable technology strengths and
selectively adding to our chosen sub-sectors of technology, systems
engineering, and federal IT services.
Our unique heritage gives us capabilities to meet these demands,
creating loyal customers with expanding relationships. This organic
growth opportunity, combined with our proven ability to grow 
through strategic acquisitions, will offer our customers an even larger
and more comprehensive set of technologies and services.
The private equity transaction with Carlyle in 2003 created the
opportunity for QinetiQ to start to fulfil its potential. The past year 
has reshaped and repositioned the Company to address these
opportunities. The world we now occupy is altogether more
challenging than the public sector environment from which many 
of our staff came, but all our staff, from whatever background, have
risen magnificently to the challenges. They have embraced the
changes and are focused on our core mission of delivering brilliant
solutions to important problems. Given the wealth of key issues in
both the military and commercial fields for which our science and
technology can provide effective solutions, I am confident that this
Company has a strong future before it.
Sir John Chisholm
Chief Executive Officer QinetiQ Group
28 June 2005
The opportunities we are now pursuing in the US
are likely to mean that the US will make an even
larger percentage contribution to the Group by the
end of the current financial year
C11968_Qinetiq_p01-09.qxd  16/9/2005  2:53 PM  Page 8 FROM SCIENCE TO SOLUTIONS
QinetiQ’s business is all about innovation and solution. Its heritage is well-founded 
in developing intellectual property and applying it, providing a wealth of available
expertise. This position gives the organisation a unique angle to take on important
problems for its customers, providing them with tailored solutions.
From using weapons expertise to facilitate border patrols for an overseas navy to using
human science expertise in the provision of more secure travel environments, the
science and skills offered by QinetiQ is put to task to solve a wide range of real problems.
QinetiQ Group plc  Annual Report 2005 9
C11968_Qinetiq_p01-09.qxd  16/9/2005  2:53 PM  Page 9 10 QinetiQ Group plc  Annual Report 2005
FROM ADVANCED COMPOSITE MATERIALS
DEFENCE & TECHNOLOGY
QinetiQ is merging its expertise in materials, radar 
and communications to assemble a new advanced
technology mast for HMS Ark Royal.
The mast encloses radio frequency transmitters and
receivers ranging from essential systems such as radar
through to those carried for purely entertainment
purposes such as televisions and radios. This means
that they are shielded from both electromagnetic
interference and the elements, two problems
experienced with the placement of equipment on
traditional masts. The innovative material from which
the mast is made allows the signals to penetrate.
Despite their smart nature, the skins of the mast are
designed so that they can be built using standard
shipyard techniques and their ease of maintenance
means that they represent a considerable cost saving
in both the short and long term.
The advanced mast on Ark Royal is due to enter service
later this year.
C11968_Qinetiq_p10-29.qxd  16/9/2005  2:56 PM  Page 10 TO PLAIN SAILING WHATEVER THE WEATHER
QinetiQ Group plc  Annual Report 2005 11
C11968_Qinetiq_p10-29.qxd  16/9/2005  2:57 PM  Page 11 FROM TESTING AND EVALUATION TO INTEROPERABILITY 
QinetiQ will be delivering key support for the MOD’s T ornado F3 sustainability
programme. 
We work on delivering technical aspects of the programme and managing core
elements of the avionic integration, including the latest standards of air defence
missiles onto the aircraft. The high speed, air-to-air missiles provide significant
enhancements to both the T ornado F3’s Beyond Visual Range capability and to
the infra-red engagement capability.
As part of the T ornado Integrated Project Team’s ‘Capability Lean’ initiative, the
programme uses innovation to deliver more than 30% savings compared to
traditional approaches.
12 QinetiQ Group plc  Annual Report 2005
DEFENCE & TECHNOLOGY: BUSINESS REVIEW 
Introduction
The Defence & Technology Sector (D&T) forms the core of QinetiQ’s 
UK defence business, delivering technology solutions and managed
services that support the armed forces of the UK and our allies. The
Sector comprises over 6,900 people, working to discover real time
solutions to urgent military and security issues and selling its expertise
and technology across all of the MOD’s defence equipment and service
procurement programmes. We have two complementary positions in
the market:
● as a technology supplier, we generate technology solutions feeding
into the defence manufacturing supply chain, drawing from the
global science base as well as the applied research we conduct for
our customers
● as an expert and objective advisor, we provide acquisition support
to the MOD throughout the lifecycle of defence equipment, drawing
upon the know-how generated through research funded by MOD
and other civil and military agencies.
These two roles are regulated through a compliance regime that
forms part of our governance, whereby we agree with the MOD on 
a case-by-case basis measures to avoid conflicts of interest.
We do not undertake the role of a prime system integrator for
mainstream UK defence equipment, thereby avoiding the cyclical
exposure in our earnings seen by many of the original equipment
manufacturers (OEMs), rather we partner with manufacturers to take
science and technology through to realisable defence capability. An
important part of our business is creating technology opportunities
that are ready ‘on the research shelf’, able to be rapidly inserted into
current platforms or new designs. We also lead the delivery of major
managed services, the most significant being a 25-year contract to
operate the MOD’s test and evaluation services, currently its largest
single contract. 
The D&T Sector has four channels, each focused on a key area of the
defence domain – MOD research, Long Term Partnering Agreement
(LTPA), Other MOD and Commercial Defence and Civil.
MOD research
QinetiQ plays a key role in the defence supply chain by drawing
knowledge from the science base and developing solutions to meet
near-term and long-term defence needs. Often we will work with MOD
stakeholders to develop new concepts for achieving defence capability,
networking with teams in academia to incorporate advanced science
and supporting defence prime contractors to include winning
technology in their proposals to supply high quality and affordable
defence equipment.
05 664.9
04 657.7
Turnover (£m)
05 48.0
04 43.5
Operating profit before exceptional items (£m)
05 6,931
04 6,899
Employees
Turnover by channel (£m)
MOD Research
LTP A
Other MOD
Commercial defence
Civil 
202.9
41.6
55.3
188.8
176.3
C11968_Qinetiq_p10-29.qxd  22/9/2005  3:41 PM  Page 12 QinetiQ Group plc  Annual Report 2005 13
FROM WEAPONS SYSTEMS TO DEFENDED COASTLINES
QinetiQ has won the first phase of a multi-million pound contract to upgrade
three Jacinto Class patrol vessels for the Philippine Navy.
The contract demonstrates QinetiQ’s expertise in complex project management
gained by previous military projects. 
Extensive upgrades include supply, installation and testing of a new weapons
system, including a 25mm cannon and a 75mm gun. Each refit is expected to
take 10-12 months.
The vessels are used to patrol the vast stretch of coastline around the
Philippines and form a central capability in the country’s national security. The
upgrades will allow them to meet their operational requirements over the next
15-20 years.
Although the volume of our non-competed research funded by the 
MOD has decreased as the industry element is opened to competition,
we are being compensated by the opening up of revenue generation
potential from projects on which QinetiQ was previously prohibited 
to compete. Our success in UK research competitions, coupled with
growing revenue from other research customers, eg US Department
of Defense (DoD), means that overall the volume of our defence
research business was sustained during 2004/05. Alongside this we
have secured strong positions with the defence prime contractors by
exploiting research into their equipment solutions, this strand of
business grew by 33% on 2003/04.
Notable successes:
● QinetiQ has undertaken a linked series of research projects to help
the MOD develop its approach to achieving Network Enabled
Capability (NEC), forging new concepts in ways to deliver the right
effect at the right time making use of the latest communications
and information technology. In addition, as co-founder with BAE
Systems of the NITEworks Experimentation facility, QinetiQ has
supported the ‘themes’ that have been addressed to answer specific
NEC-related questions posed by the MOD.
● The Integrated Waste Management System (IWMS) is a total waste
management procedure that will see Royal Navy ships achieve early
compliance with new environmental laws and significant resource
savings, transforming vessels into self-contained units with
considerably less environmental impact. 
● The Ground-Based Air Defence (GBAD) Synthetic Environment is a
multi-million pound contract which has been awarded to QinetiQ
that will enable the first Synthetic Environment (SE) based
acquisition to be conducted by the MOD.
● QinetiQ is working on an MOD contract to improve and enhance
sensor technology for the Royal Navy. Phase one of the contract,
which will focus on development and testing of the techniques and
algorithms to be used, is worth around £5m and will cover a period
of three years.
● QinetiQ technologists have developed a unique onboard decision aid
computer software tool to help Royal Navy bridge officers operate
their ships safely in extreme weather conditions. ORPHEUS
(Onboard Risk Performance Hazard Evaluation System) is a dedicated
and flexible operator guidance system providing clear and concise
information on how a ship will perform in all types of bad weather. 
● QinetiQ has designed and delivered an urgent minesweeping
capability to support clearing the KAA waterway in southern Iraq. 
● QinetiQ is developing a hybrid electric drive demonstrator for a 6x6
vehicle for the MOD.
Long Term Partnering Agreement (LTPA)
The LTPA for test, evaluation and training support services forms a
large part of our UK business with the MOD. At £5.6bn over 25 years,
the LTPA is the largest single contract by cost currently let by the MOD,
with the contract contemplating savings of at least £700m compared
to the historical baseline, as well as benefiting from private finance 
of £150m to be invested in rationalisation and modernisation. 
Work associated with the LTPA helps to ensure the safe operational
performance for both platforms and weapons – a vital precursor to
release into service of both new and upgraded equipment. This Test
& Evaluation service can be in particular demand in times of conflict,
when equipment is often used in ways not envisaged in the original
requirement. 
The first two major QinetiQ investments, costing £45m, successfully
progressed during 2004/05. These were complex, hybrid projects
involving estate and personnel transformations as well as the
procurement, adaptation and setting to work of a fleet of aerial targets
(unmanned jet aircraft). The LTPA has an innovative pricing structure
that has stimulated customer usage, with a 30% increase in demand.
D&T also supports non-equipment Lines of Development (such as
training, infrastructure and logistics) and such work is likely to become
increasingly important in the future. D&T draws heavily on its defence
technology know-how, protected from any potential conflicts of
interest by a firewall agreed with the MOD. The combination of deep
technological expertise, long-standing understanding of the defence
domain and tailored tools and facilities combine to produce a
comprehensive set of offerings across the MOD. In 2004/05 we
extended our range of capabilities in this area by acquiring HVR
Consulting Services (HVR), specialists in defence analysis and 
project assurance.
C11968_Qinetiq_p10-29.qxd  19/9/2005  3:52 PM  Page 13 FROM INFLATABLE MATERIALS 
DEFENCE & TECHNOLOGY 
14 QinetiQ Group plc  Annual Report 2005
QinetiQ is carrying out a study for the US Army’s
Tank-Automotive Research and Development
Establishment Center (TARDEC) to study Gap Defeat
Technology for the Future Combat System.
The Gap Defeat Technology will determine the width
of a ‘gap’, assess that it can be crossed and then
deploy a solution. The QinetiQ Gap Defeat Solution
utilises patented ‘inflatable fascine’ technology that
offers the potential to allow vehicles to cross obstacles
like ditches and climb steps.
The technology offers a significant gap defeat ability
from a small stowed volume, removing the need for 
a specialist vehicle as currently used. QinetiQ expects
that the inflatable fascine will give a stowed volume
reduction of eight times, and be half the weight of, 
an equivalent current pipe fascine system.
The study is in two phases to provide an outline
system solution and bench test the relevant elements.
The QinetiQ study will include the manufacture and
testing of fascine tubes and field testing of several
candidate gap width sensing technologies.
C11968_Qinetiq_p10-29.qxd  19/9/2005  3:16 PM  Page 14 TO BRIDGING THE GAP
QinetiQ Group plc  Annual Report 2005 15
C11968_Qinetiq_p10-29.qxd  16/9/2005  2:59 PM  Page 15 16 QinetiQ Group plc  Annual Report 2005
FROM NUTRITIONAL ANALYSIS TO HIGH PERFORMANCE TROOPS
DEFENCE & TECHNOLOGY: BUSINESS REVIEW CONTINUED
Notable successes:
● QinetiQ carries out the majority of aircraft release advice in the UK for
military aircraft including the advanced jet trainer and Eurofighter.
● QinetiQ is working on the upgrading of GR7A Harriers into the
Harrier GR9 programme which should save the MOD up to £5m 
over the next two years.
● The Mirach aerial target, introduced by QinetiQ within two years at
Aberporth Range, is now fully operational with the option to operate
at the Hebrides Range being considered.
● QinetiQ continues to provide the MOD with independent advice for
its acquisition of future soldier technology on its Future Infantry
Soldier T echnology (FIST) programme.
● Over the last year, QinetiQ has delivered independent technical
advice on in-service trials of the BOWMAN communications system
for the armed forces.
Other MOD
Equally important is the wide-ranging acquisition support we provide
to Integrated Project Teams (IPT) in the DPA and DLO, where our advice
helps define requirements and assess bids, set out standards and
architectures, understand and mitigate risk. 
We deliver a growing number of the DPA’s annual needs in providing
independent test and evaluation to defence equipment projects from
initial conception through to entering service. We are also involved as
part of the IPT to help prime contractors overcome critical technology-
related problems. 
QinetiQ has been working closely with the MOD in delivering UK
Network Enabled Capability (NEC) as part of a wider Defence
Transformation. Important milestones achieved in the last 12 months
include: supporting the successful business case approval of
Acquisition for NEC (AfNEC), delivering a series of AfNEC pilots 
in areas such as Urban ISTAR and Cursor-on-Target, co-founding
NITEworks, with support to the recent information note, establishing
the MOD Joint Capabilities Board strategy for delivering NEC, 
together with engagement across many IPTs and the Director’s
Equipment Capability.
Notable successes:
● Our research into the ageing of explosive materials has enabled 
the DLO to save hundreds of millions of pounds by safely extending
the life between refurbishment or disposal of missiles and our
advice has changed logistics practices to further extend the life 
of munitions.
● QinetiQ is reducing risk and cost for the MOD on its Gatekeeper
programme for utility vehicles.
Commercial Defence and Civil
Technology innovation requires access to deep expertise across a 
range of subjects. It is in the bringing together of science to solve 
real problems by which new opportunities are created. 
As one of Europe’s largest technology suppliers, QinetiQ is well 
placed to deliver agile and cutting-edge solutions using the best
science and technology, exploiting advances widely into the defence
and civil supply chains, without constraints from being ‘locked-in’ to 
a single manufacturer, market or product line. This is emphasised 
by the impact our defence-funded research has had in providing 
the foundations for civil products. This flexibility in forming multi-
disciplinary teams and multiple market linkages lies at the heart
of our ethos and enables the Company to create gearing in the 
value from technology for QinetiQ, for our partners and for the 
community overall.
Notable successes:
● QinetiQ developed Agile C2, a new command and control product
that allows the planning, co-ordination and management of joint
air operations. The system provides a flexible and cost-effective suite
of planning tools and is particularly beneficial in multinational
environments, allowing the armed forces of different countries to
plan and execute joint operations effectively and safely. 
● As part of its work for the Joint Strike Fighter programme, QinetiQ
has reached a significant milestone demonstrating the first
automatic landing of a Short Take off and Vertical Landing (STOVL)
aircraft aboard an aircraft carrier. QinetiQ’s VAAC (Vectored-thrust
Aircraft Advanced Control) Harrier successfully landed on the UK’s
aircraft carrier HMS Invincible.
Research carried out on armed forces ration packs to heighten performance 
and morale indicated the need for more healthy eating and highlighted
improvements to deliver energy and critical nutrients to the troops.
The team analysed guidelines and legislation governing ration packs, their
chemical composition and energy requirements of operational scenarios. 
They conducted a survey of military personnel on consuming ration packs,
including their likes and dislikes.
The research provided the UK Defence Catering Group with important
information to enable it to improve ration packs. QinetiQ authored new
guidelines on ration packs that became MOD policy in March 2005.
C11968_Qinetiq_p10-29.qxd  19/9/2005  3:10 PM  Page 16 QinetiQ Group plc  Annual Report 2005 17
● QinetiQ’s high performance swimmer detection system, Cerberus, 
is currently being evaluated by the US Navy under a contract issued
by the US DoD.
● QinetiQ has signed a Memorandum of Understanding (MoU) with
Trelleborg AB to allow the two companies to offer acoustic stealth
cladding solutions to shipbuilders and navies throughout the world.
● QinetiQ has developed and demonstrated an open architecture 
for all inboard processing of sonar which enables capability
enhancement and new approaches to procurement, in-service
support and third party technology insertion.
● QinetiQ’s Aerodynamics & Aeromechanical Systems team has 
a world-class capability for aerodynamic shape optimisation 
which is gaining an ever-widening customer base. Recently,
Constrained Optimisation Design of Aerodynamic Shapes 
(CODAS) has been adopted by Airbus for wing aerodynamic 
design and by Formula 1 designers.
● In March 2005, QinetiQ signed a contract to provide its fast
satellite acquisition Global Positioning System (GPS) to the 
US Joint Advanced Missile Instrumentation (JAMI) programme.
FROM SONAR TECHNOLOGIES TO A PROTECTED NAVY
QinetiQ’s acoustic expertise will be protecting Norwegian ships by supplying
torpedo countermeasures for the Royal Norwegian Navy to be used on its new
Fridtjof Nansen class frigates. The ‘Loki’ countermeasure system was designed 
as a defence mechanism against acoustic-homing torpedoes. It operates in two
modes; jammer mode, which allows the transmission of high-power pseudo
random noise and confuser mode, which counters the threat of active, narrow-
band sonar weapons. Loki is one of a unique family of high performance, next
generation underwater countermeasures that provide a layered defence
capability for both surface ships and submarines.
C11968_Qinetiq_p10-29.qxd  16/9/2005  3:01 PM  Page 17 18 QinetiQ Group plc  Annual Report 2005
FROM UNDERSTANDING HUMAN BEHAVIOUR
SECURITY & DUAL USE
C11968_Qinetiq_p10-29.qxd  16/9/2005  3:01 PM  Page 18 TO TRAVELLING WITH PEACE OF MIND
QinetiQ has developed the National X-ray Certification
Test for the Department for Transport. Every screener
in the UK is required to complete this test before they
are able to screen and must repeat the test every 
13 months.
The software consists of image libraries and questions
and allows screeners to sit the test repeatedly.  This is
in order to train operatives and to keep the standards
of screening at a certain level.
The software was designed by experts in QinetiQ’s
Centre for Human Sciences, where research into how
people learn and how best to evaluate performance
has been applied in a variety of commercial ways.
QinetiQ Group plc  Annual Report 2005 19
C11968_Qinetiq_p10-29.qxd  16/9/2005  3:02 PM  Page 19 20 QinetiQ Group plc  Annual Report 2005
SECURITY & DUAL USE: BUSINESS REVIEW 
The S&DU Sector, with over 1,800 staff, contains the largest share of
QinetiQ’s growing security and other commercial business. The S&DU
team of scientists, engineers, consultants and analysts is focused on
maintaining strong relationships with traditional defence and
government security customers. It leverages the technology assets and
capabilities developed from that work into new technology-enabled
solutions for customers in defence, security and other government and
commercial markets to give them a competitive advantage. 
We engage with our customers through research and development
contracts, consultancy services, technology licensing, specialised products,
support services, and in some cases, spinning-out new businesses. 
A major and growing share of S&DU’s revenues comes from
consulting, analysis and advisory services in secure information
management and other aspects of business security.
The Sector includes five key business areas: Security & Intelligence,
Space, Technology & Products, Managed Services and Ventures.
S&DU teams work very closely with the D&T and North America
Sectors to help them deliver dual use solutions to their customers.
Security & Intelligence
Decades-long experience in providing advice and security solutions to
defence and other UK public sector customers has provided QinetiQ
with capabilities in information and physical security. The range of
offerings is extremely broad and has been well received by the
marketplace. We provide advisory services to assist customers in
identifying and mitigating risks regarding the security of their facilities
and information systems. We also develop, license and sell technology
product solutions addressing specific security vulnerabilities.
QinetiQ Trusted Information Management is a rapidly growing
information assurance business offering consulting, software
assurance, secure hosting, vulnerability scanning, penetration testing,
digital forensics and managed services for a diverse range of public
and private sector customers.
Notable successes:
● Helping Barclaycard to assess threats to their online business via 
an independent audit and a detailed Security Health Check.
● Tarsier® is a runway debris detection radar system developed 
in the wake of the 2000 Paris Concorde incident which was
successfully trialled at Heathrow, JFK and Vancouver 
International airports.
Space
QinetiQ is one of Europe’s foremost space technology providers,
leading the way in the development of ion engines with strong
capabilities in small satellites, advanced payloads, high altitude
unmanned autonomous vehicles (UAVs), mission design and
Geospatial Information Systems. Ion engine technology is already seen
as a critical technology to several future European Space Agency (ESA)
missions, while our ‘near space’ UAVs, small satellites, groundstation
processing capabilities and secure data distribution networks are key
to providing customers with low-cost access to space-based data.
QinetiQ's space experts contribute to a number of ESA missions (the
Mars Express orbiter, the Gravity field and steady-state Ocean Circulation
Explorer (GOCE) mission and lead of the T opSat programmes).
After a two-year programme of investment and research, the Zephyr
high altitude long endurance UAV flew several prototypes in early
2005. These large, lightweight and low-cost platforms will provide a
unique capability for applications such as environmental monitoring
and border surveillance.
Notable successes:
● The Maps-on-Tap programme is a QinetiQ-led consortium providing
government departments with access to high quality, up-to-date
digital mapping information and decision support tools under a
contract awarded by the Office of the Deputy Prime Minister.
● The first version of the Space Risk Analysis T ool was completed for
Sciemus Ltd, providing scientifically-based analysis on the risk of
FROM HIGH SENSITIVITY GPS TECHNOLOGY TO SAFER POLICE OFFICERS
QinetiQ’s enhanced GPS technology has been integrated into a hand-portable
radio to support police personnel on the job.
The award-winning High sensitivity GPS module, which is manufactured for
Sepura, one of the world’s largest TETRA (Terrestrial Trunked Radio) suppliers,
makes it possible to determine position within the built up areas of city centres
and even inside buildings and car parks. 
This ability enables police forces, like West Yorkshire Police, to develop services
that significantly enhance officer safety and enables all emergency services to
deploy resources quickly and efficiently.
05 137.4
04 137.4
Turnover (£m)
05 12.4
04 9.2
Operating profit before exceptional items (£m)
05 1,806
04 1,628
Employees
C11968_Qinetiq_p10-29.qxd  16/9/2005  3:02 PM  Page 20 QinetiQ Group plc  Annual Report 2005 21
FROM IT SECURITY TO PATIENT PRIVACY
QinetiQ’s expertise in information security will be helping to secure patient
records throughout the UK for the NHS. 
Accenture, which provides information solutions for the NHS, looked 
to QinetiQ Trusted Information Management to provide security threat
assessment, monitoring and alerting for the NHS LSP project.
QinetiQ’s Monitoring Services combines our research capability, people,
processes, tools, security intelligence and experience, offering to clients 
a more holistic security solution. The Monitoring Services solution provides to
the NHS, through Accenture, a visible, fully-operational comprehensive security
service that operate 24 hours a day. This system is fully auditable, compliant to
government guidelines and run by security professionals.
spacecraft failure, targeted at insurers wanting better analysis of
premiums and satellite operators wanting better ways to manage
their risks.
Technology & Products
The T echnology & Products (T&P) Division brings together QinetiQ’s
expertise and laboratory facilities in energy technologies, materials,
microelectronics and optical devices to provide research and
development, technology licensing, analysis and advisory services, as
well as limited volume specialised products and materials for defence,
public sector and commercial customers. The Division plays a key role 
in the transition of technology research and development into viable
commercial solutions. Located within T&P , QinetiQ Nanomaterials
Limited manufactures a broad range of nanopowders and is recognised
as one of the leading nanotechnology businesses in Europe. GPS Enabled
T elematics, another T&P business, exploits QinetiQ’s leading expertise 
in GPS technology to offer chipsets and design services in developing
hardware for the most difficult location-based applications.
Notable successes:
● Working with the North America Sector on a significant joint
research programme with Intel on the use of indium antimonide 
as a new transistor technology.
● Working with D&T on a licence agreement with Oxford NewTech, 
a clinical and pharmaceutical device and diagnostics company, to
commercialise two healthcare technologies – Pathscore™ – an
automated breast cancer diagnostic system and MEA BioSensor,
promoting more efficient, safer drugs testing.
● Working with the North America Sector on providing the SatID
system that identifies and locates the source of satellite interference
to the US DoD.
● QinetiQ successfully completed two programmes to develop stand-
off people screening systems. The SPO-20 and SPO-30 passive
millimetre wave screening systems allow security personnel to
locate concealed weapons and other threats under the clothing 
of suspects at ranges of at least 20 metres.
Managed Services
The Managed Services Division offers a mix of services spanning
calibration and supporting technical services, real estate, facilities 
and asset management. On 1 September 2004, QinetiQ acquired the
remaining 55% of ASAP Calibration Limited, one of the UK’s leading
providers of offsite calibration services. Recognised as one of the most
successful online family history websites, QinetiQ’s 1901 Census site
has delivered over 112 million searches and downloads and has
generated £8.5m in revenue since its launch.
The Estates Division manages around 58 sites to promote continuous
improvement in QinetiQ business results through affordable facilities
and competitive support services.
Ventures
QinetiQ prides itself on the creation and management of its intellectual
property and this has continued to generate considerable revenue 
this year. In some cases, due to the dynamics of particular markets or
financing needs, the creation of a separate spin-out venture offers the
best route to extracting value from QinetiQ technologies. The Ventures
activity provides focused investment and active, hands-on guidance to
businesses in the ventures portfolio.
Notable successes:
● Quintel has developed an antenna sharing technology that will
allow multiple wireless operators to share the same antenna 
with independent operator control. The technology has been
successfully trialled with mobile operators and initial units are
now being deployed.
● ZBD is developing novel liquid crystal displays (LCD) using ‘bistable’
LCD technology. ZBD offers displays with low power consumption
yet high readability, well-suited to the growing market for electronic
point-of-display product labelling.
● Aurix – offering high accuracy speech recognition software products,
the Aurix technology platform is especially well-suited to audio data
mining. Aurix solutions help customers manage and ‘mine’ the
speech data they have recorded.
● pSivida Limited has commercialised QinetiQ’s porous silicon material
as BioSilicon™, used for multiple applications in healthcare, focusing
on drug delivery.
S&DU’s customer base
Major customers include the UK armed forces, the DoD, FTSE 100
companies, large multinationals and critical national infrastructure
companies. Additionally, major projects are undertaken with the UK
and US Government security and other public sector organisations,
and agencies and offices of the European Union. 
C11968_Qinetiq_p10-29.qxd  16/9/2005  3:03 PM  Page 21 22 QinetiQ Group plc  Annual Report 2005
TALON™ robots are powerful, durable, lightweight
tracked vehicles that are widely used for Explosive
Ordnance Disposal (EOD), reconnaissance,
communications, sensing, security, defence and
rescue. They have been in active military service since
2000 when they were successfully used in Bosnia for
the safe movement and disposal of live grenades.
TALON™ robots were the only US robots used at
Ground Zero in search and recovery efforts after the
September 11 attack.
A variety of TALON™ systems are in production as 
well as further development. The latest, which 
was developed with and delivered to the US Army
Armament Research, Development and Engineering
Center (ARDEC) for evaluation, is the Special Weapons
Observation, Reconnaissance Direct-action System
(SWORDS) robot for armed reconnaissance that
Time magazine recognised as “one of the most
amazing inventions of 2004”. The SWORDS version 
is just 30 inches high, can carry a variety of weapons
including the 7.62mm M240 automatic and is
manually operated remotely using a visual 
display screen. 
In 2004, TALON™ became the first robot equipped
with off-the-shelf chemical, gas, temperature and
radiation sensors that can be read simultaneously,
remotely and in real time via an integrated hand-held
display unit. These are the only robots on the market
that offer crucial sensing capability to civilian first
responders and the military.
FROM ADVANCED ROBOTICS
NORTH AMERICA
C11968_Qinetiq_p10-29.qxd  16/9/2005  3:04 PM  Page 22 TO SAFETY AT A DISTANCE
QinetiQ Group plc  Annual Report 2005 23
C11968_Qinetiq_p10-29.qxd  16/9/2005  3:04 PM  Page 23 24 QinetiQ Group plc  Annual Report 2005
NORTH AMERICA: BUSINESS REVIEW
The Australian fire beetle (Acanthocnemus Nigricans) has an ability to detect
forest fires at distances of up to several kilometres using receptor organs located
on its thorax. As an example of one area of work funded by DARPA, QinetiQ has
investigated some of the characteristics of these organs using laser vibrometry
to help understand whether enhanced infra-red sensors could be developed
exploiting silicon micro-systems technology.
Introduction
In last year’s Annual Report we stated that our plan was to develop 
the US market as a major strategic avenue for growth in our core
businesses of defence and security. This year, we can report significant
progress in delivering this plan.
As an independent technology developer we have three principal ways
to leverage QinetiQ’s technology strength in the US market. We can:
● source technology and technology development services to US
Government research and development (R&D) organisations
● provide technology to US prime-contractor managed defence
programmes in order to earn both direct and licensing revenue
● source UK technology to our direct US holdings so they rapidly meet
customer requirements and can grow more quickly.
The US defence and security markets are the largest in the world. 
The first phase of QinetiQ’s strategy has been to access these markets
directly, through QinetiQ Inc, our business development company
based in Washington DC.
During the year revenues from the North American market increased
from $27.0m (£16.6m) to $163.8m (£86.9m) of which $131.6m
(£69.3m) was derived from acquisitions in the year. QinetiQ Inc. 
had sales orders of $68.5m (£37.0m) and was also notified by
customers of their intention to award contracts totalling an additional
$10.0m (£5.4m), with these negotiations continuing into the new
financial year.
The second phase has been to reinvest the cash being generated from
our more mature UK businesses into the higher growth US market by
making selected acquisitions.
During the year we made an excellent start on this programme by
acquiring two outstanding companies. One was Westar Aerospace &
Defense Group, a provider of systems engineering and technical advice
(sales for the year to December 2004 of $155.5m (£85.4m)) principally
to the US Army, Missile Defense Agency and National Aeronautics &
Space Administration (NASA), employing around 1,000 staff at several
locations including St. Louis, Huntsville and Washington DC.
Another was Foster-Miller, Inc., a technology company (sales for the 
year to July 2004 $121.0m (£68.9m)) providing advanced products 
and services to the US DoD, to other US government departments, and
to private industry, particularly in the pharmaceuticals and medical
devices sectors.
In order to obtain US regulatory approval for these acquisitions we
have put in place separate proxy boards of directors to run our US
companies. These boards include three highly experienced proxy
holders who act on our behalf and who are security cleared US citizens
approved by the DoD.
QinetiQ Inc.
The primary role of QinetiQ Inc. is to build relationships with key
customers and partners in government and industry, and to raise
awareness within the US of the rich source of technology and ideas
within QinetiQ. Through these relationships, QinetiQ Inc. is identifying
new business opportunities whereby QinetiQ technology can bring
decisive advantage to a US customer or partner, subject always to the
UK export and MOD regulatory regimes under which QinetiQ operates. 
QinetiQ’s customer base in the US includes both government agencies
and defence and security suppliers. As a technology-based company it
is important to QinetiQ that it is successful in winning R&D contracts
from organisations such as Defence Advanced Research Projects
Agency (DARPA), the Services research labs: the Army Research
Laboratory, the Naval Research Laboratory and the Air Force Research
Laboratory, and the equivalent R&D agency in the Department of
Homeland Security: the Homeland Security Advanced Research
Projects Agency (HSARPA).
This could have a major impact on the next generation of uncooled infra-red
sensors and QinetiQ has been exploring some potentially disruptive approaches
separately under MOD funding. Early results indicate that a high performance
solution is feasible, which could lead to the evolution of a new generation of
low-cost camera systems. Such devices could find application both in the
military arena (eg rifle-mounted sights, unmanned air vehicles) and in civilian
markets (eg security surveillance).
05 70.1
04 0.3
Turnover (£m)
05 5.1
04 (0.6)
Operating profit before exceptional items (£m)
05 1,320
04 22
Employees
C11968_Qinetiq_p10-29.qxd  16/9/2005  3:05 PM  Page 24 Significant progress has been made during this past year in building
QinetiQ’s reputation and volume of business with these organisations.
However, QinetiQ’s main strength lies in using its technical breadth
and depth to develop novel solutions for its customers.
In the defence field, QinetiQ is active in developing hardware and
software systems for a number of agencies including: the Tank-
automotive and Armaments Command, the Armament Research
Development Engineering Center, the Technical Support Working
Group, the Night Vision Lab, the National Renewable Energy
Laboratory, the United States Marine Corp. and the Joint Non-lethal
Weapons Directorate.
An important goal for QinetiQ in the US is to get QinetiQ technology
into major new acquisition programmes. A strong relationship has
already been established with Lockheed Martin on the Joint Strike
Fighter programme, and QinetiQ is currently partnered with United
Defense LP in offering its hybrid electric drive design into the Future
Combat System. Partnering and teaming agreements have been put
in place with most of the key players in the US defence supply chain.
With Boeing, this process has been taken a stage further with the
signing of an MoU to facilitate closer technical co-operation between 
the companies in defence and civil applications.
During the year, QinetiQ was awarded over 180 contracts in North
America that covered the breadth of the technology range and
addressed defence, security, civil, health, energy and environmental
market segments. The contracts provided for consultancy, advanced
R&D, simple products and complex systems. Over 25% of the contracts
were direct with US Government agencies.
Recent contract wins:
● Intel Corp. awarded QinetiQ a contract to help develop a next
generation advanced processor based on QinetiQ’s patented ultra
fast indium antimonide technology.
● Boeing awarded QinetiQ a contract to provide acoustics modelling
for composites on its next generation 7E7 DreamLiner aircraft.
● Initial orders were placed for SatID, QinetiQ’s tri-band satellite
Geolocation System, opening the door for multiple applications in
both military and civil markets.
● The US Navy and DRS Technologies awarded contracts for Cerberus,
a swimmer detection sonar system that will be used for shipboard,
port and coastal waterway protection.
Foster-Miller, Inc.
QinetiQ announced its first US acquisition, Foster-Miller, Inc., the
Boston-based engineering and technology development company, 
on 8 September 2004 for a net cash consideration of $167.2m
(£90.9m), excluding Foster-Miller’s cash and surplus working capital.
The acquisition will enable Foster-Miller to introduce QinetiQ’s
technologies into US markets alongside its own, particularly in areas
such as robotics and homeland security.
Foster-Miller was founded around 50 years ago by three graduates of
the Massachusetts Institute of Technology, who believed that there
was a need for a company that could solve clients’ difficult technical
problems through first-class analysis and design. T oday, Foster-Miller 
is a recognised leader in providing innovative engineering solutions 
in fields such as robotics, advanced materials technology and 
medical devices.
The company employs around 350 engineers, scientists and support
staff and was recently named as one of the most innovative
businesses in America by Inc magazine. With annual revenues for the
year ended July 2004 of $121.0m (£68.9m), Foster-Miller has enjoyed
compound growth of around 30% p.a. over the last four years.
High profile examples of turning defence research into commercial
technology applications include Foster-Miller’s Robotics and Armour
products.
Foster-Miller is a major manufacturer of military and industrial 
robots. The company has extensive experience in all aspects of mobile
and fixed robotic technologies. Applications range from laboratory
automation to bomb squad operations. Foster-Miller’s robots have
saved lives, reduced labour costs on critical production lines, and have
enabled workers to perform critical operations while in hostile and
hazardous environments. QinetiQ is a world leader in the field of
ground robotics and its technology is now being integrated into the
next generation of military robots being developed by Foster-Miller.
Originally using research funding from DARPA, Foster-Miller prototyped
and developed TALON™ robots which have now completed over 
20,000 explosive ordinance disposal (EOD) missions in Afghanistan
and Iraq.
QinetiQ Group plc  Annual Report 2005 25
TALON™ 
Foster-Miller’s TALON™ robots are powerful, durable, lightweight tracked
vehicles that are widely used for explosive ordinance disposal, reconnaissance,
communications, sensing, security, defence and rescue. They have been in active
military service since 2000 when they were successfully used in Bosnia for the
safe movement and disposal of live grenades. TALON™ robots were the only 
US robots used at Ground Zero in search and recovery efforts after the
September 11 attack.
A variety of TALON™ systems are in production as well as further development.
The latest, which was developed with and delivered to the US Army Armament
Research, Development and Engineering Center (ARDEC) for evaluation, is the
SWORDS robot for armed reconnaissance that Time magazine recognised as
“one of the most amazing inventions of 2004”.
C11968_Qinetiq_p10-29.qxd  16/9/2005  3:05 PM  Page 25 26 QinetiQ Group plc  Annual Report 2005
NORTH AMERICA: BUSINESS REVIEW CONTINUED
LAST® Armor, a division of Foster-Miller, produces a unique armour
appliqué system for tactical ground vehicles and aircraft. LAST® 
armor was originally developed internally at Foster-Miller and then
demonstrated and first fielded under funding from the Defence
Advanced Research Projects Agency (DARPA). Over the past ten years,
LAST® Armor has been used on light armoured vehicles and transport
planes in Bosnia, Kosovo, Afghanistan and Iraq. 
Recent contract wins:
● November 2004, Foster-Miller began shipping a $20m order for
TALON™ robots to be used in Iraq, bringing the total number of
TALON™ robots in use in Iraq to nearly 200.
● February 2005, Foster Miller was awarded a $5m contract by the 
US Naval Sea System Command for TALON™IIIB explosive device
disposal products and spare parts.
● February 2005, Foster-Miller received a $1m order from the RAF for
L-1011 armour kits.
● March 2005, Foster-Miller received a $1.7m order from Renault for
ground vehicle armour kits.
● March 2005, Foster-Miller won an $8.5m contract from the Naval 
Air Systems Command as a key member of the team developing 
the next-generation Advanced Arresting Gear system for US Navy
aircraft carriers.
Westar Aerospace & Defense Group
On 14 September 2004, QinetiQ announced its second US acquisition,
Westar Aerospace & Defense Group, which it purchased for an initial
net cash consideration of $131.0m (£72.4m), excluding Westar’s cash
and surplus working capital.
Westar is a leading systems engineering company with key expertise
in global and theatre defence architecture, defence systems
interoperability, systems engineering, integration and test, sense 
and respond logistics, and programmatic services.
The company, with revenues of $155.5m (£85.4m) in the year ended
31 December 2004, has grown at a compound rate of 38% during the
last five years.
The company comprises a number of divisions and subsidiaries
including Aerospace Filtration Systems, Inc. and Westar Display
Technologies, Inc.
Aerospace Filtration Systems, Inc. (AFS), is an industry leader in the
design, development and manufacturing of high performance engine
inlet barrier filtration systems used in commercial and military
propulsion systems. AFS systems have been proven in combat during
operation ‘Iraqi Freedom’ under the most severe conditions.
Westar Display Technologies, Inc. (WDT) is a leading worldwide
supplier of electro-optical performance measurement systems,
instrumentation and devices used in the flat-panel display industry.
With over 150 systems installed worldwide that ensure the quality of
military flat-panel displays, commercial monitors and flat-panel TV’s,
Westar improves efficiency by minimising production, qualification,
display integration and repair pipeline costs.
LAST® 
LAST® Armor is a unique armour appliqué system for tactical ground 
vehicles and aircraft that is installed without any cutting, welding or drilling 
on the base vehicle. 
LAST® Armor was originally developed internally at Foster-Miller and then
prototyped under funding from DARPA. The first product was a wholly ceramic
add-on hard face for Light Armoured Vehicles. The primary product line, which
was later developed for aircraft applications, is a ceramic/composite laminate
which provides both the hard face and spall liner for unarmoured vehicles. 
Over the past ten years, LAST® Armor has been used on light armoured vehicles
and transport planes in Bosnia, Kosovo, Afghanistan and Iraq.
C11968_Qinetiq_p10-29.qxd  16/9/2005  3:06 PM  Page 26 QinetiQ Group plc  Annual Report 2005 27
Recent contract wins:
● The Expedited Professional Engineering Services Support (EXPRESS)
contract awarded by the US Army’s Aviation and Missile Command,
which has a ceiling value of over $1bn. Westar has been awarded
four out of four follow-on orders under this contract, including,
among others, a $42m multi-year award for electronic mission
equipment systems engineering.
● The award of a $28m contract to AFS to supply turbine engine life
extension filtration systems to the US Army for the UH-60
Blackhawk helicopter.
● The selection of AFS by Bell Helicopter as its OEM supplier of engine
barrier filtration systems for its 407 series of aircraft.
● Dell Computer Corporation’s selection of WDT for implementing 
its worldwide Vendor Self-Qualification standard.
● The selection of WDT by the world’s number two cell phone
producer for display assurance test systems used throughout
its supply chain.
QinetiQ Technology Extension Corporation
QinetiQ Technology Extension Corporation (QTEC) is headquartered 
in Norco, California. The company provides obsolescence management
services to US Government agencies including: the DoD, the Federal
Aviation Administration, NASA, Department of Energy, and the
Department of Transportation, as well as to prime contractors such 
as Boeing, General Dynamics, Lockheed Martin, Northrop Grumman
and Raytheon.
Many industries such as defence, aerospace, medical, power
generation and telecommunications can benefit from improved
obsolescence management since they all feature ageing systems or
applications. Being able to sustain production and spares support
means that any organisation can reduce the cost of design, production
and operational support, particularly for electronic systems
applications.
Integration
Both Westar and FMI were selected, in part, for their complementarity
with QinetiQ’s UK technology businesses. An important part of
QinetiQ Inc’s role is to identify and prosecute joint business
opportunities between the UK and the US – in particular to identify
opportunities for Westar and Foster-Miller to enhance their offerings
to US customers by adding in QinetiQ UK technology. Developing this
new aspect of our business will inevitably take some time to get off
the ground, but in the short period we have owned these two
outstanding US companies, we have already identified a significant
number of additional joint opportunities which we are now taking
forward energetically.
AIR FILTRATION
More than 1,000 helicopters are currently protected with Air Filtration 
Services’ patented system that remove 99.8% of all sand and dust, before 
they damage engines.
In the last two years alone the US Army has ordered over $60 million in products
to protect its engines, reduce operations and maintenance cost, and increase
readiness. Special Operations customers actually increased their top-speed 
as a result of a substantial power increase attributable to AFS’s filtration inlet
design. This has saved the Army and US taxpayers millions of dollars, since
protected engines now remain operable and at rated power throughout their
life, even in the harshest desert environments.
C11968_Qinetiq_p10-29.qxd  16/9/2005  3:06 PM  Page 27 28 QinetiQ Group plc  Annual Report 2005
Corporate Responsibility (CR) shapes our values and defines the way
we do business. QinetiQ recognises that CR is fundamental to its 
long-term sustainability – a principle that is embedded at every level
of the business.
This year QinetiQ has identified its core impacts – environmental,
social and ethical – enabling us to systematically improve on our 
CR performance.
QinetiQ is a complex business, both in terms of technologies and
people. The knowledge and expertise gained from our work in the
defence sector is applied successfully to important problems facing
global businesses. This gives an insight into the type of value QinetiQ
can bring to society.
Environment
QinetiQ owns or manages 58 sites across the UK which generate a
host of environmental challenges. QinetiQ sees this as an opportunity
to demonstrate commitment to sound environmental stewardship,
examples of which include:
● Continuing registration to ISO14001, the international standard for
environmental management compliance.
● Energy efficiency accreditation with the National Energy Foundation
having reduced our CO
2
emissions by around 10,000 tonnes since
1999/2000.
● On-line e-shop across test and evaluation sites to recycle surplus
equipment, generating a database of over 1,500 items across 
20 QinetiQ sites.
● £265,000 spent on the remediation and clean-up of the 
Pershore site.
There are also a number of Sites of Special Scientific Interest (SSSIs)
located on QinetiQ sites which provide an invaluable opportunity to
show our commitment to environmental best practice and illustrates
how business and environmental objectives can be complementary. 
In many cases, our maintenance of these sites has ensured the
conservation of some extremely rare species of plants and wildlife. 
One example of this is the Eelmoor Marsh SSSI in Farnborough which
celebrates its 30th Anniversary in 2005.
Communities
QinetiQ is an integral part of many local communities across the UK
and accepts its responsibility to local stakeholders to contribute to
community sustainability wherever possible.
When, for example, ferocious storms hit the Western Isles of Scotland
in January devastating Balivanich primary school, our Benbecula office
provided premises while repairs were carried out. Equally, plans to
develop our Malvern site in collaboration with various local and
regional bodies, including Advantage West Midlands, should deliver
several million pounds worth of vital investment into essential
infrastructure in Malvern.
As scientists, engineers and innovators, QinetiQ people are well-placed
to promote science-related subjects among young people. Our Year 
in Industry scheme has one of the largest intakes in the UK and
provides many A-level students with work experience in a scientific
environment. This year QinetiQ provided financial support to two local
schools – Crofton and Winchcombe – pursuing the Government’s
Special Science in Schools status and has continued its sponsorship 
of the Stockholm International Youth Science Seminar Prize. 
A series of formal partnering agreements with UK universities is
enabling interaction between QinetiQ and the academic community.
This provides university staff and students with the opportunity 
to work with business and ensures that they work together in order 
to deliver maximum value from science and technology to the 
UK economy.
QinetiQ has identified a series of charitable priorities and has
implemented a match-funding arrangement for employees. Charitable
concerns that resonate with local communities are important to
QinetiQ and it has chosen to support, among others, the Royal
National Lifeboat Institute (RNLI) and the Malvern-based St Richard’s
Hospice. Cancer Research UK will receive direct support through our
technologies and expertise.
QinetiQ is developing products that contribute to the health, safety
and security of communities across the UK including the world’s first
CORPORATE RESPONSIBILITY
Recruiting, retaining and developing world-class scientists and engineers is
fundamental to QinetiQ's business survival. An award-winning graduate
recruitment programme has ensured recruitment of around 250 of the brightest
and best graduates in the UK. Last year QinetiQ staff benefited from £8 million’s
worth of training investment including more than 40,000 working days of
training, helping the organisation to gain re-accreditation as an Investor 
in People (IiP). QinetiQ also boasts an award-winning Initial Professional
Development (IPD) Scheme, accredited by 13 Professional Bodies and with
around 360 scientists and engineers registered – making it the largest scheme 
of its type in the UK. 
C11968_Qinetiq_p10-29.qxd  16/9/2005  3:07 PM  Page 28 QinetiQ Group plc  Annual Report 2005 29
automated breast cancer diagnostic system, Pathscore™, enabling the
consistent grading of breast cancer cells; a low-cost thermal camera
system, designed to increase the safety and reliability of vehicle
airbags; and data analysis software for improving baggage screening
performance, now used in around 20 airports in the UK. Technologies
like this demonstrate how QinetiQ can make a considerable difference
in everyday life. 
Ethics
Integrity, transparency and accountability are priority values that
QinetiQ promotes through its CR profile. These are fundamental to 
our corporate code of conduct and provide the principles by which 
our business is managed. The culture and heritage of the organisation
give it strong credentials for corporate governance.
In addressing ethical impacts, QinetiQ considers issues and risks
associated with its core business: defence. Our defence heritage and
the role of protecting society is a source of pride in the organisation
and allows us to solve important problems in the civil sector. However,
QinetiQ is involved with sensitive technologies and accepts the
necessity for tight regulations across the UK defence sector.
As a company that is uniquely placed to provide technologies to the
UK’s armed forces, QinetiQ’s need for transparency and a strict
compliance regime is key to business operations. For example, it must
show that potential conflicts of interest which might arise from
providing advice to the MOD while working with other companies 
are properly managed.
QinetiQ’s business orientation could pose a problem for those who 
are uncomfortable with the defence industry. Understanding and
engaging with these views enables QinetiQ to grow as a business.
Since CR cuts to the core of the organisation’s defence operations 
there is a broad willingness to undertake dialogue.
Health and safety
Like all companies, QinetiQ has a duty of care to its employees 
and those affected by its activities. Unlike most others, QinetiQ’s
operations include activities that are inherently hazardous and could
cause significant damage to people and property. These include test
flying aircraft, the firing of guns and missiles and the disposal of
outdated ammunition.
QinetiQ’s sound health and safety policies and practices are designed
to mitigate the risks associated with all of its activities to a level that is
as low as reasonably practicable. Although QinetiQ is making year-on-
year improvements – this year saw a 16% reduction in a RIDDOR rate
that already compared favourably with the HSE’s benchmark – further
progress can be made.
QinetiQ has introduced a Hazardous Trials Board, led by an
independent chairman, to give an additional level of rigour in the
application of health and safety practices. Its remit is to establish
protocols defining the criteria for the safe conduct of each of the many
types of hazardous trial and then to review each proposed plan against
those criteria. 
Trials involving human volunteers
A large majority of the products created using QinetiQ’s technologies
have an impact on people. QinetiQ is researching ways in which
human performance can be enhanced to match the performance of
the equipment. For example, in the case of the Eurofighter, QinetiQ is
continually looking to improve the protective equipment for pilots,
allowing them to manoeuvre with the aircraft at high rates of turn
without being compromised by the high G-forces.
Any trial that involves human volunteers is conducted only with the
approval of an Ethics Committee, constituted and operated according
to the principles outlined in the Declaration of Helsinki (1962) and
guidelines published by the Royal College of Physicians. Additionally,
any clinical trials require the approval of an independent Phase 1
Ethics Committee in accordance with the EU Clinical Trials Directive.
This robust committee structure ensures that every trial undertaken 
by QinetiQ involving human subjects, including armed forces
personnel, is carried out with the objective of protecting volunteers
from possible harm.
QinetiQ has developed a number of technology solutions to environmental
problems. This includes technologies designed to help tackle the threat of
climate change including for example, the ZephIR remote wind sensing 
tool (see above) that enables the optimal siting of wind farms, a suite of
technologies designed to tackle aviation emissions and fuel-cell powered
automotive vehicles. Equally, QinetiQ is using its knowledge of specific physical
environments to address a number of sensitive environmental issues: from
technologies for waste segregation and management to providing advice to 
the MOD and industry on how it can minimise its environmental impact. 
C11968_Qinetiq_p10-29.qxd  16/9/2005  3:07 PM  Page 29 OPERATING AND FINANCIAL REVIEW
Results
The results for the year reflect the further development of the Group,
with continued successful delivery in the core UK defence business,
realisation of benefits from the commercialisation of intellectual
property and growth in the key North American market through two
successful acquisitions.
Group turnover for the year grew 9.7% to £872.4m (2004: £795.4m),
with acquisitions contributing £78.4m of turnover in the year. 10.0% 
of Group turnover was derived from customers in North America
(2004: 2.1%). Operating margin* increased from 6.6% to 8.0%,
reflecting strong delivery performance from the growing volume of
fixed price contracts in the UK business and the addition of higher
margin product business in North America. As a result the operating
profit* grew 33.1% to £69.6m (2004: £52.3m), with the acquisitions
contributing £9.1m in the year.
Earnings before interest, tax, depreciation and amortisation (EBITDA)
pre-exceptional items and profit on disposal of fixed assets grew
16.0% to £109.4m (2004: £94.3m). The profit before tax (PBT) was
£82.3m (2004: £47.6m). The PBT includes a profit of £17.1m (2004: nil)
from Intellectual Property (IP) Realisation on the disposal of the
Group’s interest in pSiMedica Limited, partially offset by an unrealised
holding loss of £2.3m (2004: nil) in the listed pSivida Limited shares
received as part consideration, a profit of £29.1m (2004: £7.4m) from
fixed asset disposals and an exceptional charge of £25.9m (2004: nil)
for the restructuring of the UK business.
The Group’s operating cash inflow was £40.4m (2004: £139.2m),
resulting in free cash flow, before financing acquisitions and disposals
of businesses and dividends, of £68.2m (2004: £131.2m) after taking 
into account an increase of £40m in short-term MOD-related working
capital. A dividend of £27.0m has been paid to the Group’s parent
company, QinetiQ Holdings Limited, in respect of the current year to
fund that company’s repayment of its bank debt (2004: nil).
Market sector review
The Group’s largest customer remains the UK Ministry of Defence
(MOD) with turnover for the year of £637.6m (2004: £643.7m). As
expected, the mix of business with the MOD is gradually changing 
as the Research programme is opened to competition and the cost
reduction programmes under the Long Term Partnering Agreement
(LTPA) are successfully completed. These anticipated reductions have
been partly offset by increased business through the Defence
Procurement Agency (DPA) and the Defence Logistics Organisation (DLO).
The UK businesses continue to make progress in the commercial
defence market, with full year growth of 33%. We are well placed 
in teams bidding for future major procurement contracts, although
uncertainty over government plans for the UK defence budget
earlier in the year has resulted in some slippage in the start-up 
of new projects.
The civil market continues to show longer term promise but with
continued uncertainty about the speed of take off. The results of the 
IP Realisation activities were very strong in year, with some £16.2m
(2004: £16.7m) of royalty revenue recognised and a gain of £17.1m on
the sale of our shares in pSiMedica Limited for a 16.3% interest in our
joint venture partner, pSivida Limited, plus £1.7m in cash. Conversely,
progress was slower in the Transport and Public Sector markets with
new revenue streams taking longer than expected to be developed.
Following the acquisitions of Westar Aerospace & Defense Inc.
(Westar) and Foster-Miller, Inc. (Foster-Miller), our business for North
American customers has increased significantly to £86.9m (2004:
£16.6m). The US Department of Defense (DoD) is now the Group’s
second largest customer.
30 QinetiQ Group plc Annual Report 2005
2005 2004
£m £m
Turnover 872.4 795.4
Operating profit* 69.6 52.3
Profit before tax 82.3 47.6
Profit after tax 75.3 37.5
(Net debt)/cash (124.7) 2.6
Net assets 335.7 281.7
C11968_Qinetiq_p30-35.qxd  19/9/2005  1:23 PM  Page 30 Review of operations
During the year, the Group undertook a major restructuring of its
business into three new Sectors. Accordingly, the segmental analysis 
of the Group’s results and this review of operations have been restated
to align with the new management structure.
Defence and Technology (D&T)
The D&T Sector leads the Group’s UK defence business, with
responsibility for delivery to our principal customer, the MOD, together
with the broader defence market in the UK, allied countries and,
through the North American Sector’s sales operations, into the US.
Through this work, new technology is developed for exploitation in 
all our markets.
The Sector is responsible for the Group’s largest single contract, 
the 25-year LTPA through which QinetiQ delivers test and evaluation
services for the MOD based on the facilities at MOD-owned sites. The
Company earns revenue for managing the facilities, delivering trials
services and undertaking modernisation projects. The modernisation
spend was again behind original expectations although there has 
been a noticeable increase in the volume of projects agreed with the
customer this year which will begin to deliver during the coming year.
One highlight during the year was very positive progress with  the
£34.0m Air Rationalisation project, which has resulted in a new air
target operation commencing at Aberporth, allowing the closure of 
the Llanbedr facility to be completed.
Turnover from the core LTPA was £176.3m (2004: £173.8m). Delivery 
of trials services continued above the original planned volume while
turnover from rationalisation projects under the LTPA declined as
expected from £23.7m to £14.1m as these projects were successfully
delivered in year.
Apart from the LTPA, the Sector comprises a number of Divisions
operating across the defence space delivering value to their customers
through the MOD Research programme, through direct contracts with
the DPA and DLO and as members of teams with, or as subcontractors
to, other major defence suppliers. The year saw strong performances in
areas such as Spectrum Solutions, Command & Intelligence Systems
and Communications where the Group’s technology plays a major role
in MOD programmes. Performance was more mixed in areas such as
Weapons and Sea Systems, where delays in contracting for the
Research programme resulted in operational staff deployment
challenges that could be only partially offset in the second half of the
year once the work was confirmed.
Overall, the Sector has managed well the transitions caused by the
two major trends of increased competition in the Research programme
and the move to fixed price contracting. As the revenue from the
Research programme declines (down 5.8% in year to £227.1m for the
Group overall), focused marketing efforts are achieving compensating
growth in the DPA, DLO and commercial defence areas.
As a result, overall Sector revenue increased by 1.1% to £664.9m 
(2004: £657.7m). The trend to greater fixed price contracting has been
beneficial to the Sector as our risk management capabilities have 
been brought to bear on project delivery, resulting in Sector margins*
increasing to 7.2% (2004: 6.6%).
Security and Dual Use (S&DU)
S&DU leads our UK business activities in the commercial markets,
including our businesses in security and intelligence, space, energy,
materials and optronics. The Sector also covers our managed services
activities in the areas of equipment calibration and estates
management.
QinetiQ Group plc Annual Report 2005 31
C11968_Qinetiq_p30-35.qxd  16/9/2005  3:08 PM  Page 31 Turnover in S&DU was unchanged in the year at £137.4m (2004:
£137.4m). The operating profit improved from £9.2m in 2004 to
£12.4m in 2005, representing a margin of 9.0% (2004: 6.7%). The
higher margin in this Sector reflects the strong royalty flows and high
margin managed estates business, partly offset by investment in new
product development, such as Quintel antennas and Tarsier™ runway
debris detection radar, and bid costs for major programmes that have
not yet been decided.
The growth was driven by strong performances in Trusted Information
Management (TIM), Space and Managed Services. TIM, one of the
cornerstones of our Security business, grew 26.6% to £17.6m (2004:
£13.9m) as demand continued to increase for our services in areas
such as secure hosting, penetration testing and digital forensics. 
The Space Division continued its development as a broader based
business working both for the European Space Agency and 
commercial customers.
S&DU also leads the drive to realise value from the Group’s technology
portfolio. The Sector delivered £14.8m (2004: £15.4m) of revenue from
royalties, principally related to our LCD technology. In addition, a gain
of £17.1m was recognised as the Group’s interest in the porous silicon
joint venture, pSiMedica Limited, was exchanged for a 16.3% interest
in our listed partner, pSivida Limited. The Sector further developed
ventures in areas as diverse as speech recognition, battery technology
and 3G wireless antennas, where our Quintel subsidiary has now
begun earning customer revenue.
In Optronics and Materials the year was more challenging. These
businesses contain many of our best scientists and have been
responsible for a number of our most distinguished scientific
inventions. With customer emphasis switching to shorter term goals,
their concentration has become technology exploitation in both
military and commercial markets. The reduced demand for innovative
research has had to be accommodated through headcount reductions
as part of the UK restructuring programme.
North America (NA)
The North America Sector comprises Westar and Foster-Miller,
companies acquired during the year, together with QinetiQ Inc, the
Group’s US-focused sales and marketing operation and QinetiQ
Technology Extension Corporation, which provides obsolescence
management services to US Government agencies.
The acquisitions of Westar and Foster-Miller have made a step-change
in the Group’s presence in North America, the largest defence and
security market available to the Group. As a result, the Group now 
has 1,320 (2004: 22) employees based in North America, primarily 
in Boston, St Louis and Huntsville and the North America Sector
contributed £70.1m (2004: £0.3m) of turnover in the year. This
represents 8.0% of Group turnover and the proportion will grow
further in the coming year as we include a full 12 months of results
from the acquired businesses.
In addition to their access to the North American market, Westar and
Foster-Miller bring to the Group a more product-oriented business. 
In the current year, 28% of their turnover came from product sales,
primarily TALON™ robots and LAST® Armor in Foster-Miller and air
filtration systems in Westar. These product sales contribute positively
to the operating margins of these businesses, although they do add
some volatility to the timing of turnover recognition which is
dependent on customer delivery schedules.
Acquisitions
On 5 August 2004 the acquisition of HVR Group Limited (HVR) was
completed for a total consideration, including costs, of £13.8m, of
which £8.9m was paid in cash and £0.9m in loan notes, with the
balance to be settled by way of loan notes exercisable at the holder’s
option no later than 31 July 2009. Goodwill of £12.9m arises on 
the acquisition.
The Group completed the acquisition of Westar on 8 October 2004 
for net cash consideration of £72.4m ($131.0m) excluding Westar’s
cash and surplus working capital and excluding £4.8m ($9.0m) of
deferred consideration payable dependent on the performance of
Westar for year ending 31 December 2005. T otal consideration to date
of £76.5m ($138.5m), including payment for surplus cash and working
capital and acquisition costs, results in preliminary goodwill of 
£66.5m, which will be increased by the final amount of the deferred
consideration payable.
32 QinetiQ Group plc Annual Report 2005
OPERATING AND FINANCIAL REVIEW CONTINUED
C11968_Qinetiq_p30-35.qxd  16/9/2005  3:09 PM  Page 32 The acquisition of Foster-Miller was completed on 5 November 2004 
for net cash consideration of £90.9m ($167.2m) excluding Foster-
Miller’s cash and surplus working capital. T otal consideration of
£105.1m ($193.3m), including payment for surplus cash and working
capital and acquisition costs, results in goodwill of £79.8m.
Fixed asset disposals
An exceptional profit of £30.7m (2004: nil) arose on the disposal of 
the Pyestock North property for a gross consideration of £54.0m. 
A net profit of £15.5m (2004: profit of £7.4m) was booked on the sale
of other fixed assets, including £17.1m (2004: nil) on disposal of the
Group’s interest in pSiMedica Limited.
Pensions
The Group has adopted FRS17, which provides a snapshot valuation 
of the Group’s defined benefit pension schemes. During the year, 
the increase in the value of the assets of the Group’s principal scheme
broadly matched the increase in the associated liability resulting 
from salary and pension increases and additional accrued service. 
The overall FRS17 liability (net of deferred tax) decreased by £1.4m 
to £113.9m (2004: £115.3m), with the adverse impact of a 0.1%
reduction in the bond rates used to determine the discount rate
applied to the liabilities offset by an increase in the deferred tax 
asset related to the FRS17 liability.
Funding levels are set after full actuarial valuations, the latest of which
was performed as at 30 June 2002 and identified a deficit of £29.0m.
The next valuation is currently in progress and will be as at 31 March
2005. Following the 2002 valuation, the Group increased its
contributions by £2.0m per annum. During 2005, the Group has
agreed with employee representatives to increase, over a three-year
period, employee contributions to the Group’s main defined benefit
scheme from the current 1.5% of salary to 5% of salary to help fund
increases in future service costs. In addition, in June 2005, the Group
made a further one-off contribution of £10.0m against the past service
deficit in the scheme.
During the year the Group inherited two small defined benefit pension
schemes as a result of business acquisitions. The FRS17 deficit for
these schemes is £0.4m.
The MOD has indemnified the Group’s parent undertaking, QinetiQ
Holdings Limited (QHL), up to a maximum deficit of £45.0m in the
Group’s main scheme, of which £38.1m has been recognised in the
QHL accounts. Accordingly, the overall QHL FRS17 pension liability net
of tax was £75.8m (2004: £79.2m) at 31 March 2005.
Taxation
The Group tax charge of £7.0m (2004: £10.1m) represents an effective
tax rate of 8.5% (2004: 21.2%). The effective rate is below the statutory
UK rate due primarily to the availability of research and development
relief and accelerated capital allowances in the UK and the utilisation
of brought forward tax losses not previously recognised in the US.
Restructuring costs
An exceptional charge of £25.9m (2004: £nil) has been included in the
profit and loss account resulting from the fourth quarter restructuring
of the UK business from four technology Divisions into two market-
facing Sectors. £24.5m of the charge relates to 260 staff leaving the
business from the elimination of duplicate overhead positions and the
rationalisation of business units. In addition, impairment provisions
totalling £1.4m have been made against fixed assets that will no
longer be used in the business.
Ownership structure
The Group is a wholly owned subsidiary of QHL, a company controlled
by funds managed by The Carlyle Group, but in which the MOD retains
a majority economic interest. 
Cash flow
The Group’s cash inflow from operating activities was £40.4m (2004:
£139.2m). The reduction from 2004 reflects mainly the timing of MOD
contracts resulting in an increase of £40.0m in working capital at the
year end.
Free cash flow after interest, taxation and capital expenditure but
before acquisitions and disposals of businesses and dividends was
£68.2m (2004: £131.2m). £166.9m was reinvested in the acquisition of
businesses, principally Westar and Foster-Miller. £192.7m was remitted
to the Group’s parent company, QHL, through loans and dividends to
fund the repayment of £75.0m of QHL ’s preference share capital,
together with the payment of accrued dividends of £8.9m, and to repay
QHL ’s remaining bank debt. 
QinetiQ Group plc Annual Report 2005 33
C11968_Qinetiq_p30-35.qxd  16/9/2005  3:09 PM  Page 33 The strong cash flow of the Company over the last two years, and
consequent debt repayment (before acquisition financing), results 
in net interest payable substantially lower at £1.2m (2004: £11.9m).
The current period includes a one-time benefit of £0.6m from the
cancellation of surplus interest rate hedges, with a further £1.8m 
gain recognised by QHL.
Foreign exchange risk management
During the year ended 31 March 2005 the majority of the Group’s
income and expenditure was settled in the local functional currencies
of sterling and US dollar. The most significant currencies to which the
Group is exposed are the US dollar and euro.
The Audit Committee has approved policies for hedging the following:
transactions in currencies other than the functional currency of the
relevant business; translation of the net assets of overseas businesses;
and translation of foreign currency financial assets and liabilities.
The Group’s policy is to hedge transaction exposures at the point
of commitment to the underlying transaction using forward foreign
exchange contracts or options. The Group does not typically hedge
uncommitted future transactions, although foreign exchange risks 
are fully considered and appropriately mitigated when bidding for 
new work.
The currency risk arising on translation of the results of overseas
businesses is not hedged. The Group’s policy is to hedge the currency
risk on the balance sheets of overseas subsidiaries by maintaining 
a high ratio of borrowings to net assets (including goodwill) for 
each currency.
Interest rate risk management
With the exception of the Aquila/Chertsey Loan Note reported in
sterling at fixed rates of interest, the Group’s gross debt is substantially
denominated in US dollars at floating rates of 0.6% above LIBOR.
The Group’s policy is to use interest rate swaps, collars and caps to
manage its interest rate exposure. As at 31 March 2005, 81% of the
Group’s US dollar denominated debt was either fixed or capped at
rates in the range 3.95% to 4.95%.
Group funding
The Group’s policy towards funding is to ensure that the Group has
sufficient facilities available for its ongoing operations. During the 
year the Group’s primary bank facility was renegotiated to improve
flexibility in its use and to reduce the cost of borrowing. The new
agreement is a £300.0m unsecured revolving multi-currency credit
facility, available for all normal corporate uses including acquisitions.
At 31 March 2005, the Group had £150.8m of US dollar debt (2004: nil)
drawn to fund the acquisitions of Westar and Foster-Miller. The
Group’s total net debt was £124.7m (2004: £2.6m net cash). 
The Group monitors the identity of the counterparties with whom 
it deposits cash and transacts other financial instruments so as to
control exposure to any territory or institution. Surplus funds are placed
for short periods with highly rated institutions in investments which
are readily realisable.
International Financial Reporting Standards (IFRS)
IFRS becomes mandatory for listed companies in the European Union
in 2005. Although their adoption is optional for unlisted companies in
the UK from that date, the Group is making preparations such that it
is in a position to adopt IFRS for its year ending 31 March 2006. 
34 QinetiQ Group plc Annual Report 2005
OPERATING AND FINANCIAL REVIEW CONTINUED
C11968_Qinetiq_p30-35.qxd  16/9/2005  3:09 PM  Page 34 The Group has completed its initial assessment of the impact of IFRS 
on its accounting policies, although it continues to monitor new
pronouncements and the development of best practice which may
give rise to further changes. The principal differences identified to date
between IFRS and the Group’s current accounting policies are goodwill
accounting and the recognition of intangible assets under acquisition
accounting, capitalisation of development costs, marking to market
of interest rate and currency derivatives, balance sheet disclosure of
preference share capital, accounting for holiday pay and accounting 
for deferred taxation. 
Outlook
The restructuring of the UK business leaves the Group well placed to
grow its commercial defence and civil business while continuing to
deliver value to its primary customer, the MOD. The acquisitions of
Westar and Foster-Miller provide a springboard for further expansion
in the North American markets.
Graham Love
Chief Financial Officer
28 June 2005
QinetiQ Group plc Annual Report 2005 35
* Before exceptional charges and amortisation and impairment of goodwill,
including share of losses in joint ventures and associates.
C11968_Qinetiq_p30-35.qxd  16/9/2005  3:09 PM  Page 35 36 QinetiQ Group plc Annual Report 2005 
BOARD OF DIRECTORS
1. Dame Pauline Neville-Jones
Chairman (Non-executive Director) 
Dame Pauline (65) has worked extensively in the Foreign and Commonwealth
Office where she was Political Director. She has been Deputy Under Secretary 
in the Cabinet Office and Chairman of the Joint Intelligence Committee, as well
as advisor to the Prime Minister on all foreign, defence and intelligence issues.
After leaving government service she was a Managing Director at NatWest
Markets and Vice-chairman of Hawkpoint Partners. She has been the BBC
International Governor, with special responsibility for all BBC external
broadcasting services. Dame Pauline is currently Chairman of the Information
Assurance Advisory Council, a member of the Councils of Oxford University, of
the Royal United Services Institute (RUSI), the International Institute for Strategic
Studies (IISS) and Honorary Treasurer of the charity Refuge.
2. Sir John Chisholm
Chief Executive Officer (Executive Director)
Sir John (58), the Chief Executive of QinetiQ, was Chief Executive of DERA
(previously DRA) from 1991, transforming it into a successful Trading Fund and
developing its commercial business. Previously he was UK Managing Director of
Sema Group plc and prior to that he was Director of Cap Group plc. In 1979 he
founded and became MD of CAP Scientific Ltd. After a degree at Cambridge in
Mechanical Sciences, Sir John’s work experience has included periods at General
Motors and Scicon Ltd, part of BP . Sir John is currently a Non-executive Director
of Bespak plc and a Trustee and Deputy President of the Institute of Electrical
Engineers. He is also a Fellow of the Royal Academy of Engineering, the Royal
Aeronautical Society and the Institute of Physics.
3. Graham Love
Chief Financial Officer (Executive Director)
Graham (51) is the Chief Financial Officer of QinetiQ and CEO of QinetiQ’s US
operations. Prior to rejoining DERA in 2001, he was Chief Executive of Comax
Limited, leading it through its privatisation in 1997 before sale to Amey plc in
1999. Before that, Graham was Finance Director of DERA from 1992 to 1996.
After a degree at Cambridge in English, Graham’s work experience has included
management roles with Ernst & Young, KPMG and Shandwick plc, as well as
several years in international consulting. He is a Fellow of the Institute of
Chartered Accountants.
4. Colin Balmer
(Non-executive Director) 
Colin (58) has been the Managing Director of the Cabinet Office since July 2003.
Prior to that he was the MOD’s Finance Director and was responsible for the
vesting of QinetiQ and the subsequent PPP Transaction with Carlyle. His main
responsibility at the MOD was the planning and management of the defence
programme with an annual budget of £32bn. He had extensive experience
across the Department including periods as Private Secretary to two Ministers
for Defence Procurement, a secondment to the UK Delegation to NATO and as
Minister for Defence Materiel in Washington. Colin is also a member of the
Foreign and Commonwealth Office’s Audit and Risk Committee.
5. Hal Kruth
Group Commercial Director (Executive Director) 
Hal (55) is Group Commercial Director of QinetiQ and head of QinetiQ’s 
Security and Dual Use Division. Hal joined QinetiQ in 2001 as CEO of QinetiQ
Ventures and prior to that worked for almost a decade at SRI International, 
one of the world’s leading independent research organisations. As SRI’s Senior
Vice-president, Ventures and Licensing, Hal managed major transactions
involving start-up companies, licensing, sponsored research, joint ventures 
and technology spin-offs. Hal has a degree in Law (Juris Doctor) and AB 
with distinction (phi Beta Kappa) in Economics from the University of 
California, Berkeley.
6. Sir Denys Henderson
(Non-executive Director) 
Sir Denys (72) joined the Board of QinetiQ as a Non-executive Director in March
2003 and is also a Senior Advisor to The Carlyle Group. He was previously
Chairman of ICI (1987-95); Zeneca (1993-95); The Rank Group (1995-2001);
Dalgety plc (1996-98) and the Crown Estate (1995-2002). Sir Denys was also 
a Non-executive Director of Barclays Bank plc (1983-97); RTZ plc (1990-96);
Schlumberger Corporation (1995-2001), and MORI. Sir Denys was also
Chairman of Spencer Stuart’s Advisory Board and an advisor to Bain & Co, as
well as serving on several Government Committees. Sir Denys has also served 
as a Trustee of the Natural History Museum (1989-98) and was Chancellor of
Bath University (1994-2000).
7. Glenn Y oungkin
Member of: 
• Remuneration Committee
• Audit Committee 
• Investment Committee 
(Chair of the Committee)
• Nominations Committee 
8. Trevor Woolley
Member of: 
• Compliance Committee 
• Nominations Committee 
9. Nick Luff
Member of:
• Audit Committee 
(Chair of the Committee)
1. Dame Pauline 
Neville-Jones
Member of: 
• Remuneration Committee
• Nominations Committee 
(Chair of the committee)
• Compliance Committee 
(Chair of the Committee)
2. Sir John Chisholm
Member of: 
• Nominations Committee 
• Investment Committee 
3. Graham Love
Member of: 
• Investment Committee 
C11968_Qinetiq_p36-37.qxd  16/9/2005  3:10 PM  Page 36 10. Peter Fellner
Member of: 
• Investment Committee 
• Nominations Committee 
11. Richard 
Gillingwater
Member of:
• Audit Committee 
10. Peter Fellner
(Non-executive Director)
Peter (61) joined the Board of QinetiQ as a Non-executive Director in September
2004. He is Executive Chairman of Vernalis plc, and also Chairman of the
privately held UK biotechnology company, Astex Therapeutics Limited. In
addition, he serves as a Director of two European biotechnology companies,
UCB SA and Evotec AG, and is a Director of Isis Innovation Limited. He is a
member of the Medical Research Council. Peter previously served as Chairman
of Celltech Group plc from 2003 to July 2004, having been Chief Executive
Officer from 1990 onwards. Before joining Celltech, Peter was Chief Executive 
of Roche UK, 1986 to 1990, having previously been Director of the Roche UK
Research Centre.
11. Richard Gillingwater
(Non-executive Director)
Richard (48) joined the Board of QinetiQ as a Non-executive Director in
September 2004. Richard is currently the Chief Executive of the Shareholder
Executive (ultimately reporting to the Cabinet Office), a position he has held
since its creation in 2003. He is also the Non-executive Chairman of Faber 
Music, and a Non-executive Director of Rights Worldwide Limited, and serves 
on the Advisory Board of St Edmund Hall, Oxford. A law graduate from Oxford
University, with an MBA from IMD Lausanne, he qualified as a solicitor before
joining Kleinwort Benson, where he became a director in Corporate Finance. 
He then moved to BZW and became joint head of Global Corporate Finance,
before moving to CSFB, where he was ultimately promoted to Chairman of
European Investment Banking. 
7. Glenn Youngkin
(Non-executive Director) 
Glenn (38) is a Managing Director of The Carlyle Group. Prior to joining Carlyle in
1995, Glenn was a management consultant with McKinsey & Company, where
he worked on a variety of strategic and operating issues in the energy, consumer
product and healthcare industries. Prior to joining McKinsey, Glenn was with
Credit Suisse First Boston, where he structured and executed both M&A
transactions and capital market financings. Glenn is an engineering graduate of
Rice University and received his MBA from the Harvard Business School where
he was a Baker Scholar. Glenn serves on the Boards of Directors of Kuhlman
Electric Company, Imagitas Inc and Firth Rixson. Since his relocation to Carlyle’s
London office in January 2000, he has led the London office buy-out efforts with
Carlyle’s Europe Partners.
8. Trevor Woolley
(Non-executive Director)
Trevor (50) is Finance Director of the MOD, following his appointment in 2003.
His main responsibility is the planning and management of the defence
programme. Trevor has worked extensively in the MOD in a career spanning
almost 30 years. During the 1980s, Trevor spent three years as Private Secretary
to Secretary of the Cabinet and, subsequently, Director of Procurement
Policy. More recently, senior management positions have included Head of
Resources and Programmes (Army), Director General Resources and Plans and, 
in the last two years, Command Secretary, Land. Trevor holds a Master of Arts
Degree in History from Peterhouse, Cambridge.
9. Nick Luff
(Non-executive Director)
Nick (38) joined the Board of QinetiQ as a Non-executive Director in June 2004
and is currently the Chief Financial Officer of The Peninsular and Oriental Steam
Navigation Company (P&O). Until May 2005, he was also a Non-executive
Director, as a representative of P&O, on the board of Royal P&O Nedlloyd NV, 
the Dutch-listed international container shipping company. Nick trained as a
chartered accountant with KPMG before joining the Corporate Finance
department of P&O in 1991. He then moved to the Treasury department in
1993, becoming Group Treasurer of P&O in 1994 and then combined this role
with Head of Corporate Finance from 1996, before joining the P&O Board in
1999 as Finance Director. In October 2000 he became Chief Financial Officer 
of P&O Princess Cruises plc on its demerger from the P&O Group and returned
as a Director of P&O in 2003 following the successful merger of P&O Princess
Cruises plc with Carnival Corporation.
4. Colin Balmer
Member of:
• Remuneration Committee
• Audit Committee 
5. Hal Kruth
Member of: 
• Investment Committee 
6. Sir Denys Henderson
Member of:
• Remuneration Committee
(Chair of the Committee)
• Compliance Committee 
QinetiQ Group plc Annual Report 2005 37
C11968_Qinetiq_p36-37.qxd  16/9/2005  3:11 PM  Page 37 38 QinetiQ Group plc Annual Report 2005
REPORT OF THE DIRECTORS
The Directors present their report and the audited financial
statements for the year to 31 March 2005. 
Principal activity
The Group’s principal activity is the supply of scientific and technical
solutions and services.
Business review
The profit on ordinary activities of the Group before tax was £82.3m
(2004: £47.6m).
A description of the Group’s performance during the year and the likely
future developments is contained in the reports of the Chairman and
Chief Executive Officer on pages 4 to 8 and in the Operating and
Financial Review on pages 30 to 35.
Research and development
One of the Group’s principal business streams is the provision of
funded research and development for customers. The Group also
invests in the commercialisation of promising technologies across all
areas of business.
Proposed dividend
An interim dividend of 7.8p per ordinary share, totalling £27.0m 
(2004: nil) was paid to QinetiQ Holdings Limited on 11 March 2005. 
The Directors do not recommend the payment of a final dividend.
Market value of land and buildings 
Due to the specialised nature of the QinetiQ business the valuation of
buildings used in the business is based upon depreciated replacement
cost. The Directors have carried out a review to ensure that these
values are supported by business projections.
Policy and practice on payment of suppliers 
The policy of the Group is to agree terms of payment prior to
commencing trade with a supplier and to abide by those terms based
on the timely submission of satisfactory invoices. At 31 March 2005
the trade creditors of the Group represented 33 days of annual
purchases (2004: 35 days). 
Directors and Directors’ interests
The Directors in office at the date of this report are detailed on 
pages 36 and 37. The dates of Director appointments can be found 
on pages 36 and 37. Details of the Board committees are given on
pages 39 and 40. Details of the Directors’ emoluments and interests
are shown in the Report of the Remuneration Committee on 
pages 42 to 45.
Employees 
The Group is an equal opportunities employer, upholds the principles
of the UK Employment Service’s ‘Two Ticks’ symbol and is accredited 
by Investors in People. Every possible consideration is given to
applications for employment, regardless of gender, religion, disability
or ethnic origin, having regard only to skills and competencies. This
policy is extended to existing employees and any change which may
affect their personal circumstances. The policy is supported by
strategies for professional and career development.
QinetiQ seeks to utilise a range of communication channels to
employees in order to involve them in the running of the organisation.
This is done using various media including in-house magazines,
intranet, regular newsletters, bulletins, management briefings, trade
union consultation and widespread training programmes.
Environment
Details of the Group’s policy and practice in relation to the
environment is detailed in the Corporate Responsibility report on 
page 28.
Political and charitable contributions 
The Group made no political contributions during the year or 
in the prior year. Donations to UK charities amounted to £57,000
(2004: £32,000).
Statement of disclosure of information to auditors
So far as the Directors are aware, there is no relevant audit information
of which the Company’s auditors are unaware, and the Directors have
taken all the steps they ought to have taken as Directors to make
themselves aware of any relevant audit information and to establish
that the Company’s auditors are aware of that information.
Auditor
In accordance with Section 385 of the Companies Act 1985, a
resolution to reappoint KPMG Audit Plc as auditor of the Company 
is to be proposed at the forthcoming annual general meeting.
By order of the Board
Lynton Boardman
Company Secretary 
85 Buckingham Gate 
London SW1E 6PD
28 June 2005
C11968_Qinetiq_p38-47.qxd  16/9/2005  3:13 PM  Page 38 STATEMENT OF CORPORATE GOVERNANCE
QinetiQ is committed to the highest standards of corporate
governance. This is demonstrated by the fact that, although not listed,
the Company has nevertheless complied with the best practice
provisions of Section 1 of the revised Combined Code on Corporate
Governance, where relevant, throughout the last financial year and up
to the point of approval of the Report and Accounts. This Corporate
Governance statement, together with the report of the Remuneration
Committee, explains how the Group has applied the governance
principles and achieved compliance throughout this period.
Board structure
The Board comprises a Non-executive Chairman, seven additional
Non-executive Directors (including two Carlyle representatives and
two MOD representatives) and three Executive Directors, including 
the Chief Executive Officer, the Chief Financial Officer and the Group
Commercial Director, with the objective of achieving a balance of
Executive and Non-executive Directors. Each of Carlyle and the MOD
have the right to appoint two observers each, who may attend (but
not participate in) meetings of the Board. The roles of Chairman and
Chief Executive Officer are separate. The Chairman is responsible for
the effective working of the Board and for ensuring that all Directors
are properly informed of matters affecting the Company. The Chief
Executive is responsible for all operational matters. 
The Board considers three of the Non-executive Directors, Dame 
Pauline Neville-Jones (the Chairman), Nick Luff (Chairman of the 
Audit Committee) and Dr Peter Fellner, to be independent, as they are
independent of the Company’s executive management and free from
any business or other relationship that could materially interfere with
the exercise of their Non-executive duties. 
The Board meets regularly throughout the year, and in the last
financial year met on ten separate occasions. The Board has agreed a
schedule of matters that are reserved to it for decision. The Board has
also agreed a number of policies and procedures to help it to operate
effectively, covering amongst other matters, access to the Company
Secretary and independent professional advice, as well as the provision
of effective induction training and company information. 
The Board does not currently have a formal process in place to evaluate
the performance of the Board, its committees and individual Directors
(with the exception of the Executive Directors).
In addition to the main Board, there are five committees of the Board
(each having its own terms of reference) which are empowered to give
detailed consideration to various aspects of the Company’s operations.
These committees, together with a brief description of their remit, are
as follows: 
● Nominations Committee – recommends to the Board individuals for
appointment to the Board and its committees.
● Remuneration Committee – makes recommendations to the Board
on the remuneration and benefits packages for the Executive
Directors and senior executives, reviews bonus arrangements, 
terms and conditions of employment and compensation terms for
loss of office for the Executive Directors and senior executives,
recommends awards under executive share plans and (following 
the recommendation of the CEO) recommends Non-executive 
Directors’ fees.
● Audit Committee – oversees on behalf of the Board the financial
and internal/external audit functions and reviews all controls 
(both financial and operational) and risk management processes
operating in the business. The Audit Committee meets at least four
times a year to carry out the following tasks:
– to consider the appointment/re-appointment of the external
auditors and to set their fees
– to agree the scope of the audit prior to its commencement
– to review the cost-effectiveness of the audit on an annual basis
– to assess the qualifications, skills and resources and independence
of the auditors
– to assess current procedures to ensure independence and
objectivity
– to develop company policy with regard to non-audit services
provided by the auditors
– to review significant financial reporting issues and judgements
made in connection with the financial statements and reports
– to monitor the effectiveness of the internal audit function
– to monitor the integrity of the Group’s system of internal 
control (including risk management) and make recommendations
to the Board.
● Investment Committee – reviews all proposed investments
exceeding the delegated authority of the Chief Executive Officer,
including major acquisitions and divestments, major bids,
significant capital expenditure and material contracts. 
● Compliance Committee – monitors the effective application of the
Compliance Regime required by the MOD to maintain the position
of QinetiQ as a supplier of independent and impartial scientific/
technical advice to the MOD and ensures that the required
standards are met in trials involving human volunteers and trials
where an incident may result in serious injury. The Committee
meets four times a year to carry out the following tasks:
– to review the operation of the MOD Compliance Regime
– to monitor the activities of the QinetiQ Ethics Committee in
ensuring that trials involving human volunteers are conducted 
in accordance with the requirements of the declaration of 
Helsinki (1962)
– to monitor the activities of QinetiQ’s Hazardous Trials Board in
assuring trials safety
– to review other compliance issues of note.
Directors’ responsibilities
Statements explaining the Directors’ responsibilities for preparing the
Group’s financial statements and the auditors’ responsibilities for
reporting on those statements are set out on pages 46 and 47.
Going concern
The Directors are of the opinion that the Group has adequate resource
to continue to operate for the foreseeable future and have prepared
the accounts on a going concern basis. 
QinetiQ Group plc Annual Report 2005 39
C11968_Qinetiq_p38-47.qxd  16/9/2005  3:13 PM  Page 39 STATEMENT OF CORPORATE GOVERNANCE CONTINUED
Attendance at all Board and committee meetings
April 2004-March 2005
Board
Meetings attended
Dame Pauline Neville-Jones 10/10
Colin Balmer 9/10
Dr Peter Fellner ** 4/5
Richard Gillingwater ** 5/5
Sir Denys Henderson 8/10
Nick Luff * 5/7
Jonathan Symonds 
†
1/2
Trevor Woolley 10/10
Glenn Youngkin 9/10
Sir John Chisholm 10/10
Graham Love 10/10
Hal Kruth 10/10
Remuneration Committee 
Meetings attended
Dame Pauline Neville-Jones 4/4
Colin Balmer 4/4
Sir Denys Henderson 4/4
Glenn Youngkin 4/4
Audit Committee 
Meetings attended
Colin Balmer 2/5
Richard Gillingwater ** 1/1
Nick Luff * 2/2
Jonathan Symonds 
†
3/3
Glenn Youngkin 5/5
Investment Committee 
Meetings attended
Jonathan Symonds 
†
1/2
Glenn Youngkin 2/2
Sir John Chisholm 2/2
Graham Love 2/2
Hal Kruth 2/2
Compliance Committee 
Meetings attended
Dame Pauline Neville-Jones 4/4
Sir Denys Henderson 4/4
Trevor Woolley 4/4
Nominations Committee 
Meetings attended
Dame Pauline Neville-Jones 2/2
Trevor Woolley 2/2
Glenn Youngkin 2/2
Sir John Chisholm 2/2
*Nick Luff was appointed to the Board on 30 June 2004.
**Dr Peter Fellner and Richard Gillingwater were both appointed to the
Board on 29 September 2004.
†
Jonathan Symonds resigned from the Board on 30 June 2004.
Relationship with auditors
The Audit Committee oversees the relationship with the Group’s
auditors, including their appointment and remuneration. In particular
the Audit Committee has introduced guidelines to ensure that the
independence and objectivity of the external auditors is safeguarded
when carrying out non-audit work.
The principal features of these guidelines include the fact that all 
non-audit fees in excess of £50,000 are to be approved in advance by
the Audit Committee and that the CFO must approve all contracts for
non-audit work with the external auditor and the appointment of any
of the auditor’s employees into any senior role within QinetiQ. The
policy expressly prohibits the auditors from valuing real estate or other
material assets of the Group, from advising on potential corporate
structures for accounting purposes, and from implementing or
advising on financial and reporting systems. Furthermore, the policy
prohibits the use of the external auditor for any non-audit work on
which they may be asked to express an audit opinion. 
US acquired companies
As part of the regulatory approval process for the acquisition of
Foster-Miller, Inc. (‘Foster-Miller’) and Westar Aerospace and Defense
Group, Inc. (‘Westar’), both Foster-Miller and Westar were required to
adopt a proxy regime as part of their respective corporate governance
structures. The proxy regime requires each company to appoint at
least three proxy directors to their respective boards, each of whom
must be a cleared US citizen, with no previous experience of
employment with either QinetiQ or Foster-Miller/Westar, and each
having been approved by the US Department of Defense. The principal
function of the proxy directors is to represent the shareholder interests
of QinetiQ on the Foster-Miller and Westar boards, given the fact that
under the proxy regime, QinetiQ is not entitled to appoint QinetiQ
representatives as directors of Foster-Miller/Westar. The creation of
proxy boards within Foster-Miller and Westar allows both companies
to continue to perform existing classified contracts on US defense
programmes and bid for new classified work. The review of internal
controls at Foster-Miller and Westar is conducted by the same self-
certification process as is applicable for the rest of the business, which
is described in more detail below. 
Internal controls
The Board is ultimately responsible for the Group’s system of internal
control and for reviewing its effectiveness in safeguarding the
shareholders’ interests and the Company’s assets. However, such a
system is designed to manage rather than eliminate the risk of failure
to achieve business objectives, and can provide only reasonable and
not absolute assurance against material misstatement or loss. 
QinetiQ managers are responsible for the identification and evaluation
of significant risks applicable to their areas of business together with
the design and operation of suitable internal controls to ensure
effective mitigation. These risks, which are related to achievement
of business objectives, are assessed on a continual basis and may be
associated with a variety of internal and external events, including
control breakdowns, competition, disruption, regulatory requirements
and natural and other catastrophes.
A process of hierarchical self-certification has been established within
the organisation which provides a documented and auditable trail of
accountability for the operation of the system of internal control. This
process is informed by a rigorous and structured self-assessment that
addresses all of the guidance cited in the Combined Code. The process
provides for successive assurances to be given at increasingly higher
levels of management and, finally, to the Board. The process is
informed by internal audit, which also provides a degree of assurance
as to the operation and validity of the system of internal control.
Planned corrective actions are independently monitored for their
timely completion.
The managers report regularly on risks (which are recorded at corporate,
Sector, divisional and the next significant level of profit and loss as well
as within all customer-facing projects) and how these are managed to
both the QinetiQ Executive Team and the Audit Committee. 
40 QinetiQ Group plc Annual Report 2005
C11968_Qinetiq_p38-47.qxd  16/9/2005  3:13 PM  Page 40 The QinetiQ Executive Team reviews on a monthly basis the risk
management and control process and considers:
● the authority, resources and co-ordination of those involved in the
identification, assessment and management of significant risks
faced by the organisation;
● the response to the significant risks which have been identified by
management and others;
● the monitoring of reports from Group management;
● the maintenance of a control environment directed towards the
proper management of risk.
The centrally provided internal audit programme is structured to
address the risks identified by the Company and is integrated across 
all business and functional dimensions, thereby reducing issues of
overlap or gaps in coverage. These risks are identified dynamically 
and the Board is involved in this process as well as the QinetiQ
Executive T eam.
The Chief Financial Officer provides to the Board monthly information
that includes key performance and risk indicators. Where areas for
improvement in the system of internal control are identified, the Board
considers the recommendations made by the QinetiQ Executive Team,
the Audit Committee and the Compliance Committee.
The Audit Committee reviews, on behalf of the Board, the key risks
inherent in the business and the system of internal control necessary
to manage such risks and presents its findings to the Board. Internal
Audit independently reviews the risk identification and control
processes implemented by management and reports to the 
Audit Committee.
The Audit Committee also reviews the assurance process, ensuring
that an appropriate mix of techniques is used to obtain the level of
assurance required by the Board. It presents its findings to the Board
on a regular basis. The Board has reviewed the effectiveness of the
system of internal control that has been in operation during the year
ended 31 March 2005. In particular, it has reviewed and updated the
process for the identification and evaluation of significant risks
affecting the business and the processes by which these are managed.
However, the Board routinely challenges the management to ensure
that the systems of internal control are constantly improving to
maintain their continuing effectiveness.
QinetiQ Group plc Annual Report 2005 41
C11968_Qinetiq_p38-47.qxd  16/9/2005  3:14 PM  Page 41 REPORT OF THE REMUNERATION COMMITTEE
The remuneration report covers all Directors, both Executive and 
Non-executive. This report sets out the current policy and disclosures
in relation to Directors’ remuneration. 
The Remuneration Committee
(‘the Committee’)
The Committee comprises exclusively Non-executive Directors and
met on four occasions during the year.
The current members are:
Sir Denys Henderson (Chairman)
Dame Pauline Neville-Jones
Glenn Youngkin 
Colin Balmer. 
Sir John Chisholm, CEO, Stephen Luckhurst, Group Head of HR, and
John Leighton-Jones, Head of Performance and Reward, attend
meetings by invitation and provide advice and services to the
Committee to enable it to make informed decisions. No Executive
Directors are present when their own remuneration is being discussed.
The Committee’s main responsibilities are:
● Setting, reviewing and approving remuneration packages for
Executive Directors including terms and conditions of employment
and changes to their packages.
● Reviewing the remuneration packages and terms and conditions of
employment of other Group Executives along with the Company
Secretary.
● Approving the scheme rules and launch of any QinetiQ share-based
incentive scheme. Approving the grant, allocation or issue of shares
or payment under an equity-based scheme.
● Reviewing proposals for significant changes to QinetiQ’s
remuneration strategies.
Hewitt Bacon & Woodrow provide actuarial, pensions and
remuneration advice to the Committee who draw additional data 
from a number of independent sources. 
This report has been produced in accordance with schedule 7A of 
the Companies Act 1985 and the Directors’ Remuneration Report
Regulations 2002. The following sections have been audited: Directors’
Remuneration; Directors’ Share Interests; and the Pension Section of
the Report.
QinetiQ needs to employ, retain and motivate employees of the
highest calibre with the capabilities, skills and experience in order to
deliver its business strategy. The catchment areas for recruitment of
this finite resource are scarce and increasingly so in the UK and outside.
The Committee recommends to the Board a remuneration 
framework for Executive Directors and determines the remuneration
arrangements for individual Executive Directors. The Committee aims
to maintain a remuneration policy consistent with the Company’s
business objectives which:
● attracts, retains and motivates individuals of high calibre;
● is responsive to both personal and company performance;
● is based on information from independent remuneration sources
and other large companies of a comparable size (turnover and
market capitalisation);
● is compatible with the principles for establishing remuneration for
the Company as a whole.
The cornerstone of the remuneration policy is that – whilst
remuneration levels should reflect the market – competitive,
performance-related incentives rather than fixed remuneration will be
utilised to provide above market median levels of reward. Performance-
related schemes form a significant proportion of the total reward
packages for executives and are designed to align their interests with
those of shareholders, establishing a clear link between performance
and reward. However, the CEO, Sir John Chisholm, has personally
chosen to accept only a graduated increase to his market-based salary
during the transition from Civil Service conditions. The Remuneration
Committee recognise that, in due course, this will need to be
increased. Additionally, he should, in due course, benefit from a stock
purchase incentivisation scheme.
Remuneration policy
QinetiQ aims to reward all performing employees competitively, taking
into account individual performance, company performance, market
comparisons and the competitive pressure in the industry. External
comparisons are made on the basis of comparable roles in similar
organisations in terms of size, market sector and business complexity in
the UK. The Committee considers that it is important to link a significant
proportion of the total executive package to individual, corporate and
Sector performance. Remuneration packages and performance targets
are reviewed annually to achieve this. The means of determining
individual remuneration levels is consistent throughout the Company.
Since the creation of QinetiQ Ltd in July 2001, there has been a
significant movement in salaries of all performing employees in order 
to better reflect the market. We will continue to benchmark our salaries
in line with the market median. Exceptional levels of performance will
continue to attract reward levels above market median.
Components of remuneration
The components of the remuneration packages for Executive Directors
are as follows:
Basic salary
Salaries are reviewed annually with changes, if any, taking effect
from 1 June. Basic salary for each Director is determined taking into
account assessments of the Director’s performance, experience and
responsibility, together with market factors. For market comparison
purposes account is taken of company type, sector and measures of
company size in terms of both market capitalisation and turnover. 
In line with our remuneration policy, the Committee benchmarks
Executive salaries against a comparator group. In addition, salaries are
referenced against the median of the FTSE 250.
42 QinetiQ Group plc Annual Report 2005
C11968_Qinetiq_p38-47.qxd  16/9/2005  3:14 PM  Page 42 Benefits 
Benefits include a pension or contribution in lieu, as appropriate, plus
car allowance and health insurance, neither of which is pensionable.
The Company also pays an insurance premium in respect of death in
service cover. 
Annual bonus
Executive Directors have ‘in year’ cash bonus arrangements, which 
are non-pensionable, linked to Group and personal performance. 
The annual bonus arrangements for 2004/05 are summarised below.
The 2004/05 bonus scheme was structured around a nominal annual
bonus of 50% of basic salary. All three Executive Directors were
measured against the same four key performance indicators (KPIs):
turnover, management earnings before interest and taxes (EBIT), non-
MOD orders and a cash generation target. An entry level is defined for
each KPI and no payment will be made against that KPI unless the
entry level performance is achieved. If the Company fails to achieve the
entry level for management EBIT, then all bonus payments become
discretionary. Assuming that this criterion is met, then each of the
objectives is weighted and each has an entry threshold, above which
the bonus payable increases linearly up to the target level, with bonus
greater than 50% of salary (capped at 100%) available if performance
over-achieves against the KPIs. 
Each Executive Director also has personal supporting objectives 
which may be used to moderate the award. The Committee considers
annually the choice of performance measures and the targets to 
be met.
Service contracts
Service contracts for Executive Directors are on a 12 months’ rolling
basis. The current retirement age for both Sir John Chisholm and
Graham Love is 60, which is subject to review. Hal Kruth is an
employee of QinetiQ Inc. registered in the USA and has no
predetermined retirement age.
Three Non-executive Directors (Dame Pauline Neville-Jones, Nick Luff
and Peter Fellner) have rolling service agreements, none of which has a
notice period in excess of one year in duration. The remaining Directors
have been appointed by the MOD and The Carlyle Group respectively,
and are likely to remain in post until an ‘exit’ event takes place (such as
the flotation of the Company or a sale). The appointment and removal
of shareholder appointees is solely at shareholder discretion.
Current long-term incentives
Hal Kruth received a participatory interest in the QinetiQ Venture Fund.
In April 2004, the Company agreed with Hal Kruth that this interest
would be ended, and that he would be paid the sum of £100,000 in
compensation. This event was reported in the 2004 Annual Report, 
but is included again in these accounts for completeness. Long-term
incentive for the executive team is derived from participation in the
equity of the parent undertaking – QinetiQ Holdings Limited.
Option scheme in shares of QHL
A share option scheme open to all employees was approved by the
Board in July 2003 and Options were granted to all permanent UK
employees in August 2003. Each Option is over 40 shares (per
employee) and the price was set at £1 per share.
Directors’ remuneration
The following information on Directors’ remuneration and Directors’
interests on pages 43 to 45 has been audited.
QinetiQ Group plc Annual Report 2005 43
Benefits in
respect of prior Total Total 
Salary/fees Bonus (a) Benefits (f) periods 2005 2004
Notes ££££££
Executive Directors
Sir John Chisholm 295,000 147,500 49,641(g,j) 169,980(j) 662,121 466,541
Hal Kruth 204,167 61,500 108,598(h) – 374,265 315,996
Graham Love 242,000 152,500 58,400(i) – 452,900 416,001
Non-executive Directors
Dame Pauline Neville-Jones 135,000 135,000 133,334
Sir Denys Henderson 35,000 35,000 34,167
Nick Luff (c) 26,346 26,346
Peter Fellner (d) 17,500 17,500
Colin Balmer (b)–––
Trevor Woolley (b)–––
Richard Gillingwater (b) (d)–––
Glenn Youngkin (b)–––
Former Directors
Jonathan Symonds (e) 14,583 14,583 34,167
Total 969,596 361,500 216,639 169,980 1,717,715 1,400,206
(a) Includes performance bonuses approved but not paid in the financial period 
(b) Do not receive fees for Non-executive Director appointment
(c) Appointed 30 June 2004
(d) Appointed 29 September 2004 
(e) Resigned 30 June 2004
(f) Benefits apart from pensions
(g) Includes life insurance, health insurance, car and chauffeur benefits
(h) Payment includes a one-off payment of £100,000 in compensation for relinquishing his carried interest in the Venture Fund; also payments for life insurance, health
insurance and tax return fees 
(i) Includes cash car allowance of £10,000 and £48,400 in lieu of pension contribution
(j) The year ended March 2005 includes an amount equal to the tax on the pension contribution of £28,335 in respect of the year ended March 2005 and £169,980 
relating to the years ended March 2004 and March 2003. These payments, whilst made in the year ended March 2005, cover benefits applicable for the three years 
ended 31 March 2005.
C11968_Qinetiq_p38-47.qxd  16/9/2005  3:14 PM  Page 43 REPORT OF THE REMUNERATION COMMITTEE CONTINUED
Disclosure in relation to defined contributions
Sir John Chisholm was a member of QinetiQ Pension Scheme
throughout the year. The benefits provided under the scheme are
subject to the current earnings cap, which is a restriction on the
amount of pay that can be used to calculate pensionable pay from 
a UK tax approved pension scheme. However, contractually Sir John
was entitled to broad comparability under the Civil Service scheme 
to which he belonged. In view of the earnings cap, that can only be
achieved under an unapproved arrangement and for the 2004/05
financial year Sir John Chisholm’s benefits include a single payment
of £198,315 representing three years of contributions in respect of his
right of membership of the unapproved scheme. 
Details of the contributions payable to the Sir John Chisholm
Retirement Benefits Scheme, as required under Schedule 7A section
12(3) of the Companies Act 1985 and LR 12.43A (c)(x) of the FSA’s
Listing Rules are shown below:
The Company contribution payable in respect of the year to 31 March
2005 was £40,780 (2004: £80,736). In addition, a contribution of
£244,605 (2004: £163,562) which was in respect of the period from 
1 July 2001 to 31 March 2004 was paid on 8 April 2004.
Disclosures in respect of Hal Kruth
Details of the contributions payable to QinetiQ Pension Scheme, as
required under Schedule 7A Section 12(3) of the Companies Act 1985
and LR 12.43A (c)(x) of the FSA’s Listing Rules are shown below:
During the year, contributions of £40,833 (2004: £8,903) were paid
into the QinetiQ Pension Scheme as per the contributions payable 
in respect of the year to 31 March 2005. There is US$119,000
accumulated in respect of Hal Kruth’s 401(k) Safe Harbour Plan 
(in which he ceased to participate in 2003/04). 
Directors’ interests
The interests of the Directors in office at 31 March 2004 in the shares
of QinetiQ Holdings Ltd (QHL), all of which were purchased on 
28 February 2003 and remain unchanged at 31 March 2005, were 
as follows:
44 QinetiQ Group plc Annual Report 2005
The additional information required under LR 12.43A (c)(ix) of the FSA’s Listing Rules is given below:
Transfer value of increase
in accrued benefits
Additional accrued Additional accrued (excluding inflation)
pension earned in lump sum earned at 31 March 2005
the year in the year less Director’s
(excluding inflation) (excluding inflation) contributions
£££
Executive Director
Sir John Chisholm 1,358 4,073 22,834
Notes to pension benefits
1. The pension entitlement shown is that which would be paid annually on retirement based on service to the end of the year.
2. The transfer values have been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11.
3. Members of the scheme have the option to pay Additional Voluntary Contributions: neither the contributions nor the resulting benefits are included in the above table.
Additional
Additional accrued lump Accrued Accrued
accrued pension sum earned pension lump sum Transfer Transfer Increase in
earned in the in the year entitlement entitlement value value transfer value
year (including (including at 31 March at 31 March at 31 March at 31 March less Director’s
inflation) inflation) 2005 2005 2004 2005 contributions
££ £pa ££££
Executive Director
Sir John Chisholm 1,470 4,410 5,101 15,303 74,916 109,682 28,410
Pensions
The Group’s policy is to offer all UK employees membership of the
QinetiQ Pension Scheme, as described in note 26. This scheme
contains both defined benefit and defined contribution sections. 
Sir John Chisholm is a member of the defined benefit section. 
Hal Kruth is a member of the defined contribution section of the
QinetiQ Pension Scheme.
Disclosures in respect of Sir John Chisholm
Disclosure in relation to defined benefits
Details of the value of individual pension entitlements and
information relating to defined benefits available to Sir John Chisholm
under the QinetiQ Pension Scheme, as required under Schedule 7A
section 12(2) of the Companies Act 1985, are shown below:
C11968_Qinetiq_p38-47.qxd  16/9/2005  3:14 PM  Page 44 QinetiQ Group plc Annual Report 2005 45
Convertible Convertible Redeemable
non-voting non-voting cumulative
D ordinary A ordinary B ordinary preference
shares of £1 shares of £1 shares of £1 shares of £1
Executive Directors
Sir John Chisholm 129,500 920 80 9,000
Hal Kruth 69,375 – – –
Graham Love 106,375 920 80 9,000
Non-executive Directors
The following Non-executive Directors indirectly hold beneficial
interests in QHL (all of which are fully paid up) which expressed as a
percentage of the called-up share capital of the Company are: Dame
Pauline Neville-Jones (0.04%); Sir Denys Henderson (0.08%); Glenn
Youngkin (0.06%).
Share options
The Executive Directors, as detailed above, have all been granted 40 
£1 B ordinary share options in QHL. These were granted on 25 July
2003. Options are exercisable at or after an exit (i.e. flotation of 
the Company or a sale) and must be exercised before the tenth
anniversary of the date granted. If an option is not exercised within 
the dates, it will lapse.
Non-executive Directors
The Chief Executive reviews the fees of the Non-executive Directors
and makes recommendations to the Committee and the Board.
The responsibilities of the role and the level of fees paid in UK
organisations of similar size and complexity to QinetiQ are considered
in setting remuneration policy for Non-executive Directors.
Non-executive Directors are not eligible to participate in bonus, profit
sharing or employee share schemes, nor do they receive pension
contributions from the Company.
Sir Denys Henderson
Chairman, Remuneration Committee
28 June 2005
C11968_Qinetiq_p38-47.qxd  16/9/2005  3:15 PM  Page 45 STATEMENT OF DIRECTORS’ RESPONSIBILITIES
46 QinetiQ Group plc Annual Report 2005
Company law requires the Directors to prepare financial statements
for each financial period which give a true and fair view of the state 
of affairs of the Company and Group and of the profit or loss for that
period. In preparing those financial statements, the Directors are
required to:
● select suitable accounting policies and then apply them consistently;
● make judgements and estimates that are reasonable and prudent;
● state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the
financial statements; and
● prepare the financial statements on the going concern basis 
unless it is inappropriate to presume that the Group will continue 
in business.
The Directors are responsible for keeping proper accounting records
which disclose, with reasonable accuracy at any time, the financial
position of the Company and to enable them to ensure that the
financial statements comply with the Companies Act 1985. They have
general responsibility for taking such steps as are reasonably open to
them to safeguard the assets of the Group and to prevent and detect
fraud and other irregularities.
C11968_Qinetiq_p38-47.qxd  16/9/2005  3:15 PM  Page 46 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF QINETIQ GROUP PLC
We have audited the financial statements on pages 48 to 72. We have
also audited the information in the Directors’ remuneration report
that is described as having been audited.
This report is made solely to the Company’s members, as a body, in
accordance with section 235 of the Companies Act 1985. Our audit
work has been undertaken so that we might state to the Company’s
members those matters we are required to state to them in an
auditors’ report and for no other purpose.
T o the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s
members as a body, for our audit work, for this report, or for the
opinions we have formed. 
Respective responsibilities of Directors and auditors
The Directors are responsible for preparing the Annual Report and the
Directors’ remuneration report. As described on page 46, this includes
responsibility for preparing the financial statements in accordance
with applicable United Kingdom law and accounting standards. 
Our responsibilities, as independent auditors, are established in the
United Kingdom by statute, the Auditing Practices Board, the Listing
Rules of the Financial Services Authority and by our profession’s 
ethical guidance. 
We report to you our opinion as to whether the financial statements
give a true and fair view and whether the financial statements and 
the part of the Directors’ remuneration report to be audited have 
been properly prepared in accordance with the Companies Act 1985.
We also report to you if, in our opinion, the Directors’ report is not
consistent with the financial statements, if the Company has not kept
proper accounting records, if we have not received all the information
and explanations we require for our audit, or if information specified
by law regarding Directors’ remuneration and transactions with the
Group is not disclosed.
We review whether the corporate governance statement on page 39 
to 41 reflects the Company’s compliance with the nine provisions of
the 2003 FRC Code specified for our review by the Listing Rules, and 
we report if it does not. We are not required to consider whether the
Board’s statements on internal control cover all risks and controls, 
or form an opinion on the effectiveness of the Group’s corporate
governance procedures or its risk and control procedures. We read the
other information contained in the Annual Report, including the
corporate governance statement and the unaudited part of the
Directors’ remuneration report, and consider whether it is consistent
with the audited financial statements. We consider the implications
for our report if we become aware of any apparent mis-statements or
material inconsistencies with the financial statements. 
Basis of audit opinion
We conducted our audit in accordance with Auditing Standards issued
by the Auditing Practices Board. An audit includes examination, on a
test basis, of evidence relevant to the amounts and disclosures in the
financial statements and the part of the Directors’ remuneration
report to be audited. It also includes an assessment of the significant
estimates and judgements made by the Directors in the preparation of
the financial statements, and of whether the accounting policies are
appropriate to the Group’s circumstances, consistently applied and
adequately disclosed. 
We planned and performed our audit so as to obtain all the
information and explanations which we considered necessary in 
order to provide us with sufficient evidence to give reasonable
assurance that the financial statements and the part of the 
Directors’ remuneration report to be audited are free from material
mis-statement, whether caused by fraud or other irregularity or error. 
In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the financial statements and the part
of the Directors’ remuneration report to be audited.
Opinion
In our opinion:
● the financial statements give a true and fair view of the state of
affairs of the Company and the Group as at 31 March 2005 and of
the profit of the Group for the year then ended; and 
● the financial statements and the part of the Directors’ remuneration
report to be audited have been properly prepared in accordance with
the Companies Act 1985.
KPMG Audit Plc
Chartered Accountants
Registered Auditor
8 Salisbury Square
London
EC4Y 8BB
28 June 2005
QinetiQ Group plc Annual Report 2005 47
C11968_Qinetiq_p38-47.qxd  16/9/2005  3:15 PM  Page 47 48 QinetiQ Group plc Annual Report 2005
GROUP PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 MARCH
2005 2005
Before
exceptional Exceptional 2005 2004
items items Total Total
Notes £m £m £m £m
Turnover: 
Group and share of joint ventures before acquisitions 794.9 – 794.9 796.2
Acquisitions 78.4 – 78.4 –
Continuing operations 873.3 – 873.3 796.2
Less share of joint ventures (0.9) – (0.9) (0.8)
Group turnover 1 872.4 – 872.4 795.4
Cost of sales (160.0) – (160.0) (149.1)
Gross profit 712.4 – 712.4 646.3
Operating expenses (644.3) (28.2) (672.5) (589.6)
Group operating profit before acquisitions 59.0 (28.2) 30.8 56.7
Acquisitions 9.1 – 9.1 –
Group operating profit 2(a) 68.1 (28.2) 39.9 56.7
Share of operating loss in joint ventures and associates (2.6) – (2.6) (4.6)
T otal operating profit before exceptional items and intangible 
assets amortisation and impairment 60.5 – 60.5 52.3
Exceptional restructuring costs and investment impairment 2(b) – (28.2) (28.2) –
Intangible assets amortisation and impairment (4.1) – (4.1) (0.2)
Total operating profit before acquisitions 56.4 (28.2) 28.2 52.1
Acquisitions 9.1 – 9.1 –
Total operating profit 65.5 (28.2) 37.3 52.1 
Profit on disposal of fixed assets 3 15.5 30.7 46.2 7.4 
Profit on ordinary activities before interest and taxation 81.0 2.5 83.5 59.5 
Net interest payable and other similar charges 4 (1.2) – (1.2) (11.9)
Profit on ordinary activities before taxation 1 79.8 2.5 82.3 47.6 
Tax on profit on ordinary activities 5 (6.1) (0.9) (7.0) (10.1)
Profit on ordinary activities after taxation 73.7 1.6 75.3 37.5 
Equity minority interest in subsidiary undertakings 1.6 1.5 
Profit attributable to ordinary shareholders 76.9 39.0 
Dividends paid 6 (27.0) –
Retained profit for the financial year 20 49.9 39.0 
All operations are continuing. 
There is no difference between the profit for the year and that prepared on an historic cost basis.
C11968_Qinetiq_p48-53.qxd  16/9/2005  3:16 PM  Page 48 QinetiQ Group plc Annual Report 2005 49
BALANCE SHEET
AS AT 31 MARCH
Group Group Company Company
2005 2004 2005 2004
Notes £m £m £m £m
Fixed assets
Intangible assets 9 152.2 1.0 – –
Tangible assets 10 392.1 428.2 – –
Investment in subsidiary undertakings 11(a) – – 205.5 205.5
Investment in associates 11(b) – 0.4 – –
Other investments 11(b) 0.5 – – –
544.8 429.6 205.5 205.5
Current assets
Stocks and work in progress 12 17.8 1.1 – –
Debtors 13 442.1 274.3 137.6 140.9
Current asset investments 14 12.8 – 3.6 –
Cash at bank and in hand 12.3 154.5 – –
485.0 429.9 141.2 140.9
Creditors: amounts falling due within one year 15 (349.3) (355.6) (0.1) (0.1)
Net current assets 135.7 74.3 141.1 140.8
Total assets less current liabilities 680.5 503.9 346.6 346.3
Creditors: amounts falling due after more than one year 16 (154.7) (57.1) – (0.4)
Provisions for liabilities and charges 17 (76.2) (48.8) – –
Provision for joint venture deficit:
– Share of gross assets – 2.4 – –
– Share of gross liabilities – (3.4) – –
11(b) – (1.0) – –
Net assets excluding pension liabilities 449.6 397.0 346.6 345.9
Defined benefit pension scheme net liabilities 26 (113.9) (115.3) – –
Net assets 1 335.7 281.7 346.6 345.9
Capital and reserves
Called up share capital 19 345.8 345.8 345.8 345.8
Profit and loss account 20 (7.3) (63.1) 0.8 0.1
Equity shareholders’ funds 338.5 282.7 346.6 345.9
Equity minority interest (2.8) (1.0) – –
335.7 281.7 346.6 345.9
The accounting policies and notes on pages 52 to 72 form an integral part of these financial statements.
The financial statements on pages 48 to 72 were approved by the Board of Directors on 28 June 2005 and signed on its behalf by:
Sir John Chisholm Graham Love
Chief Executive Officer Chief Financial Officer
C11968_Qinetiq_p48-53.qxd  16/9/2005  3:16 PM  Page 49 50 QinetiQ Group plc Annual Report 2005
GROUP CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MARCH
2005 2004
Notes £m £m
Cash inflow from operating activities 21(a) 40.4 139.2
Returns on investments and servicing of finance 21(b) (1.4) (4.9)
Tax paid (2.8) (1.5)
Capital expenditure and financial investment 21(c) 32.0 (1.6)
Acquisitions and disposals 21(d) (165.2) (0.5)
Equity dividend paid (27.0) –
Cash (outflow)/inflow before financing (124.0) 130.7
Financing 21(e) (18.2) (50.5)
(Decrease)/increase in cash in the year (142.2) 80.2
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET (DEBT)/CASH
FOR THE YEAR ENDED 31 MARCH
2005 2005 2004 2004
Note £m £m £m £m
(Decrease)/increase in cash in the year (142.2) 80.2
New loans and overdrafts (158.1) (10.8)
New loan notes (0.9) –
Loan to parent undertaking 70.5 –
Loan repayment to parent undertaking 95.2 57.0
Loan repayments 10.8 4.3
17.5 50.5
Capital element of finance lease payments 0.7 –
Change in net (debt)/cash resulting from cash flows (124.0) 130.7
Recapitalisation fee 1.5 –
New finance leases (4.8) –
Net cash/(debt) at the start of the year 2.6 (128.1)
Net (debt)/cash at the end of the year 22 (124.7) 2.6
C11968_Qinetiq_p48-53.qxd  16/9/2005  3:16 PM  Page 50 QinetiQ Group plc Annual Report 2005 51
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 31 MARCH
2005 2004
Notes £m £m
Profit attributable to ordinary shareholders
excluding joint ventures and associates 79.3 43.4
Share of losses of joint ventures and associates (2.4) (4.4)
Profit attributable to ordinary shareholders 76.9 39.0
Gain/(loss) arising on the refinancing of joint ventures 
and associates 11(b) 0.6 (0.6)
Exchange loss (0.8) (0.4)
Actuarial (loss)/gain recognised in the defined benefit
pension schemes 26 (9.8) 10.1
Movement in deferred tax asset on pension deficit 26 15.9 30.1
Total recognised gains and losses for the year 82.8 78.2
RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS’ FUNDS
FOR THE YEAR ENDED 31 MARCH
Group Group Company Company
2005 2004 2005 2004
Notes £m £m £m £m
Equity shareholders’ funds at 1 April 282.7 204.5 345.9 345.8
Retained profit for the year 49.9 39.0 0.7 0.1
Exchange loss (0.8) (0.4) – –
Gain/(loss) arising on the refinancing of joint ventures 
and associates 11(b) 0.6 (0.6) – –
Actuarial (loss)/gain recognised in the defined benefit
pension schemes 26 (9.8) 10.1 – –
Movement in deferred tax asset on pension deficit 26 15.9 30.1 – –
Equity shareholders’ funds at 31 March 338.5 282.7 346.6 345.9
C11968_Qinetiq_p48-53.qxd  16/9/2005  3:16 PM  Page 51 52 QinetiQ Group plc Annual Report 2005
ACCOUNTING POLICIES
The following accounting policies have been applied consistently in
dealing with items which are considered material in relation to the
Group’s financial statements.
Basis of preparation
The financial statements have been prepared under the historical 
cost convention and in accordance with applicable UK accounting
standards.
Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Company and its subsidiary undertakings up to 
31 March 2005. The acquisition method of accounting has been
adopted. Under this method, the results of subsidiary undertakings
acquired or disposed of in the period are included in the consolidated
profit and loss account from the date of acquisition or up to the date
of disposal.
On the acquisition of a business, or of an interest in a business, fair
values, reflecting conditions at the date of acquisition, are attributed 
to the net assets. Where material, adjustments are also made to bring
accounting policies into line with those of the Group. Deferred
consideration is recognised once any underlying performance targets
have been achieved.
An associate is an undertaking in which the Group has a long-term
interest, usually from 20% to 50% of the equity voting rights, and 
over which it exercises significant influence. A joint venture is an
undertaking in which the Group has a long-term interest and over
which it exercises joint control. The Group’s share of the profits less
losses of associates and joint ventures is included in the consolidated
profit and loss account and its interest in their net assets, together
with any loans to the entity, is included in investments in the
consolidated balance sheet.
Where an associate or joint venture has net liabilities full provision 
is made for the Group’s share of liabilities even where there is no
obligation to provide additional funding to the associate or joint
venture.
As permitted by section 230(4) of the Companies Act 1985, a separate
profit and loss account dealing with the results of the Company has
not been presented. 
Turnover
Turnover represents the value of work performed for customers (net
of value added tax and other sales taxes) including attributable profit
and after adjusting for foreseeable losses.
Turnover from fixed price contracts is recognised in proportion to the
value of the work performed and includes attributable profit. Royalty
revenue is recognised on the earlier of the date on which the income 
is earned and measurable with reasonable certainty or cash is received.
Turnover from sales of products is recognised on acceptance by the
customer.
Profit recognition
Profit on the supply of professional services on cost plus or time and
materials contracts is recognised as the work is performed. Profit on
fixed-price contracts is recognised on a percentage of completion basis
once the contract’s ultimate outcome can be foreseen with reasonable
certainty. The principal estimation method used by the Group in
attributing profit on contracts to a particular accounting period is the
preparation of forecasts on a contract by contract basis. These focus on
the costs to complete and enable an assessment to be made of the
final out-turn of each contract. Consistent contract review procedures
are in place in respect of contract forecasting. Losses on completion 
are recognised in full as soon as they are foreseen.
Amounts recoverable on contracts
Amounts recoverable on contracts are included in debtors and
represent turnover recognised in excess of amounts invoiced.
Stocks and work in progress
Stocks and work in progress are stated at the lower of cost and net
realisable value.
Goodwill 
Purchased goodwill (representing the excess of the fair value of the
consideration paid and associated costs over the fair value of the
separable net assets acquired) arising on consolidation is capitalised.
Goodwill is amortised to nil by equal annual instalments over its
estimated useful economic life (of up to 20 years). On the subsequent
disposal or termination of a business, the profit or loss on disposal or
termination is calculated after charging the unamortised amount of
any related goodwill. Impairment reviews are carried out to ensure
that goodwill is not carried at above its recoverable amount. 
Any amortisation or impairment write-downs are charged to the 
profit and loss account as operating items.
Loan issue costs
Costs associated with the issue of loans are capitalised and netted off
against the loan liability presented in the balance sheet in accordance
with FRS4. Capitalised issue costs are released over the estimated life
of the instrument to which they relate. If it becomes clear that the
instrument will be redeemed early, the amortisation of the issue costs
will be accelerated.
Investments
In the Company’s financial statements, investments in subsidiary
undertakings, associates and joint ventures are stated at cost less 
any impairment in value.
Current asset investments are carried at the lower of cost and 
market value.
Tangible fixed assets and depreciation
Tangible fixed assets are stated at cost less depreciation. Freehold land
is not depreciated. Other tangible fixed assets are depreciated on a
straight line basis over their useful economic lives to their estimated
residual value as follows:
Freehold buildings 20-25 years
Leasehold land Over the unexpired
and buildings term of the lease
Plant and machinery 3-10 years
Fixtures and fittings 5-10 years
Computers 3-5 years
Motor vehicles 3-5 years
Assets under construction are included in tangible fixed assets on the
basis of expenditure incurred at the balance sheet date. In the case of
assets constructed by the Group, the value includes the cost of own
work completed including directly attributed overheads but excluding
interest.
C11968_Qinetiq_p48-53.qxd  16/9/2005  3:17 PM  Page 52 QinetiQ Group plc Annual Report 2005 53
Foreign currencies
Transactions in foreign currencies are recorded using the rate of
exchange ruling at the date of the transaction, and gains and losses 
on translation are included in the profit and loss account. If designated
forward foreign exchange hedging contracts have been entered into,
gains and losses are matched against the foreign exchange
movements on the underlying transaction.
Assets and liabilities of overseas subsidiary and associated
undertakings and joint ventures, including any related goodwill, are
translated to sterling at the rate of exchange at the balance sheet
date. The results and cash flows of overseas subsidiary and associated
undertakings and joint ventures are translated to sterling using the
average rates of exchange during the period. Exchange adjustments
arising from the re-translation of the opening net investment and the
results for the period to the year end rate are taken directly to reserves
and reported in the statement of total recognised gains and losses.
Leased assets
Assets held under finance leases are capitalised and included in
tangible fixed assets at fair value at the inception of the lease. Assets
are then depreciated over the shorter of their useful economic lives or
the lease term. Obligations relating to finance leases, net of finance
charges arising in future periods, are included under creditors.
Rentals payable under operating leases are charged to the profit and
loss account evenly over the term of the lease.
Post-retirement benefits
The Group provides both defined contribution and defined benefit
pension arrangements. 
Costs associated with the provision of defined benefit pension
schemes are recognised in accordance with advice received from
independent qualified actuaries. Costs associated with the provision 
of defined contribution schemes reflect the contributions payable by
the Group in the period.
The balance sheet valuation of defined benefit schemes is calculated
by independent, qualified actuaries in accordance with FRS17, and
represents the market valuation of scheme assets at the balance sheet
date less the present value of long-term liabilities discounted at a rate
determined by the market return on corporate bonds.
Research and development expenditure
Research and development costs incurred on behalf of a customer as
part of a specific project are chargeable to the customer on whose
behalf the work is undertaken. The costs and the related income are
included in cost of sales and turnover respectively.
Internally funded development expenditure is capitalised in 
the balance sheet where there is a clearly defined project, the
expenditures are separately identifiable, the project is technically and
commercially feasible, all costs are recoverable by future revenue and
the resources exist to complete the project. Such capitalised costs are
written off over the forecast period of sales resulting from the
development. All other research and development costs are written off
to the profit and loss account in the period in which they are incurred.
Taxation
The taxation charge is based on the profit for the period and takes into
account taxation deferred because of timing differences between the
treatment of certain items for taxation and accounting purposes.
Deferred tax is provided, without discounting, in respect of all timing
differences that have arisen but not reversed by the balance sheet
date. Deferred tax assets are only provided to the extent that they are
regarded as recoverable.
C11968_Qinetiq_p48-53.qxd  16/9/2005  3:17 PM  Page 53 54 QinetiQ Group plc Annual Report 2005
NOTES TO THE FINANCIAL STATEMENTS
1. Segmental analysis
Classes of business
Year ended March 2005
Operating
profit before Profit on
exceptional Exceptional disposal of Profit
Turnover items items fixed assets Interest before tax Net assets
£m £m £m £m £m £m £m
Defence & Technology 664.9 48.0 – (1.5) – 46.5 378.8
Security & Dual Use 137.4 12.4 – 47.7 – 60.1 99.6
North America 70.1 5.1 – – – 5.1 163.3
Corporate – – (28.2) – (1.2) (29.4) (181.3)
Total 872.4 65.5 (28.2) 46.2 (1.2) 82.3 460.4
Net debt* (124.7)
Group total 872.4 65.5 (28.2) 46.2 (1.2) 82.3 335.7
Year ended March 2004**
Operating
profit before Profit on
exceptional Exceptional disposal of Profit
Turnover items items fixed assets Interest before tax Net assets
£m £m £m £m £m £m £m
Defence & Technology 657.7 43.5 – – – 43.5 345.9
Security & Dual Use 137.4 9.2 – 7.4 – 16.6 101.9
North America 0.3 (0.6) – – – (0.6) 1.7
Corporate –––– (11.9) (11.9) (170.4)
Total 795.4 52.1 – 7.4 (11.9) 47.6 279.1
Net cash* 2.6
Group total 795.4 52.1 – 7.4 (11.9) 47.6 281.7
*Net debt/cash includes £45.9m (2004: £45.9m) in respect of the Aquila/Chertsey Loan Note which is repayable only from the net proceeds of certain identifiable assets.
**The prior year figures have been restated to be on a basis comparable with the current year.
Geographic markets
The table below shows turnover by geographic area:
Turnover by destination Turnover by origin
2005 2004 2005 2004
£m £m £m £m
United Kingdom 749.0 740.4 802.3 795.1
North America 86.9 16.6 70.1 0.3
Continental Europe 14.6 17.1 – –
Rest of world 21.9 21.3 – –
872.4 795.4 872.4 795.4
The table below shows profit before tax and net assets by geographic area:
Profit before tax by origin Net assets by origin
2005 2004 2005 2004
£m £m £m £m
United Kingdom 77.2 48.2 172.4 280.0
North America 5.1 (0.6) 163.3 1.7
82.3 47.6 335.7 281.7
C11968_Qinetiq_p54-72.qxd  16/9/2005  3:18 PM  Page 54 QinetiQ Group plc Annual Report 2005 55
2. Operating profit
a) Group operating profit has been stated after charging: 2005 2004
£m £m
Auditors’ remuneration:
Group – audit 0.5 0.3
Group – other attestation 0.3 0.1
Group – taxation 0.2 0.2
Depreciation and other amounts written off tangible and intangible fixed assets:
depreciation and impairment of tangible fixed assets 39.8 42.0
amortisation and impairment of goodwill 4.1 0.2
Operating lease rentals:
land and buildings 5.1 9.8
plant and machinery 0.4 0.5
Foreign exchange loss – 0.2
The Company audit fee was £5,000 (2004: £5,000).
b) Exceptional operating items
The following exceptional items were included in the profit and loss account: 2005 2004
£m £m
Exceptional restructuring costs 25.9 –
Exceptional investment impairment 2.3 –
28.2 –
The exceptional restructuring cost resulted from the restructuring of the UK business into two market-facing sectors and the consequent
release of 260 staff from the business. The restructuring cost resulted in a tax credit of £7.8m with nil cash flow in the year.
The impairment of the investment results from an unrealised reduction in the value of the investment in pSivida Limited (see note 14). There
was nil tax and cash effect.
3. Profit on disposal of fixed assets
2005 2004
£m £m
Profit on disposal of fixed assets 46.2 7.4
On 21 June 2004 the Group sold the Pyestock North freehold site for £47.9m net of costs, resulting in an exceptional profit on disposal of £30.7m.
The cash consideration was £54.0m and disposal costs and associated works totalled £6.1m of which £4.4m had been spent by year end. 
There was an £8.7m tax charge in respect of this disposal.
On 4 August 2004 the Group sold its 42.7% interest in pSiMedica Limited to pSivida Limited for £16.7m. The consideration was settled by £1.7m
in cash and £15.0m by way of the issue of new pSivida Limited shares, representing 16.3% of its issued share capital. The Group recorded a profit
on disposal of £17.1m. Since the date of the disposal the value of the pSivida shares has declined and a £2.3m impairment in the investment
carrying value of these shares has been charged to operating profit.
Other fixed asset disposals in the year generated net cash proceeds of £2.7m and a related loss on disposal of £1.6m.
In the prior year the Group disposed of the Chertsey property for £48.5m generating a profit on disposal of £4.1m. Additional consideration is
due upon the purchaser obtaining additional planning consents, with the quantum dependent on the scope of consent achieved. Additional
profits on disposal of £3.3m were recognised from other fixed asset sales.
4. Net interest payable 
2005 2004
£m £m
Receivable on bank deposits (3.6) (5.7)
Payable on bank loans and overdrafts 3.1 2.2
Payable on Aquila/Chertsey Loan Note 1.1 2.0
Other loan interest 0.3 0.1
Interest (receivable from)/payable to parent undertaking (2.0) 7.2
Interest payable 2.5 11.5
Net interest on pension scheme under FRS17:
Expected return on defined benefit scheme assets (27.7) (19.2)
Interest on defined benefit scheme liabilities 30.0 25.3
2.3 6.1
1.2 11.9
C11968_Qinetiq_p54-72.qxd  19/9/2005  4:26 PM  Page 55 NOTES TO THE FINANCIAL STATEMENTS CONTINUED
5. Taxation
a) Analysis of charge 2005 2004
£m £m
Current tax:
UK corporation tax at 30% ––
Overseas corporation tax 1.0 –
Overseas corporation tax in respect of previous periods (0.1) –
Overseas withholding tax 1.3 1.5
Share of joint ventures’ and associates’ tax credit (0.1) (0.3)
Total current tax 2.1 1.2
Deferred tax (note 17) 4.9 8.9
Tax on profit on ordinary activities 7.0 10.1
b) Factors affecting the tax charge
The principal factors reducing the Group’s current year tax charge below the UK statutory rate are explained below:
Profit before tax 82.3 47.6
Tax on ordinary activities at 30% 24.7 14.3
Effect of:
Expenses not deductible for tax purposes, tax relief and non-taxable items arising on consolidation (14.2) (7.5)
Capital allowances in excess of depreciation (6.5) (2.8)
Utilisation of UK tax losses (2.1) (8.6)
Unprovided tax losses of UK subsidiaries, joint ventures, associates and non-trade losses – 1.3
(Utilisation of)/unprovided tax losses of overseas subsidiaries (2.6) 0.8
Overseas withholding tax 1.3 1.5
Share of joint ventures and associates tax credit (0.1) (0.3)
Other timing differences 1.6 2.5
Current tax charge for the year 2.1 1.2
c) Factors affecting future tax charges
It is anticipated that the Group will continue to benefit from a low effective tax rate in future years. Research and development relief will
continue to be a major contributory factor in reducing the future tax charge.
6. Dividends
During the year the Group declared and paid a dividend of 7.8p per share, totalling £27.0m (2004: £nil). 
7. Employee information
The average number of persons employed by the Group including Directors analysed by class of business, was:
2005 2004
Number Number*
Defence & Technology 6,931 6,899
Security & Dual Use 1,806 1,628
North America 1,320 22
Corporate 349 349
10,406 8,898
The aggregate payroll costs of these persons were as follows:
£m £m
Wages and salaries 315.8 280.1
Social security costs 28.3 25.0
Other pension costs 45.7 43.8
389.8 348.9
*The prior year figures have been restated on a comparable basis with the current year.
The Company had no employees (2004: nil).
56 QinetiQ Group plc Annual Report 2005
C11968_Qinetiq_p54-72.qxd  16/9/2005  3:19 PM  Page 56 8. Acquisitions and disposals
US Acquisitions
On 8 October 2004 QinetiQ Group acquired the whole of the share capital of Westar Aerospace & Defence Group, Inc. (Westar) for an 
initial consideration, before acquisition costs, of £75.4m ($136.5m), including £3.0m ($5.5m) for Westar’s cash and surplus working capital. 
No provision has been made for additional consideration of up to £4.8m ($9.0m) payable dependent on the profits of Westar for the year 
ending 31 December 2005.
On 5 November 2004 QinetiQ Group acquired the whole of the share capital of Foster-Miller, Inc. (Foster-Miller) for a consideration, before
acquisition costs, of £104.0m ($191.3m), including £13.1m ($24.1m) for Foster-Miller’s cash and surplus working capital.
Summary profit and loss accounts and statements of total recognised gains and losses for Foster-Miller and Westar prior to acquisition are:
Westar Foster-Miller 
period from 1/1/04 period from 1/8/04
to 8/10/04 to 5/11/04
£m £m
Profit and loss
Turnover 65.2 18.6
Operating profit 8.1 2.2
Profit before taxation 8.0 2.2
T axation (3.0) (0.9)
Profit for the period 5.0 1.3
There were no recognised gains and losses in the periods other than the reported profit after taxation.
In the year to 31 December 2003 Westar recorded a profit after taxation of £1.3m ($2.4m). In the year to 31 July 2004 Foster-Miller recorded 
a profit after taxation of £5.5m ($10.3m).
The provisional analysis of the net assets acquired is:
Westar Foster-Miller 
Fair value Fair value at Fair value Fair value at
Book value adjustment acquisition Book value adjustment acquisition
Total Total Total Total Total Total
£m £m £m £m £m £m
Intangible fixed assets 7.9 (7.9) ––––
Tangible fixed assets 1.0 – 1.0 3.3 – 3.3
Current assets 25.4 – 25.4 21.3 – 21.3
Current liabilities: (19.9) – (19.9) (10.6) – (10.6)
Cash 3.5 – 3.5 8.2 – 8.2
Provisions for liabilities and charges – – – (0.2) – (0.2)
Deferred taxation – – – 3.3 – 3.3
Net assets acquired 17.9 (7.9) 10.0 25.3 – 25.3
Goodwill 66.5 79.8
76.5 105.1
Consideration satisfied by:
Cash 71.5 98.3
Deferred consideration 3.9 5.7
Related costs of acquisition 1.1 1.1
Total consideration 76.5 105.1
The fair value adjustment of £7.9m relates to the elimination of goodwill recorded on a previous acquisition in Westar. Since acquisition Westar
contributed turnover of £43.5m and operating profit of £5.8m. 
Since acquisition Foster-Miller contributed turnover of £25.8m and operating profit of £3.4m.
UK acquisitions
On 5 August 2004 QinetiQ acquired HVR Group Limited for a consideration, including costs, of £13.8m. The provisional fair value of net assets 
at this date was £0.9m, resulting in goodwill on acquisition of £12.9m. Included in the acquisition cost is £3.9m of deferred consideration which
will be settled through the issue of loan notes which are redeemable from six months after issue until 31 July 2009.
QinetiQ Group plc Annual Report 2005 57
C11968_Qinetiq_p54-72.qxd  16/9/2005  3:19 PM  Page 57 NOTES TO THE FINANCIAL STATEMENTS CONTINUED
On 1 September 2004 QinetiQ took control of Aurix Limited, with the transfer of shares to QinetiQ from its joint venture partner for nil
consideration. This resulted in QinetiQ owning 80.1% of the share capital. Negative goodwill of £1.3m and a minority interest of £0.3m were
recorded on completion.
On 20 September 2004 QinetiQ purchased the remaining 55% of its associate ASAP Calibration Limited, making this a wholly-owned subsidiary.
The consideration was £1.0m, resulting in goodwill on acquisition of £0.5m.
The provisional analysis of the net assets acquired is:
Total UK acquisitions
Fair value Fair value at
Book value adjustments acquisition
Total Total Total
£m £m £m
Intangible fixed assets 1.6 (1.6) –
Tangible fixed assets 0.8 – 0.8
Current assets 3.0 – 3.0
Current liabilities (3.9) – (3.9)
Cash 3.4 – 3.4
Loans (0.5) (0.5)
Defined benefit pension scheme net liabilities – (0.4) (0.4)
Net assets acquired 4.4 (2.0) 2.4
Minority interest 0.3
Goodwill 12.1
14.8
Consideration satisfied by:
Cash 9.8
Loan Notes 0.9
Deferred consideration 3.9
Related costs of acquisition 0.2
Total consideration 14.8
The fair value adjustments relate to the elimination of QinetiQ developed intellectual property rights (£1.6m) held by Aurix Ltd and the FRS17
recognition of Aurix Ltd’s pension liability (£0.4m) in accordance with Group accounting policy.
The resulting goodwill of the US and UK acquisitions, totalling £158.4m was capitalised and is being amortised over a 20-year period.
9. Intangible fixed assets
Intellectual
property and
development
Goodwill costs Total
£m £m £m
Cost
At 1 April 2004 5.7 0.5 6.2
Fully written down (5.1) – (5.1)
Additions – 1.8 1.8
Acquisitions 158.4 – 158.4
Foreign exchange (4.9) – (4.9)
At 31 March 2005 154.1 2.3 156.4
Amortisation
At 1 April 2004 5.2 – 5.2
Fully written down (5.1) – (5.1)
Charge for the year 3.7 – 3.7
Impairments in the year 0.4 – 0.4
At 31 March 2005 4.2 – 4.2
Net book value
At 31 March 2005 149.9 2.3 152.2
At 31 March 2004 0.5 0.5 1.0
58 QinetiQ Group plc Annual Report 2005
8. Acquisitions and disposals (continued)
C11968_Qinetiq_p54-72.qxd  16/9/2005  3:19 PM  Page 58 10. Tangible fixed assets
Plant, Computers
Land and machinery and office Assets under
buildings and vehicles equipment construction Total
£m £m £m £m £m
Cost
At 1 April 2004 410.3 110.4 19.4 9.3 549.4
Additions 0.7 1.2 8.4 10.9 21.2
Acquisitions 1.3 1.7 2.5 0.2 5.7
Disposals (17.7) (8.8) (6.1) (0.9) (33.5)
Transfers 1.35.62.3(9.2)–
At 31 March 2005 395.9 110.1 26.5 10.3 542.8
Depreciation
At 1 April 2004 42.6 65.4 13.2 – 121.2
Charge for the year 13.1 20.8 5.9 – 39.8
Disposals – (4.3) (6.0) – (10.3)
At 31 March 2005 55.7 81.9 13.1 – 150.7
Net book value
At 31 March 2005 340.2 28.2 13.4 10.3 392.1
At 31 March 2004 367.7 45.0 6.2 9.3 428.2
Transfers of fixed assets relate to assets constructed by the Group. These are initially recorded within assets under construction and, on
commencement of use, transferred to the relevant asset category.
Under the terms of the Business Transfer Agreement with the MOD, certain restrictions have been placed on freehold land and buildings and
certain plant and machinery related to them. These restrictions are detailed in note 24 ‘Relationship with related party’. 
Assets held under finance leases, capitalised and included in computers and office equipment have a cost of £5.2m (2004: nil), aggregate
depreciation of £1.0m (2004: nil), and a net book value of £4.2m. Included within the net book value of land and buildings is £0.9m 
(2004: £0.9m) of leasehold properties, the remainder of the properties are freehold.
11. Investments
Company
2005
£m
a) Subsidiary undertakings
At 1 April and 31 March 205.5
Joint Other Group
ventures Associates investments Total
£m £m £m £m
b) Fixed asset investments
At 1 April 2004 (1.0) 0.4 – (0.6)
Reclassified (0.2) 0.2 – –
Additions 0.4 1.6 0.5 2.5
Share of post-tax losses (0.3) (2.1) – (2.4)
Reclassification on change to subsidiary status – (1.1) – (1.1)
Increase in value from refinancing (see note below) – 0.6 – 0.6
Disposals 1.1 0.4 1.5
Net book value at 31 March 2005 – – 0.5 0.5
The net increase in value from refinancing of the associates has been taken to reserves through the statement of recognised gains and losses. Gains
and losses arise when the Group and/or its partners invest differing amounts of cash or other assets into the joint ventures and associates and, as a
result of the increased investment, the share of the net assets owned by the Group changes in value. 
Other investments represents the Group’s 10.8% interest in Sciemus Limited, acquired for cash consideration of £0.5m on 14 September 2004.
QinetiQ Group plc Annual Report 2005 59
C11968_Qinetiq_p54-72.qxd  16/9/2005  3:20 PM  Page 59 NOTES TO THE FINANCIAL STATEMENTS CONTINUED
12. Stocks and work in progress
Group Group Company Company
2005 2004 2005 2004
£m £m £m £m
Raw materials and consumables 12.3 0.8 – –
Work in progress 5.5 0.3 – –
17.8 1.1 – –
13. Debtors
Group Group Company Company
2005 2004 2005 2004
£m £m £m £m
Trade debtors 219.1 150.4 – –
Amounts recoverable under contracts 89.6 61.7 – –
Amounts owed by Group undertakings – – 120.1 140.9
Amounts due from immediate parent undertaking 70.5 – – –
Other debtors 52.1 48.4 17.5 –
Prepayments 10.8 13.8 – –
442.1 274.3 137.6 140.9
Included within amounts recoverable under contracts is £11.6m (2004: £11.8m) due after one year, and within other debtors is an amount of £nil due
after one year (2004: £45.8m).
14. Current asset investments
Group Group Company Company
2005 2004 2005 2004
£m £m £m £m
Cost 15.1 – 4.2 –
Impairment (2.3) – (0.6) –
Net book value 12.8 – 3.6 –
At 31 March 2005 the Group held 35.7 million shares in pSivida Limited (2004: nil). The Group’s carrying value of this listed investment was
impaired by £2.3m during the year to reflect its market value at 31 March 2005 of A$0.88 per share.
15. Creditors: amounts falling due within one year
Group Group Company Company
2005 2004 2005 2004
£m £m £m £m
Aquila/Chertsey Loan Note 45.9 – – –
Bank overdraft 7.3 – – –
Deferred financing costs (0.3) – – –
Finance lease creditor 1.6 – – –
Payments received on account 103.1 83.3 – –
Trade creditors 20.1 17.7 – –
Due to immediate parent undertaking – 95.2 – –
Taxation and social security 40.0 41.2 – 0.1
Other creditors 25.5 15.9 0.1 –
Accruals and deferred income 106.1 102.3 – –
349.3 355.6 0.1 0.1
16. Creditors: amounts falling due after more than one year
Group Group Company Company
2005 2004 2005 2004
£m £m £m £m
Bank loan 150.8 10.8 – –
Aquila/Chertsey Loan Note – 45.9 – –
Loan notes 0.9 – – –
Deferred financing costs (1.2) – – –
Finance lease creditor 2.5 – – –
Other creditors 1.7 0.4 – 0.4
154.7 57.1 – 0.4
60 QinetiQ Group plc Annual Report 2005
C11968_Qinetiq_p54-72.qxd  16/9/2005  3:21 PM  Page 60 17. Provisions for liabilities and charges
Deferred Reorgan-
taxation isation Other Total
£m £m £m £m
At 1 April 2004 27.6 7.6 13.6 48.8
Utilised – (5.7) (3.1) (8.8)
Acquisitions (3.3) – – (3.3)
Released – (0.6) (3.2) (3.8)
Credit in respect of tax on additional payment to pension scheme 2.7 – – 2.7
Created 4.9 30.9 4.8 40.6
At 31 March 2005 31.9 32.2 12.1 76.2
Other provisions include legal and statutory and environmental and insurance commitments. Reorganisation provisions relate to the costs
associated with the restructuring of the UK business.
The amounts provided for deferred taxation are set out below: Group Group
2005 2004
£m £m
Difference between accumulated depreciation, amortisation and capital allowances 35.8 29.8
Short-term timing differences (3.9) (2.2)
Total deferred taxation liability provided 31.9 27.6
In addition a deferred tax asset of £48.7m (2004: £30.1m) is offset directly against the pension deficit (note 26).
The amounts of deferred taxation not provided are set out below: Group Group
2005 2004
£m £m
Tax losses (6.6) (11.2)
Total deferred taxation asset not provided (6.6) (11.2)
The unprovided deferred tax asset will be recovered in the event that there are sufficient relevant future taxable profits.
18. Financial instruments 
The disclosures set out below exclude short-term debtors and creditors and deferred tax, except for the analysis of net currency exposure.
Disclosures on financial risk management and treasury policies are also included in the Operating and Financial Review.
a) Fair values of financial instruments at 31 March
Book value Fair value Book value Fair value
2005 2005 2004 2004
£m £m £m £m
Primary financial instruments held or issued to finance the Group’s operations
Cash and deposits 12.3 12.3 154.5 154.5
Amounts due from/(to) immediate parent undertaking 70.5 70.5 (95.2) (95.2)
Borrowings due within one year (54.5) (54.5) – –
Borrowings due after more than one year (153.0) (153.0) (56.7) (56.7)
Derivative financial instruments held to manage interest rate and currency exposure
Interest rate swaps and similar instruments – 1.9 – 2.6
Forward currency contracts – (0.1) – 0.1
Other financial assets
Trade investments 0.5 0.5 – –
Current asset investments 12.8 12.8 – –
Other assets – – 45.8 45.8
Market values, where available, have been used to determine fair values. Where market values are not available, fair values have been calculated
by discounting cash flows at prevailing interest rates, except for unlisted fixed asset investments which are given a fair value equal to book
value. The book value of unlisted fixed asset investments at 31 March 2005 is £0.5m (2004: £nil).
QinetiQ Group plc Annual Report 2005 61
C11968_Qinetiq_p54-72.qxd  16/9/2005  3:21 PM  Page 61 NOTES TO THE FINANCIAL STATEMENTS CONTINUED
b) Interest rate risk
After taking into account the various interest rate swaps and forward foreign exchange contracts entered into by the Group, the currency and
interest rate profile of the Group’s financial assets and liabilities at 31 March 2005 is:
Financial assets Non-interest
Floating bearing Total
£m £m £m
Sterling 81.2 7.5 88.7
US Dollar 0.9 – 0.9
Other 0.7 5.8 6.5
82.8 13.3 96.1
Financial liabilities 
Fixed Non-interest
or capped Floating bearing Total
£m £m £m £m
Sterling (4.1) (6.7) (45.9) (56.7)
US Dollar (121.7) (29.1) – (150.8)
(125.8) (35.8) (45.9) (207.5)
Net financial assets and liabilities
Sterling (4.1) 74.5 (38.4) 32.0
US Dollar (121.7) (28.2) – (149.9)
Other – 0.7 5.8 6.5
(125.8) 47.0 (32.6) (111.4)
Financial Financial
assets liabilities
2005 2005 Total
£m £m £m
Of which:
Cash and deposits 12.3 (7.3) 5.0
Amounts due from immediate parent undertaking 70.5 – 70.5
Bank loans and loan notes – (196.1) (196.1)
Finance leases – (4.1) (4.1)
Investments 13.3 – 13.3
96.1 (207.5) (111.4)
For the fixed rate financial liabilities, the average interest rates and the average period for which the rates are fixed are:
Weighted Weighted Weighted Weighted
average average average average
interest years to interest years to 
rate % maturity rate % maturity
2005 2005 2004 2004
Sterling 6.7% 2.3 5.6% 2.7
US Dollar 4.4% 3.7 – –
4.5% 3.6 5.6% 2.7
62 QinetiQ Group plc Annual Report 2005
18. Financial instruments (continued)
C11968_Qinetiq_p54-72.qxd  16/9/2005  3:21 PM  Page 62 c) Currency risk
The table below shows the Group’s currency exposures at 31 March 2005, being exposures on currency transactions that give rise to net currency
gains and losses recognised in the profit and loss account. Such exposures comprise the monetary assets and liabilities of the Group that are not
denominated in the functional currency of the operating company involved, other than certain non-sterling borrowings treated as hedges of net
investments in overseas entities.
Functional currency of the operating company Net foreign currency monetary assets
Australian
US Dollar Euro Dollar Other Total
£m £m £m £m £m
Sterling 2.0 3.9 5.3 0.4 11.6
The amounts shown in the table take into account the effect of the forward contracts entered into to manage these currency exposures.
Comparative figures are not provided in respect of currency risk as the Group’s monetary assets and liabilities were substantially denominated in 
the functional currency of the operating unit involved.
d) Maturity of financial liabilities 
Bank borrowings Finance Bank borrowings Other
and loan notes leases Total and loan notes liabilities Total
2005 2005 2005 2004 2004 2004
£m £m £m £m £m £m
Due in one year or less 52.9 1.6 54.5 – 95.2 95.2
Due in more than one year but not more
than two years – 2.2 2.2 45.9 – 45.9
Due in more than two years but not more
than five years 150.5 0.3 150.8 10.8 – 10.8
203.4 4.1 207.5 56.7 95.2 151.9
e) Borrowing facilities
At 31 March 2005, the following committed facilities were available to the Group:
Interest rate Total Drawn Undrawn
Expiry % £m £m £m
Multicurrency revolving facility 24/08/09 LIBOR plus 0.60% 300.0 150.8 149.2
HVR Loan Notes 31/07/09 Base minus 1.0% 0.9 0.9 –
Aquila/Chertsey Loan Note Interest free 45.9 45.9 –
US Dollar revolving facility 2/12/07 Price minus 0.50% 6.9 – 6.9
US Dollar revolving facility 25/07/05 LIBOR plus 2.0% 2.6 – 2.6
Committed facilities March 2005 356.3 197.6 158.7
Committed facilities March 2004 441.7 162.5 279.2
Loans drawn under the £300m multi-currency revolving facility are repayable within 12 months, but have been classified as due in more than 
two years as the relevant committed facilities are available until 24 August 2009.
The HVR loan notes were issued in connection with the acquisition of HVR Consulting Limited. They are repayable on request of the holders no
later than 31 July 2009 and they bear interest at a discount to Lloyds TSB base rate.
A subsidiary company has issued the ‘ Aquila/Chertsey Loan Note’ to the MOD. The original capital sum of £60m is repayable only from the net
proceeds of the sale of certain identified assets. As at the balance sheet date £14.1m had been repaid to MOD.
Under the terms of the US Dollar revolving facility expiring 2 December 2007, the Lender has been granted a security interest in and lien on all
assets and personal property of Westar Aerospace and Defense Group, Inc.
QinetiQ Group plc Annual Report 2005 63
18. Financial instruments (continued)
C11968_Qinetiq_p54-72.qxd  19/9/2005  3:34 PM  Page 63 NOTES TO THE FINANCIAL STATEMENTS CONTINUED
19. Share capital
Ordinary Special
shares share
Number Number
Number of shares authorised
Shares of £1 each 345,880,038 1
Number of shares allotted, called up and fully paid
At 31 March 2005 and 31 March 2004 345,830,039 1
£m £m
Nominal value of shares allotted at 31 March 2005 and 31 March 2004 345.8 –
Special share – the nature of the work performed by the Group is of strategic interest to the defence of the United Kingdom. As a result
HM Government, acting through the MOD, retains ownership of the Special Share. The Special Share gives certain rights to the holder:
a) to require the Group to implement and maintain the Compliance System (as defined in the Articles of Association) so as to make effective at
all times the Group’s application of the Compliance Principles, in a manner acceptable to the Special Shareholder;
b) to refer matters to the Board or the Compliance Committee for its consideration in relation to the application of the Compliance Principles;
c) to veto any contract, transaction, arrangement or activity which the Special Shareholder considers:
i) may result in circumstances which constitute unacceptable ownership, influence or control over the Company contrary to the defence or
security interests of the United Kingdom, or
ii) would not, or does not, ensure the effective application of the Compliance Principles or would be or is otherwise contrary to the defence or
security interests of the United Kingdom;
d) to require the Board to take any action (including but not limited to amending the Compliance Principles or Compliance Guidelines), or rectify
any omission in the application of the Compliance Principles, if the Special Shareholder is of the opinion that such steps are necessary to 
protect the defence or security interests of the United Kingdom;
e) to demand a poll at any of the Group’s meetings (even though it has no voting rights except those given to it as a Special Shareholder).
The Special Shareholder has an option to purchase defined Strategic Assets of the Group. The Special Shareholder has the right to purchase 
any defined Strategic Assets which the Group wishes to sell. Strategic Assets are normally testing and research facilities (see also note 24). 
The Special Share may only be issued to, held by and transferred to H.M. Government (or as it directs). At any time the Special Shareholder may
require the Group to redeem the Special Share at par.
The Special Shareholder must give consent to a general meeting held on short notice.
20. Profit and loss account
Group Company
2005 2005
£m £m
At 1 April (63.1) 0.1
Retained profit for the year 49.9 0.7
Exchange loss (0.8) –
Gain arising on the disposal of joint ventures and associates 0.6 –
Actuarial loss recognised in the defined benefit pension scheme (9.8) –
Movement in deferred tax asset recognised on defined pension scheme liability 15.9 –
At 31 March (7.3) 0.8
Profit and loss reserve excluding defined benefit pension liability 103.1 0.8
Post 1 July 2001 actuarial losses recognised in the defined benefit pension scheme (110.4) –
Profit and loss reserve including defined benefit pension liability (7.3) 0.8
64 QinetiQ Group plc Annual Report 2005
C11968_Qinetiq_p54-72.qxd  16/9/2005  3:22 PM  Page 64 21. Notes to the cash flow statement
a) Reconciliation of operating profit to operating cash flows
Notes 2005 2004
£m £m
Operating profit 37.3 52.1
Depreciation and impairment of tangible fixed assets 39.8 42.0
Amortisation and impairment of intangible fixed assets 4.1 0.2
Share of loss in joint ventures and associates 2.6 4.6
(Increase)/decrease in stocks and work in progress (16.7) 1.6
(Increase)/decrease in debtors (47.6) 16.4
(Decrease)/increase in creditors (2.0) 37.6
Net movement in provisions 22.9 (15.3)
Net cash inflow from operating activities 40.4 139.2
b) Returns on investments and servicing of finance
Interest received 3.8 5.8
Interest paid (4.3) (3.5)
Interest paid to parent company (0.9) (7.2)
(1.4) (4.9)
c) Capital expenditure and financial investment
Purchase of intangible fixed assets 9 (1.8) –
Purchase of tangible fixed assets (16.0) (13.4)
Sale of tangible fixed assets 52.3 14.2
Cash investments 11(b) (2.5) (2.4)
32.0 (1.6)
d) Acquisitions and disposals
Purchase of businesses
Net assets acquired (37.7) –
Minority interest (0.3) –
Cash and cash equivalents acquired/(disposed) 15.1 (0.5)
(22.9) (0.5)
Goodwill on acquisition (158.4) –
Less: deferred consideration and loan notes 14.4 –
Cash outflow on purchase of businesses (166.9) (0.5)
Sale of investment in associate 3 1.7 –
Total acquisitions and disposals (165.2) (0.5)
e) Financing
Repayment of term and other loans (10.8) (4.3)
New bank overdraft 7.3 –
New long-term loan 150.8 10.8
New loan note 0.9 –
Loan to parent undertaking (70.5) –
Loan repayments to parent undertaking (95.2) (57.0)
Capital payments under finance leases (0.7) –
(18.2) (50.5)
QinetiQ Group plc Annual Report 2005 65
C11968_Qinetiq_p54-72.qxd  16/9/2005  3:22 PM  Page 65 NOTES TO THE FINANCIAL STATEMENTS CONTINUED
22. Analysis of net (debt)/cash
2004 Cash flow 2005
£m £m £m 
Bank and cash 154.5 (142.2) 12.3
Due within one year
Bank borrowings – (7.3) (7.3)
Recapitalisation fee – 0.3 0.3
Acquila/Chertsey Loan Note – (45.9) (45.9)
Finance leases – (1.6) (1.6)
Loan to/(from) parent undertaking (95.2) 165.7 70.5
(95.2) 111.2 16.0
Due after one year
Bank loan (10.8) (140.0) (150.8)
Recapitalisation fee – 1.2 1.2
Aquila/Chertsey Loan Note (45.9) 45.9 –
Finance leases – (2.5) (2.5)
Loan notes – (0.9) (0.9)
(56.7) (96.3) (153.0)
Total net cash/(debt) 2.6 (127.3) (124.7)
23. Commitments
a) Capital commitments at 31 March, for which no provision has been made, are:
2005 2004
£m £m
Contracted 5.0 6.4
b) Annual commitments under non-cancellable operating leases are:
Buildings Other Buildings Other
2005 2005 2004 2004
£m £m £m £m
Leases expiring within:
– one year 2.1 0.5 2.0 0.6
– two to five years 3.8 0.7 0.8 0.3
– over five years 1.4 – 0.5 –
7.3 1.2 3.3 0.9
c) The Group’s share of capital commitments of joint ventures and associates as at 31 March 2005 was £0.5m (2004: £nil).
66 QinetiQ Group plc Annual Report 2005
C11968_Qinetiq_p54-72.qxd  16/9/2005  3:22 PM  Page 66 24. Relationship with related party
Detailed below are the agreements that have been entered into and the trading that has taken place with the MOD and other HM Government
related parties.
Trading
The MOD is a major customer of the Group. During the financial year sales of £637.6m included property rental income of £10.9m (2004:
£643.7m including property rental income of £10.4m) were made to the MOD and at 31 March 2005 the MOD had an outstanding trade debtor
balance of £123.0m (2004: £102.9m). The Group also purchased services of £17.4m (2004: £14.9m) from the MOD during the year and at the
year end had an outstanding trade creditor of £0.3m (2004: £0.8m).
Freehold land and buildings and surplus properties
Under the terms of the Group’s acquisition of part of the business and certain assets of DERA from the MOD on 1 July 2001, the MOD retained
certain rights in respect of the freehold land and buildings transferred. These are:
a) Restrictions on transfer of title
The property title deeds include a clause that prevents their transfer without the approval of the MOD.
b) Property clawback agreement
The MOD retains an interest in future profits on disposal, or revaluation, following a ‘trigger event’. A ‘trigger event’ includes the granting of
planning permission for development and/or change of use, and the disposition of any of the acquired land and buildings. During the 12 years
from 1 July 2001, following a ‘trigger event’, the MOD is entitled to clawback a proportion of the gain on each individual property transaction in
excess of a 30% gain on a July 2001 professional valuation. The proportion of the excess gain due to the MOD is based on a sliding scale which
reduces over time from 50% to 9%. The July 2001 valuation was approximately 16% greater in aggregate than the consideration paid for the land
and buildings on 1 July 2001.
Loans
The Aquila/Chertsey Loan Note payable to the MOD is repayable only from the net proceeds of the disposal of the Chertsey and Aquila
properties. At the year end the amount repayable on this loan was £45.9m (2004: £45.9m). This loan was non-interest bearing to 30 June 2003,
with interest relating to LIBOR until 28 August 2004 from when it became non-interest bearing in perpetuity.
Compliance Regime
Information on the Compliance Regime, set up on 1 July 2001, is included in the Compliance Committee section of the Statement of Corporate
Governance.
Strategic assets
Under the Business Transfer Agreement with the MOD, the Group is not permitted without the written consent of the MOD, to:
a) dispose of or destroy all or any part of a strategic asset; or
b) voluntarily undertake any closure of, or cease to provide a strategic capability by means of, all or any part of a strategic asset.
The net book value of assets identified as being strategic assets as at 31 March 2005 was £16.6m (2004: £28.7m), the principal items being
£9.1m of plant and machinery (2004: £19.7m) and £3.0m of vehicles (2004: £5.3m).
Long Term Partnering Agreement
On 27 February 2003 the Group entered into a Long Term Partnering Agreement to provide the Test and Evaluation (T&E) facilities and training
support services to the MOD. This is a 25-year contract with a total value of £5.6bn under which the Group is committed to providing the T&E
services with increasing efficiencies through cost saving and innovative service delivery.
25. Contingent liabilities
Fellow subsidiary undertakings have given unsecured guarantees of £0.9m (2004: £1.0m).
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. 
QinetiQ Group plc Annual Report 2005 67
C11968_Qinetiq_p54-72.qxd  16/9/2005  3:22 PM  Page 67 NOTES TO THE FINANCIAL STATEMENTS CONTINUED
26. Post-retirement benefits
Introduction and background to FRS17
Financial Reporting Standard 17 (Retirement Benefits) requires the Group to include in the balance sheet the surplus or deficit on the scheme
calculated as at the balance sheet date. It is, therefore, a snapshot view which can be significantly influenced by short-term market factors. The
calculation of the surplus or deficit is, therefore, dependent on factors which are beyond the control of the Group – principally the value at the
balance sheet date of equity shares in which the scheme has invested and long-term interest rates which are used to discount future liabilities.
The funding of the scheme is based on long-term trends and assumptions relating to market growth, as advised by qualified actuaries.
As part of the agreement of 28 February 2003 whereby QinetiQ Holdings Limited (QHL) acquired the Group, the MOD gave an indemnity to QHL
to pay to QHL, on the earlier of a flotation or sale or on 28 February 2008, a sum up to a maximum of £45m as a funding contribution to the
pension scheme deficit. The anticipated net amount of £38.1m (2004: £36.1m) is included in the 31 March 2005 balance sheet of QHL as a
long-term debtor.
The QinetiQ Scheme
In the UK the Group operates the QinetiQ Pension Scheme, a mixed benefit scheme. The Defined Benefit (DB) section of the scheme provides
future service pension benefits to transferring Civil Service employees. All Group employees who were members, or eligible to be members, of
the Principal Civil Service Pension Scheme or the UKAEA principal Non-Industrial Superannuation Scheme were invited to join the DB section 
of the scheme from 1 July 2001, together with all new employees who were previously members of schemes who are part of the Public Sector
Transfer Club. The Defined Contribution (DC) section of the scheme was set up for all employees who were not eligible or did not wish to join
the DB section of the scheme.
The most recent full actuarial valuation of the DB section was undertaken as at 30 June 2002 and resulted in an actuarially assessed deficit of
£29.0m. On the basis of the 30 June 2002 full valuation, the Trustees and the Company agreed that the 17.5% employer contribution rate would
continue and in addition a further £2.0m cash payment would be paid per annum until the next valuation, due in June 2005, to cover the past
service deficit. 
Other UK Schemes
In the UK, the Group operates a further three small defined benefit schemes, QinetiQ Prudential Platinum Scheme and schemes for the
subsidiary companies ASAP Calibration Limited and Aurix Limited
Set out below is a summary of the overall FRS17 defined benefit pension schemes’ liabilities:
31 March 31 March
2005 2004
£m £m
FRS17 calculated liability (162.6) (145.4)
Deferred tax asset 48.7 30.1
QinetiQ Group plc net pension liability (disclosed below) (113.9) (115.3)
MOD pension indemnity 38.1 36.1
QHL net pension liability (75.8) (79.2)
Assumptions
The major assumptions (weighted to reflect individual scheme differences) used by the actuaries as at 31 March were as follows:
2005 2004 2003
Rate of increase in salaries 4.30% 4.30% 4.30%
Rate of increase in pensions in payment 2.90% 2.90% 2.70%
Rate of increase in pensions in deferment 2.80% 2.80% 2.60%
Discount rate applied to scheme liabilities 5.40% 5.50% 5.60%
Inflation assumption 2.80% 2.80% 2.60%
The assumptions used by the actuary are the best estimates chosen from a range of possible actuarial assumptions which, due to the timescale
covered, may not necessarily be borne out in practice. It is important to note that these assumptions are long term, and in the case of the
discount rate and the inflation rate are measured by external market indicators. 
68 QinetiQ Group plc Annual Report 2005
C11968_Qinetiq_p54-72.qxd  16/9/2005  3:23 PM  Page 68 Scheme assets
The fair value of the scheme’s 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:
QinetiQ Other UK 
Scheme value Schemes’ value Total
at 2005 at 2005 2005 2004 2003
£m £m £m £m £m
Equities 361.2 0.9 362.1 286.7 167.5
Corporate bonds 44.2 0.2 44.4 38.6 20.3
Government bonds 45.7 – 45.7 50.2 88.5
Cash 2.00.42.44.45.4
Total market value of assets 453.1 1.5 454.6 379.9 281.7
Present value of scheme liabilities (615.3) (1.9) (617.2) (525.3) (428.8)
Deferred taxation attributable to pension liability 48.7 – 48.7 30.1 –
Deficit in the schemes – pension liability (113.5) (0.4) (113.9) (115.3) (147.1)
Expected long-term rates of return (weighted to reflect individual scheme differences) were:
2005 2004 2003
Equities 7.70% 7.70% 7.50%
Corporate bonds 5.10% 5.00% 4.80%
Government bonds 4.70% 4.70% 4.50%
Cash 4.70% 4.20% 4.00%
Weighted average 7.13% 7.00% 6.20%
Movement in deficit during the year:
2005 2004
£m £m
Deficit in QinetiQ Scheme brought forward (115.3) (147.1)
Deficit on acquisitions of other UK schemes (0.4) –
Current service cost (41.7) (40.0)
Loss on curtailments (0.8) (5.3)
Contributions paid 37.8 43.0
Other finance costs (2.3) (6.1)
Actuarial (loss)/gain (9.8) 10.1
Deferred tax current year timing difference 2.7 –
Deferred tax on actuarial change recognised in statement of total recognised gains and losses 15.9 30.1
Deficit in the schemes at 31 March (113.9) (115.3)
Pension costs charged in arriving at operating profit were:
2005 2004
£m £m
Current service cost 41.7 40.0
Analysis of amounts included in other finance income/(costs):
2005 2004
£m £m
Expected return on pension scheme assets 27.7 19.2
Interest on pension scheme liabilities (30.0) (25.3)
(2.3) (6.1)
QinetiQ Group plc Annual Report 2005 69
26. Post-retirement benefits (continued)
C11968_Qinetiq_p54-72.qxd  16/9/2005  3:23 PM  Page 69 NOTES TO THE FINANCIAL STATEMENTS CONTINUED
70 QinetiQ Group plc Annual Report 2005
Analysis of amount recognised in statement of total recognised gains and losses:
2005 2004
£m £m
Actual return less expected return on scheme assets 12.1 42.0
Experience gains and losses arising on scheme liabilities (8.3) (8.4)
Changes in assumptions underlying the present value of scheme liabilities (13.6) (23.5)
Actuarial (loss)/gain recognised in statement of total recognised gains and losses (9.8) 10.1
History of experience gains and losses:
2005 2004 2003
£m £m £m
Difference between the expected and actual return on scheme assets:
Amount 12.1 42.0 (96.8)
Percentage of period end scheme assets 2.7% 11.1% (34.4)%
Experience gains and losses on scheme liabilities:
Amount (8.3) (8.4) (17.9)
Percentage of period end present value 
of scheme liabilities (1.3)% (1.6)% (4.2)%
T otal amount recognised in statement
of total recognised gains and losses:
Amount (9.8) 10.1 (124.8)
Percentage of period end present value of scheme liabilities (1.6)% 1.9% (29.1)%
There were no outstanding or prepaid pension contributions to any Group pension scheme at the balance sheet date (2004: £nil).
Defined contribution section
Payments to the DC section of the QinetiQ Scheme totalled £5.9m (2004: £3.8m).
26. Post-retirement benefits (continued)
C11968_Qinetiq_p54-72.qxd  16/9/2005  3:23 PM  Page 70 QinetiQ Group plc Annual Report 2005 71
27. Ultimate parent undertaking
The ultimate parent undertaking of the Group is QinetiQ Holdings Limited (QHL) a company incorporated in the UK.
Of the QinetiQ Holdings Limited voting equities issued, Carlyle own 51% with the MOD retaining 49%. Consequently management control and
responsibility is held by The Carlyle Group, with the MOD retaining all benefits conventionally held by a major shareholder.
Set out below is a reconciliation of the net assets of the Group to those of the QHL Group. The figures for QHL have been extracted from that
company’s audited accounts on which the auditors have issued an unqualified audit opinion.
2005 2004
£m £m
Net assets of the Group 335.7 281.7
Negative goodwill arising on acquisition of the Group by QHL (81.8) (86.3)
MOD pension indemnity 38.1 36.1
Inter-company balance between QHL and the Group (70.5) 95.2
Bank loans and deferred financing costs (0.2) (101.5)
Preference share dividend creditor (7.2) –
Net assets of QHL Group 214.1 225.2
Net debt of the QHL Group is:
2005 2004
£m £m
Cash at bank and in hand 12.3 154.6
Short-term debt (53.2) (20.8)
Debt due after more than one year (151.7) (141.7)
Deferred financing costs 1.5 4.3
Finance leases (4.1) –
Net debt of QHL Group (195.2) (3.6)
The consolidated accounts of QinetiQ Holdings Limited include the results of QinetiQ Group plc and are available from the Company’s 
registered office.
C11968_Qinetiq_p54-72.qxd  16/9/2005  3:24 PM  Page 71 28. Investments
The principal subsidiary undertakings, associated undertakings and joint ventures at 31 March 2005, all of which are included in the
consolidated financial statements, are shown below:
Principal Proportion
area of Country of of voting Financial
Name of company operation incorporation rights held
(3)
year end
(1)
Nature of business
Subsidiary undertakings
QinetiQ Limited (2) Great Britain England & Wales 100% Research and development
Aurix Limited (5) Great Britain England & Wales 80.1% 30 Mar Research and development
cueSim Limited (2) Great Britain England & Wales 100% Research and development
HVR Consulting Services Limited Great Britain England & Wales 100% 31 Jan Research and development
HVR Group Limited Great Britain England & Wales 100% 31 Jan Research and development
QinetiQ Nanomaterials Limited (2) Great Britain England & Wales 100% Research and development
QinetiQ Survey and Surveillance Limited Great Britain England & Wales 100% Research and development
Quintel Technology Limited (4) Great Britain England & Wales 50.0% 31 Dec Research and development
ASAP Calibration Services Limited Great Britain England & Wales 100% Calibration and engineering
Precis (2187) Limited Great Britain England & Wales 100% Property holding company
Trusted Experts Limited (2) Great Britain England & Wales 100% Resource management
QinetiQ Insurance PCC Limited (2) Great Britain Guernsey 100% Insurance
Precis (2188) Limited Great Britain England & Wales 100% Holding company
QinetiQ Corporate Finance Limited Great Britain England & Wales 100% Holding company
QinetiQ Estates Limited Great Britain England & Wales 100% Holding company
QinetiQ Investments Limited (2) Great Britain England & Wales 100% Holding company
QinetiQ Overseas Holdings Limited (2) Great Britain England & Wales 100% Holding company
QinetiQ Partnership Finance Limited Great Britain England & Wales 100% Holding company
QinetiQ Ventures Limited (2) Great Britain England & Wales 100% Holding company
Aerospace Filtration Systems, Inc. USA USA 100% 31 Dec Research and development
Foster-Miller Canada Limited Canada Canada 100% Research and development
Foster-Miller, Inc. USA USA 100% Research and development
Pimsol, LLC USA USA 100% 31 Dec Research and development
QinetiQ Inc. USA USA 100% Research and development
QinetiQ Technology Extension Corporation USA USA 100% Research and development
Rapidex, Inc. USA USA 100% Research and development
Westar Aerospace & Defense Group, Inc. USA USA 100% 31 Dec Research and development
Westar Display Technologies, Inc. USA USA 100% 31 Dec Research and development
QinetiQ Philippines Company Inc. Philippines Philippines 100% Research 
QinetiQ Trusted Information Management, Inc. USA USA 100% Information systems security
QinetiQ North America Inc. USA USA 100% Holding company
QinetiQ USA Partnership USA USA 100% 31 Dec Holding company
Science Enterprises LLC USA USA 100% 31 Dec. Holding company
Joint ventures and associates
QS4 Group Limited Great Britain England & Wales 50% 31 Dec Holding company
QS4 Limited Great Britain England & Wales 50% 31 Dec Research and development
Quintel (UK) Limited Great Britain England & Wales 50% 31 Dec Research and development
ZBD Displays Limited Great Britain England & Wales 30.4% 31 July Research and development
Infoscitex, Inc. USA USA 27.8% 31 Dec Research and development
(1) Accounting reference date is 31 March unless otherwise stated.
(2) Shares held directly by QinetiQ Group plc.
(3) Percentage of ordinary share capital unless otherwise stated.
(4) Disclosed as a subsidiary due to management control by QinetiQ.
(5) Name changed during the year from 20/20 Speech Limited.
Where the financial year of the entity is different to 31 March, the management accounts of that entity as at that date have been used for the
purposes of the consolidation.
72 QinetiQ Group plc Annual Report 2005
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
C11968_Qinetiq_p54-72.qxd  20/9/2005  3:39 PM  Page 72 Customer Contact T eam
QinetiQ
Cody T echnology Park
Ively Road, Farnborough
Hampshire GU14 0LX
United Kingdom
T el: +44 (0) 8700 100942
www.QinetiQ.com
© QinetiQ Group plc
QinetiQ/CM/MS/AR050038
Company Registration Number 4154556
Registered Office:
85 Buckingham Gate
London SW1E 6PD
Designed and produced by Pauffley Ltd  www.pauffley.com
Photography by Mike Ellis and Patrick Harrison. 
Images from MOD, Getty Images, The Science Photo Library
and Zefa Photo Library.
Printed by St Ives Westerham Press
CONTENTS
01 FINANCIAL HIGHLIGHTS
02 QINETIQ AT A GLANCE
04 CHAIRMAN’S STATEMENT
06 CHIEF EXECUTIVE OFFICER’S STATEMENT
09 FROM SCIENCE TO SOLUTIONS
28 CORPORATE RESPONSIBILITY
30 OPERATING AND FINANCIAL REVIEW
36 BOARD OF DIRECTORS
38 REPORT OF THE DIRECTORS
39 STATEMENT OF CORPORATE GOVERNANCE
42 REPORT OF THE REMUNERATION COMMITTEE
46 STATEMENT OF DIRECTORS’ RESPONSIBILITIES
47 INDEPENDENT AUDITORS’ REPORT
48 FINANCIAL STATEMENTS
QinetiQ is one of the world’s leading defence technology and security companies. 
In today’s world the challenges faced by governments to detect, identify and respond 
to both defence and homeland security threats requires the most advanced technical
capabilities science can offer.
QinetiQ is the world’s first top flight national defence laboratory to transition to 
the private sector. It gives customers access to the output of 50 years of national
investment at the forefront of technology. QinetiQ has developed rapidly into a
commercial organisation present in the UK and North America with a breadth and
depth of innovative technologies, services, customers, contracts and geographies.
Our technology plays an important role in enabling more effective and efficient use 
to be made of existing manpower and platforms in a world where agility, flexibility 
and adaptability have become the watchwords of defence and security provision.
From integrating legacy weapons systems with state-of-the-art sensors and software
for the British MOD, to fielding advanced robotic systems for the US Department
of Defense; providing port security products for the US Department of Homeland 
Security, or designing advanced security systems for many of the City’s computer
systems, QinetiQ is committed to delivering Brilliant Solutions to Important Problems.
C11968_QinetiQ _Covers.qxd  16/9/2005  9:58 AM  Page 2 FROM SCIENCE TO SOLUTIONS
ANNUAL REPORT AND ACCOUNTS 2005
QINETIQ ANNUAL REPORT AND ACCOUNTS 2005
C11968_QinetiQ _Covers.qxd  19/9/2005  4:02 PM  Page 1