customer contact team 
qinetiq
cody technology park 
ively road   farnborough
hampshire gu14 0lx 
united kingdom
tel 44 08700 100 942
wwwqinetiqcom
© qinetiq group plc
qinetiqsdumsar0601200
transforming technology into solutions
annual report 
 accounts 2006
qinetiq group plc  annual report 2006
qinetiq is a leading international defence and security technology
company the qinetiq group delivers innovative technology solutions
and support services to governmental organisations including the 
uk ministry of defence mod uk national intelligence and security
agencies the us department of defense dod the us department
of homeland security dhs and other us intelligence and security
agencies additionally it services leading aerospace defence and
security original equipment manufacturers oems and bluechip
commercial customers around the world
over the past 50 years qinetiq and its predecessor organisations
have built up significant intellectual capital being a leading 
supplier of defence research to the uk government in 1993 the 
uk government transferred its nonnuclear defence research
establishments to a separate trading fund originally as the defence
research agency dra and subsequently as the enlarged defence
evaluation and research agency dera in 2001 the majority of
dera was transferred into qinetiq limited and to date the uk is the
only advanced nation to permit on this scale its national defence
laboratories to be transformed into a separate entity as an arm’s
length commercial enterprise and to operate as a private sector entity
qinetiq has over 11400 talented employees who contribute to the
development of its intellectual capital base by winning customer
funded research assignments and exploiting qinetiq’s strengths 
in technology research by selling systems solutions products and
licences into a broad spectrum of defence security technology and
related commercial markets
01 highlights
02 chairman’s statement
04 chief executive officer’s statement
07 expert solutions in key markets
24 operating and financial review
40 board of directors
42 report of the directors
44 statement of corporate governance
50 report of the remuneration committee
55 independent auditors’ report
56 financial statements
114 fouryear review
115 glossary
116 financial calendar
116 advisers
contents
qinetiq annual report  accounts 2006
c12357qinetic coverqxd  15606  310 pm  page 1 company registration number 4586941
registered office
85 buckingham gate
london
sw1e 6pd
designed and produced by pauffley ltd  wwwpauffleycom
photography by mike ellis
images by corbis getty images inmagine mod photolibrary 
and the highways agency 
warrior tank picture on page 8 by giles penfound 
© crown copyrightmod image from wwwphotosmoduk
reproduced with the permission of the controller of her
majesty’s stationery office
printed by st ives westerham press
qinetiq at a glance
strategy capabilities
mod research 
with its defence industry heritage
and innovative expertise across a
range of advanced technologies
dt is the leading supplier of
research to the mod
technology supply  
since qinetiq’s transition to 
the private sector dt has had
growing opportunities to inject
its technology into the defence
equipment supply chain in this
way it increasingly supports prime
contractors in upgrading the 
uk’s defence capability  
procurement  
capability support
dt provides expert support to
the mod in terms of assessing 
the technology offered by 
prime contractors both at
the procurement stage and
throughout the lifetime of 
the system 
managed services
this part of dt covers the 
longterm supply of technology
and trainingbased services 
the main component is the long
term partnering agreement ltpa
under which dt manages the
mod’s test and evaluation ranges 
security 
sdu offers worldclass research
advice consultancy and technology
based products and services to
government and civilian customers
in the security and counter
terrorism markets 
space
sdu’s work for space sector
customers like the european space
agency esa includes research
and technology for individual
space missions and for services
such as gps global positioning
systems and small satellites  
technology development 
 exploitation 
this business provides research and
development services in optronics
and materials for the mod and
other customers it also helps to
exploit qinetiq’s technology
through product development
royalties licence fees partnerships
and joint ventures  
managed services 
sdu offers its clients a portfolio
of managed services in areas such
as fuel and lubricant testing and
analysis instrument calibration
and supporting technical services
it also provides real estate
procurement facilities and 
asset management services
technology
offering hightechnology research
for defence and security customers
the combined capabilities
including robotics provide
advanced products across a range
of technologies
systems engineering 
technology assistance
providing independent systems
engineering and support services
for major military programmes 
and equipment in north america
it services
this business serves the fast
growing demand for advanced 
it services particularly on the part
of the department of defense and
the department of homeland
security 
the defence  technology sector dt forms the core of
qinetiq’s uk defence business providing technology and
services to support the armed forces of the uk and its allies 
its success depends on maintaining and expanding its
relationship with the uk ministry of defence mod and
continuing to apply its unique intellectual property in line
with the uk government’s defence and spending policy in
addition to its mod work dt addresses other defence
markets by offering solutions and services to allied
governments and forming partnerships with defence
contractors in the uk and elsewhere     
the security  dual use sector sdu takes technologies
and services developed for the mod and other defence
customers and applies them in new ways to create 
highvalue solutions for civilian use 
combining its technological advantages with a deep
understanding of the commercial marketplace it works
mainly – though not exclusively – for customers in adjacent
sectors such as security and counterterrorism there is a
continual demand for its expertise and sdu intends to 
grow in nondefence markets where its capabilities offer
competitive advantage 
our fastdeveloping north american sector qna links the 
worldclass technology developed in the uk with the 
world’s largest defence and security market – the us 
still in its formative stages the business offers significant
potential for growth 
qinetiq established a us bridgehead by setting up qinetiq
inc in 2002 and has since acquired six us companies the 
aim is to achieve strong organic growth in the region while
strengthening us capabilities and introducing more uk
technologies and services into the north american market 
defence  technology
security  dual use
north america
andrew sleigh
managing director 
hal kruth
managing director 
phil odeen
chief executive officer
c12357qinetic coverqxd  15606  316 pm  page 2 company registration number 4586941
registered office
85 buckingham gate
london
sw1e 6pd
designed and produced by pauffley ltd  wwwpauffleycom
photography by mike ellis
images by corbis getty images inmagine mod photolibrary 
and the highways agency 
warrior tank picture on page 8 by giles penfound 
© crown copyrightmod image from wwwphotosmoduk
reproduced with the permission of the controller of her
majesty’s stationery office
printed by st ives westerham press
qinetiq at a glance
strategy capabilities
mod research 
with its defence industry heritage
and innovative expertise across a
range of advanced technologies
dt is the leading supplier of
research to the mod
technology supply  
since qinetiq’s transition to 
the private sector dt has had
growing opportunities to inject
its technology into the defence
equipment supply chain in this
way it increasingly supports prime
contractors in upgrading the 
uk’s defence capability  
procurement  
capability support
dt provides expert support to
the mod in terms of assessing 
the technology offered by 
prime contractors both at
the procurement stage and
throughout the lifetime of 
the system 
managed services
this part of dt covers the 
longterm supply of technology
and trainingbased services 
the main component is the long
term partnering agreement ltpa
under which dt manages the
mod’s test and evaluation ranges 
security 
sdu offers worldclass research
advice consultancy and technology
based products and services to
government and civilian customers
in the security and counter
terrorism markets 
space
sdu’s work for space sector
customers like the european space
agency esa includes research
and technology for individual
space missions and for services
such as gps global positioning
systems and small satellites  
technology development 
 exploitation 
this business provides research and
development services in optronics
and materials for the mod and
other customers it also helps to
exploit qinetiq’s technology
through product development
royalties licence fees partnerships
and joint ventures  
managed services 
sdu offers its clients a portfolio
of managed services in areas such
as fuel and lubricant testing and
analysis instrument calibration
and supporting technical services
it also provides real estate
procurement facilities and 
asset management services
technology
offering hightechnology research
for defence and security customers
the combined capabilities
including robotics provide
advanced products across a range
of technologies
systems engineering 
technology assistance
providing independent systems
engineering and support services
for major military programmes 
and equipment in north america
it services
this business serves the fast
growing demand for advanced 
it services particularly on the part
of the department of defense and
the department of homeland
security 
the defence  technology sector dt forms the core of
qinetiq’s uk defence business providing technology and
services to support the armed forces of the uk and its allies 
its success depends on maintaining and expanding its
relationship with the uk ministry of defence mod and
continuing to apply its unique intellectual property in line
with the uk government’s defence and spending policy in
addition to its mod work dt addresses other defence
markets by offering solutions and services to allied
governments and forming partnerships with defence
contractors in the uk and elsewhere     
the security  dual use sector sdu takes technologies
and services developed for the mod and other defence
customers and applies them in new ways to create 
highvalue solutions for civilian use 
combining its technological advantages with a deep
understanding of the commercial marketplace it works
mainly – though not exclusively – for customers in adjacent
sectors such as security and counterterrorism there is a
continual demand for its expertise and sdu intends to 
grow in nondefence markets where its capabilities offer
competitive advantage 
our fastdeveloping north american sector qna links the 
worldclass technology developed in the uk with the 
world’s largest defence and security market – the us 
still in its formative stages the business offers significant
potential for growth 
qinetiq established a us bridgehead by setting up qinetiq
inc in 2002 and has since acquired six us companies the 
aim is to achieve strong organic growth in the region while
strengthening us capabilities and introducing more uk
technologies and services into the north american market 
defence  technology
security  dual use
north america
andrew sleigh
managing director 
hal kruth
managing director 
phil odeen
chief executive officer
c12357qinetic coverqxd  15606  316 pm  page 2 customer contact team 
qinetiq
cody technology park 
ively road   farnborough
hampshire gu14 0lx 
united kingdom
tel 44 08700 100 942
wwwqinetiqcom
© qinetiq group plc
qinetiqsdumsar0601200
transforming technology into solutions
annual report 
 accounts 2006
qinetiq group plc  annual report 2006
qinetiq is a leading international defence and security technology
company the qinetiq group delivers innovative technology solutions
and support services to governmental organisations including the 
uk ministry of defence mod uk national intelligence and security
agencies the us department of defense dod the us department
of homeland security dhs and other us intelligence and security
agencies additionally it services leading aerospace defence and
security original equipment manufacturers oems and bluechip
commercial customers around the world
over the past 50 years qinetiq and its predecessor organisations
have built up significant intellectual capital being a leading 
supplier of defence research to the uk government in 1993 the 
uk government transferred its nonnuclear defence research
establishments to a separate trading fund originally as the defence
research agency dra and subsequently as the enlarged defence
evaluation and research agency dera in 2001 the majority of
dera was transferred into qinetiq limited and to date the uk is the
only advanced nation to permit on this scale its national defence
laboratories to be transformed into a separate entity as an arm’s
length commercial enterprise and to operate as a private sector entity
qinetiq has over 11400 talented employees who contribute to the
development of its intellectual capital base by winning customer
funded research assignments and exploiting qinetiq’s strengths 
in technology research by selling systems solutions products and
licences into a broad spectrum of defence security technology and
related commercial markets
01 highlights
02 chairman’s statement
04 chief executive officer’s statement
07 expert solutions in key markets
24 operating and financial review
40 board of directors
42 report of the directors
44 statement of corporate governance
50 report of the remuneration committee
55 independent auditors’ report
56 financial statements
114 fouryear review
115 glossary
116 financial calendar
116 advisers
contents
qinetiq annual report  accounts 2006
c12357qinetic coverqxd  15606  310 pm  page 1 client qinetiq

project annual report id no c12357
 
page no
01
qinetiq group plc annual report 2006 01
highlights
achievements
– 229 increase in turnover to £11bn 
2005 £09bn
– underlying operating margin improved to 86
2005 76 excluding profit on disposal of
interest in psimedica limited
– underlying operating cash conversion of 844
2005 272
– execution of us strategy continued with three
further acquisitions in year
– successful ipo on the london stock exchange
raising net proceeds of £1327m
– underlying earnings per share growth of 163
– maiden dividend proposed of 225p per share
financial summary
fouryear summary
10517
8559
7954
7749
turnover £m
06
05
04
03
06
05
04
03
907
652
541
357 
underlying operating profit £m
excluding profit on disposal of interest in psimedica limited in 2005  
11446
10430
8898
9384
employees at 31 march
06
05
04
03
1413
557
1359
331
free cash flow £m
06
05
04
03
2006 2005
group turnover £10517m £8559m
underlying operating profit £907m £823m
underlying operating profit excluding profit
on disposal of interest in psimedica limited £907m £652m
underlying operating margin excluding profit
on disposal of interest in psimedica limited 86 76
underlying profit before tax £801m £582m
underlying earnings per share 102p 88p
basic earnings per share 100p 120p
net debt £2330m £1766m
free cash flow £1413m £557m
backlog £6084m £5720m
underlying effective tax rate 227 162
dividend per ordinary share 225p nil
see glossary on p115 for definition of nongaap terms used throughout the annual report
c12357qinetiqarp0123qxd  14606  601 pm  page 01 02
02 qinetiq group plc  annual report 2006
i am pleased to report that qinetiq has continued 
to perform strongly in 200506 and is able to show 
a 229 growth in turnover and a 100 basis point
improvement in underlying operating margin to 86
these good results are driven by our three pronged thrusts
each of which is making good progress – the uk defence
market the commercialisation of our defence technology
into adjacent commercial markets and the building of our
platform in the us
our positioning in these markets remains well chosen 
to capture some of the best opportunities that they
present the need for nations to invest in defence and
security is as clear now as ever but it is becoming less
predictable where and how their forces will be deployed
the uk government’s recent defence industrial strategy
paper for instance highlighted the paramount need for
agility and flexibility this government white paper made
clear that it sees research and technology as playing a key
role in providing an enabler for this objective 
qinetiq has a unique position as a researcher and provider
of technology into the supply chain and separately as an
expert adviser and technology service provider to the
ultimate customer in the uk our constitution provides 
a compliance regime which gives mod customers for our
advisory services the right to decide whether to agree to
qinetiq providing a related technology supply activity if
they are completely satisfied by the firewalls we put in
place to separate the two activities the 282 growth in
our technology supply business this year is a testament
both to the importance of technology supply in meeting
the customers’ agility and flexibility agenda and also their
confidence in our firewalls
in the us the quadrennial defense review emphasised
many similar issues to the uk and the president’s 2007
budget submission has proposed a 3 increase in real
terms in the science technology budget despite having 
to find significant savings in major defence programmes 
this year qinetiq reports on a major
milestone in our development the vision 
of creating an international world class
defence and security technology company
out of the defence laboratories of the
british government was born more than 
a decade ago with the successful listing 
on the london stock exchange the value 
of this strategy has been more widely
recognised
sir john chisholm
chairman’s statement
365
compound annual growth in
underlying operating profit
since 2003
c12357qinetiqarp0123qxd  14606  601 pm  page 02 03
qinetiq group plc annual report 2006 03
this underlines the strength of our chosen positions in 
the us in three sub sectors mirroring our uk position 
our advisory business known as systems engineering 
technical assistance in the us had a particularly good year
growing organically by 109 in the second half of the year
overall we grew the turnover of our us business 2544 
on a yearonyear basis through organic and acquisition 
led growth
innovation remains the strongest driver for economic
development in first world nations much of the rationale
for the creation by the uk government of qinetiq from 
its defence research laboratories was to release the
powerhouse represented by its defence scientists to create
vibrant new businesses in related commercial markets
while the maturation of business from early stage
technology never provides a quick win qinetiq’s security
and dual use sdu sector has had a strong year and is
well placed to fulfil the promise of this key strategy
in preparing qinetiq for its listing we undertook a number
of changes to the board dame pauline nevillejones
chairman sir denys henderson richard gillingwater 
and trevor woolley all retired having steered qinetiq
through our private equity phase and provided us with
excellent guidance and support we are in considerable
debt to each of them and i would like to thank them for 
the enormous contribution they made the new board
aimed to enact best practice as advocated by the combined
code consistent with the particular needs of qinetiq as 
a unique company 
the board proposed that i succeeded dame pauline as
chairman and sir david lees joined the board as deputy
chairman and senior independent director noreen doyle
joined us as our fourth independent nonexecutive director
ned alongside peter fellner and nick luff glenn youngkin
and colin balmer continue as neds nominated by carlyle
and the mod respectively graham love became chief
executive officer doug webb succeeded him as chief
financial officer and hal kruth stood down from the board
but continues as managing director of sdu as reported
in our prospectus it is our intention that we recruit one
further independent ned with strong us experience
the launch of the company on the london stock exchange
is the beginning of a new phase in our growth and provides
us with the ability to execute our strategy and deliver on
our ambitious vision many of our staff have come a long
way since their days in government and all are absolutely
committed to providing excellent service to customers 
i would like to pay tribute to all our staff for the magnificent
way they have responded to the challenges and opportunities
we face and we all look forward with confidence to
continuing to grow our business in the stimulating future
that is now before us
sir john chisholm
chairman 
qinetiq group plc
7 june 2006
2006
turnover by destination 
698
255
47
2005
856
101
43
•
united kingdom  
•
north america  
•
rest of world
c12357qinetiqarp0123qxd  14606  601 pm  page 03 04
04 qinetiq group plc  annual report 2006
delivering on our strategy
we have continued to build upon the opportunities afforded
by our three market facing sectors each of which reflects a
particular strategic thrust in our defence  technology
sector addressing our core uk defence market we have
continued to grow our technology supply business and
consolidated our position in the provision of advisory
services in our security  dual use sector we have seen
excellent progress in our service businesses and passed
some important milestones in developing our commercial
ventures in north america we have substantially increased
our footprint both through acquisition and through direct
sales from the uk
our marketplace
in our principal defence markets in the uk and us there 
are significant challenges as scarce resources continue to 
be heavily focused on operational deployments particularly
in iraq and afghanistan significant supplemental budgets
have been approved to support these campaigns and there
are encouraging signs of qinetiq being successful in
meeting these needs particularly as the rapid insertion 
of technology is used to upgrade systems and platforms
more quickly than would be possible using conventional
new platform procurement processes us spending on it
services by both the department of defense dod and 
the department of homeland security dhs has also 
been a particular feature of the 2006 budget and we 
are well placed to benefit from this 
financial performance
overall our turnover grew by 229 to £10517m and
underlying operating profit excluding profit on disposal of
our interest in psimedica limited in 2005 grew 391 to
£907m whilst this growth was in part attributable to
acquisitions all sectors of our business also showed organic
turnover growth during the year and our uk sectors also
further improved their profit margins our underlying
operating margin now stands at 86 up 100bps from last
year significant restructuring was required to achieve this
profit margin and restructuring costs totalling £94m have
been charged in arriving at operating profit net cash flow
from operating activities was also strong at £833m 2530
up on last year
this was clearly a very significant year 
for qinetiq from many points of view 
we continued to reposition the group 
into growth markets within ministry of 
defence mod programmes achieved
significant progress in commercialising 
our defence technologies into adjacent
markets and substantially expanded our
presence in our key north american
market we addressed senior management
succession issues as sir john chisholm for
so long the principal architect of and driver
behind qinetiq moved up to chairman of
the board i moved into the chief executive
role and doug webb took over from me as
chief financial officer last but clearly not
least we took qinetiq public through an
initial public offering on the london stock
exchange
chief executive officer’s statement
graham love
2006
turnover by sector £m
6696
1337
2484
2005
6649
1209
701
•
defence  technology
•
security  dual use
•
qinetiq north america
total 10517 total 8559
c12357qinetiqarp0123qxd  14606  601 pm  page 04 05
qinetiq group plc annual report 2006 05
defence  technology sector
turnover increased 07 to £6696m and underlying
operating profit 101 to £565m in our uk defence
business we continue to adjust to the introduction of
competition into the mod’s research programme which
affects all of our technology businesses to a degree but
because it is combined with a reshaping of mod’s
investment priorities can affect certain technology areas
more dramatically then others this led to the need to
restructure certain of our technology divisions during the
year our advice and managed services business with the
mod remained broadly stable during the year whilst our
technology supply turnover increased 282
key wins in the year included leading the haldanespearman
consortium to success in the ‘preparing people for operations’
research assignment and being part of the successful bae
systems team which won the us future combat systems
tracked vehicle demonstrator programme we have also been
appointed preferred bidder for the 20year managed service
contract for the combined aerial t argets service
security  dual use sector
turnover increased 106 to £1337m with underlying
operating profit excluding the gain on disposal of our
interest in psimedica in 2005 increasing by 641 to
£97m although our optronics and materials divisions had
a tough year due to unexpectedly severe reductions in mod
research funding in these areas necessitating restructuring
during the year they both did an excellent job of finding
new sources of funding in order to sustain the important
worldclass capabilities we have in these areas we have
continued to make good progress in developing our security
and space businesses whilst our estates function made a
significant contribution to cash flow by realising proceeds
of £1102m through the sale of surplus property assets
key wins included the first sales of tarsier® those of our
quintel joint venture a research contract from the us
defense advanced research projects agency into optical
tagging and a number of significant new government
and commercial customers for our it security practice
qinetiq north america sector
turnover grew 2544 to £2484m and underlying
operating profit 2063 to £245m this includes the
contribution for part of the year from two new acquisitions
the first of these planning systems inc is a technology
company working primarily for the dod which had a
turnover in its last full year prior to acquisition december
2004 of 446m £243m the other is apogen
technologies inc an it services company working mainly
for the dod and the dhs which in its last complete year
prior to acquisition december 2004 had turnover of
1999m £1090m our previous acquisitions put in a 
solid performance all round despite some reduction in
fostermiller’s research business due to difficult market
conditions we also successfully established the first
projects to exploit technology synergies between the uk
and the us in order to increase overall sales into the us
market qinetiq’s staff numbers in north america had
grown to 2640 by 31 march 2006 and our north american
group is now making a very substantial contribution to our
overall performance 
key wins included the man transportable robotic system
the major procurement contract for improvised explosive
device ied robots significant extensions of our systems
engineering work with the us army and our it services 
to the department of homeland security just before the
end of the year we announced the acquisition of ocean
systems engineering corp which will strengthen our
position with the us navy and our us capabilities in
mission critical systems
management and organisation
the three sector structure we put in place in late 2004
continues to serve us well we have been most fortunate 
in securing the services of phil odeen a widely respected
us defence industry executive to run our enlarged north
american group phil joined us with our acquisition of
apogen where he was chairman and will continue to 
act as parttime ceo until a fulltime appointment is 
made during 2006
we have an outstandingly talented group of people at all
levels in qinetiq – our challenge as leaders is to provide an
environment in which our people can deliver maximum
value for our customers and shareholders our ipo has
allowed us to make equity incentives available to all staff –
in particular we have been able to introduce a targeted
share option plan
2006
underlying operating profit by sector £m 
565
97
245
2005
513
59
80
•
defence  technology 
•
security  dual use   
•
qinetiq north america
               
                    
total 907 total 652
c12357qinetiqarp0123qxd  14606  601 pm  page 05 06
06 qinetiq group plc  annual report 2006
forward to seeing the first integration benefits as we begin
to combine certain back office functions and to generate
new business opportunities our us companies are starting
to work more closely together and with the uk on bidding
for major programmes and developing our growing
network of us customers and partners we will also
continue to pursue tactical acquisitions of the type we have
already made provided this can be done at sensible prices
overall the past year has laid a firm foundation for our
company and although there are many challenges ahead 
i look forward to the coming year confident in our ability 
to make further progress we have developed a robust
business model and a management team capable of
delivering it
graham love
chief executive officer 
qinetiq group plc
7 june 2006
the future
the evidence of the past year supports the strategy we 
are pursuing and so our emphasis will continue to be 
on executing as effectively as possible
in defence  technology this means continuing to build 
on our many critical customer relationships ensuring that
we are providing the uk armed forces with the services 
and solutions they need to meet increasingly asymmetric
threats in particular it means continuing to insert our
technology into the systems and equipment which are
urgently required thereby pulling through the benefits 
of the mod’s research programme into the field our order
performance in year positions us well to continue with this
growth in technology insertions typically we will operate
on the supplier side of the market through partners
although where appropriate we may act as prime
contractor with the approval of our mod customers this
reflects our unique constitutional ability in the uk to act as
both advisor and technology supplier where our customers
approve this through our compliance regime 
we will also continue to work hard on developing our
managed services business in particular we are pursuing
our bid for the defence training rationalisation programme
through metrix where we are a 50 cosponsor along with
land securities trillium we are seeking to make our vast
experience in successfully managing the long term
partnering agreement the mod’s largest outsourcing
contract to date available to support the mod in its
ambitious plans to improve the delivery of technical
training to all of the armed services
in security  dual use this means continued exploitation
of defence capabilities into adjacent markets building
particularly on our strong security positioning continuing
to build our space business through the pursuit of key
bidding opportunities and selected acquisitions and
delivering on our business plans in our ventures portfolio
in north america conditions are expected to remain
challenging for parts of our business as the government
balances budget demands due to the combined effects 
of the iraq war and hurricane katrina however we look
chief executive officer’s statement continued
06
05
6791
6905
defence  technology
06
05
2640
1374
qinetiq north america
employees by sector at 31 march  
06
05
1643
1790
corporate security  dual use
06
05
372
361
c12357qinetiqarp0123qxd  15606  344 pm  page 06 client qinetiq

project annual report id no c12357
 
page no
07
qinetiq group plc annual report 2006 07
with its unique background qinetiq offers a breadth and depth
of technology beyond the range of most commercial providers
we also have an enviable record of turning our technology into
innovative solutions both for government defence purposes 
and in related sectors of the civilian market where demand 
for our skills is growing rapidly 
qinetiq is about clever people well managed in the service 
of our customers because we know our markets so well 
we can make sure our technology precisely meets their needs 
we can also direct that technology towards the best commercial
opportunities so the business itself develops and prospers 
the following pages show some of the ways in which we 
have succeeded 
expert solutions in key markets
c12357qinetiqarp0123qxd  14606  1235 pm  page 07 client qinetiq

project annual report id no c12357
 
page no
08
08 qinetiq group plc  annual report 2006
proven defence expertise
fres – a new generation of armoured fighting vehicles
today’s british army needs to be able
to respond rapidly to new situations
move troops quickly into position and
carry out joint operations with allies
or other uk forces 
this added to a need to replace
obsolete vehicles is the impetus 
behind the army’s first
transformational programme – the
future rapid effect system fres
the aim of the programme is 
to develop a new generation of
mediumweight armoured fighting
vehicles that are networkenabled 
and transportable by air the new
vehicles will complement the
existing fleet offering enhanced
tactical and strategic mobility and
greater protection
in march 2006 qinetiq was awarded
contracts in excess of £5m by the
prime contractor atkins as part of
the fres – initial assessment phase
technical demonstrator programmes
the purpose of these is to help
inform decisions on which
technologies will be used and to
demonstrate the readiness of the
chosen technologies with its long
record in defence research and its
knowledge of mod requirements
qinetiq is wellplaced to inject
innovative technology into many
elements of this programme
the largest of qinetiq’s business sectors defence  technology
dt is a major supplier of innovative technology and managed
services to the uk’s armed forces and those of its allies 
with its historic links to the ministry of defence dt has been
at the forefront of british defence research for over 60 years 
its expertise intellectual property and knowledge of the defence
marketplace are therefore unique and provide a powerful
competitive advantage 
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qinetiq has been named as
preferred bidder for the combined
aerial target service cats
contract which will provide a 
fully mobile target service to the
uk armed forces on air defence
training and test and evaluation
for the next 20 years
as part of its offering qinetiq 
will provide all of the mod’s aerial 
target requirements worldwide
cats will include target services
currently delivered under the 
25year long term partnering
agreement with the mod
additionally qinetiq will provide
aerial target services for ground
based air defence training a
service for the royal navy and an
airtoair service for the raf
qinetiq’s aerial target systems 
will also be used for the training 
of us aircrews in europe which
will involve several of the ranges
operated by the group
maintaining sonar effectiveness
the sonar system in the uk’s four vanguardclass submarines
was built in the 1980s and will eventually become obsolete
qinetiq has been involved in innovation research for a
replacement system the key to which is an open architecture
that allows the incorporation of commercial offtheshelf 
or cots components
unlike a bespoke sonar system the cots approach sources
major subsystems from commercial suppliers the resulting
integrated solutions are flexible costeffective and easier 
to upgrade than their predecessors qinetiq’s dersci
delivery of rapid sonar cots insertion programme has 
led the world in this particular field and is proving crucial 
in managing obsolescence
aeigt 
a uk strategy for
aerospace technology
launching a heavier harrier
government and industry launched
the aerospace innovation and
growth team aeigt in 2002 with
the aim that by 2022 “the uk will
offer a global aerospace industry
the world’s most innovative and
productive location” 
in 2005 qinetiq provided key input
into the aeigt’s national aerospace
technology strategy in the aeigt
technology validation programmes
now underway qinetiq’s joint
efforts with worldclass partners
such as airbus bae systems
bombardier and thales will deliver
cuttingedge aerospace innovation
to the uk
after identifying the needs of
several stakeholders from the mod
qinetiq carried out work to enable
the harrier gr7a variant to take
off from ‘ski jump’ equipped rn
ships at increased weights
the aims were twofold firstly 
to increase the allup weight
clearance of the harrier for ship
skijump operations secondly to
provide operating clearances
following a qinetiq led
modification programme to 
hms illustrious’s third mast
carried out in 2006 the trials were
entirely successful and brings the
launching capability to the same
as is currently cleared for land
operations this will enhance the
power projection from the sea of
britain’s frontline harrier force
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proven defence expertise
jsf support breakthrough in automatic landing 
in a major milestone for the
joint strike fighter jsf
programme qinetiq has
achieved the world’s first
automatic landing of a short
takeoff vertical landing stovl
aircraft on a moving ship
using relative gps technology
qinetiq’s autoland system
calculates the relative position 
of aircraft and ship and transmits
steering instructions to the
autopilot to enable it to bring the
aircraft down without intervention
from the pilot as a result jsf
pilots will be able to operate at
night and in weather that would
previously have made flying very
difficult it also reduces risk in that
the pilot no longer has to make
complicated manoeuvres at the
end of a mission when fatigue 
is most likely 
carried out on hms invincible 
in may 2005 the landing is the
latest advance in a long line 
of research by qinetiq and its
predecessors the project itself 
is jointly funded by the us jsf
program office as part of
qinetiq’s 10m of work to derisk
the jsf’s flight control system 
and by the mod’s joint combat
aircraft integrated project team
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rapid set up for secure
communications
advising on the jsf
qinetiq has won in open competition a £25m contract from the mod
to develop a mobile command and control system able to be rapidly
deployed in the field wherever and whenever the need arises
the system uses offtheshelf components such as servers laptops
telephones and printers once the integrated technology is installed 
into military vehicles the operators can set up the system in a matter 
of minutes as soon as they reach the location this enables them to
communicate securely with a central base for swifter decisionmaking
the mod system will be compatible with other government departments
this shows qinetiq once again using its systems integration skills to
meet the operational needs of the mod
network enabled capability
qinetiq plays a major role in contributing to the mod’s network
enabled capability nec initiatives 
our recent combat id trial showed how the future nec battlespace
might look linking coalition c4isr command control communications
computers intelligence surveillance and reconnaissance assets to
deliver a precise military effect as cofounding partners on niteworks
the mod’s nec experimentation and simulation initiative qinetiq has
also provided significant resources and capabilities into many military
themed experiments qinetiq’s coprime role on research activities such
as dabinett also places the company at the forefront of the acquisition 
of future c4isr capability for the next 20 years
other programmes where qinetiq supports the mod the research
programme and the wider defence industry demonstrate our highly
regarded domain knowledge communications solutions information
management and systems integration capabilities this positions
qinetiq as a company which truly understands how to deliver timely
intelligence to decision makers for improved military effect
in september 2005 the joint
combat aircraft jca integrated
project team ipt placed a 
followon contract with qinetiq 
to provide technical and
acceptance advice
under the threeyear £103m
support package qinetiq helps
the ipt meet its aims to deliver
jca with an acceptable level of
capability at minimum cost
influences the jsf programme 
to meet the uk requirement and
minimises ukspecific testing 
and acceptance activity  
the qinetiq support includes test
and acceptance experts deployed
throughout the joint strike fighter
programme in the us along with 
a multifaceted technical support
team in the uk
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excellence in commercial innovation
qinetiq is seeking to grow in markets where its expertise and
technologies offer competitive advantage and where it can
provide highvalue solutions for its customers 
within these markets it aims to add value through innovation
that is informed by a deep understanding of the trends that
influence customers’ needs qinetiq works across a range of
commercial sectors in areas such as security counterterrorism
aviation space and communication
tarsier® sees clear runways
in 2005 qinetiq sold its first
tarsier® runway debris detection
system to vancouver international
airport in canada 
whether it is aircraft parts litter 
or dead birds debris on runways
costs an estimated 4 billion a
year in terms of damaged aircraft
and delayed flights a busy airport
typically inspects its runways from
a moving vehicle four times a day
– a challenging task on a 4km
stretch of tarmac with aircraft
taking off or landing every 60
seconds qinetiq’s remote
detection system provides the
answer developed after the
concorde crash in paris in 2000
tarsier® constantly scans the
runway and can detect a 5cm
metal bolt at over 15kms
distance even at night and 
in bad weather 
tarsier® has been trialled with
great success at major airports 
in the uk and north america 
at vancouver debris was detected
and removed within five minutes
while a trial system at new york
functioned perfectly in –20
o
c 
and through blizzard conditions
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all measured up for back to school
the shoe company clarks needed a new way of measuring feet for the best fit
and to mark them out from their competitors clarks wanted to be able to define
not just the outline of the foot but its 3d shape
at the same time qinetiq had been pioneering a 3d camera a technology with
roots in identifying unexploded ordnance for the mod the need and the technology
came together in a revolutionary foot gauge for clarks
the concept uses a camera sensor and bespoke software to generate a 3d image 
a prototype was developed and successfully trialled in two midlands stores volume
manufacture is now underway and clarks will have units in approximately 50 of its
leading shops in time for the 2006 ‘back to school’ season and has ordered 800 units
from qinetiq
safer highways 
training and accrediting traffic officers
speeding up 
computer chips
the highways agency has contracted qinetiq
to provide elements of training tutoring and
competence assessment for the 1200 new
traffic officers and control room operators
now being introduced to take over some of the
tasks previously carried out by the police on
england’s roads
by assessing traffic officers and operators 
on the job qinetiq will help them demonstrate
their competence and work towards a 
new qualification the certificate in traffic
management in conjunction with providing
training on all the control centre systems and
support with vehicle procurement qinetiq 
is helping to ensure high and consistent
standards of traffic management across 
the country
157mm
routes to market
pito
the recognised security
expertise of qinetiq has 
led to provision of high 
level services to the police
information technology
organisation pito to host
develop and manage the uk
national police portal the
web portal provides a one
stop shop for police appeals
and force resources and
demonstrates qinetiq’s skills
in the digital security and
managed services arenas
managed services products licensing spin out realisation
gps
qinetiq has developed
ocellus a groundbreaking
compact global positioning
system that requires no
visible antenna and can be
fitted to any portable object
the system can report
location and movement
and can be used to track
equipment machines and
people in environments
where conventional gps 
fails to produce a location 
fix or is not in realtime
friends reunited
sale of the 1901 census
online business to friends
reunited this site has played
a key role in the increasing
popularity of genealogy as
people use the internet to
research their roots
following the installation 
of systems to ensure
uninterrupted service for
users the team oversaw the
migration of the website
from qinetiq servers to
friends reunited offices
funti
tm
qinetiq’s funti
tm
thermal
imaging technology is used
to produce very low cost
thermal cameras as low 
as 20 each in high volume
compared to competitor
offerings at nearly 1000 
per unit it has been licensed
for various applications
including automotive 
airbag safety industrial
process monitoring and
building sensors
stingray
a venture with a consortium
led by energy ventures
established to develop a
commercial fibre optic
seismic monitoring system
on the seabed providing high
quality data on offshore
hydrocarbon reservoirs to
maximise oil and gas
productivity this is targeted
at increasing recovery of
reserves from 35 to 50
generating significant extra
value and maintaining the
world’s supplies
qinetiq in collaboration with 
intel the world leader in
microchip manufacture has
carried out research into new
transistor technology
this has meant using a material
called indium antimonide in a new
way the material was pioneered
by scientists in qinetiq and
enables the devices to operate at
very high speed and also at very
low power to reduce chip
temperatures 
this could revolutionise the
manufacture and development
of the transistors in computer
networking and communications
products
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excellence in commercial innovation
quintel technology limited a qinetiq joint
venture has successfully installed its first
multioperator independent variable tilt
3g shared antenna solution which enabled
three mobile phone operators to share the
same site
the installation at the trentham site was
significantly faster than traditional site tower
redevelopment timescales and has enabled
vodafone and 3 to improve network coverage
in the area
the quintel product allows up to five mobile
phone operators to share a single antenna
whilst maintaining independent control of tilt 
a key function for 3g network optimisation 
in addition to enabling multioperator site
sharing quintel technology limited is
developing a range of solutions intended to
significantly enhance mobile radio performance
through tilt optimisation freedoms
sharing mobile technology
technology solution
for retailers 
securing the digital economy 
qinetiq’s heritage of securing
classified networks and its proven
independence means that it is
wellplaced at the centre of the
uk’s cyber security industry this
has led to its selection for the
management of the uk’s new
cyber security knowledge 
transfer network
funded by the dti this new
initiative will bring together
experts from industry academia
and government to look at threats
and solutions in the field of 
digital security including identity
management and biometrics
the network will be instrumental
in helping uk enterprises develop
innovative products and services
that address the challenges 
posed by the need for improved
digital security
liquid crystal display lcd technology
developed in qinetiq and commercialised by
zbd has been trialled by tesco to enable it to
automate price and product information on
shelf labels from the back office this heralds a
first in uk supermarkets
using wireless technology to update promotional
offers and price changes instantly gives a
number of benefits pricing can be updated
easily and wastage in perishable items can be
minimised by reducing prices automatically
when they get close to consumption date
the display uses zero power except for updates
making the zbd wireless display very economical
to run 
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qinetiq group plc annual report 2006 15
low cost access to space 
topsat a microsatellite developed
by a british consortium led by
qinetiq sent its first high quality
images through on 7 december
2005 proving the success of the
technology and representing a
major step forward in affordability 
of space missions
the launch from plesetsk in
northern russia on 27 october
attracted a lot of attention and was
hailed as a british success story 
by lord sainsbury parliamentary
undersecretary of state for science
and innovation the first images
were downloaded to the qinetiq
ground station
topsat offers a less expensive
option for future missions –
current imagegenerating satellites
cost more than five times the cost
of topsat the 28 metre resolution
imagery will have a number of
uses from disaster relief and
environmental monitoring to
border control and security use
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sustained growth in the united states
qinetiq north america has leading positions in its core market
sectors in the north american defence and security market with
particular focus on technology systems engineering  technical
assistance and it services
having entered the us in 2001 qinetiq has since acquired a
number of us companies with complementary skills and close
relationships with government and military institutions the
combination of uk research and technology with the strong
market positions of qinetiq’s acquired companies is proving
highly successful in the us marketplace 
usvisit program
usvisit has been deployed in
airports across the us to keep
records of foreign visitors
entering the country apogen 
was involved in the initial roll 
out of the system providing
installation of the it systems 
apogen continues its
involvement in the programme
through daytoday support of
the local area network and
hardware at each site 
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safer streets
a precision air drop system pads developed by planning systems 
is now being supplied to the us army us air force us marine corps
and special operations forces
this system enables precision drops of material and personnel from
high altitudes with the accuracy necessary for current and future high
mobility operations it works directly with unguided delivery systems 
and with steerable systems now being developed
increasing airdrop accuracy
protection through simulation
secures® is an acoustic gunshot detection tool from
planning systems to aid law enforcement a gunshot
can be detected in just three seconds and its location
triangulated within ten feet of its origin
the technology means that the precise time and location
quicker reporting dispatch and field response is achieved
secures® has been successfully deployed in several cities
in the us in both overt and covert missions through its
use police have been able to recover evidence come to the
aid of victims intervene in criminal activity and directly
make arrests
as a technology tool secures® has become an 
integral component in the operations and response 
to gunrelated crime 
in response to the growing
demand for safe and cost
effective air travel flightviz® 
and flightanalyst™ two aviation
systems analysis products have
been developed by westar 
these inflight data visualisation
and simulation technologies 
help customers to improve
maintenance operations training
and safety and are used by the us
navy us army and other aviation
industry leaders
successful strategy qinetiq has a world scale 
technology innovation engine 
within its uk operations 
a growing presence within the us markets
provides the opportunity to introduce that
technology and innovation to the world’s
largest defence and security market
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18 qinetiq group plc  annual report 2006
sustained growth in the united states
hurricane heroes
when hurricane katrina hit in october
2005 apogen provided infrastructure
support to the us space and naval warfare
spawar center in new orleans
apogen which already provided it and
programme management support to the
center enabled the navy to carry out its
operations plan after the devastation of the
hurricane made its facilities uninhabitable
these efforts meant that the programmes
proceeded on schedule including the defense
integrated military human resources system
dimhrs a project that will combine the
personnel and pay systems of all of the 
military branches into a consolidated system
remote firepower
preparing the army for combat supporting army software
fostermiller has reconfigured its
highlysuccessful talon™ robot
as a small mobile weapons system
for the us army
this version named swords
special weapons observation
reconnaissance directaction
system will provide extra
firepower to troops and can be 
used remotely to help preserve life
talon™ is used extensively on
explosive ordnance disposal eod
missions in iraq and afghanistan
with great success and works in 
all terrains and all weathers with
both day and night capability it
has alternative mounts for a
40mm grenade launcher and an
m202 antitank rocket system
a multiyear contract with the 
us army combat readiness 
center will see westar provide
comprehensive safety engineering
loss prevention composite risk
management research analysis
and information technology
programme support this work
will be carried out both in the 
us and at field locations around
the world
a contract with the us army’s
programme manager to provide
enterprise resource management
and technology support means
that westar will be responsible 
for the fielding training and post
deployment software support of the
aviation unitlevel logistics system
for all army reserve and national
guard units around the world and
for all armed helicopters
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expertise crossing border security projects
apogen plays a critical role in the
us customs and border protection’s
cbp container security initiative
csi a preemptive effort against
terrorist attempts to smuggle
persons and weapons of mass
destruction set up after 911
providing critical support to 
fulfil the csi mission apogen’s
team ensures access to the
automated manifest system and
the automated targeting system
these databases provide cbp
inspectors at port locations 
with the data they need to 
prescreen containers
in the free and secure trade
initiative fast an allied 
project apogen designed and
implemented a radio frequency
identity rfid system at six initial
border locations fast uses rfid
technology to create a more
advanced form of a pass system
for trusted certified truckers
another part of the us drive 
to secure its borders the port
radiation inspection detection 
 evaluation pride programme
saw apogen develop the data
warehouse to process the vast
amounts of data generated by 
the pride initiative efficiently
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corporate responsibility cr for qinetiq is a fundamental
prerequisite for ensuring business sustainability 
only by demonstrating to key stakeholders accountability
for environmental social and ethical impacts can qinetiq
claim to be managing the risks that define its reputation 
as a responsible business
the group is also committed to using technology to help
solve critical problems facing society including the
challenge of environmental sustainability
reducing the impact of aircraft emissions 
air traffic controllers to plan 
fuelefficient flight paths 
and develop better methods 
for understanding the impact
of emissions 
responsibility for emissions policy
in the uk lies to a large extent
with the uk department for
transport dft as a result the
department needs sound
technical information on all
aspects of aircraft emissions 
from engine combustion and
emissions from aircraft are
increasingly associated with
climate change and are likely to
be subject to tougher legislation
in the future 
qinetiq is wellplaced to help 
the aerospace sector become 
more environmentally
acceptable it is helping the
aerospace industry to design
cleaner quieter engines and
lighter more fuelefficient
aircraft it is also helping 
airline operations to the effect
on climate and air quality qinetiq
contributes key information and
provides expert advice to the 
dft on engine aircraft and air
transport system performance and
the impact on the environment
its contribution has ranged from
improving the assessment of
emissions at heathrow airport
to researching the formation of
vapour trails and advising on
global regulations 
environmental technology solutions
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using technology to tackle 
climate change
h
1
o
8

even warships must keep ahead 
of environmental laws the 
green warrior 2030 programme 
is funded by the mod and looks 
at the environmental aspects of
operating a warship – everything
from recycling to the management
of weapons – in order to
implement sustainable solutions
by 2030
as part of the programme 
qinetiq has developed elan
environmental legislation
analysis – naval this tool will
allow the mod to assess the way
that environmental legislation
both current and planned will
affect naval operations in terms of
cost time and military constraints 
in the drive for cleaner energy there is growing
interest in fuel cells these convert chemical
energy directly into electrical energy and 
are less damaging to the environment than
conventional primary batteries
to advance the technology which is in early
stage development olympus corporation has
commissioned qinetiq to develop a hydrogen
generator for fuel cells the key in this instance
is qinetiq’s ammonia borane technology that
provides the hydrogen fuel source which in
turn combines with oxygen from the air in 
a fuel cell to generate electrical power
this new technology has been initially
developed for high power portable systems
and so is typically carried as part of a back
pack this work aims to miniaturise the
technology to the size of a small battery
olympus plans to use this new generation 
of fuel cells to power portable devices such 
as cameras and small sensors
tackling climate change is central to qinetiq’s
work as a responsible corporate citizen just
as science and technology have exposed the
dangers of climate change they also provide
the means for mitigating its effects
much of the group’s work in this area involves
helping customers to keep ahead of tougher
environmental legislation to use energy and
resources more efficiently and to enhance 
their environmental reputations qinetiq also
recognises that its credibility as a provider of
environmental solutions depends on managing
its own environmental impact 
green warships
fuel cells power source of the future
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22 qinetiq group plc  annual report 2006
applying creative thinking
the qinetiq fellowship scheme provides a formal recognition 
of the achievement of worldclass scientific technological and
intellectual status
qinetiq fellowship is awarded to individuals who have achieved
exceptional technical standing and can show that their work has
had real impact and significance for qinetiq and its customers
fellows are enabled and funded to pursue speculative technical
topics which may become the foundation of future valuable
innovations
following rigorous internal and external review new fellows are
appointed by the chairman and receive their award from a leading
figure in the uk’s scientific community at an annual ceremony in
march 2006 qinetiq had 91 fellows and 16 senior fellows 
back row left to right dr andrew scott tim rabbets dr sam kaddour john doherty dr david hutber 
dr nigel davies peter sumner front row left to right dr simon richards dr neil salmon dr tim ashley 
dr eoin okeefe dr stephen hayward mike curnow
new senior fellows and fellows in 2005
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qinetiq group plc annual report 2006 23
senior fellows
dr tim ashley 
for international distinction in
research on narrow bandgap
semiconductors and their
applications to infrared sources
and detectors to ultrafast
transistors and in cmt focal plane
arrays grown on silicon substrates
dr andrew scott 
for international distinction in
nonlinear optics and laser physics
particularly in phase conjugation
brillouin scattering adaptive
optics in steerable high power
lasers dynamic optical tags and
template tracking
fellows
mike curnow
for outstanding technical
leadership innovation and
expertise in aircraft test and
evaluation particularly for the
merlin helicopter where he is 
an internationallyrecognised
authority
dr nigel davies 
for his outstanding contributions
and international distinction in
the field of highfrequency
communications combining deep
understanding of principles with
exceptional practical engineering
and successful exploitation
john doherty 
for distinguished research in
design optimisation and multi
disciplinary design including his
innovation of practical tools for
aerodynamic design which have
made qinetiq the european leader
in this field
dr stephen hayward 
for outstanding achievements 
in adaptive signal processing
developing solutions to important
problems which have had a
substantial impact and contributed
greatly to qinetiq’s world
reputation in the field
dr david hutber 
for outstanding contributions to
the exploitation of systems science
in command and control and 
istar systems and particularly for
his pioneering work in concepts
and simulation for network
enabled capability
dr sam kaddour 
for major contributions in the
design and analysis of composite
structures notably in the creation
of international standards and
failure criteria for fibrereinforced
polymer composites
dr eoin o’keefe 
for many outstanding and highly
innovative contributions in the
field of lowobservable and
camouflage materials and paints
tim rabbets 
for distinguished work in systems
engineering notably in naval
combat systems and in methods
for nonfunctional requirements
and for linking design and life
cycle processes to reduce whole
life cost
dr simon richards 
for important fundamental
contributions in underwater
acoustics particularly for turbid
coastal waters through his work
on the acoustical properties of
marine suspensions and sediments
dr neil salmon 
for outstanding contributions 
in the field of millimetrewave
imaging particularly combining
research on passive imaging
systems with profound expertise
in millimetrewave interactions
and in simulation and modelling
peter sumner 
for his outstanding technical
leadership and expertise in
electromagnetic emc testing 
of aircraft and for his innovation
in related methods and
instrumentation and in
minimising the biological 
hazards of emc testing
senior fellows and fellows received their awards from 
professor roy anderson chief scientific adviser to the 
ministry of defence the selection process reports in the 
spring and two senior fellows and eleven fellows have 
been added to the cadre
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market overview
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paper dis was published by the mod in december 2005
both recognised the importance of the defence industry in
meeting these new and evolving defence needs and the
growing role for industry in whole life management of
defence equipment and service provision 
the dis places emphasis on a strong uk defence industry
and recognises ‘the need to improve the earned profit
margins available to industry based on good performance 
if we are to attract global investment capital into the uk
defence industry’ the mod is also expected to publish a
separate research and technology paper during 2006 to
address the technology strategy for uk defence
procurement
the effects of these policies can be seen in the procurement
strategies being employed in major projects such as fres in
the uk and fcs in the us which play to the importance of
designing for flexibility and innovation they can also be seen
in the many smaller purchasing decisions where advanced
technology is taken rapidly into operational use and evolved
alongside practical experience with its long experience of
supporting urgent customer needs and its deep base of
technical excellence qinetiq is well positioned to benefit
from these evolving policy trends through its well established
businesses in defence funded research and development
technology supply advice and managed services
security and counterterrorism
with continued uncertainty in the world and new threats
regularly emerging global spending by governments on
homeland security and counterterrorism continues to rise
with particular emphasis on the deployment of technical
solutions to counter the new threats qinetiq’s heritage in
the defence market leaves it well positioned to support its
customers through the provision of innovative products
and services in particular the us department of homeland
security dhs budget and the counterterrorismresilience
budget in the uk are key areas of focus for qinetiq
additionally the infrastructure physical security and
information assurance markets both government and
commercial in which qinetiq participates are fast growing
segments of the security and counterterrorism market
this sector focuses on technologies that provide tracking
detection and surveillance that have capabilities to secure
borders and protect high value or iconic buildings and
events the information assurance sector focuses on
fundamental requirements for the secure hosting of
information and information systems penetration testing
and assurance
the group conducts the majority of its business in the uk
and us defence and security markets
defence
policymakers in the uk and the us have responded to the
new more diverse and unpredictable threats faced by these
nations by reconsidering the needs of modern armed
forces the experience of conflicts in afghanistan and iraq
have reinforced the emphasis placed on armed forces being
capable of rapid and global deployment on being mobile
interoperable with allies and equipped with the most
effective technology 
these changes have placed a premium on innovation and
agility in upgrading existing platforms and in the supply of
novel and timely solutions to rapidly emerging defence
needs in both the us and the uk developments in defence
policy have focused on more rapid and flexible equipment
acquisition approaches the us government published
“transforming the defense industrial base a roadmap” in
december 2004 and the defence industrial strategy white
2006
turnover by customer type £m
5958
1736
823
2000
2005
•
mod
•
dod
•
commercial defence
•
civil and other government agencies   
                     
total 10517 total 8559
6267
663
582
1047
06
05
7339
7325
united kingdom £m
06
05
2687
869
north america £m
06
05
491
365
rest of the world £m
turnover by destination
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niche civil markets
qinetiq operates in niche sectors of large and growing
commercial markets by leveraging technology and
capabilities originally developed for defence customers
qinetiq delivers funded research and development
contracts consultancy and support services specialised
products and intellectual property licensing to solve
important problems in markets as diverse as civil aviation
oil and gas exploration and production small space satellite
systems telecommunications electronics and healthcare
key customers
as the group has further expanded during the course of
the year the customer base has become more diverse and
the market mix has changed accordingly in the uk market
the mod remains the group’s largest customer accounting
for direct sales of £5958m 2005 £6267m sales made
into the commercial defence market in the uk where the
mod is generally the ultimate customer have grown by
389 to £710m
direct revenues from the mod have decreased from 732
to 567 of group turnover largely due to the increase in
revenues in north america as the group has expanded 
into the us market place over the last two years 
principal customers in the us are the dod and dhs which
contributed 646 and 113 of north american revenues
in the year
across the group civil and other government agency
revenues have grown by 910 in the year to £2000m this
growth comes from a combination of the new customer
profiles from acquisitions in the year such as dhs contracts
with apogen and esa contracts with verhaert together
with the continued execution of qinetiq’s strategy to
increase the commercialisation of its intellectual capital
into nondefence markets
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summary
2006 2005 increase
group turnover £10517m £8559m 229
underlying operating profit £907m £823m 102
profit on disposal of interest
in psimedica limited – £171m
underlying operating 
profit excluding profit on 
disposal of interest in 
psimedica limited £907m £652m 391
underlying operating 
margin excluding profit
on disposal of interest in 
psimedica limited 86 76 100bps
underlying profit before tax £801m £582m 376
underlying earnings 
per share 102p 88p 163
net debt £2330m £1766m 319
free cash flow £1413m £557m 1537
backlog £6084m £5720m 64
underlying effective tax rate 227 162
dividend per ordinary share 225p nil
qinetiq is organised into three operating sectors
– defence  technology dt – dt represents the core
of qinetiq’s ukbased defence business delivering
researchbased technology solutions advice and
managed services that support the uk’s armed forces
and those of its allies
– security  dual use sdu – sdu draws from
qinetiq’s broad inventory of defencerelated intellectual
property and leading scientists to develop commercially
viable products and services in selected adjacent
commercial markets
– qinetiq north america qna – qna delivers technology
services systems engineering  technical assistance
and it services into the north american defence and
security marketplace from its usbased operations 
turnover
06
05
6696
6649
defence  technology £m
06
05
1337
1209
security  dual use £m
06
05
2484
701
qinetiq north america £m
turnover in the year to 31 march 2006 has increased by
229 over 2005 as the group continued to execute its
strategy to expand into the key north american defence
and security markets the growth reflects the inclusion 
of a full year’s results from the acquisitions of westar
acquired october 2004 and foster miller acquired
november 2004 together with a first time contribution
from the acquisitions of apogen and planning systems both
acquired september 2005 ukbased sector turnover grew
by 22 with the impact of £140m of nonrecurring ltpa
revenue in 2005 partly offset by the first time contribution
from verhaert design and development nv verhaert of
belgium acquired september 2005 underlying organic
growth in the uk sectors was 23
orders and backlog
orders won in year increased by 222 to £8167m in 2006
orders do not include a value for the revenues from the
£56bn core service contract for the ltpa included in the
dt sector each year as this contract was awarded for a 
25 year period at inception growth in orders was driven 
by the qna acquisitions in 2005 and 2006 and strong
organic growth in sdu at a group level this was offset
in dt where the previous year included several awards 
of significant multiyear research and procurement 
capability contracts that as expected were not repeated 
in 2006
06
05
3666
4100
defence  technology
 
£m
06
05
1126
934
security  dual use £m
06
05
1292
686
qinetiq north america £m
backlog
06
05
4207
4726
defence  technology
 
£m
06
05
1681
1278
security  dual use £m
06
05
2279
679
qinetiq north america £m
orders
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consistent with the historical trends in our uk business
589 of the group’s underlying operating profit was
delivered in the second half of the year in light of the strong
lcd royalties in the first half of 2006 and the restructuring
costs already committed in 2007 it is anticipated that an
even greater proportion of uk profits will be generated in
the second half of the coming year than in 2006
net cash flow from operating activities
net cash flow from operating activities improved by
2530 to £833m the uk sectors were the drivers of this
performance contributing strong operating cash flow
conversion due to diligent working capital management
and a consequent reduction in modrelated working
capital at the year end the benefit in the uk sectors was
mitigated in part by an absorption of working capital in qna
due to the timing of contract funding awards from the dod
and dhs around the year end following the delayed
finalisation of the us government budget in february 2006
during 2006 the group completed the uk restructuring
programme announced in 2005 resulting in an associated
cash outflow during 2006 of £228m excluding the impact
of these cash payments the underlying operating cash
conversion ratio improved from 272 to 844 
outlook
the uk government’s defence industrial strategy and the
us government’s quadrennial defense review will shape
qinetiq’s markets to a considerable degree into the
medium term future it is positive for qinetiq that both
documents emphasise the imperative for agility in military
procurement and the key role for advance technology 
in delivering that agility while budgets will remain
constricted on each side of the atlantic qinetiq will
maintain its pace of transformation through investment
rationalisation and the creation of more productbased
offerings to realise the significant potential provided by its
chosen markets the successes of the 2006 year have laid a
solid foundation for delivering on these opportunities
the coming year will see qinetiq continuing to execute its
repositioning strategy in the uk defence business this
means continuing requirements to rapidly insert technology
into new and existing systems and equipment in the
commercialisation business this means building particularly
on a strong security positioning continuing to develop the
space business through key bidding opportunities and
selected acquisitions and further investment to develop the
ventures portfolio business plans in north america new
business opportunities are anticipated as the us companies
work more closely together and with the uk and the
disciplined approach to acquisitions continues to be pursued 
06
05
833
236
group £m
backlog is also stated excluding the £50bn value of the
remaining 22 years of the ltpa contract the growth in
backlog is generally driven by the same factors underlying
the growth in orders compared to the uk backlog in the
us businesses is generally lower as the nature of the
contract awards is more centred around larger multiyear
‘enabling’ contracts that become funded and then utilised
in smaller segments during the course of each fiscal
budget cycle an example of this is the enabling order 
for talon™ robots that fostermiller holds which in total
indicates an intention to buy 257m worth of equipment
over a number of years with the specific funding for each
year being decided as part of each us government annual
budget cycle
operating profit
underlying operating profit excluding profit on disposal 
of interest in psimedica limited in 2005 has grown by
391 from £652m to £907m with margin improving
from 76 to 86 underlying operating profit growth
from the two ukbased sectors was 157 reflecting
continued margin enhancement and focus on delivery
from core trading activities together with the contribution
from the acquisitions of hvr consulting in august 2004
and verhaert design  development nv in september
2005 this profit growth in the ukbased sectors is
complemented by profit growth in qna largely arising
from acquisitions made in the year and the consolidation
of prior year acquisitions for a full year
within the group sdu crystallises value from
intellectual property through a variety of different
methods such as royalties licence fees equity realisations
sale of ip joint ventures and technology transfer based
transactions which can lead to volatility in the year to 
year trend in 2006 licence revenue from now expired lcd
patents contributed £130m of turnover 2005 £147m 
of which £90m arose in the first half of the year in 2005
underlying operating profit included a £171m gain on
disposal of the investment in psimedica limited
underlying operating profit inclusive of the gain on
disposal of the investment in psimedica has grown 102
from £823m in 2005 to £907m in 2006 
within the uk the business continues to respond to
changes in the profile of demand for its services from
customers and actively seeks to redeploy people from
declining areas of the business to areas of growth due to
the particular specialised capabilities the ever increasing
rate of technological change and shift in market demands
redeployment is not always possible and the group
recognises that a degree of ongoing restructuring and
repositioning is an integral part of the progression of the
business the current year costs of such repositioning are
borne within the underlying operating profits of the
group in the year to 31 march 2006 an amount of £94m
has been charged to the income statement within
employee costs and further costs of at least £80m 
are anticipated in the first half of the year ending
31 march 2007
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for the contribution from the hvr consulting acquisition in
august 2004
since the formation of qinetiq in 2001 the mod has
introduced competition into its research programme and is
progressively phasing down the amount of such work that
is assured to qinetiq such that by 2008 those elements of
the mod research programme available to industry will be
fully opened to competition qinetiq has maintained
market leadership in this domain through success in
winning competed contracts or as a subcontractor where
qinetiq is equipped to provide the requisite solution
during the year qinetiq continued to win more than 50
of the mod research bids in which it competed
the overall level of mod research undertaken by the 
group in both dt and sdu has reduced in line with
expectations from £2271m in 2005 to £1931m in 2006
this trend is expected to continue in the coming year as
further areas of the research budget are opened to
competition and the volume of assured work for qinetiq
reduces qinetiq has been able to offset the impact of
competition in the research programme by increasing its
penetration of the defence technology supply chain as a
partner or subcontractor to other primes leading to 282
growth in the technology supply stream offsetting the
reduction in mod research revenue within the dt sector
procurement and capability support turnover grew by 82
largely due to particularly high levels of demand for tasking
services within the ltpa in year within managed services
the core provision of test and evaluation services under the
ltpa remained broadly consistent excluding the reduction
yearonyear due to nonrecurring rationalisation revenues
in 2005 of approximately £140m
underlying operating profit has risen £52m primarily due
to core operational performance and improved margins
driven from a continued focus on cost control strong
project delivery across the sector in year and ongoing
rationalisation of sector overhead functions the sector
incurred £44m in restructuring costs in year as part of the
continual process of aligning technical capabilities and back
office infrastructure to evolving market needs
as discussed above the profile of work won on the ‘supply
side’ of dt’s business is transitioning to higher levels of
technology supply work away from a historic dependence
on mod research the orders profile indicates that this
trend will continue where the book to bill ratio for
technology supply was 111 in the year the overall
decrease in dt orders in the year is due largely to the 
nonrecurrence of a number of multiyear contract awards
that were won in 2005 in the research and procurement 
capability support streams
defence and technology
dt generates revenue through four business streams
– mod research customerfunded defence research to 
the mod
– technology supply using intellectual property from
customerfunded defence research to provide 
technologybased solutions to oems defence prime
contractors mod and other uk government agencies us
dod and a number of technologydriven civil industries
– procurement  capability support advice to the mod 
in relation to the acquisition effective sustainment
and use of defence equipment together with systems
engineering integration and other support services 
along with tasking services under the ltpa and
– managed services provision of longterm managed
services to the mod currently this is principally 
through the ltpa whereby qinetiq provides the uk’s 
test and evaluation capabilities to mod the ltpa is
qinetiq’s single largest current contract and is expected
to provide revenues of up to £56bn for the nontasking
services only over 25 years from its commencement
in 2003 

under
2006 2005  lying
£m £m growth growth
1
turnover
mod research 1643 1888 130 130
technology supply 1242 969 282 282
procurement  
capability support 1973 1823 82 65
managed services 1838 1969 67 05
6696 6649 07 24
underlying operating profit 565 513 101 89
underlying operating margin 84 77
orders
mod research 998 2025
technology supply 1373 983
procurement  
capability support 1771 1718
managed services 65 –
4207 4726
1
underlying growth in turnover excludes the impact of acquisitions and
£140m nonrecurring rationalisation revenues under the ltpa in 2005
dt turnover increased by £47m to £6696m in the year to
31 march 2006 underlying turnover growth was 24 after
excluding nonrecurring rationalisation income of £140m in
2005 under the ltpa within managed services and allowing
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under
lying
2006 2005 growth growth
1
£m £m
turnover
security 321 246 305 305
space 255 179 425 151
technology development
 exploitation 503 560 102 102
managed services 258 224 152 152
1337 1209 106 21
underlying operating profit
excluding profit on disposal of 
interest in psimedica limited 97 59 644 542
underlying operating margin
excluding profit on disposal of 
interest in psimedica limited 73 49
profit on disposal of interest
in psimedica limited – 171
underlying operating profit 97 230
orders
security 483 282
space 187 125
technology development
 exploitation 631 560
managed services 380 311
1681 1278
1
underlying growth in turnover excludes the impact of acquisitions 
in 2006
in march 2006 the group was named preferred bidder 
after a long and detailed competitive tender process to
provide a combined aerial target service cats for air
defence training and test and evaluation for the uk’s armed
forces over the next 20 years this selection demonstrates
the group’s credentials to win and operate longterm
managed services contracts in a highly competitive
environment the largest element of this opportunity is
work already undertaken by qinetiq under the ltpa to
deliver the aerial target service in addition qinetiq will
provide a service for groundbased air defence training
aerial target services for the royal navy and an airtoair
service for the raf the service will be capable of operating
from any suitable range worldwide 
looking forward qinetiq is a 50 cosponsor of metrix 
a planned joint venture with land securities trillium
currently bidding for two large 25year contracts to provide
training to the uk armed forces as part of the mod’s
defence training rationalisation dtr programme metrix
is bidding against one other entity for each of the contracts
and mod has stated that it will announce its preferred
bidder in october 2006
security  dual use 
sdu provides contract rd and other technology
services and supplies products to customers in security
defence and commercial markets in addition it earns
royalty revenues licence fees and equity realisations from
the broad intellectual capital generated by the group’s
funded rd activities the sector organises its business
under four streams 
– security delivers worldclass capabilities in information
security and assurance physical security including
runway monitoring systems people screening and
specialised hardware and software solutions
– space a leading european player in the development
of ion engines small lowcost fasttolaunch satellites
mission design and geospatial information systems
– technology development  exploitation delivers rd
offerings from its leading optronics materials and
energy technical capabilities in addition it facilitates 
the transition of intellectual capital generated from
qinetiq’s funded technology research and development
work into a viable range of products and solutions 
for the commercial marketplace applications include
optical devices nanomaterials and portable power units
– managed services offers a portfolio of managed services
in areas such as fuel and lubricant testing and analysis
instrument calibration and supporting technical services
together with real estate facilities and equipment
management services
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security and dual use sdu turnover increased 106 
in the year the organic growth of 21 reflects strong
performance in the security stream with continued
penetration of both government and commercial markets
including a contract to deliver the replacement information
portal system for the uk police forces and a rise in it
security managed services turnover allowing investment
to be initiated in a second secure operating centre these
increases were partly offset by a reduction in turnover 
from technology development  exploitation tde as
the optronics and materials businesses continued their
transition away from a traditional modfunded research
base towards us defence and commercial revenues from
contracts such as the optical foot measuring system being
designed and implemented for clarks the shoe retailer
tde includes £130m 2005 £147m of royalty revenue
from enforcement actions on lcd patents which expired in
2004 the space stream saw an underlying decline in its 
uk business due to lower levels of uk government funding
directed to space research in year more than offset by a
strong initial contribution from the acquisition of verhaert
which delivered £103m of revenue well ahead of
expectations due to an unusually high level of pass
through work on esa projects
underlying operating profit increased 644 excluding the
£171m gain on the sale of the group’s interest in psimedica
in 2005 due to strong operational focus within the core
business and a first time contribution of £06m from
verhaert the sector incurred £50m of restructuring costs
in the year as it continues to align the business to market
opportunities beyond the defence sector and to improve
operational efficiency
sdu orders rose 315 resulting in a book to bill ratio of
1261 in the year this was driven by strong performance in
the security stream which secured a four and a half year
contract to provide and manage a replacement for the uk
national police portal system received funding from the
dti to form manage and facilitate the uk’s cyber security
and biometrics knowledge transfer network and secured
the first commercial order for the tarsier® runway debris
detection radar system from vancouver airport managed
services secured a twoyear contract to continue to provide
support to the defence diversification agency dda and
also negotiated specific consultancy contracts to provide
planning support site remediation and integration services
and property consultancy services while tde saw some
important wins in its optronics business including further
research contracts from the dod
qinetiq north america
qinetiq north america is the world’s largest defence and
security market and is targeted as a major area of potential
strategic growth for qinetiq qinetiq established its
presence in north america in 2001 through qinetiq inc
which served as the principal route to market for the supply
of qinetiq’s uk research and technology into the north
american defence and security markets 
qinetiq has accelerated its expansion into the north
american market through the creation of a dedicated north
america sector which comprises a number of strategic
acquisitions focused on growth markets which are
complementary to and draw upon qinetiq’s uk
technology and expertise qinetiq faces the north
american market through three business streams
– technology provides high technology research services
and development of defence and security related
products to the us dod other government agencies and
commercial customers in north america through the
group’s subsidiaries fostermiller and planning systems
– systems engineering  technical assistance principally
engaged through westar in providing independent
support for the procurement development
modification fielding and sustainment of major army
and missile defence equipment in north america
– it services apogen provides information technology
services to us government agencies particularly to the
dod and dhs
2006 2005 2006 2005 
£m £m m m
turnover
t echnology 829 266 1468 506
systems engineering  
technical assistance 1053 435 1875 824
it services 602 – 1055 –
2484 701 4398 1330
underlying operating profit 245 80
underlying operating margin 99 114
orders
t echnology 732 253 1296 482
systems engineering  
technical assistance 974 426 1726 808
it services 573 – 1003 –
2279 679 4025 1290
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31
qinetiq north america turnover has increased by £1783m
in 2006 as the group has made a number of acquisitions
over the past two years to establish a platform to access
this important market the majority of growth in 2006 has
been due to the acquisitions of planning systems and
apogen and the consolidation of a full year of results for
westar and fostermiller which were acquired in 2005
within the operating units the technology stream led by
fostermiller was adversely impacted during the year by a
number of factors noticeably the lack of shipments of
talon™ robots from september to november 2005 due to
component issues an accelerated decline in last®armor
sales and the cancellation of all external contractor work 
by pfizer as it reshaped its own business shipments of the
talon™ product resumed in full in december 2005 foster
miller is completing the testing of swords a new armed
variant of the talon™ platform which commenced sales in
2006 and continues to pursue new opportunities to use the
talon™ robotic platform in other innovative applications
planning systems has traded in line with expectations since
its acquisition and has recovered well from the impact of
hurricane katrina which caused the temporary closure of
its four offices in the new orleans area
the seta stream driven by westar performed strongly in
the year with organic growth of 109 in the second half 
of 2006 when compared with the same period in 2005 
in particular the high demand for desert kits from its 
air filtration systems business as the us army in iraq
equipped their blackhawk helicopter fleet created a 
strong level of demand for these products in the first
half of the year although this is unlikely to be repeated as
the product matures westar is now targeting its air filters
business development towards commercial helicopter
applications and is actively pursuing a wide range of
commercial models through civil aviation approval
processes in order to bring these products to market 
its engineering services divisions continued to perform
strongly during the year westar’s performance has
exceeded expectations at the time of acquisition and 
the contingent consideration has accordingly been 
settled in full
within it services apogen has performed broadly in line
with expectations since joining the group in september
2005 although overall performance was adversely
impacted by two external factors in september hurricane
katrina resulted in over 150 employees and 100 contractors
being displaced from a key customer site for several weeks
due to the disruption caused by the hurricane in the
subsequent weeks after the hurricane struck apogen 
was praised by its customers for its speed and resilience 
in getting staff back to work on key tasks for customers 
and has won additional work later in the year to reinstate
customers’ systems and networks disrupted as a result of
the hurricane additionally across the second half of the
year apogen has suffered delays in generating revenue
from recently won contracts with the dhs due to the
lengthy process in obtaining security clearances for new
staff as the dhs expands its own staff and contractor base  
underlying operating profit increased by 2063 to £245m
primarily due to the acquisitions in the year and full
consolidation of prior year acquisitions the underlying
operating profit margin decrease is due to the changing mix
of products and services as a result of the acquisitions in the
year and the delayed t alon™ shipments
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operating and financial review
other group activities and performance 
32
acquisitions
since 1 april 2005 the group has made the following
principal acquisitions
us acquisitions
on 2 september 2005 the group acquired the whole of 
the share capital of planning systems inc a technology
development company for an initial cash consideration
before acquisition costs of £243m 444m including
£16m 28m for planning systems’ cash and surplus
working capital contingent consideration of £09m is
payable for the achievement of certain performance 
criteria in the year ended 31 december 2005 and up to 
a further £16m is potentially payable dependent on 
the performance of the company for the year ended 
31 december 2006 
on 9 september 2005 the group acquired the whole of 
the share capital of apogentechnologies inc for a cash
consideration before acquisition costs of £1303m
2385m and assumed debt of £292m 535m this
included £17m 32m for apogen’s cash and surplus
working capital apogen is one of the united states’ leading
providers of information technology services to the us
federal government
on 1 march 2006 the group acquired the whole of the
share capital of simauthor inc for £46m 80m through
westar in an allcash transaction simauthor is a software
and services company that specialises in flight data
visualisation and simulation technology
on 4 april 2006 apogen signed an agreement to acquire
subject to us government approval san diegobased
ocean systems engineering corporation osec for a cash
consideration of £303m 53m the approvals were
subsequently received and the transaction was completed
on 15 may 2006 osec is a leading provider of research
design development and integration of advanced
information technology systems to key defence agencies
osec reported under us gaap revenues of £279m
482m ebitda of £28m 48m and earnings of 
£16m 27m in the year to 31 december 2005
other acquisitions
on 1 september 2005 the group acquired 90 of the 
share capital of verhaert design and development nv 
the leading belgian space systems integrator for an initial
cash consideration before acquisition costs of £41m 
euro 59m including £02m euro 03m for verhaert’s
cash and surplus working capital contingent consideration
of £08m was paid in may 2006 for the achievement of
certain performance criteria in the year ended 31 december
2005 and up to a further £08m is payable dependent on
the performance of the company for the year ending
31 december 2006
fixed asset disposals 
the group recognised a net £89m profit on disposal of
noncurrent assets and assets held for sale the principal
gains in the year were £138m on the sale and partial
leaseback of a long leasehold interest in the fort halstead
site which was disposed of for gross proceeds of £400m 
in september 2005 £34m of contingent consideration
received in respect of the 2003 sale of the aquila site 
and £75m of contingent consideration received following
the disposal of the chertsey site in 2003 these gains were
partially offset by £27m of losses on sundry other asset
disposals and in march 2006 two surplus properties at
the group’s farnborough site were sold for gross proceeds
of £247m generating a loss on disposal of £131m
the property disposals completed during the year mark 
the conclusion of the current programme to dispose of 
the larger surplus properties in the estates portfolio 
the strategy going forward is to continue to pursue
opportunities to release capital through the disposal 
of smaller surplus sites
ipo 
on 15 february 2006 the company successfully completed
an initial public offering ipo and a listing on the london
stock exchange raising net proceeds for the company of
£1327m 
costs associated with the ipo have been charged to the
share premium account or the income statement as
appropriate ipo costs totalling £89m are disclosed
separately in the income statement as they represent
significant oneoff expenses relating to the transaction 
the cost includes £58m arising on the gift of £500 worth
including associated tax costs of ordinary shares to each
eligible employee at the date of ipo
the company’s principal shareholders the mod and 
carlyle group reduced their stakes in qinetiq immediately
following the ipo and at 31 march 2006 held 192 and
104 respectively of the issued capital
c12357qinetiqarp3237qxp  14606  604 pm  page 32 qinetiq group plc annual report 2006 33
as a result of these and other minor supplemental
contributions the total past service deficit contributions
made by the group in year totalled £1064m
the key assumptions used in the ias 19 valuation are
detailed in note 42 to the financial statements the 
principal sensitivities regarding these assumptions are
shown below
indicative effect
on the scheme’s
assumption change in assumption gross liabilities
increasedecrease decreaseincrease
discount rate by 01 by 25
rate of inflation increasedecrease increasedecrease
by 01 by 25
real rate of 
increase in increasedecrease increasedecrease
salaries by 01 by 06
mortality increase by 1 year increase by 45
tax
the group’s statutory effective tax rate for the year was
167 compared to 73 in the year to 31 march 2005 while
the underlying effective tax rate was 227 2005 162
the effective rate of taxation continues to be below the
standard uk rate mainly due to the availability of research
and development relief from hm revenue and customs and 
the utilisation of tax losses not previously recognised 
the increase in the effective rate is primarily due to the
increasing contribution to group profits from qna
operations as the effective rate for those businesses 
broadly tracks the us statutory rate together with a lower
level of utilisation of unprovided tax losses the effective 
tax rate is expected to continue to rise with the evolving 
mix of the group’s business
from a cash tax perspective the impact of the research 
and development relief available the utilisation of tax losses
and the benefit of the additional pension contributions is
expected to result in the uk business not being in a tax
payable position for at least the next two years the taxable
profits from qna operations are expected to result in cash 
tax payments on these businesses broadly following the 
us statutory rate
pensions
the group provides both defined contribution and defined
benefit pension arrangements the principal defined
benefit scheme is the qinetiq pension scheme
at 31 march 2006 the qinetiq pension scheme had gross
assets of £7160m and gross liabilities of £8844m resulting
in a gross deficit of £1684m after deducting the deferred
tax assetassociated with the scheme the net pension
deficit at the year end stood at £1180m compared to
£762m at the start of the year net of mod indemnity
of the increase in the gross deficit in the year £40m relates
to the application of the latest mortality rates which
resulted in a weighted average increase of one year in the 
life expectancy of scheme members and £112m to a 
05 percentage point reduction in 15 year aa bond yields
increasing the present value of the liabilities 15 year aa
bond yields declined significantly during the year from 
54 at 1 april 2005 to 49 at 31 march 2006 the impact
of the changes in bond yields has been to disproportionately
increase the present value of the future liabilities in the
scheme compared to the present value of the scheme assets
resulting in a net increase in the scheme deficit before
additional funding contributions
the current investment policy of the qinetiq pension
scheme is weighted towards equity investments the
trustees believe this to be appropriate at the current time
due to the relative youth of the scheme which is expected
to be cashflow positive for approximately the next ten years
as part of the agreement in 2003 whereby qinetiq group
plc acquired qinetiq holdings limited the mod gave an
indemnity to pay to the group on the earlier of a flotation
sale or winding up and 28 february 2008 a sum of up to
£45m dependent on the size of the pension scheme deficit
the ipo was a trigger event for this payment and the group
received an amount of £453m including interest from the
date of ipo on 24 march 2006 the group has no further
indemnities from the government in respect of the
scheme the group made an equivalent contribution into
the qinetiq pension scheme on 30 march 2006
as part of the plan agreed with the trustees of the qinetiq
pension scheme to reduce the deficit following the march
2005 actuarial valuation the group committed to make
additional contributions of £10m pa over six years payable
monthly from october 2005 on 30 march 2006 the group
prepaid the remainder of the first five years of these
additional contributions by way of a payment of £450m
into the qinetiq pension scheme from the proceeds
received from the ipo 
in june 2005 the group made an additional past service
deficit contribution of £10m to the scheme this contribution
was made as part of an agreement whereby employee
contributions to the scheme are being progressively
increased from 15 prior to june 2005 to 5 from june 2007
client qinetiq

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c12357qinetiqarp3237qxp  14606  1247 pm  page 33 34 qinetiq group plc  annual report 2006
operating and financial review
other group activities and performance continued
cash flow and net debt
cash flow from operations has increased to £1076m 2005
£369m primarily due to the growth in operating profit and
the prior year cash flow being adversely affected by a £400m
build up in shortterm modrelated working capital at the
previous year end improved working capital management in
the uk sectors has contributed to strong operational cash
flows in the uk in 2006 partly offset by an increase in working
capital in qna as a result of the late funding of contracts
following the delayed agreement of the dod budget 
net interest paid increased to £94m from £16m as the
group increased its borrowings to fund acquisitions this
year the group’s policy has been to fund significant us
acquisitions with us dollar denominated debt to provide a
hedge against the investment in the subsidiary operations 
additional material cash flows include proceeds from the
sale of the fort halstead chertsey and pyestock south sites
which generated net cash inflows of £1115m and
additional payments to the qinetiq pension scheme of
£611m net of mod indemnity receipt
as part of the preparation for the group’s ipo qinetiq
redeemed the £375m of outstanding cumulative preference
shares for £480m inclusive of accrued preference dividends
the group received net cash proceeds of £1362m from its
ipo in february 2006 of which £450m was used to reduce
the deficit in the defined benefit section of the qinetiq
pension scheme with the balance of the ipo proceeds
utilised to reduce net debt a further £35m of ipo costs will
be settled post year end
the group’s net debt increased by £564m to £2330m 
at 31 march 2006 2005 £1766m principally due to the
acquisitions made in the year and additional pension
contributions partly offset by ipo proceeds and strong
operating cash flows 
net debt at 31 march 2006 comprised net us dollar
denominated debt of £2810m and euro denominated debt
of £49m offset by sterling denominated net financial
assets of £529m which were principally represented by
cash balances the us dollar  sterling exchange rate
prevailing at the year end was 173  £1
during the year the group’s primary borrowing facility was
renegotiated and now comprises a £500m multicurrency
revolving facility of which £2914m has been drawn
capital expenditure
capital expenditure on property plant and equipment
totalled £450m 2005 £160m of this amount £235m
2005 £59m was in respect of contractually committed
amounts recoverable through annual charges under
managed services contracts principally the ltpa the group
has future capital commitments of £262m of which £247m
is under the ltpa and as such these commitments are also
customer funded
research and development
a large proportion of the group’s activity is focused on
research and development the majority of which is fully
funded by customers as part of the group’s core business 
in most cases the group retains the rights to any intellectual
property created in the course of research and development
for customers in addition to customer funded research and
development the group also undertakes limited research
and development at its own expense primarily focused on
the later stage development of commercial products out
of the funded research base in the year to 31 march 2006
research and development costs totalled £5047m 
2005 £5026m
the group capitalised £63m 2005 £18m of development
costs in the year these sums were incurred on late stage
development of new products principally tarsier® zephir™
and gps
employees
year end employee numbers have risen by 97 to 11446 
primarily driven by the us acquisitions uk staff numbers
have reduced by 28 primarily as a result of the
rationalisation programmes announced at the end of the
last financial year 
06
05
6791
6905
defence  technology
06
05
2640
1374
qinetiq north america
corporate
06
05
1643
1790
security  dual use
06
05
372
361
client qinetiq

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insurance
qinetiq continually assesses the balance of risk arising
from the operations undertaken against the insurance
cover available for such activities and the associated
premiums payable for such cover the group is currently
self insured through its captive insurance company against
specific risks up to limited level of liabilities with insurance
cover above these levels placed with third party insurers in
the external insurance market
ifrs
the group has adopted international financial reporting
standards ifrs for the year ended 31 march 2006
comparative data has also been presented using ifrs 
the effect of transition to ifrs at 31 march 2005 on profit
attributable to ordinary shareholders and net assets is
analysed below
reconciliation of profit attributable to ordinary
shareholders
2005
£m
uk gaap 756
goodwill and intangibles 33
tax 14
leases 05
employee benefits – pension 03
ifrs 739
reconciliation of net assets
2005
£m
uk gaap 2141
goodwill and intangibles 984
t ax 118
leases 10
employee benefits – pension 05
employee benefits – holiday pay 71
ifrs 2941
the full effect of the group’s transition to ifrs is analysed
in note 46 to the financial statements
financial risks 
the qinetiq group treasury department operates within 
a framework of policies and procedures approved by the
audit committee which include strict controls on the use
of financial instruments in managing the group’s risk in
order to maintain shareholder value the audit committee
receives regular reports on the activities of the treasury
department the group does not undertake any speculative
trading activity in financial instruments the principal areas
of activity are as follows
interest rate risk management
a significant portion of the group’s debt is floating rate debt
and therefore is exposed to movements in interest rates 
at 31 march 2006 the group had entered into swaps to
convert 89 per cent 31 march 2005 86 per cent of the
bank debt to fixed or capped rates
foreign exchange risk management
us dollar sterling exchange rates applicable to the group
1 april average 31 march
2006 189  £1 178  £1 173  £1
2005 184  £1 185  £1 189  £1
the majority of the group’s income and expenditure is
settled in the functional currency of the relevant group
entity principally sterling or us dollar the group’s policy is
to hedge all material transaction exposure at the point of
commitment to the underlying transaction the group does
not typically hedge uncommitted future transactions
although transaction risks are fully considered and
appropriately mitigated when bidding for new work 
the group does not currently hedge income statement
translation exposure 
client qinetiq

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operating and financial review
other group activities and performance continued
critical accounting policies and estimates
the group’s critical accounting policies and estimates 
are disclosed in full in note 1 to the financial statements
the following commentary is intended to highlight those
policies that are critical to the business based on the level
of management judgement required in their application
their complexity and potential impact on the results and
financial position reported for the group the level of
management judgement required includes assumptions
and estimates about future events which are uncertain 
the actual outcome of which may result in a materially
different outcome from that anticipated
revenue and profit recognition
turnover from fixedprice contracts is recognised in
proportion to the value of the work performed and includes
attributable profit depending on the nature of the
contract revenue is recognised as contractually agreed
upon milestones are reached as units are delivered or as
the work progresses 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 and when the amount of
revenue can be measured reliably
profit on the supply of professional services on cost plus or
time and materials contracts is recognised as the work is
performed profit on fixedprice contracts is recognised on a
percentage of completion basis once the contract’s ultimate
outcome can be foreseen with reasonable certainty losses
on completion are recognised in full as soon as they are
foreseen
the estimation process required to evaluate the potential
outcome on contracts and projects requires skill knowledge
and experience from a variety of sources within the
business to assess the status of the contract costs to
complete internal and external labour resources required
and other factors this process is carried out continuously
throughout the business to ensure that project and
contract assessments reflect the latest status of such work
business combinations 
business combinations are accounted for under the
purchase accounting method all identifiable assets
acquired and liabilities and contingent liabilities incurred 
or assumed are recorded at fair value at the date control is
transferred to qinetiq the cost of a business combination
is measured at the fair value of assets given equity
instruments issued and liabilities incurred or assumed 
at the date of exchange plus costs directly attributable 
to the acquisition any excess of the cost of the business
combination over the group’s interest in the net fair value
of the identifiable assets liabilities and contingent
liabilities recognised is capitalised as goodwill ifrs 3
requires that as part of this process intangible assets are
identified intangible assets recognised on acquisitions 
have been valued using established methods and models 
to determine estimated value and useful economic life
with input where appropriate from external valuation
consultants such methods require the use of estimates
which may produce results that are different from actual
future outcomes
the group tests annually whether goodwill and identified
intangible assets have suffered any impairment this
process is reliant on the use of estimates of the future
profitability and cash flows of the acquired business which
may differ from the actual results delivered
postretirement benefits
the group provides both defined contribution and funded
defined benefit pension arrangements the liabilities of the
group arising from defined benefit obligations and the
related current service cost are determined by external
actuaries using the projected unit credit method for the
funded defined benefit plans the excess or deficit of the
fair value of plan assets over the present value of the
defined benefit obligation is recognised as an asset
or a liability respectively
for defined benefit plans the actuarial cost charged to the
income statement consists of current service cost interest
cost and expected return on plan assets and past service
cost other actuarial gains and losses are recognised in full
immediately through the statement of changes in equity
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in arriving at the underlying profit for the year the group
has adjusted for a number of items which are considered
nonrecurring including the costs associated with the
group’s ipo profit on disposal of surplus property and the
cost of restructuring the uk business into two market
facing sectors the group has also restated the 2005
preference share dividend as if it had been treated as
interest expense to align with the 2006 presentation
following adoption of ifrs 
during the year the group restructured the funding
arrangements with its coinvestors in quintel technology
limited and qs4 limited of which part of this agreement
removed any funding obligations from its venture partner
in quintel technology limited see note 36 to the financial
statements this resulted in a credit to minority interests 
of £41m representing the reversal of the cumulative losses
previously attributable to minority interests prior to the
restructuring the loss attributable to minority interest in
the year was £18m 2005 £16m resulting in a net overall
credit to the minority interest position of £23m in the year
dividends
the board recommends a final dividend for the year of 
225 pence per ordinary share in respect of the year ending
31 march 2006 the group anticipates that its final
dividend will normally represent approximately twothirds
of the full annual dividend no interim dividend was 
paid this year the group’s dividend policy allows for a
progressive approach
in january 2006 the company paid a dividend of 28 pence
per preference share including cumulative accrued
dividends from prior periods on the redemption of
cumulative preference shares under ifrs the dividend
charge for the year is shown as a component of finance
expense rather than as a distribution of profits as in
previous years
the group’s defined benefit pension obligations and net
income statement costs are based on key assumptions
including return on plan assets discount rates mortality
inflation and future salary and pension increases
management exercise their best judgement in consultation
with actuarial advisers in selecting the values for these
assumptions that are the most appropriate to the group
small changes in these assumptions individually or
collectively may result in significant changes in the size of
the deficit or the net income statement costs
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 their relevant
income statement cost category and turnover respectively
internallyfunded development expenditure is capitalised
when criteria are met and is written off over the forecast
period of sales resulting from the development
management decides upon the adequacy of future 
demand and market for such new products in order to
justify capitalisation of internally funded development
expenditure which can be difficult to determine when
dealing with such innovative technologies actual product
sales may differ from these estimates
profit for the period
the underlying performance of the group after allowing 
for nonrecurring events and amortisation of acquired
intangible assets is shown below
2006 2005
£m £m
profit for the year 604 723
minority interests 23 16
profit for the year attributable to equity 
shareholders of the parent company 581 739
preference share dividend – 52
iporelated items 42 –
restructuring costs – 259 
profit on disposal of non current assets 89 291
profit on disposal of interest in 
psimedica limited – 171
amortisation of intangible assets arising 
from acquisitions and impairment of 
goodwill and current asset investments 123 57 
tax impact of above items 07 10 
brought forward tax losses utilised 54 47
underlying profit for the year attributable to
equity shareholders of the parent company 596 504
client qinetiq

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operating and financial review
corporate responsibility 
qinetiq remains committed to the principle of corporate
responsibility cr across all of its business activities 
this year it has sought to glean a clearer understanding 
of the social environmental and ethical context in which 
it operates and has introduced a more structured
management of impacts in a number of key areas
the business case for cr – as a mechanism for managing
risk and reputation – is now firmly embedded within the
uk businesses of qinetiq and is enabling the group to
build on its heritage as an organisation committed to the
socially responsible application of technology recently
acquired businesses are assessed against this framework 
as part of their integration into the group
environmental responsibility
managing the group in a sound environmental manner is
important both in saving costs and in maintaining qinetiq’s
credibility as a provider of environmental solutions 
this year the group has gained a better understanding of
its environmental impact across the uk by gathering
extensive data on its performance in three critical areas –
energy waste and travel this information will now provide
the baseline for measuring progress across the group in 
the future 
an internal campaign during the year has emphasised the
need for employees to behave responsibly in these areas
the results have been positive in the past 12 months the
uk businesses have reduced their annual co 2 emissions by
1500 tonnes and recycled 4887 tonnes of waste across its
three biggest sites compared with 4545 tonnes last year  
on the conservation front qinetiq has continued to
manage 13 sites of special scientific interest including
eelmoor marsh in farnborough which celebrated its 30th
anniversary in 2005
co 2 tonnes
120000
100000
80000
60000
40000
20000
0
200001 200102 200203 200304 200405 200506
financial year
qinetiq uk co 2 emissions from energy consumption 
tonnes
local communities
qinetiq recognises its responsibility to manage its impact
on local communities in respect of the 54 sites on which it
operates across the uk
this year it has continued to work in partnership with local
stakeholders in helping to address sensitive and important
local issues highlights this year include
– working alongside the national trust for scotland to
help secure st kilda’s dual world heritage status
– the establishment of the qinetiq boscombe down fund
through the community foundation for wiltshire 
swindon designed to improve the lives of disadvantaged
people through education and science
– providing funding for the st richard’s hospice 
in malvern
education
an emphasis has been placed on supporting science and
technology in education including through
– the piloting of qinetiq’s use of ‘lab in a lorry’ in
boscombe down to increase awareness of science and
technology in local schools
– support for two schools – st augustine’s in malvern 
and cove in farnborough – in attaining specialist
science status
– strengthening the group’s links with academia with the
launch of qinetiq’s university partnership programme
– sponsorship of the schools aerospace challenge the
stockholm prize at the ba crest science fair the
cheltenham science festival generation science as part
of the edinburgh science festival and the engineering
education scheme
charities
qinetiq has focused its corporate giving around a number
of priority charities a particular emphasis has been placed
on investigating ways to make a contribution through
technology support for the royal national lifeboat institute
rnli and cancer research uk 
as well as organising panqinetiq fundraising initiatives
such as ‘pub quizzes’ the group has also provided 
over £15000 of matchfunding to any member of staff 
raising money for priority charities and funded a payroll
giving service 
qinetiq donated a total of £136000 to registered charities 
of which £54000 was to uk registered charities
technology solutions for social problems
qinetiq continues to develop technology solutions to
significant social problems facing communities from
finding better ways to treat cancer patients through to
providing greater security against terrorist threats 
client qinetiq

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a hazardous trials board led by an independent chairman
continues to give an additional level of rigour in the
application of health and safety practices 
qinetiq also continues to research ways in which human
performance can be enhanced to match the performance
of the equipment 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 
further any clinical trials require the approval of an
independent phase 1 ethics committee in accordance 
with the eu clinical trials directive
doug webb
chief financial officer
qinetiq group plc
7 june 2006
lost time accident rate
15
12
9
6
3
0
200304 200405 200506
uk accidents at work per 1000 employees
financial year
this year attention has been focused on the application 
of qinetiq technology to disaster relief and humanitarian
affairs for example the group has conducted a study to
identify the equipment capabilities required to enable
the royal navy to undertake humanitarian disaster 
relief operations  
employees
qinetiq continues to invest in its most powerful asset – 
its people achievements in the uk this year include
– £63m invested in training equating to 48886 working
days 55 working days per employee
– 56 employees becoming chartered members of professions
– 121 students recruited through qinetiq’s awardwinning
graduate recruitment programme and 255 registered to
its core graduate development programme
– 73 students given work experience through the ‘year 
in industry’ scheme alongside support for women in
science  engineering – examples of the group’s
commitment to promote education and careers in
science engineering and technology
– the introduction of qinetiq currency including flexible
benefits and share schemes for employees
purchasing
this year qinetiq has developed a cr purchasing policy 
that includes the following commitments
– adoption and promotion of the ethical code of the
chartered institute of purchasing and supply 
– elimination of waste in the supply chain to deliver both
economy and a responsible and sustainable approach to
consumption of resources
– partnerships with key suppliers in identifying and
managing mutual responsibilities and achieving
continuous improvement across the supply chain 
health and safety
qinetiq recognises that it has a duty of care to employees
and those affected by its activities this is particularly
important since many of its operations are inherently
hazardous and could cause significant damage to people
and property 
the group’s 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
qinetiq continues to demonstrate improved performance
in this area and has achieved a 584 improvement on its
lost time accident rate compared to last year in the uk
39
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board of directors
client qinetiq

project annual report id no c12357
 
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1 sir john chisholm
chairman executive director
sir john chisholm 59 the chairman of qinetiq was 
chief executive of qinetiq previously dera 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 a director of cap group plc in 1979 he 
founded and became managing director 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 trustee and president of the institution of engineering
and technology and it was recently announced that he 
will become chairman of the medical research council
later this year he is also a fellow of the royal academy 
of engineering the royal aeronautical society and the
institute of physics 
2 graham love
chief executive officer executive director
graham love 52 is the chief executive officer of qinetiq
having previously been chief financial officer for four years
prior to rejoining dera in 2001 he was chief executive of
comax secure business services ltd leading it through its
privatisation in 1997 before its sale to amey plc in 1999
before that graham was finance director of dera from
1992 to 1996 after a degree in english at cambridge his
work experience 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 in england and wales 
3 doug webb
chief financial officer executive director
doug webb 45 is the chief financial officer of qinetiq
having previously been group financial controller he
joined qinetiq in june 2003 from logica cmg where he
had most recently been the regional finance director for
continental europe during his eight years with logica
doug spent the period from 1995 to 2000 in the us in
various management roles at its us subsidiary including
chief operating officer chief financial officer and
executive vice president telecoms division he trained as
an accountant with price waterhouse where as a senior
audit manager he focused on it companies and stock
exchange listed clients doug graduated in geography 
and management sciences from fitzwilliam college
cambridge and is a fellow of the institute of chartered
accountants in england and wales 
4 sir david lees
deputy chairman 
senior independent nonexecutive director
sir david lees 69 is currently chairman of tale  lyle plc
and nonexecutive joint deputy chairman of brambles
industries plc and brambles industries limited he has 
been a member of the uk panel on takeovers and mergers
since june 2001 sir david joined gkn plc in 1970 as an
accountant and became group finance director in 1982 
he was appointed group managing director in 1987 
and chairman and chief executive in 1988 before
becoming nonexecutive chairman in 1997 until his
retirement in may 2004 other notable roles include 
being a member of the national defence industries
council between 1995 and 2004 chairman of courtaulds
plc from 1996 to 1998 a nonexecutive director of the 
bank of england between 1991 and 1999 and chairman 
of the cbi economic affairs committee from 1988 until
1994 as well as being a member of the cbi president’s
committee from 1988 to 1996 sir david is currently a 
nonexecutive director of the royal opera house and
chairman of the governing body of shrewsbury school 
he is also a fellow of the institute of chartered
accountants in england and wales 
5 nick luff
nonexecutive director
nick luff 39 joined the board of qinetiq in june 2004
until april 2006 nick was chief financial officer of 
po group he trained as a chartered accountant with
kpmg and is a member of the institute of chartered
accountants in england and wales he joined po in 
1991 and held various finance roles before joining the
board as finance director in 1999 in october 2000 he
became chief financial officer of po princess cruises plc 
on its demerger from the po group and returned as 
a director of po in may 2003 nick has served as 
a nonexecutive director on the board of royal po
nedlloyd nv the dutchlisted international container
shipping company and he is a trustee of the merchant
navy officers pension fund
2 graham love
member of compliance
committee 
3 doug webb
4 sir david lees
chair of compliance 
and nominations committees
member of remuneration
committee 
5 nick luff
chair of 
audit committee
6 dr peter fellner
chair of remuneration
committee 
member of audit
and nominations 
committees
1 sir john chisholm 
member of compliance 
and nominations
committees
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41
6 dr peter fellner
nonexecutive director
dr peter fellner 62 joined the board of qinetiq in
september 2004 he is executive chairman of vernalis plc
and also chairman of the privately held biotechnology
company astex therapeutics limited in addition he 
serves as a director of two european biotechnology
companies ucb sa and evotec ag and is also a director 
of bespak plc acambis plc and isis innovation limited 
he is also 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 he was 
chief executive of roche uk from 1986 to 1990 having
previously been a director of roche uk research centre 
7 noreen doyle
nonexecutive director
noreen doyle 57 was appointed to the board of qinetiq 
in october 2005 and serves as an independent non
executive director she also sits on the risk committee 
of credit suisse group zurich and is a nonexecutive
director of newmont mining corporation denver and
rexam plc in august 2005 noreen completed her 
fouryear term as first vice president of the european 
bank for reconstruction and development ebrd 
where she chaired the ebrd’s operations committee 
and was a member of the executive committee prior to 
her appointment as first vice president noreen was firm
wide head of risk management she joined the ebrd 
in 1992 to establish its syndications functions before
joining the ebrd noreen had a distinguished career at
bankers trust company now deutsche bank in corporate
finance and leveraged financing with a concentration in 
oil gas and mining noreen has a ba from the college of
mount saint vincent riverdale new york and an mba 
from tuck school at dartmouth college 
8 glenn youngkin
nonexecutive director
glenn youngkin 39 is a managing director of the carlyle
group and is head of the global industrial team prior to
joining the carlyle group in 1995 glenn was a management
consultant with mckinsey  co prior to joining mckinsey
he was with credit suisse first boston where he structured
and executed both merger and acquisition transactions 
and capital market financings glenn is an engineering
graduate of rice university and received his mba from
harvard business school where he was a baker scholar 
he currently serves on the boards of directors of kuhlman
electric corporation forgings international holdings
limited firth rixson dr pepper sevenup bottling 
group inc britax childcare holdings limited and rivr
acquisitions bv petroplus
9 colin balmer
nonexecutive director
colin balmer 59 was managing director of the cabinet
office from 2003 until his retirement in early 2006
previously colin was finance director of the mod with
responsibility for qinetiq’s privatisation and the subsequent
investment by carlyle as part of the ppp transaction he has
extensive experience across the mod including periods as
private secretary of two ministers for defence procurement
a secondment to the uk delegation to the north atlantic
treaty organisation nato and as a minister for defence 
materiel in washington dc united states colin was
formerly a member of the independent financial reporting
advisory board and the advisory council of partnerships 
uk and is currently a member of the foreign and
commonwealth office’s audit and risk committee 
9 colin balmer
member of compliance
committee
8 glenn youngkin 7 noreen doyle
member of audit and 
remuneration committees
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report of the directors
financial instruments is contained in the operating and financial
review on pages 24 to 39
directors and directors’ interests
the directors in office at the date of this report are detailed on pages 
40 and 41 the dates of director appointments and details of the board
committees on which they sit are given on pages 45 to 48 details of 
the directors’ emoluments and interests are shown in the report of 
the remuneration committee on pages 50 to 54
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 inhouse 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 pages 38 and 39 
political and charitable contributions
the group made no political contributions during the year or in the
prior year the group made donations to uk charities of £54000 
2005 £57000 in the year
corporate governance
the company’s application of the principles of good governance 
in respect of the combined code as revised by the financial reporting
council in july 2003 is described in the statement of corporate
governance on pages 44 to 49 
share capital
at 5 june 2006 being the latest practicable date prior to the issuance of
this report the group had been notified of the following shareholdings
of at least 3 in the ordinary share capital of the group
uk ministry of defence 192
carlyle group 104
lansdowne 74
post balance sheet event
on 15 may 2006 the group completed the acquisition of san diego
based ocean systems engineering corp osec through its subsidiary
apogen technologies inc for a cash consideration of £303m 53m
the directors present their report and the audited financial statements
for the year to 31 march 2006 
principal activity
the group’s principal activity is the supply of scientific and technical
solutions and services
business review
the profit of the group before tax was £725m 2005 £780m
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 2 to 6 and in the operating and
financial review on pages 24 to 39
principal changes to the group and the company
the group made a number of acquisitions in the year which are
disclosed in detail in note 14
on 8 december 2005 the company changed its name from qinetiq
holdings limited to qinetiq group limited on 11 january 2006 the
company reregistered as a public limited company in anticipation of
the ipo on the lse in february 2006
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
further description of the group’s research and development activity is
contained in the operating and financial review on pages 24 to 39
proposed dividend
the directors recommend the payment of a final dividend of 225p per
ordinary share 2005 nil during the year the group paid a preference
share dividend of £105m 2005 £89m on the redemption of the
outstanding cumulative preference shares 
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 2006 the
trade creditors of the group represented 31 days of annual purchases
2005 33 days
principal financial instrument risks and uncertainty
the group’s principal risks in relation to the use of financial instruments
arise on contracting with customers in foreign currencies and through
the use of interest rate swaps and caps to manage interest rate exposure
on the group’s borrowings a more detailed description of the group’s
principal risks and uncertainties and policies related to the use of
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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
annual general meeting
the company’s annual general meeting will be held on 28 july 2006
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
7 june 2006
statement of directors’ responsibilities in respect of the 
annual report and the financial statements 
the directors are responsible for preparing the annual report and the
group and parent company financial statements in accordance with
applicable law and regulations 
company law requires the directors to prepare group and parent
company financial statements for each financial year under that law
the directors are required to prepare the group financial statements in
accordance with ifrs as adopted by the eu and have elected to prepare
the parent company financial statements in accordance with uk
accounting standards 
the group financial statements are required by law and ifrs as adopted
by the eu to present fairly the financial position and performance of the
group the companies act 1985 provides in relation to such financial
statements that references in the relevant part of that act to financial
statements giving a true and fair view are references to their achieving 
a fair presentation 
the parent company financial statements are required by law to give 
a true and fair view of the state of affairs of the parent company 
in preparing each of the group and parent company financial
statements the directors are required 
– to select suitable accounting policies and then apply them
consistently 
– to make judgements and estimates that are reasonable and prudent 
– to state for the group financial statements whether they have been
prepared in accordance with ifrs as adopted by the eu and
– to state for the parent company financial statements whether
applicable uk accounting standards have been followed subject
to any material departures disclosed and explained in the parent
company financial statements  
the directors are responsible for keeping proper accounting records that
disclose with reasonable accuracy at any time the financial position of
the parent company and enable them to ensure that its 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 
under applicable law and regulations the directors are also responsible
for preparing a directors’ report directors’ remuneration report and
corporate governance statement that comply with that law and those
regulations 
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statement of corporate governance
publicly listed company the board considers sir john’s extensive
knowledge and experience of qinetiq’s businesses gained whilst chief
executive officer to be a valuable asset available to the board which
should enhance the board’s decisionmaking and understanding of
strategic issues in addition sir david lees has been appointed deputy
chairman to assist in maintaining appropriate independence within 
the board
each member of the board is elected to a threeyear term by ordinary
resolution of qinetiq’s shareholders at a general meeting with
approximately onethird and at least one of the board members being
elected or reelected each year the shareholder relationship agreement
entered into between the company mod and carlyle on 15 february
2006 includes a commitment from the company that the chairman will
be put forward for reelection at the annual general meeting of the
company in 2007 the shareholder relationship agreement also entitles
the mod and carlyle to each nominate one nonexecutive director to
the board for so long as they do not dispose of any further ordinary
shares in the company and thereafter for so long as they each hold at
least 10 of qinetiq’s issued ordinary share capital 
details of executive directors’ service contracts and the nonexecutive
directors’ letters of appointment are set out in the report of the
remuneration committee
in october 2005 the chairman sir john chisholm was appointed
president of the institution of engineering and technology iet which
is a 12month term of office for which no fee is received sir john 
has agreed to commit two days per month to carrying out the role 
of president of the iet it was also recently announced that sir john will
become chairman of the medical research council later in 2006 
operation of the board
the board is responsible for managing the group and in this capacity
determines the group’s strategic and investment policies and monitors
the performance of the group’s senior management team the board
operates through a comprehensive set of processes which define the
schedule of matters to be considered by the board and its committees
during the yearly business cycle the level of delegated authorities both
financial and nonfinancial available to the executive directors and
other layers of management within the business and qinetiq’s business
ethics risk management and health safety and environmental
processes the board also has a clearly articulated set of matters which
are specifically reserved to it for consideration which include reviewing
the annual budgets raising indebtedness granting security over group
assets approving group strategy and the corporate plan approval of the
annual and interim report and accounts approval of significant
investment and bid acquisition and divestment transactions approval
of hr policies including pension arrangements reviewing material
litigation and monitoring the overall system of internal controls
including risk management 
the chairman is responsible for the effective working of the board and
works with the chief executive officer in addressing significant strategic
issues facing the group and the formulation of strategic proposals for
consideration by the board the chief executive officer reports to the
board and is responsible for the daytoday management of the group
and the implementation of board policies it is the board’s intention 
that the chairman’s executive responsibilities will be transferred to the
compliance with the combined code
qinetiq is committed to the highest standards of corporate governance
since its creation in july 2001 qinetiq has been guided by the letter
and spirit of the combined code on corporate governance ‘the
combined code’ even before its initial public offering ipo on the
london stock exchange in february 2006 save as stated below 
qinetiq has continued to comply with the combined code following its
ipo and is committed to doing so in the future account is also taken of
institutional shareholder and governance rules together with guidance
on disclosure and shareholder authorisation in discharging qinetiq’s
corporate governance responsibilities 
qinetiq also complies with a code of securities dealings in relation to 
its ordinary shares which is consistent with the model code published
in the ukla’s listing rules the model code applies to the company’s
directors and certain employees of the qinetiq group
this corporate governance statement together with the report of the
remuneration committee explains how the group has applied the
governance principles and achieved compliance since its ipo
composition of the board and directors’ independence
sir john chisholm is the executive chairman of the board of directors
and graham love is the chief executive officer the roles of chairman
and chief executive officer are separate with responsibilities divided
between them and agreed by the board in writing sir david lees is the
deputy chairman and the company’s senior independent director
the board comprises an executive chairman six nonexecutive directors
including one carlyle representative and one mod representative and
two additional executive directors namely the chief executive officer
and the chief financial officer with the objective of achieving a balance
of executive and nonexecutive directors the board considers its overall
size and composition to be appropriate having regard in particular to 
the independence of character and integrity of all the directors and the
experience and skills which they bring to their duties which prevents any
individual or small group from dominating the board’s decisionmaking 
currently half the board excluding the chairman are independent
nonexecutive directors in addition qinetiq intends to appoint a
further independent nonexecutive director before the end of 2006 
in assessing director independence the board considers sir david lees
nick luff dr peter fellner and noreen doyle to be nonexecutive
directors who are independent of qinetiq’s executive management
and free from any business or other relationship that could materially
interfere with the exercise of their independent judgement the board
considers the following nonexecutive directors not to be independent
glenn youngkin as he is a nominee of carlyle which continues to be 
a significant shareholder in qinetiq and colin balmer as he is a
nominee of the mod and the mod is the largest shareholder on
qinetiq’s register
on his appointment as chairman sir john chisholm was not
independent for combined code purposes as he was formerly qinetiq’s
chief executive officer the combined code recommends that a
company’s chairman be independent on appointment and that its
chief executive officer should not become chairman of the same
company the board considers that departure from the combined code
in this area is appropriate and firmly believes that sir john is the most
appropriate person to lead the board during qinetiq’s transition to a
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audit committee
each member of the audit committee is an independent nonexecutive
director the committee is chaired by nick luff nick has been a member
of the institute of chartered accountants in england and wales since
1991 and the board considers him to have recent and relevant financial
experience the other members of the committee are dr peter fellner
and noreen doyle the audit committee meets as necessary and at
least four times a year during the financial year ended 31 march 2006
the committee met on six occasions the external auditors may also
request the audit committee to meet at least once a year the
committee meets with qinetiq’s external auditors and the internal
audit function without executive directors present except where not
permitted to attend the chairman chief executive officer chief
financial officer group financial controller head of internal audit
and a representative of the external auditors normally attend
committee meetings
the principal functions of the audit committee are
– to consider the appointmentreappointment of the external auditor
the audit fee and any questions of resignation or dismissal of the
external auditors and to make recommendations to the board in
relation to those matters
– to discuss and agree with the external auditor before the annual
audit cycle the nature and scope of the audit and whether
appropriate planning is in place for the audit
– to review annually the cost effectiveness of the audit and assess the
qualifications skills and resources effectiveness and independence 
of the external auditors
– to assess the procedures in place to ensure the independence and
objectivity of the external auditor annually and to develop and
recommend to the board appropriate policies in relation to the
provision of nonaudit services by the external auditors
– to review the significant financial reporting issues and judgements
and the completeness of disclosures made in connection with the
preparation of the group’s financial statements interim reports and
formal statements focusing particularly on
– any changes in accounting policies and practice
– areas of major judgement
– significant adjustments resulting from the audit
– the going concern assumption
– compliance with accounting standards and
– compliance with the listing rules and other legal requirements
– to discuss any problems and reservations arising from the interim
and final audits and any matters the auditors may wish to discuss
in the absence of management where necessary and at the end 
of the audit cycle assess the effectiveness of the audit process
– to review the external auditors’ management letter and
management’s response
– to monitor the integrity of the group’s systems of internal controls
including financial operational compliance and risk management
assess the scope and effectiveness of the systems established by
management to identify assess manage and monitor financial and
nonfinancial risks and make recommendations to the board
chief executive officer and that this process will be completed by
october 2006
the board meets regularly throughout the year and in the past financial
year met on 11 separate occasions a committee of the board met on a
number of occasions during the past financial year to address issues
arising out of qinetiq’s ipo process
performance of the board
during the period commencing 1 april 2005 through to completion of
the ipo on 15 february 2006 the carlyle group exercised control over
the majority of the company’s voting shares and also had the right
to remove and replace any member of the qinetiq board with 
the exception of the two directors nominated by the mod as a
consequence the company has not had in place in the last financial
year a formal process for evaluating the performance of the board 
its committees and individual directors with the exception of the
executive directors who are appraised as part of the annual salary
review process overseen by the remuneration committee the board is
currently in the process of introducing a formal evaluation policy both
for the board and its committees which will be in place in the second
half of the financial year commencing 1 april 2006 as part of this
process the nonexecutive directors led by the senior independent
director will conduct a performance evaluation of the chairman taking
into account the views of the executive directors it is also proposed as
part of this process that the chairman will meet at least once a year
with the nonexecutive directors without the executive directors
present in order to review the operation of the board and that in
addition the chairman will have an annual meeting with each
nonexecutive director to review their contribution to the board 
directors’ induction training and information
all newly appointed directors participate in an induction programme
which is tailored to meet their needs in relation to information on the
group this induction programme includes an induction pack which is
refreshed to ensure it contains the most uptodate information
available on the group all directors are encouraged to visit qinetiq’s
principal sites and to meet a wide cross section of qinetiq’s employee
base by way of example during the past financial year the board held
one of its meetings in boston massachusetts in order to allow members
of the board to better appreciate the business dynamics of fostermiller
and have increased exposure to the qinetiq north america
management team
training is also available to the board on key business issues or
developments in policy regulation or legislation on an ‘as needed’
basis each of the directors has access to the services of the company
secretary and there is also an agreed procedure for the directors to seek
independent advice at the company’s expense 
committees of directors
the board has established four principal committees being the audit
committee the remuneration committee the nominations committee
and the compliance committee each of which operates within written
terms of reference approved by the board details of each of these
committees are summarised below
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statement of corporate governance continued
46 qinetiq group plc  annual report 2006
– to design and oversee all elements of executive directors’
remuneration including base salary bonus longterm incentive
plans compensation in the event of early termination and pensions
– to procure such information as it may consider necessary to 
compare remuneration provided to qinetiq’s executive directors
against the remuneration provided by comparable companies to
executive directors
– to monitor and be sensitive to pay and employment conditions
elsewhere in the group
– to ensure that qinetiq complies with any legal requirements
governing disclosure of remuneration and pensions including 
the directors’ remuneration report regulations 2002 and the
combined code
– to review the remuneration packages and terms and conditions of
employment of the group’s senior management and 
– to approve the scheme rules and launch of any qinetiq executive
sharebased incentive scheme and oversee the administration and
operation of any such scheme
during the course of the year ended 31 march 2006 the company
engaged deloitte  touche as remuneration consultants to assist the
remuneration committee and the board in framing the remuneration
and benefits policies for the executive directors members of the senior
management team and employees throughout the group deloitte 
touche have also provided consultancy services to the company during
the course of the past financial year in areas such as taxation through
entirely separate teams of advisors none of whom have any other
connection with the company 
nominations committee
the nominations committee consists of the chairman and two
independent nonexecutive directors a majority of the committee are
nonexecutive directors the nominations committee is chaired by sir
david lees the other members of the committee are dr peter fellner
and sir john chisholm the committee meets as necessary and when
called by its chair during the financial year ended 31 march 2006 the
committee met on two separate occasions
the principal duties of the nominations committee are
– to review the structure size and composition including the skills
knowledge and experience of the board and make recommendations
to the board with regard to any changes
– to be responsible for identifying and nominating for the approval of
the board appropriate individuals to fill board vacancies as and when
they arise
– to evaluate the balance of skills knowledge and experience on the
board and in the light of this evaluation prepare a description of the
role and capabilities required for a particular appointment
– in identifying suitable candidates where appropriate to review
internal candidates through a process of succession planning andor
i use open advertising or the services of external advisors to
facilitate the search ii consider candidates from a wide range of
backgrounds and iii consider candidates on merit and against
– to review the proposed statement on the directors’ review of the
group’s systems of internal controls including financial operational
compliance and risk management prior to endorsement by the
board
– to review from time to time the group’s internal audit programme
approve the appointment termination of appointment of the head
of internal audit ensure coordination between the internal and
external auditors and ensure that the internal audit function has
adequate resources and maintains an appropriate standing within
the group
– to review annually the appropriateness of the process for reporting
and investigating allegations of malpractice pursuant to qinetiq’s
whistle blowing policies
– to consider the major findings of internal investigations and
management’s response
– to review the group’s operating financial and accounting policies
and practices
– to consider other matters as defined by the board and
– to review on an annual basis the audit committee’s effectiveness
and recommend to the board any necessary changes 
in order to safeguard auditor independence the committee ensures
that any other advisoryconsulting services provided by the auditors do
not conflict with their statutory audit responsibilities and are normally
conducted through entirely separate working teams with such
advisoryconsulting services only generally covering other regulatory
reporting tax mergers and acquisitions work and in the financial year
ended 31 march 2006 iporelated activities any nonaudit services
conducted by the auditors require the consent of the chief financial
officer before being initiated with any such services exceeding £50000
in value requiring the consent of the audit committee throughout the
year the committee reviews the cost of nonaudit work undertaken by
the auditors and is therefore in a position to take corrective action if it
believes that there is a risk of the auditors’ independence being
undermined through the award of such work
remuneration committee
each member of the remuneration committee is an independent non
executive director the committee is chaired by dr peter fellner the
other members of the remuneration committee are sir david lees and
noreen doyle the committee meets as necessary although normally
not less than three times a year during the financial year ended 
31 march 2006 the remuneration committee met on six occasions
although not members of the committee the chairman the chief
executive officer the group head of human resources and the head 
of performance and reward normally attend committee meetings
executive directors are not present when their own remuneration is
being discussed
the principal duties of the remuneration committee are
– to make recommendations to the board as to the framework and
broad policy for remuneration provided to the chairman and
executive directors and its cost
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customers within the mod principally the dpa and the dlo and the
need to allow qinetiq flexibility to exploit research into the supply
chain and pursue its planned commercial activities without
compromising the defence or security interests of the uk the
compliance regime is largely selfpolicing in that it is applied by
qinetiq in respect of its activities without extensive intervention or
oversight by the mod 
the compliance committee is chaired by sir david lees the other 
nonexecutive member of the committee is colin balmer the
chairman chief executive officer and compliance audit director are
also members of the compliance committee the board nominates two
senior executives to act as compliance implementation director and
compliance audit director respectively the current compliance audit
director is dr graham coley the current compliance implementation
director is dr michael goodfellow
qinetiq’s compliance committee meets on four occasions each year 
to monitor the operation of the regime it receives a report from the
companys compliance implementation director which describes 
the permissions which have been sought and granted since the last
meeting of the committee and the status of projects where the
potential conflicts of interest are being managed the committee 
also receives from the compliance audit director a report on the
effectiveness of the controls that are in place to ensure that the regime
is operated correctly the committee reviews the systems that support
the compliance regime and those that may impact it directing changes
if appropriate the committee is the forum that would address any
issues arising out of qinetiq’s failure to comply with the requirements
of the regime
the mod reviews the operation and effectiveness of the compliance
regime through its right to have an observer on the compliance
committee 
during the year a total of 15 new permissions were sought from the
mod under the compliance regime where potential conflicts of 
interest were identified by qinetiq with a further four permission 
requests outstanding from the previous year of these 19 requests 
nine were approved five were not pursued one was rejected and four
were outstanding at the end of march 2006 
at the end of the year 29 firewalls were in place with three being
established and four being closed down during the year since vesting 
in 2001 a total of 87 firewalls have operated with 51 now closed
no breaches of the mod compliance regime have been noted during
the year
senior independent director
the senior independent nonexecutive director is sir david lees 
sir david is also deputy chairman of the board and serves as an
additional contact point for shareholders should they feel that their
concerns are not being addressed through the normal channels 
sir david is furthermore available to fellow nonexecutive directors
either individually or collectively should they wish to discuss matters 
of concern in a forum that does not include executive directors or the
senior management of qinetiq 
objective criteria taking care that appointees have enough time
available to devote to the position
– to review annually the time required from a nonexecutive director
and use performance evaluation to assess whether the non
executive director is giving sufficient commitment to the role
– to give full consideration to succession planning in the course of its
work taking into account the challenges and opportunities facing
the group and the skills and expertise that are therefore needed on
the board in the future and
– to ensure that on appointment to the board nonexecutive directors
receive a formal letter of appointment setting out clearly what is
expected of them in terms of commitment committee service and
involvement outside board meetings
the principal focus of the committee’s activity during the financial year
ended 31 march 2006 was to select two new independent nonexecutive
directors to allow the company to meet the requirements of the
combined code on its ipo given the corporate structure of qinetiq 
prior to ipo the process of making appointments in the case of the 
chairman chief executive officer chief financial officer and deputy
chairmansenior independent director positions was principally the
responsibility of the board as a whole and qinetiq’s major shareholders
mod and carlyle rather than the nominations committee each of the
two independent nonexecutive directors appointed to the board during
the financial year ended 31 march 2006 was appointed following a
rigorous review process involving a number of members of the board 
a process which was overseen by the nominations committee
mod compliance regime 
qinetiq’s position in the supply chain allows qinetiq to partner with 
a range of ‘original equipment manufacturers’ thereby providing 
a potential exploitation route for defence research however mod
customers involved in the procurement testing and evaluation of
defence related equipment also place importance on their ability to 
use qinetiq as a source of impartial advice to give mod customers
confidence that qinetiq is able to perform these distinct activities
qinetiq is required by its articles of association to implement a
compliance regime a framework which was established on its creation
out of dera to facilitate this process central to the compliance regime
is the requirement for qinetiq to request permission from the mod
prior to providing commercial defence services to others where there is
potential for a conflict of interest with the services that qinetiq
provides to the mod since the inception of the compliance regime
over 97 of all applications to the mod to supply defence research to
the commercial defence market have been approved 
the compliance regime includes a prohibition preventing qinetiq from
engaging in certain categories of defence manufacturing without the
explicit approval of the mod in february 2006 the mod agreed that
this restriction will be removed with effect from 1 april 2008 qinetiq
will however continue to be required to seek the mod’s approval to
engage in defence manufacturing where such manufacturing activity
could create a conflict of interest 
in designing the compliance regime the mod and qinetiq sought to
achieve a balance between meeting the needs of the procurement
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statement of corporate governance continued
48 qinetiq group plc  annual report 2006
attendance at board and committee meetings april 2005 – march 2006
remuneration audit compliance nominations
board committee committee committee committee
colin balmer
6
1111 66 55 11
sir john chisholm
9
1111 11 22
noreen doyle
1 7
33 11 11
dr peter fellner
8
1111 44 23 22
richard gillingwater
2
79 45
sir denys henderson
3
56 33 22
hal kruth
3
66
sir david lees
4 8
66 44 22 22
graham love
9
1111 11
nick luff 1011 66
dame pauline nevillejones
3
66 33 22
doug webb
5
55
trevor woolley
2
99 23
glenn youngkin
6
1111 56 45 22
1 noreen doyle was appointed to the board on 26 october 2005
2 richard gillingwater and trevor woolley resigned from the board and its
committees on 18 january 2006
3 sir denys henderson hal kruth and dame pauline nevillejones resigned
from the board and its committees on 12 september 2005 
4 sir david lees was appointed to the board on 1 august 2005
5 doug webb was appointed to the board on 12 september 2005 
6 colin balmer ceased to be a member of the remuneration committee 
and the audit committee on 25 january 2006 and was appointed to the
compliance committee on the same date glenn youngkin ceased to be 
a member of the remuneration committee the audit committee and the nominations
committee on 25 january 2006
7 noreen doyle became a member of the remuneration committee and the audit
committee on 25 january 2006 
8 dr peter fellner became a member of the remuneration committee the audit
committee and the nominations committee on 27 september 2006 sir david lees
became a member of the remuneration committee the compliance committee and the
nominations committee on 27 september 2005 
9 sir john chisholm and graham love became members of the compliance committee on
25 january 2006 
communication with shareholders
the company attaches importance to the effectiveness of its
communications with shareholders since the ipo the company has
initiated regular dialogue with institutional shareholders and the
financial community going forward this will include presentations 
of the preliminary and interim results regular meetings with major
shareholders and industry analysts participation in stockbrokers’
seminars and opportunities for shareholder site visits all shareholders
and potential shareholders can gain access to the annual report and
other significant information about the qinetiq group on the
company’s website at wwwqinetiqcom
holders of ordinary shares may attend the company’s agm at which the
company highlights key business developments during the year and at
which the shareholders have an opportunity to ask questions the
chairmen of the audit remuneration nominations and compliance
committees will be available to answer any questions on the work of
the committees the company confirms that it will send the agm
notice and relevant documentation to all shareholders at least 20
working days before the date of the agm for those shareholders who
have elected to receive communications electronically notice is given 
of the availability of documents on the investor relations section of 
the groups’ website all shareholders will be entitled to vote on the
resolutions put to the agm and to ensure that all votes are counted 
a poll will be taken on all the resolutions in the notice of meeting 
the results of the votes on the resolutions will be published on the
company’s website 
responsibility for maintaining regular communications with
shareholders rests with the executive team led by the chief executive
officer assisted by an investor relations function which reports to the
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 43 and 55
respectively
going concern
the directors are of the opinion that the group has adequate resources
to continue to operate for the foreseeable future and have prepared the
accounts on a going concern basis
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chief financial officer the board is informed on a regular basis of key
shareholder issues including share price performance the composition
of the shareholder register and city expectations the chairman the
senior independent director and nonexecutive directors make
themselves available to meet with shareholders as required
management and control of us subsidiaries
qinetiq’s us subsidiaries apogen foster miller planning systems and
westar are currently required by the us national industrial security
program to maintain facility security clearances and to be insulated
from foreign ownership control or influence to comply with these
requirements qinetiq north america operations llp  a whollyowned
subsidiary of qinetiq in the us and the us dod have entered into 
a proxy agreement that regulates the ownership management and
operation of these companies pursuant to this proxy arrangement
qinetiq appointed three us citizens holding requisite us security
clearances as proxy holders to exercise the voting rights of qinetiq
north america operations llp ’s shares in the us subsidiaries the proxy
holders are also appointed as directors of the relevant us subsidiaries
and in addition to their powers as directors have power under the
proxy arrangements to exercise all prerogatives of share ownership 
of qinetiq north america operations llp  the proxy holders agree 
to perform their role in the best interests of qinetiq north america
operations llp  and consistent with the national security concerns of
the united states qinetiq does not have any representation on the
boards of apogen foster miller planning systems or westar and does
not have the right to attend board meetings qinetiq may not remove
the proxy holders except for acts of gross negligence or wilful
misconduct or for breach of the proxy agreements with the consent
of the us defense security service 
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 selfcertification 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 selfassessment
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 the internal audit function 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 and divisional level of profit and loss as well as within all
customerfacing projects and how these are managed to the qinetiq
executive team and the board formally on a quarterly basis
the qinetiq executive team reviews on a monthly basis the risk
management and control process and considers
– the authority resources and coordination 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 team
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 financial year
ended 31 march 2006 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
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report of the remuneration committee 
50 qinetiq group plc  annual report 2006
– total rewards are achieved through the attainment of stretching
performance targets based around measures which are consistent
with the short medium and longterm interests of shareholders
– a significant element of the executive’s remuneration package will be
performancerelated
executive directors’ remuneration 
the components of the remuneration packages for executive directors
are as follows they are reviewed annually by the committee
basic salary
basic salary for each director is determined by assessment of the
director’s performance experience and responsibility and relevant
benchmarks salaries are reviewed annually although not necessarily
increased in the context of all other remuneration elements 
factors taken into account are performance personal contribution
responsibilities and market pressures for market comparison purposes
account is taken of company type sector and measures of company size
in terms of both market capitalisation and turnover
annual bonus
executive directors have annual cash bonus arrangements which are
nonpensionable bonuses are linked to group and personal targets 
the maximum annual bonus opportunity for the executive directors 
is 100 of salary
the 200506 bonus scheme was structured around an ‘on target’
annual bonus of 50 of basic salary the bonuses for all three executive
directors were measured against the same four key performance
indicators kpis turnover earnings before interest tax and
amortisation ebita orders and cash generation an entry level is
defined for each kpi and no payment will be made against that kpi
unless the entry level performance is achieved the entry level is always
set to represent incremental growth over the prior year performance
performance against the kpis is measured independently however if the
underlying ebita is not satisfied the committee has the discretion to
reduce any bonus
for performance in excess of the entry threshold bonus elements for
each kpi accrue on a straight line up to the target level at which a bonus
equal to 125 of salary can be earned if the target is achieved for a kpi
if there is overachievement against one or more kpis then the proportion
of bonus increases linearly such that twice the ‘on target’ bonus is
payable if 125 or more of the target is achieved 
each executive director also has personal supporting objectives which
may be used to moderate the financial element up or down the
committee considers annually the choice of performance measures 
and approves bonus targets 
this report sets out the current policy and disclosures in relation to
directors’ remuneration this report has been produced in accordance
with the directors’ remuneration report regulations 2002 the report
has been prepared by the remuneration committee and has been
approved by the board for submission to shareholders
role of the remuneration committee
the terms of reference of the committee are described in the
statement of corporate governance on page 46
committee membership
the committee is composed of the following independent nonexecutive
directors
– dr peter fellner committee chairman 
– sir david lees and
– noreen doyle 
the committee met six times during the year
advisors to the committee
deloitte  touche llp ‘deloitte’ were appointed by the committee to
advise on matters relating to executive remuneration towers perrin and
monks partnership provide market data
sir john chisholm chairman graham love ceo stephen luckhurst
group human resources director and john leightonjones group
head of reward  performance provided guidance to the committee
other than for their own remuneration
directors’ remuneration policy
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 company and personal performance
– is based on information from independent remuneration sources and
other publicly available information for companies of a comparable
size based on turnover and market capitalisation
– is compatible with the principles for establishing remuneration for
the company as a whole based on market median and individual
performance
the remuneration policy is built on the following philosophy
– remuneration packages will be structured in order to support
business strategy whilst conforming to current best practice
– constituent elements of each executive director’s remuneration
package will be evaluated on the basis of total rewards
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shareholding requirement
executives are encouraged to maintain equity interests in the group
given the current levels of executive equity interests coupled with the
current lockin arrangements which control the executive directors’
ability to sell shares over a threeyear period the committee does not
consider it appropriate to introduce a formal shareholding requirement
for the executive directors and other executives at this stage
dilution limits 
in the year ended 31 march 2006 all outstanding awards under the
qinetiq group share option scheme represented 006 of the issued
share capital 
in july 2003 all employees were granted share options under the
qinetiq share option plan dilution limits do not include rights to
shares relating to options granted prior to the ipo
nonexecutive directors’ terms conditions and fees
the chairman reviews the fees of the nonexecutive directors and
makes recommendations to the board directors receive additional 
fees as agreed by the board for the chairmanship of board committees
the fees take account of responsibilities of the role the level of fees
paid in uk organisations of a similar size and complexity to qinetiq 
are considered in setting remuneration policy for nonexecutive
directors the fees are neither performancerelated nor pensionable
nonexecutive directors are not eligible to participate in bonus profit
sharing or employee share schemes the annual fees are listed below
and became effective on 1 february 2006
board membership £35000
committee chairmanship £5000 per committee
additional fee for senior 
independent nonexecutive 
director responsibility £5000
benefits 
benefits include a pension or contribution in lieu as appropriate plus
car allowance and health insurance none of which are pensionable 
the company also pays an insurance premium in respect of death in
service cover 
in response to the new uk pensions legislation which took effect on 
6 april 2006 it was determined to permit executives whose benefits 
are likely to exceed the lifetime allowance to opt out of the qinetiq
pension plan in such cases the individual will be paid a salary
supplement in lieu of pension contributions 
longterm incentives
the company currently provides longterm incentives in the form of
share options their objective is to align the rewards of executives with
the returns to shareholders in providing a focus on increasing the share
price over the medium to longer term under the scheme annual share
option awards with a face value up to 300 of salary can be made
the committee determined that the equity arrangements currently in
place for sir john chisholm the chairman and graham love the ceo
did not warrant a separate grant of longterm incentives in the year
ended 31 march 2006 doug webb was the only executive director to
receive a grant of share options under the qinetiq share option scheme
in the year ended 31 march 2006 the 2006 award is subject to two
performance measures which have equal weighting earnings per 
share ‘eps’ and total shareholder return ‘tsr’ measured against the
ftse250 index performance is measured over three years and there is
no retesting of performance
the eps measure was selected to ensure that the scheme includes a
performance measure which is in a clear line of sight for the participants
reflecting the business strategy for the eps proportion of the award to
start to vest eps growth of at least 225 must be achieved over the
performance period 25 of the award vests at that level of performance
with full vesting for achieving 52 eps growth for eps performance
between these two points straightline vesting applies 
under the tsr element there is no vesting for performance below the
median with full vesting for achieving tsr performance which positions
the company in the upper quartile of the ftse250 at median 30 of
the award vests with straightline vesting between median and the
upper quartile  
due to the recent ipo of qinetiq february 2006 a tsr performance
graph has not been included within this report at this stage
the committee has commissioned its advisers deloitte to conduct
a review of the structure of qinetiq’s longterm incentivisation
arrangements during the coming year
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52 qinetiq group plc  annual report 2006
report of the remuneration committee continued
service agreements
the chairman’s contract as an executive director continues until 30 september 2006 after which he will become nonexecutive further detail on 
this is provided in the governance section of the report 
term of appointment date of service agreementappointment
sir john chisholm agreement terminates 30 september 2006 1 december 2005
graham love 12 months rolling 1 december 2005
doug webb 12 months rolling 1 october 2005
 sir john will continue as chairman in a nonexecutive capacity from 1 october 2006
 notice period of 12 months from the individual and the company
sir david lees nick luff dr peter fellner noreen doyle colin balmer and glenn youngkin were appointed for a 36 month term commencing
16 february 2006 these appointments are terminable without notice or compensation from the company or the individual
the service agreementsletters of appointment were reviewed and updated in preparation for ipo and the board received advice on current best
practice from herbert smith llp  consequently the board believes that the current contracts are generally in line with best practice 
external appointments
qinetiq recognises that in order to broaden their knowledge and experience executives may be invited to become nonexecutive directors of other
companies fees are normally retained by the individual directors 
during the period sir john chisholm was a nonexecutive director of bespak plc resigned september 2005
audited information
the following information on directors’ remuneration and directors’ interests on pages 52 and 54 has been audited where executive directors were 
appointed or resigned during the year but have been employees of qinetiq for the whole year the sums shown reflect the elements of their
remuneration over the full year
salaryfees bonus a benefits b total 2006 total 2005
notes£££££
executive directors
sir john chisholm 295000 228445 37570
k
561015 662121
graham love 267500 228445 65167
l
561112 452900
doug webb c 207500
d
195605 14210
m
417315 –
nonexecutive directors
sir david lees e 28333 – – 28333 –
nick luff 35833 – – 35833 26346
peter fellner 33593 – – 33593 17500
noreen doyle f 13826 – – 13826 –
colin balmer g 2917 – – 2917 –
glenn youngkin h – – – – –
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salaryfees bonus a benefits b total 2006 total 2005
notes£££££
former directors
dame pauline nevillejones i 60375 – – 60375
n
135000
sir denys henderson i 17500 – – 17500 35000
trevor woolley j – – – – –
richard gillingwater j – – – – –
hal kruth i 214167 116186 21750
m
352103 374265
jonathan symonds o – – – – 14583
1176544 768681 138697 2083922 1717715
pensions
the group’s policy is to offer all uk employees membership of the qinetiq pension scheme as described in note 42 to the financial statements this
scheme contains both defined benefit and defined contribution sections sir john chisholm is a member of the defined benefit section hal kruth and
doug webb are members of the defined contribution section of the qinetiq pension scheme 
disclosures in respect of sir john chisholm
disclosure in relation to defined benefit pension arrangements 
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 122 of the companies act 1985 are shown below
additional
additional accrued accrued lump accrued accrued increase in 
pension earned sum earned pension lump sum transfer transfer transfer 
in the year in the year entitlement   entitlement value at value at value less
including including at 31 march at 31 march 31 march 31 march director’s 
inflation inflation 2006 2006 2006 2005contributions
£ p a £ £ p a ££££
sir john chisholm 1588 4764 6689 20068 155628 109682 38439
the additional information required under lr 988 11 of the fsa’s listing rules is given below
transfer value of increase 
additional accrued additional in accrued benefits 
pension earned accrued lump sum excluding inflation 
in the year earned in the year at 31 march 2006
excluding inflation excluding inflation less director’s contributions
£ p a £ £
sir john chisholm 1450 4351 26236
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 period
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
the value of individual pension entitlements relating to defined benefits available to sir john chisholm under the qinetiq pension scheme 
less member contributions valued on the ias 19 basis for the year to 31 march 2006 were £28779
disclosure in relation to defined contribution pension arrangements
details of the contributions payable to the sir john chisholm retirement benefits scheme as required under schedule 7a section 123 of the
companies act 1985 and lr 988 11 of the fsa’s listing rules are shown below
the company contributions payable in respect of the year to 31 march 2006 were £11064
a
includes performance bonuses relating to but not paid in the financial period
b
benefits apart from pensions
c
appointed 12 september 2005
d
before deductions to basic salary for smart pensions salary sacrifice arrangement 
e
appointed 1 august 2005 
f
appointed 26 october 2005
g
did not receive fees for nonexecutive director appointment until 1 march 2006
h
does not receive fees for nonexecutive director appointment
i
resigned 12 september 2005
j
resigned 18 january 2006 
k
includes life insurance health insurance and company car benefits also an amount
equal to the tax on the pension contributions of £28383 in respect of the current
year and the period 6 april 2006 – 27 august 2006
l
includes cash car allowance of £11667 and £53500 in lieu of pension contribution
m
includes car allowance life insurance and health insurance benefits
n
dame pauline also received consultancy fees of £74625 relating to services provided
between 13 september 2005 and 31 march 2006
o
resigned 30 june 2004
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54 qinetiq group plc  annual report 2006
disclosures in respect of hal kruth and doug webb
details of the contributions payable to the defined contribution section of qinetiq pension scheme as required under schedule 7a section 123 
of the companies act 1985 and 988 11 of the fsa’s listing rules are shown below
hal kruth
the company contributions payable in respect of the 12 months to 31 march 2006 were £43083
in addition contributions of £8370 were paid to qinetiq pension scheme in march 2006 in respect of the period from 1 april 2006 to 30 june 2006
doug webb
the company contributions payable in respect of the 12 months to 31 march 2006 were £18909 these represent notional payments before smart
pension arrangements
directors’ interests
the interests of the directors in office at 31 march 2006 in the shares of qinetiq group plc at that date were as follows there have been no 
changes in the interests of the directors between 31 march 2006 and 7 june 2006 with the exception of doug webb who has acquired on 9 may 
2006 82 shares under the qinetiq share incentive plan qsip this comprised of 62 partnership shares and 20 matching shares all shares were
acquired at 199 pence
number of £1 share acquired in no of 
ordinary restructuring year share ordinary 1p
shares on ipo incentive shares held
held at 1 april at 15 february disposal plan – free acquired at 31 march
name 2004 and 2005 2006 in year share element in year 2006
sir john chisholm  130500 12858548 – 250 – 12989298
graham love  107375 10569173 – 250 – 10676798
doug webb 10000 714900 108735 250 – 616415
sir david lees – – – – 17000 17000
nick luff – – – – 17000 17000
peter fellner – – – – 17000 17000
noreen doyle – – – – 17000 17000
glenn youngkin – – – – 47067 47067
colin balmer – – – – – –
note
 ordinary shares held on 1 april 2005 included 920 convertible nonvoting a shares and 80 convertible nonvoting b shares the balance being in d ordinary shares
vested share options held during the year ended 31 march 2006
share number
25 july 2003 restructuring of share
options held on ipo options held date
on 1 april at 15 february at 31 march grant from which
name 2005 2006 2006 price exercisable expiry date
sir john chisholm 40 1662 1702 235p 15 feb 2006 24 july 2013
graham love 40 1662 1702 235p 15 feb 2006 24 july 2013
doug webb 40 1662 1702 235p 15 feb 2006 24 july 2013
hal kruth 40 1662 1702 235p 15 feb 2006 24 july 2013
note
 options vested under the all employee share option plan
unvested share options held during the year ended 31 march 2006
unvested unvested
approved unapproved
option option date
22 february 22 february grant from which
name 2006 2006 price exercisable expiry date
doug webb 14403 230789 £208 23 feb 2009 23 aug 2009
 options granted under the group share option scheme
by order of the board
dr peter fellner
chairman of the remuneration committee
qinetiq group plc
7 june 2006
report of the remuneration committee continued
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independent auditors’ report to the members of qinetiq group plc
we read the other information contained in the annual 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 misstatements or material inconsistencies with the financial
statements our responsibilities do not extend to any other information 
basis of audit opinion
we conducted our audit in accordance with international standards 
on auditing uk and ireland 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 judgments made by the
directors in the preparation of the financial statements and of whether
the accounting policies are appropriate to the group’s and company’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 misstatement 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 group financial statements give a true and fair view in
accordance with ifrs as adopted by the eu of the state of the
group’s affairs as at 31 march 2006 and of its profit for the year 
then ended 
– the parent company financial statements give a true and fair view 
in accordance with uk generally accepted accounting practice 
of the state of the parent company’s affairs as at 31 march 2006 
– 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 and as regards the group financial
statements article 4 of the ias regulation and 
– the information given in the directors’ report is consistent with the
financial statements
kpmg audit plc
chartered accountants
registered auditor
london
7 june 2006 
we have audited the group and parent company financial statements
the ‘‘financial statements’’ of qinetiq group plc for the year ended 
31 march 2006 which comprise the group income statement the
group and parent company balance sheets the group cash flow
statement group statement of recognised income and expense and
the related notes these financial statements have been prepared under
the accounting policies set out therein 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 auditor’s
report and for no other purpose to 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’ responsibilities for preparing the annual report and the
group financial statements in accordance with applicable law and
international financial reporting standards ifrs as adopted by the eu
and for preparing the parent company financial statements and the
directors’ remuneration report in accordance with applicable law and
uk accounting standards uk generally accepted accounting practice
are set out in the statement of directors’ responsibilities on page 43 
our responsibility is to audit the financial statements and the part of
the directors’ remuneration report to be audited in accordance with
relevant legal and regulatory requirements and international standards
on auditing uk and ireland 
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 and as
regards the group financial statements article 4 of the ias regulation
we also report to you whether in our opinion the information given 
in the directors’ report is consistent with the financial statements 
the information given in the directors’ report includes that specific
information presented in the operating and financial review that is
cross referenced from the business review section of the directors’
report we also report to you if in our opinion 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 other
transactions is not disclosed 
we review whether the corporate governance statement reflects 
the company’s compliance with the nine provisions of the 2003 frc
combined code specified for our review by the listing rules of the
financial services authority 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 
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56 qinetiq group plc  annual report 2006
consolidated income statement
for the year ended 31 march
2006 2006  2005 2005
before non non before non non
recurring recurring recurring recurring
items and items and items and items and
acquisition acquisition 2006 acquisition acquisition 2005
amortisation amortisation total amortisation amortisation total
notes £m £m £m £m £m £m
group turnover 10531 – 10531 8589 – 8589
less equity method accounted joint
ventures and associates 14 – 14 30 – 30
turnover 2 3 10517 – 10517 8559 – 8559
employee costs 10 4920 68 4988 3948 259 4207
thirdparty project costs 2308 – 2308 1600 – 1600
other operating costs excluding depreciation 
and amortisation 2175 21 2196 2078 – 2078
share of posttax loss of equity accounted 
joint ventures and associates 19 04 – 04 25 – 25
profit on disposal of interest in equity 
accounted associate 19 – – – 171 – 171
other income 2 135 – 135 135 – 135
ebitda earnings before interest tax depreciation 
and amortisation 1245 89 1156 1214 259 955
depreciation of property plant and equipment 15 327 – 327 389 – 389
amortisation of intangible assets and impairment
of goodwill and current asset investments 4 11 123 134 02 57 59
group operating profit 3 907 212 695 823 316 507
profit on disposal of noncurrent assets 6 89 – 89 291 – 291
finance income 7 84 47 131 81 – 81
finance expense 7 190 – 190 99 – 99
profit before tax 4 890 165 725 1096 316 780
taxation expense 8 166 45 121 47 10 57
profit for the year 724 120 604 1049 326 723
profit attributable to
equity shareholders of the parent company 36 701 120 581 1065 326 739
minority interest 36 23 – 23 16 – 16
724 120 604 1049 326 723
earnings per share
basic 11 100p 120p
diluted 11 98p 117p
underlying 11 102p 88p
c12357qinetiqar06p5659qxp  14606  102 pm  page 56 57
qinetiq group plc  annual report 2006 57
consolidated balance sheet
as at 31 march
2006 2005
notes £m £m
noncurrent assets
goodwill 12 3150 1315
intangible assets 13 564 373 
property plant and equipment 15 3403 3679
investment property 16 58 66 
financial assets 17 221 156  
investments 18 13 05 
investments accounted for using the equity method 19 06 –
deferred tax asset 28 124 151
7539 5745
current assets
inventories 20 254 178 
financial assets 17 30 30  
trade and other receivables 21 3326 3716
cash and cash equivalents 22 589 123
investments 23 112 128 
noncurrent assets classified as held for sale 24 36 –
4347 4175
total assets 11886 9920
current liabilities
trade and other payables 25 3027 3093
provisions 27 173 335
financial liabilities 29 66 545  
3266 3973
noncurrent liabilities
retirement benefit obligation gross of deferred tax 42 1684 1250
deferred tax liability 28 82 101
provisions 27 92 108
financial liabilities 30 3104 1530
other payables 26 29 17
4991 3006
total liabilities 8257 6979
net assets 3629 2941
capital and reserves 
ordinary shares 35 65 16 
preference shares 35 – 375 
capital redemption reserve 36 399 19
share premium account 36 1475 114 
hedging and translation reserve 36 49 –
retained earnings 36 1647 2445
capital and reserves attributable to shareholders of the parent company 3635 2969
minority interest 36 06 28
36 3629 2941
capital and reserves analysed as
equity shareholders’ funds 3629 2566
nonequity shareholders’ funds – 375
t otal shareholders’ funds 3629 2941
the financial statements were approved by the board of directors and authorised for issue on 7 june 2006 they were signed on its behalf by
graham love doug webb
chief executive officer chief financial officer
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58 qinetiq group plc  annual report 2006
consolidated cash flow statement
for the year ended 31 march
2006 2005
notes £m £m
profit for the year 604 723
taxation expense 121 57
net finance costs 59 18
ipo costs 89 –
profit on disposal of noncurrent assets and impairment of asset held for sale 89 291
profit on disposal of interest in equity accounted associate – 171
depreciation of property plant and equipment 327 389 
amortisation of intangible assets and impairment of goodwill and current asset investments 134 59 
share of posttax loss of equity accounted joint ventures and associates 04 25 
increase in inventories 99 167
decreaseincrease in receivables 422 496
decrease in payables 318 06
decreaseincrease in provisions 178 229 
cash flow from operations 1076 369
tax paid 44 28
interest received 34 38 
interest paid 128 54
preference share interest paid 105 89
net cash flow from operating activities 833 236
purchase of intangible assets  85 25
purchase of property plant and equipment 450 160
sale of property plant and equipment 1115 506 
investments in associate undertaking  12 25
purchase of subsidiary undertakings 2025 1669
sale of interest in equity accounted associate – 17 
net cash flow from investing activities 1457 1356
net proceeds from ipo 45 1362 –
cash outflow from repayment of loans 754 1166
cash outflow from repayment of loan note 459 –
cash inflow from loans received 1989 1517 
preference share repayment 375 750
receipt of mod indemnity 453 –
additional pension contributions 1064 –
capital element of finance lease rental payments 22 07
capital element of finance lease rental receipts 30 30
net cash flow from financing activities 1160 376
increasedecrease in cash and cash equivalents 32 536 1496
cash and cash equivalents at beginning of year 50 1546
cash and cash equivalents at end of year 586 50
cash and cash equivalents 22 589 123
overdrafts 33 03 73
cash and cash equivalents at end of year 586 50
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qinetiq group plc  annual report 2006 59
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2006 2005
notes £m £m
net loss on hedge of net investment in foreign subsidiary 36 20 04
increase in fair value of hedging derivatives 36 49 –
movement in deferred tax on hedging derivatives 36 15 –
loss on available for sale assets 36 16 –
gain arising on the refinancing of joint ventures and associates 36 –06
actuarial loss recognised in the defined benefit pension schemes 36 1054 99
deferred tax asset on pension deficit 36 87 159
net income recognised directly in equity 969 62
prior period restatement on adoption of ias 32 and 39 see note 1 36 13 –
956 62
profit for the year 604 723
total recognised income and expense for the year 352 785
attributable to
equity shareholders of the parent company 375 801
minority interest 23 16
352 785
consolidated statement of recognised income and expense
for the year ended 31 march
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60 qinetiq group plc  annual report 2006
notes to the financial statements
1 significant accounting policies
accounting policies
the following accounting policies have been applied consistently to all
periods presented in dealing with items which are considered material
in relation to the group’s financial statements with the exception of
certain policies subject to the transition arrangements of ifrs 1 as
detailed in the following paragraph 
basis of preparation
the group financial statements have been prepared and approved 
by the directors in accordance with international financial reporting
standards as adopted by the eu ‘ifrs’ the company has elected to
prepare its parent company financial statements in accordance with 
uk gaap these are presented on pages 111 to 113
the accounts have been prepared under the historical cost convention
except that the following assets and liabilities are stated at their fair
values derivative financial instruments availableforsale investments
and recognised assets and liabilities subject to fair value hedges and
noncurrent assets held for sale are held at the lower of historic cost
and fair value the group is domiciled in the united kingdom the
group’s functional currency is sterling and unless otherwise stated the
financial statements are rounded to the nearest hundred thousand the
group’s transition date to ifrs is 1 april 2004 and disclosures required
by ifrs 1 relating to the transition from uk gaap to ifrs are presented
in note 46 the group has taken the following exemptions available
under ifrs 1
– ias 32 financial instruments disclosure and presentation and ias 39
financial instruments recognition and measurement has been
applied from 1 april 2005 onward
–ifrs3 business combinations has not been applied to acquisitions
completed prior to transition to ifrs and
– ias 21 the effects of changes in foreign exchange rates has been
applied prospectively from the date of transition to ifrs in respect of
consolidated cumulative translation differences on foreign operations
basis of consolidation 
the consolidated financial statements comprise the financial
statements of the company and its subsidiary undertakings up to
31 march 2006 the purchase 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 income
statement account from the date control is obtained to the date that
control is lost usually on acquisition and disposal respectively
a subsidiary is an entity over which the group has the power to govern
financial and operating policies in order to obtain benefits an associate
is an undertaking in which the group has a longterm interest and over
which it exercises significant influence usually from 20 to 50 of the
equity voting rights a joint venture is an undertaking in which the
group has a longterm interest and over which it exercises joint control
associates and joint ventures are accounted for using the equity
method from the date of acquisition up to the date of disposal where
an associate or joint venture has net liabilities full provision is made 
for the group’s share of liabilities where there is a constructive or 
legal obligation to provide additional funding to the associate or 
joint venture
revenue
turnover net of value added and other sales taxes represents the value
of work performed for customers measured on the following basis
– turnover from fixed price contracts is recognised in proportion to 
the value of the work performed and includes attributable profit
depending on the nature of the contract revenue is recognised as
contractually agreedupon milestones are reached as units are
delivered or as the work progresses
– turnover on cost plus and time and materials contracts is recognised
as work is performed
– 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 and licensing of technology is
recognised on acceptance by the customer and when the amount of
revenue can be measured reliably 
thirdparty project costs
thirdparty project costs primarily consist of subcontracted research 
and development costs and purchased materials incurred on behalf of
customers as part of funded projects together with direct materials
costs used in product manufacture
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
fixedprice 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 contractbycontract basis these focus on
the costs to complete and enable an assessment to be made of the
most likely final outturn 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
segmental information
segmental information is presented in two formats the primary format
reflects the group’s management structure and markets in which the
group operates whereas the secondary format is based on geography
ie location of customers the principal activities of the group are
managed through three sectors organised according to the distinct
markets the group operates in 
– defence  technology which primarily delivers technology solutions
and managed services that support the armed forces of the uk
– security  dual use which primarily delivers security and technology
solutions and consultancy to civil and government customers and
– qinetiq north america which primarily provides technology to the
us government and us primecontractors
segment results represent the contribution of the different segments 
to the profit of the group corporate expenses are allocated to the
corresponding segments unallocated items comprise mainly profit on
disposal of surplus assets oneoff restructuring costs and financing
costs eliminations represent intercompany trading between the
different segments
segment assets comprise property plant and equipment goodwill and
other intangible assets trade and other receivables inventories and
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qinetiq group plc  annual report 2006 61
prepayments and accrued income unallocated assets represent mainly
corporate assets including property cash and cash equivalents and
deferred tax asset balances segment liabilities comprise trade and
other payables accruals and deferred income and debt specifically used
to finance activities and acquisitions unallocated liabilities represent
mainly corporate liabilities including retirement benefit obligations
current and deferred tax liabilities and bank and other borrowings
segment assets and liabilities represent the situation at the end 
of the financial year 
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 their relevant income statement cost category 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 income
statement in the period in which they are incurred if the research 
phase cannot be clearly distinguished from the development phase 
the respective projectrelated costs are treated as if they were incurred
in the research phase only and expensed
financing 
financing represents the financial expense on borrowings accounted 
for using the effective rate method and the financial income earned on
funds invested exchange differences on financial assets and liabilities
and the results on interest hedging instruments that are recognised in
the income statement are included within interest income and expense
in financing
taxation
the taxation charge is based on the profit for the year and takes into
account taxation deferred because of temporary differences between
the treatment of certain items for taxation and accounting purposes
deferred taxation is the tax attributable to the temporary differences
that appear when taxation authorities recognise and measure assets
and liabilities with rules that differ from those of the consolidated
accounts the amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount of assets
and liabilities using rates enacted or substantively enacted at the
balance sheet date any change in the tax rates are recognised in the
income statement unless related to items directly recognised in equity
deferred tax liabilities are recognised on all taxable temporary
differences excluding nondeductible goodwill deferred tax assets are
recognised on all deductible temporary differences provided that it is
probable that future taxable income will be available against which the
asset can be utilised deferred tax assets and liabilities are only offset
where there is a legally enforceable right to offset and there is an
intention to settle balances net
goodwill 
business combinations since 1 april 2004 are accounted for under 
the purchase accounting method all identifiable assets acquired and
liabilities and contingent liabilities incurred or assumed are recorded at
fair value at the date control is transferred to qinetiq irrespective of the
extent of any minority interest the cost of a business combination is
measured at the fair value of assets given equity instruments issued
and liabilities incurred or assumed at the date of exchange plus costs
directly attributable to the acquisition any excess of the cost of the
business combination over the group’s interest in the net fair value of
the identifiable assets liabilities and contingent liabilities recognised 
is capitalised as goodwill goodwill is subject to annual impairment
reviews see below if the cost of an acquisition is less than the fair
value of the net assets acquired the difference is immediately
recognised in the consolidated income statement
intangible assets
intangible assets recognised on acquisition are at fair value which is
calculated as the present value of future cash flows expected to be
derived from those assets internally generated intangible assets are
recorded at cost including labour attributable overhead and any
thirdparty expenses purchased intangible assets are recognised at
cost less amortisation 
intangible assets are amortised over their respective useful lives on a
straight line basis as follows
intellectual property rights 28 years
development costs forecast period of sales resulting 
from development
other 15 years
property plant and equipment
property plant and equipment are stated at cost less depreciation
freehold land is not depreciated other tangible noncurrent assets 
are depreciated on a straight line basis over their useful economic 
lives to their estimated residual value as follows
freehold buildings 2025 years
leasehold land and buildings shorter of useful economic life and
the period of the lease
plant and machinery 310 years
fixtures and fittings 510 years
computers 35 years
motor vehicles 35 years
assets under construction are included in property plant and
equipment 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
the useful lives and depreciation methods applied to property plant
and equipment are reviewed annually and if they change significantly
depreciation charges for current and future periods are adjusted
accordingly if the carrying amount of any asset exceeds its recoverable
amount an impairment loss is recognised immediately in the 
income statement
investment property
the group accounts for investment property using the cost model
investment property is recorded on balance sheet at book value that
is at cost less any accumulated depreciation and any accumulated
impairment losses the fair value of investment property is reviewed
annually by management or expert valuers where appropriate
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62 qinetiq group plc  annual report 2006
notes to the financial statements continued
impairment of tangible intangible and held for sale assets
the group assesses at each reporting date whether there is an
indication that an asset may be impaired in addition goodwill is tested
for impairment annually irrespective of any indication of impairment 
if the carrying amount exceeds the recoverable amount the respective
asset or the assets in the cashgenerating unit are written down to their
recoverable amounts the recoverable amount of an asset or a cash
generating unit is the higher of its fair value less costs to sell and its
value in use the value in use is the present value of the future cash
flows expected to be derived from an asset or cashgenerating unit
impairment losses are expensed to the income statement
inventories
inventory and work in progress including contract costs are stated 
at the lower of cost and net realisable value work in progress and
manufactured finished goods are valued at production cost production
cost includes direct production costs and an appropriate proportion of
production overheads a provision is established when the net realisable
value of any inventory item is lower than its cost
amounts recoverable on contracts and payments received 
on account
amounts recoverable on contracts are included in trade and other
receivables and represent turnover recognised in excess of amounts
invoiced payments received on account are included in trade and 
other payables and represent amounts invoiced in excess of 
turnover recognised
cash and cash equivalents
cash and cash equivalents comprise cash at bank and shortterm
deposits that are readily convertible into cash
current and noncurrent liabilities
current liabilities include amounts due within the normal operating
cycle of the group interestbearing current and noncurrent liabilities
are recognised at fair value and then stated at amortised cost with any
difference between the cost and redemption value being recognised in
the income statement over the period of the borrowings on an effective
interest rate basis 
provisions
a provision is recognised in the balance sheet when the group has a
present legal or constructive obligation as a result of a past event and 
it is probable that an outflow of economic benefits will be required to
settle the obligation if the effect is material provisions are determined
by discounting the expected cash flows at the group’s weighted average
cost of capital
financial instruments
financial assets and financial liabilities are recognised on the group’s
balance sheet when the group becomes a party to the contractual
provisions of the instrument the derecognition of a financial
instrument takes place when the group no longer controls the contractual
rights that comprise the financial instrument which is normally the
case when the instrument expires or is sold terminated or exercised
leased assets
assets held under finance leases are capitalised and included in
property plant and equipment at the lower of the present value of
minimum lease payments and 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 income
statement on a straight line basis over the term of the lease
noncurrent assets held for sale
where the carrying value of an asset will be recovered principally
through a sale transaction rather than continuing use the asset is
classified as held for sale held for sale assets are held at the lower of
net book value and net realisable value deprecation is not charged on
assets classified as held for sale
preference shares
during the year the group had in issue redeemable cumulative
preference shares of £1 each which carried the right to a fixed
cumulative preferential dividend at the rate of 9 per annum excluding
any associated tax credit the group redeemed all the redeemable
cumulative preference shares during the year the group has adopted
the transition arrangements under ifrs 1 and applied ias 32 financial
instruments disclosure and presentation to the current year by
reclassifying the preference shares as a liability and the associated
dividend as a component of finance expense accordingly the
comparative periods continue to show the preference shares as 
part of the group’s capital and reserves and associated dividend 
within dividends
investments in debt and equity securities
investments held by the group are classified as either a current asset
or as a noncurrent asset being available for sale and are stated at fair
value with any resultant gain or loss being recognised directly in 
equity except for impairment losses when these investments are
derecognised the cumulative gain or loss previously recognised directly
in equity is recognised in the income statement
the fair value of financial instruments is their quoted bid price at
the balance sheet date where available unquoted equity investments
are measured using discounted cash flows based upon forecast
performance
prior to the adoption of ias 39 current asset investments were held at
the lower of cost and net realisable value with impairments recorded in
the profit and loss account fixed asset investments were held at cost
derivative financial instruments
the group primarily uses derivative financial instruments to manage
operational exposures to foreign exchange and interest rate risks 
the group does not use derivative financial instruments for speculative
purposes derivative financial instruments are initially recognised at
cost and thereafter held at fair value being the market value for quoted
instruments or valuation based on models and discounted cash flow
calculations for unlisted instruments 
prior to the adoption of ias 39 on 1 april 2005 no adjustment was
made in respect of the market value of derivative financial instruments
unless the instruments were judged to be in excess of current or future 
hedging requirements
hedging – fair value
changes in the fair value of fair value hedges of currency risk or the
interest price risk are recognised in the income statement the hedged
item is held at fair value with any gain or loss recognised in the 
income statement
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qinetiq group plc  annual report 2006 63
hedging – cash flow
changes in the fair value of derivatives designated as a cash flow hedge
that are regarded as highly effective are recognised in equity the
ineffective portion is recognised immediately in the income statement
where a hedged item results in an asset or in a liability gains and losses
previously recognised in equity are included in the cost of the asset or 
of the liability gains and losses previously recognised in equity are
removed and recognised in the income statement at the same time 
as the hedged transaction
hedging – net investment
the changes in fair value of derivatives used to hedge the net
investment in a foreign entity are recognised in equity until the net
investment is sold or disposed any ineffective portion is recognised
directly in the income statement
loan issue costs
costs associated with the arrangement of bank facilities or the issue 
of loans are capitalised and deducted from against the associated
liability presented in the balance sheet capitalised issue costs are
released over the estimated life of the facility or instrument to which
they relate using the effective interest rate method if it becomes clear
that the facility or instrument will be redeemed early the amortisation
of the issue costs will be accelerated
accounting policies prior to the adoption of ias 32 and 39
for the period up to the adoption of ias 32 and ias 39 on 1 april 2005 
the following policies for derivative financial instruments interest rate
swaps foreign exchange swaps and forwards and debt instruments
consistent with uk gaap were followed for financial instruments
interest rate swaps
interest rate swaps caps and collars are revalued to fair value for
disclosure in the notes to the accounts they are not shown on the
consolidated balance sheet interest payments and receipts are
accrued and included in net interest payable as an adjustment of the
interest expense of the designated liability realised gains and losses
that occur from the early termination of such instruments
designated as a hedge are deferred and are amortised to interest
expense over the period of the hedged position to the extent that
the originally designated liability remains outstanding
foreign exchange swaps and forwards
where foreign exchange swaps and forwards are used to adjust the
currency profile of net borrowings which are matched to overseas net
investments realised and unrealised gains and losses are taken
directly to reserves where foreign exchange swaps and forwards are
used to hedge foreign currency trade debtors and creditors realised
gains and losses are recognised in the income statement where
foreign exchange contracts are used to hedge a committed future
transaction gains and losses are deferred until the transaction
occurs
debt instruments
new borrowings are stated at net proceeds received after deduction
of issue costs the issue costs are charged to the income statement
over the life of the instrument
foreign currencies
transactions in foreign currencies are recorded using the rate of
exchange ruling at the date of the transaction monetary assets and
liabilities in foreign currencies are translated at periodend rates 
any resulting exchange differences are taken to the income statement
gains and losses on designated forward foreign exchange hedging
contracts are matched against the foreign exchange movements on 
the underlying transaction 
assets and liabilities of overseas subsidiaries 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 subsidiaries and associated
undertakings and joint ventures are translated to sterling using the
average rates of exchange during the period exchange adjustments
arising from the retranslation of the opening net investment and the
results for the period to the periodend rate are taken directly to equity
and reported in the statement of recognised income and expense
postretirement benefits
the group provides both defined contribution and defined benefit
pension arrangements the liabilities of the group arising from defined
benefit obligations and the related current service cost are determined
using the projected unit credit method valuations for accounting
purposes are carried out half yearly for the largest plans and on a
regular basis for other plans actuarial advice is provided by external
consultants for the funded defined benefit plans the deficit or excess
of the fair value of plan assets less the present value of the defined
benefit obligation are recognised as an asset or a liability respectively
taking into account any unrecognised actuarial gains or losses and past
service cost 
for defined benefit plans the actuarial cost charged to the income
statement consists of current service cost interest cost expected return
on plan assets and past service cost 
actuarial gains and losses are recognised in full immediately through
the statement of recognised income and expense
contributions to defined contribution plans are charged to the income
statement as incurred 
sharebased payments
the group operates sharebased payment arrangements with
employees the fair value of equity settled options for sharebased
payments is determined on grant and expensed straight line over the
period from grant to the date of earliest unconditional exercise the fair
value of cash settled options for sharebased payments is determined
each periodend until exercised or they lapse the value is expensed
straight line over the period from grant to the date of earliest
unconditional exercise the fair value of both equity settled and cash
settled share options is calculated by a binomial option pricing model
the charges for both equity and cash settled sharebased payments 
are updated annually for nonmarket based vesting conditions
critical accounting estimates and judgements in applying
accounting policies
a description and consideration of the critical accounting estimates and
judgements made in preparing these financial statements is set out in
the operating and financial review on pages 36 to 37
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64 qinetiq group plc  annual report 2006
2 turnover
turnover and other income is analysed as follows 2006 2005
£m £m
sales of goods 732 314 
services 9622 8094 
royalties 163 151 
turnover 10517 8559 
property rental income 135 135
3 segmental analysis 
business segments
year ended 31 march 2006
qinetiq
defence  security  north
technology dual use america eliminations consolidated
£m £m £m £m £m
turnover 
external sales 6696 1337 2484 – 10517
internal sales
1
98 113 – 211 –
6794 1450 2484 211 10517
other information
ebitda before ipo costs and share of equity accounted joint ventures 
and associates and profit on disposal of equity accounted associate 790 188 271 1249
share of loss of equity accounted joint ventures and associates – 04 – 04
ebitda before ipo costs 790 184 271 1245
depreciation of property plant and equipment – own equipment 132 82 25 239
depreciation of property plant and equipment – ltpa funded 88 – – 88
amortisation of purchased or internally developed intangible assets 05 05 01 11
group operating profit before ipo costs and amortisation 
2
565 97 245 907
amortisation of intangible assets arising from acquisitions 20 07 96 123
group operating profit before ipo costs 545 90 149 784
ipo costs 89
group operating profit 695
profit on disposal of noncurrent assets 89
net finance expense 59
profit before tax 725
taxation expense 121
profit for the year 604
1
inter segment sales are priced at fair value and treated as an arm’s length transaction
2
group operating profit before ipo costs and amortisation of intangible assets arising from acquisitions and impairment of goodwill and current asset investment
notes to the financial statements continued
c12357qinetiqar06p60110qxp  14606  111 pm  page 64 3 segmental analysis continued
year ended 31 march 2005
qinetiq
defence  security  north
technology dual use america eliminations consolidated
£m £m £m £m £m
turnover 
external sales 6649 1209 701 – 8559
internal sales
1
99 124 – 223 –
6748 1333 701 223 8559
other information
ebitda before restructuring costs and share of equity 
accounted joint ventures and associates and profit on 
disposal of equity accounted associate 780 199 89 1068
share of loss of equity accounted joint ventures and associates – 25 – 25
profit on disposal of interest in equity accounted associate – 171 – 171
ebitda before restructuring costs 780 345 89 1214
depreciation of property plant and equipment – own equipment 135 113 09 257
depreciation of property plant and equipment – ltpa funded 132 – – 132
amortisation of purchased intangible assets – 02 – 02
group operating profit before restructuring costs and amortisation 
2
513 230 80 823
amortisation of intangible assets arising from acquisitions and 
impairment of goodwill and current asset investments 18 14 25 57
group operating profit before restructuring costs 495 216 55 766
restructuring costs 259
group operating profit 507
profit on disposal of noncurrent assets 291
net finance expense 18
profit before tax 780
taxation expense 57
profit for the year 723
1
inter segment sales are priced at fair value and treated as an arm’s length transaction
2
group operating profit before restructuring costs and amortisation of intangible assets arising from acquisitions and impairment of goodwill and current asset investment
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3 segmental analysis continued
year ended 31 march 2006
qinetiq
defence  security  north
technology dual use america unallocated consolidated
£m £m £m £m £m
assets and liabilities
segment assets 4635 1572 4498 1181 11886
total assets 4635 1572 4498 1181 11886
segment liabilities 1437 756 534 1516 4243
unallocated net debt 2330 2330
unallocated retirement benefit obligation 1684 1684
total liabilities 1437 756 534 5530 8257
net assets 3198 816 3964 4349 3629
other information
capital expenditure – own equipment 83 174 43 – 300
capital expenditure – ltpa funded 235 – – – 235
impairment losses recognised in income statement or equity – 05 – – 05
year ended 31 march 2005
qinetiq
defence  security  north
technology dual use america unallocated consolidated
£m £m £m £m £m
assets and liabilities
segment assets 5432 1502 1783 1203 9920
total assets 5432 1502 1783 1203 9920
segment liabilities 1689 532 154 1621 3996
unallocated net debt – – – 1733 1733
unallocated retirement benefit obligation – – – 1250 1250
total liabilities 1689 532 154 4604 6979
net assets 3743 970 1629 3401 2941
other information
capital expenditure – own equipment 65 47 14 – 126
capital expenditure – ltpa funded 59 – – – 59
impairment losses recognised in income statement or equity 05 – – 23 28
 capital expenditure is defined as cash paid for property plant and equipment additions and purchased intangible assets
notes to the financial statements continued
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geographical segments
turnover
turnover by destination 2006 2005
£m £m
united kingdom 7339 7325 
north america 2687 869 
other 491 365 
total 10517 8559
gross assets gross liabilities
assetsliabilities by location 2006 2005 2006 2005
£m £m £m £m
united kingdom 7335 8135 7679 6824 
north america 4498 1783 534 154 
other 53 02 44 01 
total 11886 9920 8257 6979 
capital expenditure by location 2006 2005
£m £m
united kingdom 492 171
north america 43 14
total 535 185
4 profit before tax
the following items have been chargedcredited in arriving at profit before tax
notes 2006 2005
£m £m
audit services
– statutory audit 06 05 
further assurance services
– fees in respect of pension schemes 01 01
– tax advisory services 01 02
– other 01 02 
t otal auditors’ remuneration 09 10
inventories recognised as an expense 335 146
depreciation of property plant and equipment
– owned assets 298 379
– under finance lease 29 10
research and development expenditure including costs under customer funded contracts 5047 5026
amortisation of intangible assets and impairment of goodwill and current asset investments
– goodwill impairment 12 –05
– intangible asset amortisation 13 134 44
– negative goodwill 14 – 13
– current asset investment impairment –23
134 59
 the group has additionally incurred £37m for reporting accountant’s and due diligence services from its auditor related to the ipo for reporting accountants’ and due diligence
services this amount has not been charged in arriving at profit for the period as it has been charged to the share premium account
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68 qinetiq group plc  annual report 2006
5 restructuring costs
2006 2005
£m £m
restructuring costs – 259 
in the year to 31 march 2005 restructuring costs resulted from the restructuring of the uk business into two marketfacing sectors and the
consequent release of approximately 260 staff from the business the restructuring cost resulted in a tax credit of £78m with nil cash flow in the year
6 profit on disposal of noncurrent assets
2006 2005
£m £m
profit on disposal of noncurrent assets 89 291
on 30 september 2005 the group sold the fort halstead freehold site for cash proceeds of £400m resulting in a profit on disposal costs of £138m
on 31 march 2006 the group sold two buildings in farnborough for £247m resulting in a loss on disposal of £131m a total of £60m of the gross
proceeds is due in instalments with £10m due by 30 september 2006 and a further £50m due on 31 march 2007
cash proceeds of £481m were received in the year relating to a prior year disposal chertsey giving a profit on disposal of £75m on consideration
contingent on certain planning approvals being granted additionally cash proceeds and profit of £34m has been recognised on the satisfaction of
performance criteria relating to the aquila disposal
other fixed asset disposals generated net cash proceeds of £54m and a related loss on disposal of £27m
on 21 june 2004 the group sold the pyestock north freehold site for £479m net of costs resulting in a profit on disposal of £307m the cash
consideration was £540m and disposal costs and associated works totalled £61m there was an £87m tax charge in respect of this disposal 
other fixed asset disposals in the financial year to 31 march 2005 generated net cash proceeds of £27m and a related loss on disposal of £16m
7 finance income and expense
2006 2005
£m £m £m £m
receivable on bank deposits 38 36
finance lease income 24 26
release of discount on mod indemnity 22 19
finance income 84 81
amortisation of recapitalisation fee 16 45
payable on bank loans and overdrafts 133 41 
payable on aquilachertsey loan note – 11 
finance lease expense 10 –
other loan interest – 02 
preference share interest 31 –
interest payable 174 54
finance expense 190 99
net finance costs before ipo related items 106 18
release of remaining discount on mod indemnity see note 45 47 –
net finance expense 59 18
notes to the financial statements continued
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8 taxation expense
2006 2005
£m £m
a analysis of charge
uk corporation tax at 30 ––
overseas corporation tax 74 10
overseas corporation tax in respect of previous periods – 01
total corporation tax 74 09
overseas withholding tax 24 13
deferred tax 77 35
deferred tax in respect of prior years 54 –
taxation expense 121 57
b factors affecting the tax charge in year
the principal factors reducing the group’s current year tax charge 
below the uk statutory rate are explained below
profit before tax 725 780 
tax on profit before tax at 30 218 234
effect of
expenses not deductible for tax purposes tax relief and 
nontaxable items arising on consolidation 84 190
unprovided tax losses of overseas subsidiaries 13 –
overseas withholding tax 24 13
deferred tax in respect of prior years 54 –
effect of different rates in overseas jurisdictions 04 –
taxation expense 121 57
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 in the uk will
continue to be a major contributory factor in reducing the future tax charge 
9 dividends
during the year to 31 march 2006 the group has not declared or paid equity dividends year to 31 march 2005 £nil on 7 june 2006 the directors
proposed a dividend of 225 pence per ordinary share payable on 23 august 2006 
as discussed in note 1 the accounting treatment under ias 32 financial instruments disclosure and presentation requires the preferences shares
dividends to be classified as a finance expense the group has adopted this standard with effect from 1 april 2005 and accordingly only the
preference share dividend for the current year is reflected in note 7 ‘finance income and expense’ 
preference share dividends accrued and paid are as follows
2006 2005
£m £m
at 1 april 74 111
preference share dividend accrued in year 31 52
preference share dividend paid in year 105 89
at 31 march –74
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notes to the financial statements continued
10 analysis of employee costs
the largest component of operating expenses is employee costs the yearend and average monthly number of persons employed by the group
including directors analysed by business segment was
year end monthly average 
2006 2005 2006 2005
number number number number
defence  technology 6791 6905 6883 6899 
security  dual use 1643 1790 1695 1715
qinetiq north america 2640 1374 2083 669
corporate 372 361 363 349 
total 11446 10430 11024 9632
the aggregate payroll costs of these persons were as follows
2006 2005
£m £m
wages and salaries 4084 3158
social security costs 352 283
other pension costs 483 507
cost of share based payments see note 37 01 –
employee costs before ipo and restructuring costs 4920 3948
ipo costs see note 45 68 –
restructuring costs see note 5 – 259
total employee costs 4988 4207
11 earnings per share
basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary
shares outstanding during the year on an adjusted basis to reflect the share restructuring that took place at ipo for diluted earnings per share the
weighted average number of shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares arising from share options
granted underlying earnings per share figures presented below reflect adjustments for the impact of nonrecurring and other items on basic earnings
per share
weighted
average
number of per share
year ended 31 march 2006 earnings shares amount
£m million pence
basic 581 5824 998
effect of dilutive securities – options – 124
diluted 581 5948 977
weighted
average
number of per share
underlying earnings per share earnings shares amount
£m million pence
basic 581 5824 998
ipo related items see note 45 42
amortisation of intangible assets arising from acquisitions 123
profit on disposal on noncurrent assets 89
tax impact of items above 07
brought forward unprovided tax losses utilised in year 54
underlying 596 5824 1023
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11 earnings per share continued
weighted
average
number of per share
year ended 31 march 2005 earnings shares amount
£m million pence
profit for the period 739 5730
net profit attributable to preference shareholders 52
basic 687 5730 1199
effect of dilutive securities – options – 128
diluted 687 5858 1173
weighted
average
number of per share
underlying earnings per share earnings shares amount
£m million pence
basic 687 5730 1199
restructuring costs 259
profit on disposal on noncurrent assets and interest in equity 
accounted associate 462
amortisation of intangible assets arising from acquisitions and impairment
of goodwill and current asset investments 57
tax impact of items above 10
brought forward unprovided tax losses utilised in year 47
underlying 504 5730 880
12 goodwill
2006 2005
£m £m
cost
at 1 april 1320 05 
acquisitions note 14 1639 1351
foreign exchange 196 36
at 31 march 3155 1320
impairment
at 1 april 05 –
impairment losses for the year – 05 
at 31 march 05 05 
net book value at 31 march 3150 1315
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notes to the financial statements continued
13 intangible assets
acquired other
intangible development intangible
year ended 31 march 2006 assets costs assets total
£m £m £m £m
cost
at 1 april 2005 387 23 07 417
additions – internally developed – 63 – 63
additions – purchased –– 22 22
additions – recognised on acquisitions note 14 210 – – 210
foreign exchange 33 – 33
at 31 march 2006 630 86 29 745
amortisation and impairment
at 1 april 2005 42 – 02 44
amortisation charge for the year 123 05 06 134
foreign exchange 03–– 03
at 31 march 2006 168 05 08 181
net book value at 31 march 2006 462 81 21 564
acquired other
intangible development intangible
year ended march 2005 assets costs assets total
£m £m £m £m
cost
at 1 april 2004 – 05 – 05
additions – internally developed – 18 – 18
additions – purchased – – 07 07
additions – recognised on acquisitions note 14 399 – – 399
foreign exchange 12 – – 12
at 31 march 2005 387 23 07 417
amortisation and impairment
at 1 april 2004 –– – –
amortisation charge for the year 42 – 02 44
at 31 march 2005 42 – 02 44
net book value at 31 march 2005 345 23 05 373
net book value at 31 march 2004 – 05 – 05
14 business combinations
in the financial year to 31 march 2006 the group made three acquisitions in north america planning systems inc planning systems apogen
technologies inc apogen and sim author inc sim author one in continental europe verhaert design and development nv verhaert and two 
in the uk graphics research corporation limited grc and broadreach networks limited broadreach if these acquisitions had been completed at
1 april 2005 group turnover for the year ended 31 march 2006 would have been £11202m and group profit before tax would have been £764m
principal us acquisitions
summary profit and loss accounts for the two principal acquisitions in the year planning systems and apogen prior to acquisition are shown below
these results are extracted from the audited financial statements for the relevant periods which were prepared under us gaap  the results have been
converted into sterling at the exchange rates ruling at that time and have not been adjusted to ifrs
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14 business combinations continued
period from year from period
1 january 1 january 1 august
2005 to 2004 to 2003 to
1 september 31 december 31 december
planning systems 2005 2004 2003
£m £m £m
income statement
revenue 197 243 100 
income from operations 09 11 05 
profit before taxation 08 12 05 
taxation expense 01 – –
profit after tax 07 12 05 
period from year from year from
1 january 1 january 1 january
2005 to 2004 to 2003 to
8 september 31 december 31 december
apogen 2005 2004 2003
£m £m £m
income statement
revenue 687 1090 363
income from operations 73 96 13
profit before taxation 55 77 06
taxation expense 25 32 02
profit after tax 30 45 04
on 2 september 2005 the group acquired the whole of the share capital of planning systems for an initial cash consideration before acquisition costs
of £243m 444m including £16m 28m for planning systems’ cash and surplus working capital a further £09m of additional consideration was
payable on the achievement of certain performance criteria in the 12 months ended 31 december 2005 in addition an estimate of £08m 15m
has been provided for the additional consideration of up to £16m 30m which is payable dependent on the performance of the company for the
year ending 31 december 2006
on 9 september 2005 the group acquired the whole of the share capital of apogen for a cash consideration before acquisition costs of £1303m
2385m and assumed debt of £292m 535m this included £17m 32m for apogen’s cash and surplus working capital
set out below are the preliminary allocations of purchase consideration assets and liabilities of the north america acquisitions made in the period
and the provisional adjustments required to the book values of the assets and liabilities of the businesses acquired in order to present the net assets
of these businesses at fair values and in accordance with group accounting principles
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14 business combinations continued
apogen planning systems
fair value fair value at fair value fair value at 
book value adjustment acquisition book value adjustment acquisition
note £m £m £m £m £m £m
intangible assets 616 503 113 14 48 62
property plant and equipment 09 01 08 05 – 05
investments – – – 10 10 –
trade and other receivables 223 95 318 52 – 52
trade and other payables 156 – 156 37 21 58
cash and cash equivalents 28 – 28 34 – 34
debt and other borrowings 292 – 292 – – –
deferred taxation 28 08 29 37 – – – 
net assetsliabilities acquired 420 438 18 78 17 95
goodwill 1327 170
1309 265
consideration satisfied by
cash 1315 243 
deferred consideration –17
recoverable amount 12 –
total consideration 1303 260
related costs of acquisition 06 05
1309 265
the apogen fair value adjustment of £438m primarily relates to the reversal of goodwill of £616m recognised on previous acquisitions made by
apogen the recognition of acquired intangible assets of £113m the impairment of £05m of debt issue costs the recognition of £100m of taxes
recoverable and the recognition of a deferred tax liability of £29m in relation to the acquired intangible assets from the date of acquisition to
31 march 2006 apogen has contributed turnover of £602m and operating profit of £69m
the planning systems fair value adjustment of £17m relates to a £10m adjustment to the value of an investment in a subsidiary a £21m tax liability
in relation to the change in tax status of the company at the time of the acquisition and the recognition of £61m of acquired intangible assets less a
£13m adjustment to preacquisition goodwill and intangibles from the date of acquisition to 31 march 2006 planning systems has contributed
turnover of £170m and an operating profit of £08m
other acquisitions 
on 1 september 2005 the group acquired 90 of the share capital of verhaert for an initial cash consideration before acquisition costs of £41m
€59m including £02m €03m for verhaert’s cash and surplus working capital a further £16m €23m of contingent consideration is payable
dependent on the performance of the company for the years ending 31 december 2005 and 2006 net assets of £38m €54m were acquired which
together with acquisition costs of £02m €03m resulted in £39m €56m of provisional goodwill arising on this acquisition from the date of
acquisition to 31 march 2006 verhaert has contributed turnover of £103m and an operating profit of £06m 
on 23 september 2005 the group acquired the business and certain assets of broadreach through its 100 owned subsidiary qinetiq rail limited 
for £03m there was nil goodwill arising on this acquisition
on 1 march 2006 the group acquired the whole of the share capital of simauthor for a cash consideration before acquisition costs of £46m 80m
net assets of £09m 16m were acquired which together with acquisition costs of £02m 03m resulted in a provisional value of goodwill of
£39m 68m pending the completion of the valuation exercise to quantify the level of identifiable intangible assets
on 2 march 06 the group acquired 100 of the share capital of graphic research corporation ltd grc for an initial cash consideration of £10m 
in addition there is a deferred payment of £06m for cash and surplus working capital which was settled in may 2006 there was £05m of goodwill
arising on this acquisition
set out below are the preliminary allocations of purchase consideration assets and liabilities of the other acquisitions made in the year and the
provisional adjustments required to the book values of the assets and liabilities of the businesses acquired in order to present the net assets of these
businesses at fair value and in accordance with group accounting principles
notes to the financial statements continued
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14 business combinations continued
fair value at
book value adjustments acquisition
note £m £m £m
intangible assets 06 29 35
property plant and equipment 06 – 06
trade and other receivables 37 – 37
trade and other payables 40 – 40
cash and cash equivalents 12 – 12
deferred taxation 28 – 08 08 
net assets acquired 21 21 42
minority interest 01
goodwill 83 
126
consideration satisfied by
cash 100 
deferred consideration 06
contingent consideration 16 
total consideration 122
related costs of acquisition 04 
126
the fair value adjustments in the year to 31 march 2006 consist of fair value adjustments of £20m relating to the recognition of acquired intangible
assets in relation to verhaert £06m in relation to simauthor £03m in relation to grc and the recognition of a deferred tax liability of £08m in
relation to the acquired intangible assets of verhaert 
year to 31 march 2005
us acquisitions 
on 8 october 2004 the group acquired the whole of the share capital of westar for an initial consideration before acquisition costs of £754m
1365m including £30m 55m for westar’s cash and surplus working capital in the year ended 31 march 2006 provision has been made for
additional consideration of £51m 90m which is payable dependent on the profits of the company for the year ending 31 december 2005 which
had not previously been recognised due to uncertainty as to attainment of the underlying performance targets 
on 5 november 2004 the group acquired the whole of the share capital of fostermiller inc fostermiller for an initial consideration before
acquisition costs of £1040m 1914m including £105m 193m  for fostermiller’s cash and surplus working capital
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14 business combinations continued
set out below are the allocations of purchase consideration assets and liabilities of the acquisitions of westar and fostermiller made in the year 
and the adjustments required to the book values of the assets and liabilities of the businesses acquired in order to present the net assets of these
businesses at fair values and in accordance with group accounting principles
12 months to 31 march 2005
westar fostermiller
fair value fair value at fair value fair value at
book value adjustment acquisition book value adjustment acquisition
note £m £m £m £m £m £m
intangible assets 79 58 21 – 322 322 
property plant and equipment 10 – 10 33 – 33 
trade and other receivables 254 – 254 213 – 213 
trade and other payables 199 – 199 105 – 105
cash and cash equivalents 35 – 35 82 – 82 
provisions for liabilities and charges – – – 02 – 02
deferred taxation 28 – 08 08 32 129 97 
net assets acquired 179 66 113 253 193 446 
goodwill 652 605 
765 1051
consideration satisfied by
cash 715 983 
deferred consideration 39 57 
total consideration 754 1040
related costs of acquisition 11 11 
765 1051
the westar fair value adjustment of £66m relates to the reversal of goodwill of £79m recognised on a previous acquisition made by westar the
recognition of acquired intangible assets of £21m and the recognition of a deferred tax liability of £08m in relation to the acquired intangible assets
from the date of acquisition to 31 march 2005 westar contributed turnover of £435m and operating profit of £58m 
the fostermiller fair value adjustment of £193m relates to the recognition of acquired intangible assets of £322m and the recognition of a deferred
tax liability of £129m in relation to the acquired intangible assets from the date of acquisition to 31 march 2005 fostermiller contributed turnover
of £258m and operating profit of £34m 
other acquisitions 
on 5 august 2004 the group acquired hvr group limited for a consideration before acquisition costs of £136m the provisional fair value of net
assets at this date was £44m resulting in goodwill on acquisition of £94m after £02m of acquisition costs included in the acquisition cost is £39m
of deferred consideration settled through the issue of loan notes which are redeemable from six months after issue until 31 july 2009 the deferred
consideration was recognised in the second half of the year to 31 march 2005 once the underlying performance criteria had been satisfied 
on 1 september 2004 the group 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 801 of the share capital negative goodwill of £13m which was recognised immediately in the
income statement and a minority interest of £03m were recorded on completion
on 20 september 2004 the group purchased the remaining 55 that it did not previously own of asap calibration limited making this a wholly
owned subsidiary the consideration of £10m was identical to the fair value of net assets acquired 
notes to the financial statements continued
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14 business combinations continued
set out below are the preliminary allocations of purchase consideration assets and liabilities of the other acquisitions made in the year ended 
31 march 2005 and the provisional adjustments required to the book values of the assets and liabilities of the businesses acquired in order to present
the net assets of these businesses at fair value and in accordance with group accounting principles
12 months to 31 march 2005
fair value at
book value adjustments acquisition
note £m £m £m
intangible assets 16 40 56 
property plant and equipment 08 – 08 
trade and other receivables 30 – 30 
trade and other payables 39 – 39
cash and cash equivalents 34 – 34 
loans 05 – 05
defined benefit pension scheme net liabilities 42 – 04 04
deferred taxation 28 – 16 16 
net assets acquired 44 20 64 
minority interest 03 
negative goodwill recognised in income statement 13
goodwill 94 
148
consideration satisfied by
cash 98 
loan notes 09 
deferred consideration 39 
total consideration 146
related costs of acquisition 02 
148 
the fair value adjustments in the year ended 31 march 2005 relate to the elimination of qinetiq developed intellectual property rights of £16m held
by aurix ltd the recognition of acquired intangible assets of £56m and an associated deferred tax liability of £16m additionally an accounting policy
adjustment was made to recognise aurix ltd’s pension liability of £04m in accordance with group accounting policy
update to preliminary fair values of acquisitions made in the year ended 31 march 2005
in relation to the acquisitions of westar and fostermiller in 2004 the following adjustments have been made to the preliminary fair values of
consideration due to the satisfaction of the performance criteria in the 12 months ended 31 december 2005 and the provision of deferred
consideration for the payments due on the performance for the 12 months ended 31 december 2006 an adjustment has been made to the
preliminary fair value of net assets acquired on acquisition of fostermiller for a tax liability
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78 qinetiq group plc  annual report 2006
14 business combinations continued
westar fostermiller
fair value as fair value as
previously fair value fair value as previously fair value fair value as
stated adjustment restated stated adjustment restated
£m £m £m £m £m £m
net assets acquired 113 – 113 446 09 437
goodwill 652 51 703 605 08 613
765 51 816 1051 01 1050
consideration satisfied by
cash 715 39 754 983 56 1039
deferred consideration 39 39 – 57 57 –
deferred consideration recognised in the year to 31 march 2006 – 51 51–––
total consideration 754 51 805 1040 01 1039
related costs of acquisition 11 – 11 11 – 11
765 51 816 1051 01 1050
during the year there was a £39m payment of deferred consideration in relation to the acquisition of hvr that had been provided at 31 march 2005
15 property plant and equipment
plant computers
land and machinery and office assets under
year ended 31 march 2006 buildings and vehicles equipment construction total
£m £m £m £m £m
cost
at 1 april 2005 3410 672 196 103 4381
additions 24 32 46 348 450
acquisitions – 04 15 – 19
disposals 402 23 – 02 427
transfers  – 187 05 192 –
transfer to disposal group 39 – – – 39
foreign exchange 01 01 02 – 04
at 31 march 2006 2994 873 264 257 4388
depreciation
at 1 april 2005 249 391 62 – 702
charge for the year 126 132 69 – 327
disposals 37 05 – – 42
transfer to disposal group 03 – – – 03
foreign exchange – 01 – – 01
at 31 march 2006 335 519 131 – 985
net book value at 31 march 2006 2659 354 133 257 3403
notes to the financial statements continued
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15 property plant and equipment continued
plant computers
land and machinery and office assets under
year ended 31 march 2005 buildings and vehicles equipment construction total
£m £m £m £m £m
at 1 april 2004 3554 675 125 93 4447
additions 07 15 87 109 218
acquisitions 13 14 22 02 51
disposals 177 88 61 09 335
transfers 13 56 23 92 –
at 31 march 2005 3410 672 196 103 4381
depreciation
at 1 april 2004 128 225 63 – 416
charge for the year 121 208 60 – 389
disposals – 42 61 – 103
at 31 march 2005 249 391 62 – 702
net book value at 31 march 2005 3161 281 134 103 3679
net book value at 31 march 2004 3426 450 62 93 4031
 at 31 march 2006 certain property has been presented as held for sale and transferred to a disposal group see note 24
 other transfers of property plant and equipment 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
assets held under finance leases capitalised and included in computers and equipment have
– a cost of £52m 31 march 2005 £52m 
– aggregate depreciation of £29m 31 march 2005 £10m and
– a net book value of £23m 31 march 2005 £42m
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 39 ‘transactions with the mod’
16 investment property 
2006 2005
£m £m
cost and net book value
brought forward 66 66 
disposals 08 –
carried forward 58 66
the group considers the fair value of investment property to be greater than or equal to net book value
2006 2005
£m £m
the following amounts have been creditedcharged in arriving at group operating profit
rental income from investment property 07 05 
direct operating expenses arising on investment property generating rental income 02 03 
all investment property generated income in the year
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80 qinetiq group plc  annual report 2006
notes to the financial statements continued
17 financial assets
2006 2005
£m £m
net investment in finance lease 150 156
derivative financial instruments 71 –
total noncurrent financial asset 221 156
t otal current financial assets – net investment in finance lease 30 30
total financial assets 251 186
18 noncurrent asset investments
2006 2005
£m £m
available for sale investments 13 05
on 30 june 2005 the group acquired a 17 interest in last mile communications limited for £02m the investment is held at £02m at 31 march 2006 
on 14 december 2005 the group sold certain intellectual property to metalysis limited and received settlement for the sale in the form of a 100
interest in the ordinary share capital of the company the investment is held at fair value of £08m
on 23 march 2006 the group sold certain intellectual property to stingray geophysical and received a 199 interest in stingray geophysical 
the investment is held at £03m which represents the value of the group’s holding based upon investments in stingray geophysical by third parties
the group’s interest in stingray geophysical may increase upon satisfaction of certain performance criteria to the extent that the group will receive
30 of the proceeds of a sale or disposal
at 31 march 2006 and 31 march 2005 the group held a 108 interest in sciemus limited which was acquired on 14 september 2004 the net book
value of the investment was written down to nil in the year ended 31 march 2006 due to the uncertainty of future cashflows
19 equity accounted investments
year ended 31 march 2006
restructuring 
associates’ group gross of group’s group net
financial share of funding of share of
results associates associates associates
£m £m £m £m
turnover 42 14 – 14
loss after tax 41 15 11 04
noncurrent assets 12 03 – 03
current assets 18 07 02 05
30 10 02 08
current liabilities 27 12 10 02
noncurrent liabilities 07 03 03 –
34 15 13 02
net assets 04 05 11 06
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19 equity accounted investments continued
year ended 31 march 2005
group
associates’ group share group
financial share of of joint share
results associates ventures total
£m £m £m £m
turnover 58 21 09 30
cost of sales 02
operating expenses 11
finance costs 01
loss before tax 05
tax 01
loss after tax 58 21 04 25
noncurrent assets 02 01 – 01
current assets 30 14 – 14
32 15 – 15
current liabilities 32 15 – 15
32 15 – 15
net assets ––––
details of the group’s associates are set out in note 47
on 4 august 2004 the group sold its 427 interest in psimedica limited to psivida limited for £167m the consideration was settled by £17m 
in cash and £150m by way of the issue of new psivida limited shares representing 163 of its issued share capital the group recorded a profit
on disposal of £171m the shares are held as current asset investments see note 23
the unrecognised share of losses of associates at 31 march 2006 was £11m 31 march 2005 nil representing associate losses the group has no
obligation to fund following the restructuring of the funding arrangements for qs4 limited see note 36
during the year ended 31 march 2006 sales of £12m year ended 31 march 2005 £15m were made to associates and joint ventures and at 31
march 2006 associates and joint ventures had an outstanding debtor balance of £10m 31 march 2005 £27m
20 inventories
2006 2005
£m £m
raw materials 36 11
work in progress 56 55
finished goods 162 112
254 178
21 trade and other receivables
2006 2005
£m £m
trade debtors 1948 2191
amounts recoverable under contracts 947 896
current tax 36 40
other debtors 178 481
prepayments 217 108
3326 3716
included within amounts recoverable under contracts is £78m 31 march 2005 £235m due after one year
trade debtors include a provision for doubtful debts of £42m 31 march 2005 £32m
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82 qinetiq group plc  annual report 2006
22 cash and cash equivalents 
2006 2005
£m £m
cash 589 123 
at 31 march 2006 £106m 31 march 2005 £88m of cash is held by the group’s captive insurance subsidiary the amount is included above but can
only be used for insurance purposes or utilised by the group with prior approval by the subsidiary board and relevant insurance regulator
23 current asset investments
2006 2005
£m £m
listed investments 112 128
at 31 march 2006 the group held 357 million shares in psivida limited 31 march 2005 357 million a company listed on the australian stock
exchange the investment is held at fair value using the closing share price at 31 march 2006 of a075 per share 31 march 2005 a088
during the year a loss of £16m has been recognised directly in reserves
24 noncurrent assets identified as held for sale
2006 2005
£m £m
assets held for sale 36 –
at 31 march 2006 certain property has been presented as held for sale 
25 trade and other payables – current
2006 2005
£m £m
payments received on account 643 1031
trade creditors 373 201
current tax 26 –
other tax and social security 422 400
other creditors 229 255
accruals and deferred income 1334 1206
3027 3093
26 other payables – noncurrent 
2006 2005
£m £m
other creditors 29 17
notes to the financial statements continued
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27 provisions for liabilities and charges
reorganisation other tot al
year ended 31 march 2006 £m £m £m
at 1 april 2005 282 161 443
utilised in year 263 06 269
released in year 19 38 57
created in year 94 54 148
at 31 march 2006 94 171 265
current liability 94 79 173
noncurrent liability –92 92
at 31 march 2006 94 171 265
reorganisation other tot al
year ended 31 march 2005 £m £m £m
at 1 april 2004 36 176 212
acquired in year –02 02
utilised in year 57 31 88
released in year 06 32 38
created in year 309 46 355
at 31 march 2005 282 161 443
current liability 282 53 335
noncurrent liability – 108 108
at 31 march 2005 282 161 443
reorganisation provisions relate to current year and prior year restructuring of the group other provisions comprise legal environmental statutory
property and other liabilities 
28 deferred tax
deferred tax assets and liabilities are only offset where there is a legally enforceable right to offset and there is an intention to settle the balances net
movements on the deferred tax assets and liabilities are shown below
year ended 31 march 2006
pension liability other total
deferred tax asset £m £m £m
at 1 april 2005 488 61 549
created 16 – 16
released – 77 77
transferred to deferred tax liabilities –16 16
gross deferred tax asset at 31 march 2006 504 – 504
less asset available for offset 380
net deferred tax asset at 31 march 2006 124
the net deferred tax asset created in the year relating to the pension liability includes £87m created in equity
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84 qinetiq group plc  annual report 2006
28 deferred tax continued
accelerated tax
depreciation and
amortisation other hedging total
deferred tax liability £m £m £m £m
at 1 april 2005 499 – – 499
acquisitions 45 – – 45
created – – 15 15
released 125 – – 125
transferred from deferred tax assets – 16 – 16
foreign exchange 07 – – 07
created on adoption of ias 32  39 – – 05 05
gross deferred tax liability at 31 march 2006 426 16 20 462
less asset available for offset 380
net deferred tax liability at 31 march 2006 82
deferred tax movements on hedging have been recognised in equity
year ended 31 march 2005
pension liability other total
deferred tax asset £m £m £m
at 1 april 2004 302 43 345
acquisitions –17 17
created 213 01 214
credit in respect of tax on additional payment to pension scheme 27 – 27
gross deferred tax asset at 31 march 2005 488 61 549
less asset available for offset 398
net deferred tax asset at 31 march 2005 151
£186m of the deferred tax asset recognised in the year relating to the pension liability was created in equity the £27m credit in respect of tax on
additional payment to pension scheme was recognised in equity
accelerated tax
depreciation and
amortisation total
deferred tax liability £m £m
at 1 april 2004 298 298
acquisitions 138 138
created 79 79
released 16 16
gross deferred tax liability at 31 march 2005 499 499
less asset available for offset 398
net deferred tax liability at 31 march 2005 101
at the balance sheet date the group had unused tax losses of £402m potentially available for offset against future profits no deferred tax asset has
been recognised in respect of this amount these losses can be carried forward indefinitely
notes to the financial statements continued
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29 financial liabilities – current
2006 2005
£m £m
aquilachertsey loan note – 459
other loan notes 15 –
deferred financing costs 01 03
finance lease creditor 49 16
other bank borrowings 03 73
66 545
further analysis of the terms and maturity dates for financial liabilities are set out in note 31
30 financial liabilities – noncurrent
2006 2005
£m £m
bank loan 2914 1508 
deferred financing costs 05 12
2909 1496
loan notes 38 09 
derivative financial instruments 05 –
finance lease creditor 152 25
3104 1530
further analysis of the terms and maturity dates for financial liabilities are set out in note 31
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86 qinetiq group plc  annual report 2006
31 financial instruments
treasury policies
the qinetiq group treasury department operates within a framework of policies and procedures approved by the audit committee which include
strict controls on the use of financial instruments in managing the group’s risk the audit committee receives regular reports on the activities of the
treasury department the group does not undertake any speculative trading activity in financial instruments the treasury department is responsible
for treasury strategy funding requirements cash management banking relationships the management of financial risk including interest rate
currency exposures and covenant compliance and other treasury issues throughout the group all treasury interfaces with banks and third parties are
governed by dealing mandates facility letters and other agreements
the disclosures below exclude shortterm debtors and creditors and deferred tax except for the analysis of net currency exposure
a fair values of financial instruments
all financial assets and liabilities with the exception of derivative financial instruments at 31 march 2005 have a fair value identical to book value at
31 march 2006 and 31 march 2005
following adoption of ias32 and ias39 in the year ended 31 march 2006 the group has recognised derivative financial instruments at their fair values
in the financial statements prior to adoption of ias32 and ias39 derivative financial instruments were not recognised until expiry or sale
book value fair value
2006 2005 2006 2005
derivative financial instruments £m £m £m £m
interest rate swaps and similar instruments 71 – 71 19
forward currency contracts 05 – 05 01
market values where available have been used to determine fair values where market values are not available fair values have been calculated 
by discounting cashflows at prevailing interest rates except for unlisted fixed asset investments which are given a fair value equal to book value
b interest rate risk
31 march 2006 fixed or noninterest
capped floating bearing total
financial assets £m £m £m £m
sterling 180 531 – 711
us dollar – 58 71 129
other – – 109 109
180 589 180 949
floating rate financial assets attract interest based on the relevant national libid equivalent
fixed or noninterest
capped floating bearing total
financial liabilities £m £m £m £m
sterling 239 09 05 253
us dollar 2537 331 – 2868
other – 49 – 49
2776 389 05 3170
floating rate financial assets attract interest based on the relevant national libor equivalent
financial financial
assets liabilities net
£m £m £m
of which
cash and cash equivalents 589 – 589
bank borrowings loans and loan notes – 2964 2964
finance leases 180 201 21
investments 109 – 109
derivative financial instruments 71 05 66
949 3170 2221
notes to the financial statements continued
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31 financial instruments continued
31 march 2005 fixed or noninterest
capped floating bearing total
financial assets £m £m £m £m
sterling 186 107 05 298
us dollar – 09 – 09
other – 07 128 135
186 123 133 442
floating rate financial assets attract interest based on the relevant national libid equivalent
fixed or noninterest
capped floating bearing total
financial liabilities £m £m £m £m
sterling 41 67 459 567
us dollar 1217 291 – 1508
1258 358 459 2075
floating rate financial assets attract interest based on the relevant national libor equivalent
financial financial
assets liabilities net
£m £m £m
of which
cash and cash equivalents 123 – 123
bank borrowings loans and loan notes – 2034 2034
finance leases 186 41 145
investments 133 – 133
442 2075 1633
for the fixed or capped rate financial assets and liabilities the average interest rates and the average period for which the rates are fixed are
weighted weighted weighted weighted
fixed or average average fixed or average average
capped interest rate years to capped interest rate years to
£m  maturity £m  maturity
2006 2006 2006 2005 2005 2005
financial assets
sterling 180 134 90 186 134 100
financial liabilities
sterling 239 110 76 41 67 23
us dollar 2537 43 32 1217 44 37
2776 50 36 1258 45 36
sterling assets and liabilities consist primarily of finance leases with the weighted average interest rate reflecting the internal rate of return of 
those leases
interest rate risk management
a significant portion of the group’s debt is floating rate debt and therefore is exposed to movements in interest rates at 31 march 2006 the group
held swaps to convert 89 31 march 2005 86 of the bank debt to fixed or capped rates
c currency risk
the table below shows the group’s currency exposures being exposures on currency transactions that give rise to net currency gains and losses
recognised in the income statement 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 nonsterling borrowings treated as hedges of net investments in 
overseas entities
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88 qinetiq group plc  annual report 2006
31 financial instruments continued
functional currency of the operating company
net foreign currency monetary assets
us dollar euro other total
£m £m £m £m
31 march 2006 – sterling 12 04 03 19
31 march 2005 – sterling 20 39 04 63 
the amounts shown in the table take into account the effect of the forward contracts entered into to manage these currency exposures
foreign exchange risk management
during the year ended 31 march 2006 the majority of the group’s income and expenditure was settled in the functional currency of the relevant
group entity principally sterling or us dollar the most significant foreign currencies to which the group is exposed are the us dollar and euro the
audit committee has approved policies dealing with transaction exposures typically being trading cash flows which impact the income statement
and translation exposure the investment in and underlying assets and liabilities of overseas subsidiaries the group’s policy is to hedge all material
transaction exposure at the point of commitment to the underlying transaction the group does not typically hedge uncommitted future
transactions although transaction risks are fully considered and appropriately mitigated when bidding for new work the group does not hedge
income statement translation exposure
d maturity of financial liabilities
finance
bank leases and
borrowings derivative
and loan financial
notes instruments total
at 31 march 2006 £m £m £m
due in one year or less 17 49 66
due in more than one year but not more than two years – 27 27
due in more than two years but not more than five years 2947 66 3013
due in more than five years –64 64
2964 206 3170
bank
borrowings
and loan finance
notes leases total
at 31 march 2005 £m £m £m
due in one year or less 529 16 545
due in more than one year but not more than two years – 22 22
due in more than two years but not more than five years 1505 03 1508
2034 41 2075
e borrowing facilities
at 31 march 2006 the following committed facilities were available to the group
interest rate total drawn undrawn
£m£m£m
multicurrency revolving facility libor plus 0375 5000 2914 2086
hvr loan notes base minus 10 15 15 –
damega corporation loan note 75 38 38 –
us dollar revolving facilities libor plus 15 to plus 205 189 – 189
committed facilities 31 march 2006 5242 2967 2275
committed facilities 31 march 2005 3563 1976 1587
loans drawn under the £500m multicurrency revolving facility are repayable within twelve months but have been classified as due in more than two
years as the relevant committed facilities are available until 19 august 2010 with the banks’ option at the group’s request to extend for a further two
years the loans bear interest at a variable margin over libor of between 035 and 0725 dependent on the ratio of ebitda to net debt and the level
of utilisation
notes to the financial statements continued
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31 financial instruments continued
the hvr loan notes were issued in connection with the acquisition of hvr consulting ltd they are repayable on request of the holders but no later
than 31 july 2009 and they bear interest at a discount to lloyds tsb base rate
the damega corporation loan note relates to funding from the minority shareholder of quintel technology limited the loan notes are repayable on
request by damega corporation but no later than 17 may 2007 
credit risk management
credit risk arises because a counterparty may fail to perform its obligations the group is exposed to credit risks on financial instruments such as
liquid assets derivative assets and trade receivables credit risk is managed by investing liquid assets and acquiring derivatives with high credit quality
financial institutions in accordance with the group’s treasury management guidelines the group is not exposed to concentrations of credit risk on its
liquid assets as these are spread over several financial institutions trade receivables are subject to credit limits control and approval procedures across
the group the nature of the group’s operations leads to concentrations of credit risk on its trade receivables the majority of the group’s credit risk is
with the uk and us governments
32 reconciliation of net cash flow to movement in net debt
year ended year ended
31 march 2006 31 march 2005
note £m £m £m £m
increasedecrease in cash in the year 536 1496
new loans 1913 1508
new loan notes 76 09
bank loan repayments 722 1166
loan note repayments 459 –
repayment of other borrowings 32 –
preference share and associated interest repayment 480 –
296 351
capital element of finance lease payments 22 07
capital element of finance lease receipts 30 30
change in net debt resulting from cash flows 232 1870
addition of deferred financing costs 07 17
amortisation of deferred financing costs 16 45
foreign exchange movements 215 –
preference share redemption and associated interest 480 –
finance lease receivables 24 26
finance lease payables 182 48
adoption of ias32 and ias39 18 –
movement on derivatives 48 –
net debt at the start of the year 1766 154
net debt at the end of the year 33 2330 1766
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90 qinetiq group plc  annual report 2006
33 analysis of net debt
year ended non cash year ended
due within one year 31 march 2005 cash flow movements 31 march 2006
£m £m £m £m
bank and cash 123 466 – 589 
bank overdraft 73 70 – 03
recapitalisation fee 03 – 02 01 
aquilachertsey loan note 459 459 – –
other loan notes – 06 09 15
finance lease creditor 16 – 33 49
finance lease debtor 30–– 30
preference shares – 480 480 –
392 1469 524 553
due after one year
bank loan 1508 1191 215 2914
recapitalisation fee 12 – 07 05
finance lease creditor 25 22 149 152
finance lease debtor 156 30 24 150
loan notes 09 38 09 38
derivative financial assets –– 71 71
derivative financial liabilities – – 05 05
1374 1237 272 2883
total net debt 1766 232 796 2330
non cash movements principally consist of movements arising on transition to ifrs and foreign exchange
34 finance leases
group as a lessor
the minimum lease receivables under finance leases fall as follows
present value of
minimum lease payments minimum lease payments
2006 2005 2006 2005
£m £m £m £m
amounts payable under finance leases
within one year 30 30 30 30
in the second to fifth years inclusive 120 120 89 89
greater than five years 135 180 61 67
285 330
less unearned finance income 105 144
present value of minimum lease payments 180 186 180 186
classified as follows
financial asset – current 30 30
financial asset – noncurrent 150 156
180 186
the group leases out certain buildings under finance leases over a twelveyear term expiring in 2015
notes to the financial statements continued
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34 finance leases continued
group as a lessee
the minimum lease payments under finance leases fall due as follows
present value of
minimum lease payments minimum lease payments
2006 2005 2006 2005
£m £m £m £m
amounts payable under finance leases
within one year 49 16 49 16
in the second to fifth years inclusive 116 26 88 25
greater than five years 128 – 64 –
293 42 
less future finance charges 92 01
present value of minimum lease payments 201 41 201 41
classified as follows
financial liability – current 49 16
financial liability – noncurrent 152 25
201 41
the group utilises certain buildings and computer equipment under finance leases average lease terms are typically between two and ten years 
31 march 2005 two years
35 share capital
authorised share capital at 31 march 2006
authorised share capital £number
attributable to equity interests
ordinary shares of 1p each 14000000 1400000000
attributable to nonequity interests
special share of £1 11
total authorised share capital 14000001 1400000001
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92 qinetiq group plc  annual report 2006
35 share capital continued
authorised share capital at 31 march 2005
authorised share capital £number
attributable to equity interests
convertible a ordinary shares of 1p each 115534 11553367
convertible b ordinary shares of 1p each 9667 966733 
convertible c ordinary shares of £1 each 450489 450489 
d ordinary shares of £1 each 555000 555000 
convertible nonvoting a ordinary shares of £1 each 425960 425960 
convertible nonvoting b ordinary shares of £1 each 37040 37040 
convertible preferred shares of 1p each 37527 3752686 
1631217 17741275
attributable to nonequity interests
redeemable cumulative preference shares of £1 each 112500000 112500000
first deferred shares of 1p each 115534 11553367
second deferred shares of £1 each 450489 450489 
special share of £1 1 1 
113066024 124503857
total authorised share capital 114697241 142245132
notes to the financial statements continued
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35 share capital continued
shares allotted called up and fully paid
share issued
restructuring redeemed 31 march
1 april 2005 on ipo in year 2006
££££ number
attributable to equity interests
ordinary shares of 1p each – 5729918 775732 6505650 650565024
convertible a ordinary shares of 1p each 77010 77010 – – –
convertible b ordinary shares of 1p each 5833 5833 – – –
convertible c ordinary shares of £1 each 450135 450135 – – –
d ordinary shares of £1 each 537250 537250 – – –
convertible nonvoting a ordinary shares of £1 each 425960 425960 – – –
convertible nonvoting b ordinary shares of £1 each 37040 37040 – – –
convertible preferred shares of 1p each 37527 37527 – – –
1570755 4159163 775732 6505650 650565024
attributable to nonequity interests
redeemable cumulative preference shares of £1 each 37500000 – 37500000 – –
special share of £1 1 – – 1 1
37500001 –37500000 1 1
total called up share capital 39070756 4159163 36724268 6505651650565025
 on 15 february 2006 the group allotted 75000000 ordinary shares of 1p each aggregate nominal value £750000 as part of the group’s ipo on ipo the market value of the
group’s ordinary shares was £200 on 15 february 2006 the group allotted 2573224 ordinary shares of 1p each aggregate nominal value of £25732 2169250 ordinary
shares were allotted to hill samuel esop trustees limited and 403974 ordinary shares were allotted to hill samuel offshore trust company limited together representing the
free shares gifted to employees on ipo see note 45
issued
1 april redeemed 31 march
2004 in year 2005
year ended 31 march 2005 £££ number
attributable to equity interests
convertible a ordinary shares of 1p each 77010 – 77010 7700981
convertible b ordinary shares of 1p each 5833 – 5833 583333
convertible c ordinary shares of £1 each 448335 1800 450135 450135
d ordinary shares of £1 each 527250 10000 537250 537250
convertible nonvoting a ordinary shares of £1 each 425960 – 425960 425960
convertible nonvoting b ordinary shares of £1 each 37040 – 37040 37040
convertible preferred shares of 1p each 37527 – 37527 3752686
1558955 11800 157075513487385
attributable to nonequity interests
redeemable cumulative preference shares of £1 each 112500000 75000000 37500000 37500000
special share of £1 1–11
112500001 75000000 37500001 37500001
total called up share capital 114058956 74988200 39070756 50987386
 1800 £1 c ordinary shares were issued on 8 june 2004 at £490 per share resulting in a share premium of £7020 and 10000 £1 d ordinary shares were issued on 30 november
2004 at £490 per share resulting in a share premium of £39000 
 75000000 £1 redeemable cumulative preference shares were redeemed on 14 june 2004 at par interest of £8898468 payable on these shares was also paid on that date
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94 qinetiq group plc  annual report 2006
35 share capital continued
on the company’s ipo resolutions were passed which authorised the company to purchase its own ordinary shares on the following terms
a up to 10 of the ordinary share capital
b a minimum price of 1p per ordinary share
c a maximum price of 105 of the average mid market price for the preceding five business days prior to the purchase
d authority will expire at the next agm
e the company may contract prior to an agm for shares to be purchased after an agm
except as noted below all shares at 31 march 2006 rank pari passu in all respects
rights attaching to the special share
qinetiq carries out activities which are important to uk defence and security interests t o protect these interests in the context of the ongoing
commercial relationship between the mod and qinetiq and to promote and reinforce the principles of the compliance regime ‘the compliance
principles’ the mod holds a special share in qinetiq the special share confers certain rights on 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 at all times
effective its and each member of qinetiq controlled 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 qinetiq or any other member of the qinetiq
consolidated group 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 to andor by all members of the qinetiq controlled group
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 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 interest of the united kingdom
e to exercise any of the powers contained in the articles of association in relation to the compliance committee and
f to demand a poll at any of qinetiq’s meetings even though it may have no voting rights except those specifically set out in the articles 
of association
the special shareholder has an option to purchase defined strategic assets of the group in certain circumstances the special shareholder has 
inter alia the right to purchase any strategic assets which the group wishes to sell strategic assets are normally testing and research facilities 
see note 39
the special share may only be issued to held by and transferred to hm government or as it directs at any time the special shareholder may require
qinetiq to redeem the special share at par if qinetiq is wound up the special shareholder will be entitled to be repaid the capital paid up on the
special share before other shareholders receive any payment the special shareholder has no other right to share in the capital or profits of qinetiq
the special shareholder must give consent to a general meeting held on short notice
the special share entitles the special shareholder to require certain persons who hold together with any person acting in concert with them 
a material interest in qinetiq to dispose of some or all of their ordinary shares in special circumstances
the special share may only be transferred to the crown or as it directs the directors must register any transfer of the special share within 
seven days
rights attaching to the redeemable cumulative preference shares of £1 each
the redeemable cumulative preference shares were redeemed by the company on 4 january 2006 
the redeemable cumulative preference shares carried the right to a fixed cumulative preferential dividend at the rate of 9 per annum excluding any
associated tax credit the preference dividend was not paid but accrued until redemption of the shares the right to the preference dividend had
priority over the rights of the holders of any other class of shares to any dividend or other distribution of income the preference dividend accrued
from day to day and compounded annually on 31 march cumulative dividends were repaid in full on redemption of the preference shares
notes to the financial statements continued
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36 changes in equity
issued capital
share preference redemption share hedge translation retained minority total
capital shares reserve premium reserve reserve earnings total interest equity
£m £m £m £m £m £m £m £m £m £m
at 1 april 2004 15 1125 – 114 – – 1826 3080 10 3070 
exchange loss –  – –––– 04 04 – 04
equity shares issued 01  – ––––– 01 – 01 
profit –  – –––– 739 739 16 723 
preference share 
dividends –  – –––– 163 163 – 163
preference shares 
redeemed in year –  750 19 – – – 19  750 – 750
minority interest
arising on acquisition –  –  –––––    – 02 02
gain arising on the 
refinancing of joint
ventures and associates – – –––– 06 06 – 06 
actuarial lossgain 
recognised in the defined 
benefit pension schemes – – –––– 99 99 – 99
deferred tax asset on 
pension deficit –  – –––– 159 159 – 159 
at 31 march 2005 16 375 19 114 – – 2445 2969 28 2941
adoption of ias 32 and 
ias 39 net of deferred tax – 375 – – 13 – – 362 – 362 
at 1 april 2005 restated16 – 19 114 13 – 2445 2607 28 2579 
exchange gainloss ––––– 02 22 20 – 20
profit –––––– 581 581 23 604
bonus issue – – 05 46 – – – 41 – 41
issue of new shares 49 – – 1543––– 1592 – 1592
ipo costs – – – 136 – – – 136 – 136
sharebased payments–––––– 01 01 – 01
net loss on available for 
sale financial assets –––––– 16 16 – 16
increase in fair value of 
hedging derivatives –––– 49–– 49 – 49
deferred tax on 
hedging derivatives –––– 15 – – 15 – 15
preference shares 
redeemed in year – – 375––– 375 – – –
arising on acquisition –––––––– 01 01
actuarial lossgain 
recognised in the defined 
benefit pension schemes–––––– 1054 1054 – 1054
deferred tax asset on 
pension deficit –––––– 87 87 – 87
at 31 march 2006 65 – 399 1475 47 02 1647 3635 06 3629
the translation reserve consists of the cumulative foreign exchange difference arising on translation since the group transitioned to ifrs movements
on hedge instruments and hedged items where the hedge is effective are recorded in the hedge reserve until the hedge ceases
the capital redemption reserve is not distributable and was created following redemption of preference share capital and the bonus issue of shares
during the year the group restructured its funding commitments to quintel technology limited and qs4 limited the group recognised a gain of
£11m on equity accounted investments on the removal of any funding obligations in respect of qs4 limited see note 19 the group no longer
receives funding from its joint venture partner in respect of quintel technology limited resulting in a credit to minority interest of £41m representing
the reversal of the cumulative losses previously attributable to minority interests prior to the restructuring the loss attributable to minority interests
in the year was £18m 2005 £16m resulting in a net overall credit to the minority interest position of £23m in the year
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96 qinetiq group plc  annual report 2006
37 sharebased payments
the group operates a sharebased payment plan for employees
2003 employee share option plan
under the esos all employees as at 25 july 2003 received share options which vested when the group completed its ipo and which must be
exercised within ten years of grant the options are settled by shares 
2006 2005
weighted weighted
average average
exercise exercise
number price number price
outstanding at start of year 295880 1000p 325040 1000p
forfeited in year before bonus issue 5200 1000p 29160 1000p
bonus issue in year 4255 new shares for each 1 share 12077754 – – 1000p
forfeited in year after bonus issue 11914 23p – 1000p
exercised in year after bonus issue 234876 23p – 1000p
outstanding and exercisable at end of year 12121644 23p 295880 1000p
options outstanding at 31 march 2006 had an average remaining life of 73 years 31 march 2005 83 years
qinetiq share incentive plan
all employees of the group received £500 worth of shares at the date of the group’s admission to the london stock exchange in the case of us
employees the actual number of ordinary shares received by eligible employees is on a net of tax basis there was no vesting period or conditions
over the shares and employees were not required to pay any consideration a cost of £58m has been recognised in the income statement in respect
of the value of these shares and associated tax incurred by the group
post 31 march 2006 under the qinetiq share incentive plan the group has commenced offering uk employees the option of purchasing up to 
£125 worth of shares per month at the prevailing market rate the group will make a matching contribution of a third of the employee’s payment 
the group’s matching contribution may be forfeited if the employee ceases to be employed by qinetiq within three years of the award of the shares 
group share option scheme
in the last financial year the group granted options to certain employees under the group share option scheme the exercise price of the options is
the average market price of the group’s shares over the five days prior to grant the options vest after three years for 217805 of the options the
number that will vest is dependent upon the growth of earnings per share eps over the vesting period 25 of options will vest if eps growth is
225 for the period and 100 will vest if growth is at least 52 no options will vest if eps growth is below 225 options will vest on a straight line
basis if eps growth is between 225 and 52 for the remaining 160112 options the eps growth target is replaced by a performance target based 
on qinetiq’s ranking by reference to total shareholder return ‘tsr’ against a comparator group comprising the ftse 250 companies over a threeyear
performance period such that a below median ranking will result in nil shares vesting at the median level 30 per cent of the options would vest
and the amount vested will increase on a straight line basis such that 100 would vest if tsr reaches the upper quartile of the ranking over a
threeyear period
2006
weighted weighted
average average
exercise share
number price price
granted in year and outstanding at end of year 377917 £208 £198
options outstanding at 31 march 2006 had an average remaining life of 49 years
on 10 april 2006 the company granted to certain employees at an exercise price of 195p a further 127m options with eps growth vesting criteria as
noted above
option pricing
share based payments have been valued using a binomial option pricing model assumptions used within the model include expected volatility of
35 an expected life of three years and a risk free rate of return of 378 and for the 2003 employee share option plan options a pre bonus issue
weighted average share price of £1 and a weighted average exercise price of £1 based on thirdparty transactions in the company’s shares in the
period immediately prior to the issue of the share options 
prior to ipo there was no active market for the company’s shares therefore expected volatility was determined using the average volatility for 
a comparable selection of businesses 
the group had no established pattern of dividend payments therefore no dividends were assumed in this model
the total share based payment expense in the period was £01m year to 31 march 2005 nil
notes to the financial statements continued
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38 operating leases
group as a lessor
the group receives rental income on certain properties the group had contracted with tenants for the following future minimum lease payments
2006 2005
£m £m
within one year 43 43
in the second to fifth years inclusive 25 29
greater than five years 26 32
94 104
group as a lessee
2006 2005
£m £m
lease and sublease income statement expense
minimum lease payments 109 46
the group had the following future minimum lease payment commitments
2006 2005
£m £m
within one year 96 72
in the second to fifth years inclusive 190 152
greater than five years 100 88
386 312
operating lease payments represent rentals payable by the group on certain office property and plant leases are negotiated for an average of 
three to ten years
39 transactions with the mod
the mod is a 192 2005 49 in voting terms shareholder in the group detailed below are the agreements that have been entered into and the
trading that has taken place with the mod 
trading
the mod is a major customer of the group an analysis of trading with the mod is presented below
2006 2005
£m £m
sales to mod excluding property rental income 5958 6267
property rental income 130 109
total income from the mod 6088 6376
purchased services from the mod 178 174
2006 2005
£m £m
trade debtors 726 1230
trade creditors 03 03
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
i restrictions on transfer of title
the title deeds of those properties with strategic assets see below or properties where strategic assets are in the course of being downgraded to
becoming nonstrategic include a clause that prevents their transfer without the approval of mod the mod also has the right to purchase any
strategic assets in certain circumstances
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98 qinetiq group plc  annual report 2006
39 transactions with the mod continued
ii property clawback agreement
the mod retains an interest in future profits on disposal of certain property assets following a ‘trigger event’ a ‘trigger event’ includes the granting 
of planning permission for development andor 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 and at 31 march 2006 stands at 44 the july 2001 valuation was approximately 16 greater in aggregate than the consideration
paid for the land and buildings on 1 july 2001
compliance regime
the 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 scientifictechnical 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
strategic assets
under the principal agreement with the mod the qinetiq controlled group is not permitted without the written consent of the mod to
i dispose of or destroy all or any part of a strategic asset or
ii 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 2006 was £351m 31 march 2005 £172m the principal items being
£281m of plant and machinery 31 march 2005 £91m and £38m of vehicles 31 march 2005 £30m
long term partnering agreement
on 27 february 2003 qinetiq limited entered into a long term partnering agreement to provide the test and evaluation facilities and training support
services to the mod this is a 25year contract with a total turnover value of up to £56bn dependent on the level of usage by mod under which
qinetiq limited is committed to providing the te services with increasing efficiencies through cost saving and innovative service delivery 
40 directors and other senior management personnel
the current board consists of colin balmer sir john chisholm noreen doyle dr peter fellner sir david lees graham love nick luff doug webb and
glenn youngkin other directors who resigned in year were richard gillingwater sir denys hendersen hal kruth dame pauline nevillejones and
trevor woolley senior management personnel are hal kruth andrew sleigh phil odeen and lynton boardman
2006 2005
£000’s £000’s
directors
shortterm employee benefits 1699 1703
postemployment benefits 79 133
total 1778 1836
other senior management personnel
shortterm employee benefits 904 535
postemployment benefits 102 57
total 1006 592
notes to the financial statements continued
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41 contingent liabilities and assets
subsidiary undertakings within the group have given unsecured guarantees of £28m at 31 march 2006 31 march 2005 £09m in the ordinary
course of business 
the group is aware of claims and potential claims by or on behalf of current and former employees including former employees of the mod and
dera and contractors in respect of intellectual property employment rights and industrial illness and injury which involve or may involve legal
proceedings against the group the directors are of the opinion having regard to legal advice received the group’s insurance arrangements and
provisions carried in the balance sheet that it is unlikely that these matters will in aggregate have a material effect on the group’s financial position
results of operations and liquidity
the group has not recognised contingent amounts receivable relating to the chertsey property which was disposed of during 2004 or the fort
halstead property disposed of in september 2005 additional consideration subject to clawback to the mod pursuant to the arrangements referred
to in note 39 is potentially due upon the purchasers obtaining additional planning consents with the quantum dependent on the scope of the
consent achieved
in january 2006 qinetiq received the first in a series of letters from the advisers of british titanium plc “bti” alleging specific claims in relation to 
the termination of a sublicence to bti from qinetiq for a titanium manufacturing process the group intends to defend vigorously the legal action
commenced by bti the directors believe that this matter will not have a material adverse effect on qinetiq’s financial position or results of operations
42 postretirement benefits
introduction and background to ias 19
international accounting standard 19 employee 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 a snapshot view which can be significantly influenced by shortterm 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 longterm interest rates which are used to discount future liabilities the funding of the scheme
is based on longterm trends and assumptions relating to market growth as advised by qualified actuaries
the qinetiq pension scheme
in the uk the group operates the qinetiq pension scheme for the majority of its uk employees 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 nonindustrial 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 31 march 2005 and resulted in an actuarially assessed deficit of £1065m
on the basis of the 31 march 2005 full valuation the t rustees and the company agreed that the 175 employer contribution rate would continue and in
addition a further £100 million per annum cash payment would be paid in monthly instalments for six years from october 2005 subject to review at the
next valuation due in march 2008 to cover the past service deficit subsequently the company agreed that part of the ipo proceeds would be used to
prepay the balance of the first five years of the additional funding and a £45m payment was made into the scheme on 30 march 2006 the company 
also made a further £453m payment into the scheme on the same date following the receipt of the payment from the mod of the same value that was
received in march 2006 in accordance with the indemnity given by the mod to the company as part of the agreement dated 3 december 2002 whereby
qinetiq group plc acquired qinetiq holdings limited 
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 the net pension deficits of these schemes at 31 march 2006 amounted to £03m 31 march
2005 £04m
there were no outstanding or prepaid contributions at the balance sheet date march 2005 £nil set out below is a summary of the overall ias 19
defined benefit pension schemes’ liabilities the fair value of the schemes’ assets which are not intended to be realised in the short term and may be
subject to significant change before they are realised and the present value of the schemes’ liabilities which are derived from cash flow projections
over long periods and thus inherently uncertain were as follows
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100 qinetiq group plc  annual report 2006
42 postretirement benefits continued
2006 2005
£m £m
equities 5511 3616 
corporate bonds 852 444
government bonds 748 457
cash 49 24 
total market value of assets 7160 4541
present value of scheme liabilities 8844 6172
retirement benefit obligation 1684 1631
mod pension indemnity – 381
net pension liability before deferred tax 1684 1250 
deferred tax asset 504 488
net pension liability 1180 762
assumptions
the major assumptions weighted to reflect individual scheme differences were
2006 2005
rate of increase in salaries 440 430
rate of increase in pensions in payment 290 290
rate of increase in pensions in deferment 290 280
discount rate applied to scheme liabilities 490 540
inflation assumption 290 280
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 of the pension liability increase in the year to 31 march 2006 £40m relates to
the application of the latest mortality rates which resulted from a weighted average increase of one year in the life expectancy of preretirement
defined benefit scheme members as summarised below
2006 2005
mortality assumption in years
future male pensioners 86 85
future female pensioners 89 88
scheme assets
expected longterm rates of return on scheme assets weighted to reflect individual scheme differences were
2006 2005
equities 770 770
corporate bonds 470 500
government bonds 410 470
cash 450 420
weighted average 690 700
2006 2005
£m £m
actual return on plan assets
expected return on scheme assets 341 277
actuarial gain on scheme assets 858 120
actual return on scheme assets 1199 397
notes to the financial statements continued
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qinetiq group plc  annual report 2006 101
42 postretirement benefits continued
2006 2005
£m £m
changes to the fair value of scheme assets
opening fair value of scheme assets 4541 3794
new schemes acquired in the year –13
expected return on assets 341 277
actuarial gains on scheme assets 858 120
contributions by the employer 1492 378
contributions by plan participants 46 30
net benefits paid out 118 71
closing fair value of scheme assets 7160 4541
2006 2005
£m £m
changes to the present value of the defined benefit obligation
opening defined benefit obligation 6172 5253
new schemes acquired in the year –17
current service cost 401 417
interest cost 344 300
contributions by plan participants 46 30
actuarial losses on scheme liabilities 1935 219
net benefits paid out 118 72
curtailments 64 08
closing defined benefit obligation 8844 6172
2006 2005
£m £m
pension costs charged to the income statement
current service cost 401 417
interest cost 344 300
expected return on plan assets 341 277
curtailment cost –08
total expense recognised in the income statement gross of deferred tax 404 448
£64m of curtailment cost for the year to 31 march 2006 was provided for in the year to 31 march 2005 as part of the group’s restructuring costs
2006 2005
£m £m
analysis of amounts recognised in statement of recognised income and expenses
t otal actuarial losses gross of deferred tax 1054 99
cumulative total actuarial losses recognised in the sorie 2488 1434
2006 2005
£m £m
history of scheme experience gains and losses
experience gains on scheme assets 858 120
experience losses on scheme liabilities 1935 219
the expected employer cash contribution to the defined benefit scheme for the year ending 31 march 2007 is £348m
defined contribution schemes 
payments to the dc schemes totalled £79m march 2005 £59m
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102 qinetiq group plc  annual report 2006
43 impact of future accounting standards
the international financial reporting interpretations committee ifric has issued draft interpretations relating to service concession arrangements
service concession arrangements typically arise where a government grants a concession to a third party to operate a service for the public sector
often the service concession operator is required to build associated assets as part of the grant arrangement the drafts ifric d12 ifric d13 and
ifric d14 propose service concession arrangements are accounted for as either a financial asset or intangible asset the group has reviewed the
impact of these draft interpretations but does not expect them to have any material effect in their current form
additional standards have been issued but were not effective during the year and are not expected to have any material effect on the results of 
the group
44 capital commitments
the group had the following capital commitments for which no provision has been made
2006 2005
£m £m
contracted 262 50
capital commitments at 31 march 2006 include £247m in relation to property plant and equipment that will be wholly funded by a third party
customer under longterm contract arrangements
45 initial public offering
on 15 february 2006 the group listed on the london stock exchange the transactions relating to the group’s ipo are analysed below
2006
£m
proceeds received on ipo
gross proceeds 1500
costs paid in year 138
net proceeds received in year 1362
accrued costs 35
net proceeds 1327
in addition to the cash costs noted above the company gifted £500 worth of free shares to all employees at the date of the ipo see note 37 the value
of these shares at the admission price of £200 per share amounts to £52m
the total costs of the ipo inclusive of the value of the gift of shares have been charged to the income statement or the share premium account
as follows
2006
£m
income statement 89
share premium account 136
t otal costs 225
income statement incomecosts before corporation tax
employee shares including associated tax costs 68
other ipo costs 21
t otal 89
release of remaining discount on mod indemnity triggered by ipo 47
net ipo related items 42
as part of the agreement dated 3 december 2002 whereby qinetiq group plc acquired qinetiq holdings limited the mod gave an indemnity to the
company to pay to the company on the earlier of a flotation sale or winding up and 28 february 2008 an amount up to £450m dependent on the
size of the deficit on the qinetiq pension scheme at 31 march 2005 the amount included in the balance sheet of £381m represented the discounted
amount payable based on the longest date to maturity being 28 february 2008 the ipo represented a trigger event for the payment of the indemnity
which resulted in the remaining balance of the discount on the carrying value of the indemnity at the date of the ipo of £47m being released and
classified as finance income in the year see note 7
notes to the financial statements continued
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qinetiq group plc  annual report 2006 103
45 initial public offering continued
the net proceeds received from the ipo as at 31 march 2006 have been applied as follows
2006
£m
contribution to defined benefit pension scheme see note 42 450
reduction in net debt 912
net proceeds 1362
46 transition to ifrs
the group has adopted international financial reporting standards ifrs for the year ended 31 march 2006 comparative data has also been
presented using ifrs reconciliations between uk gaap and ifrs of net assets and balance sheets at 31 march 2004 and 31 march 2005 and profit
attributable to ordinary shareholders and income statements for the year to 31 march 2005 are included below
reconciliation of net assets
31 march 2005 1 april 2004
£m £m
uk gaap 2141 2252
goodwill and intangibles 984 863
tax 118 22
leases 10 05
employee benefits – pension 05 04
employee benefits – holiday pay 71 68
ifrs 2941 3070
reconciliation of profit attributable to ordinary shareholders
year ended
31 march 2005
£m
uk gaap 756
goodwill and intangibles 33
tax 14
leases 05
holiday pay 03
ifrs 739
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104 qinetiq group plc  annual report 2006
notes to the financial statements continued
46 transition to ifrs continued
ifrs
ifrs reclassi
reconciliation of income statement for year ended 31 march 2005 uk gaap adjustments fication ifrs
note £m £m £m £m
group turnover 8733 21 165 8589 
less equity method accounted joint ventures and associates 09 21 – 30
turnover 8724 – 165 8559
employee benefit costs e 03 4204 4207
thirdparty project costs 1600 – – 1600
other operating costs excluding depreciation and amortisation 6683 07 4598 2078
share of loss of equity accounted joint ventures and associates – – 25 25 
profit on disposal of interest in equity accounted associate – – 171 171
other income – 30 165 135
ebitda 441 26 540 955
depreciation of property plant and equipment – 09 398 389
amortisation of intangible assets and impairment of goodwill and 
current asset investments ab – 40 19 59
group operating profit 441 57 123 507
share of operating loss in joint ventures and associates 26 – 26 – 
t otal operating profit before restructuring costs and impairment 692 – – –
restructuring costs 282 – – –
impairment 05 – – –
group operating profit 415 57 149 507
group profit on disposal of noncurrent assets 462 – 171 291 
profit before interest 877 57 22 798
finance income – 26 55 81
finance expense 67 – 32 99
profit before tax 810 31 01 780 
taxation expense g 70 14 01 57
profit for the period from continuing operations 740 17 – 723
minority interest 16 – – 16 
profit attributable to ordinary shareholders 756 17 – 739
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qinetiq group plc  annual report 2006 105
46 transition to ifrs continued
ifrs
ifrs reclassi
reconciliation of equity at 31 march 2005 uk gaap adjustments fication ifrs
note £m £m £m £m
noncurrent assets
goodwill a 681 634 – 1315
intangible assets b 23 350 – 373
property plant and equipment cd 3921 176 66 3679 
investment property c – – 66 66 
financial asset – 156 – 156
investments 05 – – 05 
deferred tax asset fg – 19 132 151
4630 983 132 5745
current assets
inventories 178 – – 178 
financial assets – 30 – 30
trade and other receivables 4097 – 381 3716 
cash and cash equivalents 123 – – 123 
investments 128 – – 128 
4526 30 381 4175
total assets 9156 1013 249 9920
current liabilities
trade and other payables e 3567 71 545 3093
provisions – – 335 335
financial liabilities – – 545 545
3567 71 335 3973
noncurrent liabilities
retirement benefit obligation f 1139 05 106 1250
deferred tax liability g – 137 36 101
provisions 762 – 654 108
financial liabilities 1505 – 25 1530
other payables 42 – 25 17
3448 142 584 3006
total liabilities 7015 213 249 6979
net assets 2141 800 – 2941
capital and reserves
share capital 16 – – 16 
preference shares 375 – – 375 
capital redemption reserve –– 19 19
share premium account 114 – – 114 
retained earnings 1664 800 19 2445 
equity attributable to equity holders of the parent 2169 800 – 2969
minority interest 28 – – 28
total equity 2141 800 – 2941
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106 qinetiq group plc  annual report 2006
46 transition to ifrs continued
ifrs
ifrs reclassi
reconciliation of equity at 1 april 2004 uk gaap adjustments fication ifrs
note £m £m £m £m
noncurrent assets
goodwill a 858 863 – 05 
intangible assets b 05 – – 05 
property plant and equipment cd 4282 185 66 4031
investment property c – – 66 66 
financial assets – 160 – 160 
investments accounted for using the equity method 04 – 04 –
deferred tax asset fg – 22 25 47 
3433 860 21 4314
current assets
inventories 11 – – 11 
financial assets – 30 – 30
trade and other receivables 3104 – 361 2743 
cash and cash equivalents 1546 – – 1546 
4661 30 361 4330
total assets 8094 890 340 8644
current liabilities
trade and other payables e 2770 68 165 2673
provisions – – 78 78
financial liabilities – – 165 165 
2770 68 78 2916
noncurrent liabilities
retirement benefit obligation f 1153 04 60 1097
provisions 488 – 354 134
provisions for joint venture deficit 10 – 10 – 
investments accounted for using the equity method – – 06 06
financial liabilities 1421 – – 1421
3072 04 418 2658
total liabilities 5842 72 340 5574
net assets 2252 818 – 3070
capital and reserves
share capital 15 – – 15 
preference shares 1125 – – 1125 
share premium account 114 – – 114 
retained earnings 1008 818 – 1826 
equity attributable to equity holders of the parent 2262 818 – 3080
minority interest 10 – – 10
total equity 2252 818 – 3070 
notes to the financial statements continued
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qinetiq group plc  annual report 2006 107
46 transition to ifrs continued
the effect of transition to ifrs is analysed below
a – goodwill
under ifrs 3 business combinations goodwill arising on acquisition is no longer amortised on a straight line basis but is instead subject to an annual
impairment review accordingly goodwill has not been amortised since transition to ifrs on 1 april 2004 negative goodwill is recognised
immediately in the income statement on acquisition
the nonamortisation of goodwill has resulted in a decrease of £09m in profit for the year ended 31 march 2005 as the group had considerable
negative goodwill negative goodwill relating to aurix limited recognised in the income statement increased profit by £13m for the year to 31 march
2005 an additional goodwill impairment of £01m has been recognised under ifrs for the year to 31 march 2005 the total increase in profit in
relation to goodwill adjustments was £03m for the year to 31 march 2005 negative goodwill on transition to ifrs of £863m was removed and
opening shareholders’ funds increased accordingly
b – intangible assets
ias 38 intangible assets requires certain software and development costs to be capitalised within intangible assets ifrs 3 business combinations
requires the recognition of intangible assets and goodwill on acquisition rather than just goodwill as was the case under uk gaap  previously
intangible assets have not been recognised on acquisition of a business under uk gaap 
intangible assets totalling £399m have been recognised on the acquisitions of westar aerospace  defense group inc fostermiller inc hvr group
limited and asap calibration limited at 31 march 2005 these assets are being amortised over their useful economic lives in the year to 31 march
2005 £42m of amortisation has been charged to the income statement of these intangibles assets a £12m exchange loss on translation has been
recorded on intangible assets recognised on acquisition at 31 march 2005 the loss has been recognised within equity the exchange loss had
previously been recognised within uk gaap goodwill at 31 march 2005 the net book value of capitalised intangible assets acquired on acquisition
was £354m
software costs of £07m in the year to 31 march 2005 that were expensed under uk gaap have been capitalised and are being amortised over 
35 years an additional £01m has been charged to the income statement in the year to 31 march 2005 under ifrs as amortisation of capitalised
software this has increased intangible assets by £06m at 31 march 2005 
the majority of the group’s development expenditure is performed under contract for third parties and will continue to be accounted for under
contract accounting
c – investment property
ias 40 investment property requires certain of the group’s properties those primarily held for rental income or capital appreciation to be classified 
as investment property instead of tangible fixed assets under uk gaap  
at 31 march 2005 and 1 april 2004 land with a net book value of £66m has been reclassified from tangible fixed assets to investment property
d – leasing
ias 17 requires property leases to be considered as separate components for land and buildings this resulted in an element of a uk gaap operating
lease granted by the group being reclassified as a finance lease 
at 31 march 2005 the group derecognised property assets with a net book value of £176m 1 april 2004 £186m and instead recognised a finance
lease debtor of £186m 1 april 2004 £190m for the year ended 31 march 2005 depreciation was decreased by £09m other income was reduced
by £30m for the year to 31 march 2005 finance income of £26m has been recognised in the year to 31 march 2005 
e – employee benefits – holiday pay
previously under uk gaap it was not accepted practice to provide for holiday pay under ifrs the group has recognised the full liability for 
accrued holiday an additional liability of £71m has been recognised at 31 march 2005 1 april 2004 £68m opening shareholders’ funds at
1 april 2004 have been reduced by £68m to reflect the increased liability subsequent movements have been through the income statement
f – employee benefits – pension liability 
the group’s pension liability has increased £05m at 31 march 2005 1 april 2004 £04m as equities held by the fund are valued at bid price under
ifrs rather than mid price under uk gaap 
under ifrs the deferred tax asset of £487m 1 april 2004 £301m relating to the pension liability is presented within deferred tax assets as opposed
to being offset with the frs 17 pension liability as was the practice under uk gaap  
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108 qinetiq group plc  annual report 2006
46 transition to ifrs continued
the mod defined benefit pension indemnity of £381m 1 april 2005 £361m is offset with the pension liability rather than being included within
trade and other receivables as was the case under uk gaap 
g – tax
under ifrs deferred tax is recognised on all temporary differences at the balance sheet date the effect at 31 march 2005 was a reduction in net
assets of £118m 1 april 2004 £22m increase and profit for the year to 31 march 2005 was increased by £14m
sharebased payments
the group has reviewed its sharebased payments on transition to ifrs resulting in no material adjustment
cash flow
there are no changes in the group’s underlying cash flows as a result of transition to ifrs however presentation categorises cash flows as operating
activities investing activities and financing activities
notes to the financial statements continued
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qinetiq group plc  annual report 2006 109
47 subsidiaries and associates
the principal subsidiary associated undertakings and joint ventures at 31 march 2006 all of which are included in the consolidated financial
statements are shown below
proportion
principal of voting financial
area of country of rights year
name of company note operation incorporation held
3
end
1
nature of business
subsidiary undertakings
qinetiq holdings limited 2 uk england  wales 100 holding company
qinetiq limited uk england  wales 100 research and development
asap calibration services limited uk england  wales 100 calibration and engineering
aurix limited 5 uk england  wales 801 research and development
cuesim limited uk england  wales 100 research and development
graphic research corporation limited uk england  wales 100 research and development
hvr consulting services limited uk england  wales 100 research and development
qinetiq nanomaterials limited uk england  wales 100 research and development
quintel technology limited 4 6 uk england  wales 500 research and development
trusted experts limited uk england  wales 100 resource management
qinetiq insurance pcc limited uk guernsey 100 insurance
qinetiq overseas holdings limited uk england  wales 100 holding company
qinetiq rail limited uk england  wales 100 research and development
apogen technologies inc usa usa 100 31 december research and development
aerospace filtration systems inc usa usa 100 research and development
fostermiller inc usa usa 100 research and development
planning systems inc usa usa 100 31 december research and development
qinetiq inc usa usa 100 research and development
qinetiq technology extension corporation usa usa 100 research and development
simauthor inc usa usa 100 research and development
westar aerospace  defense group inc usa usa 100 31 december research and development
westar display technologies inc usa usa 100 31 december research and development
qinetiq north america operations llc usa usa 100 holding company
qinetiq north america inc usa usa 100 holding company
verhaert design and development nv belgium belgium 90 31 december research and development
qinetiq philippines company inc philippines philippines 100 research 
associates
qs4 group limited 6 uk england  wales 500 31 december holding company
qs4 limited 6 uk england  wales 500 31 december research and development
quintel uk limited 6 uk england  wales 500 31 december research and development
zbd displays limited uk england  wales 304 31 july research and development
infoscitex inc usa usa 278 research and development
1 accounting reference date is 31 march unless otherwise stated
2 qinetiq holdings limited was formerly known as qinetiq group plc shares are held directly by qinetiq group plc formerly known as qinetiq holdings limited
3 percentage of ordinary share capital unless otherwise stated
4 disclosed as a subsidiary due to management control by qinetiq
5 post 31 march 2006 the group has acquired the remaining 199 of aurix limited it did not own
6 employee warrants if exercised would dilute the group’s interest to 451
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
on 8 december 2005 the company changed its name from qinetiq holdings limited to qinetiq group limited on 11 january 2006 the company
was reregistered as a public limited company under section 43 of the companies act 1985 and changed its name to qinetiq group plc
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110 qinetiq group plc  annual report 2006
notes to the financial statements continued
48 postbalance sheet event
on 4 april 2006 apogen technologies one of qinetiq’s principal us subsidiaries signed an agreement to acquire subject to us government approval
san diegobased ocean systems engineering corp osec for cash consideration of £303m 530m the approvals were subsequently received and the
acquisition completed on 15 may 2006 osec reported revenues of 482m ebitda of 48m and earnings of 27m in the year to 31 december 2005 
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company balance sheet
as at 31 march
2006 2005
notes £m £m
fixed assets
investments in subsidiary undertaking 2 923 923
923 923
current assets
debtors 3 1535 400
1535 400
current liabilities
creditors amounts falling due within one year 4 03 799
03 799
net current assetsliabilities 1532 399
net assets 2455 524
capital and reserves
equity share capital 5 6 65 16 
preference shares 5 6 – 375 
capital redemption reserve 6 399 19
share premium account 6 1475 114 
profit and loss account 6 516 –
capital and reserves attributable to shareholders 2455 524
capital and reserves analysed as
equity shareholders’ funds 2455 149
nonequity shareholders’ funds – 375
t otal shareholders’ funds 2455 524
the financial statements were approved by the board of directors and authorised for issue on 7 june 2006 they were signed on its behalf by
graham love doug webb
chief executive officer chief financial officer
there are no other recognised gains and losses
111
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112 qinetiq group plc  annual report 2006
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notes to the company financial statements
1 accounting policies
the following accounting policies have been applied consistently in dealing with items which are considered material in relation to the company’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 
as permitted by section 2304 of the companies act 1985 a separate profit and loss account dealing with the results of the company has not
been presented
cash flow statement
under frs 1 cash flow statements the company is exempt from the requirement to prepare a cash flow statement on the grounds that it is
consolidated within the consolidated financial statements of the group
investments
in the company’s financial statements investments in subsidiary undertakings are stated at cost less any impairment in value
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 
sharebased payments
frs 20 sharebased payments became effective for accounting periods beginning on or after 1 january 2005 the fair value of equity settled options for
sharebased payments is determined on grant and expensed on a straightline basis over the period from grant to the date of earliest exercise the fair
value of cash settled options for sharebased payments is determined each period end until exercised or they lapse the value is expensed straight line
over the period from grant to the date of earliest exercise the fair value of both equity settled and cash settled share options is calculated by a
binomial option pricing model the cost of sharebased payments is charged to subsidiary undertakings
preference shares
during the year the company had in issue redeemable cumulative preference shares of £1 each which carry the right to a fixed cumulative
preferential dividend at the rate of 9 per annum excluding any associated tax credit the company redeemed all the redeemable cumulative
preference shares on ipo the company adopted frs 25 financial instruments disclosure and presentation for the year commencing 1 april 2005
however as permitted by frs 25 the comparative period continues to show the preference shares as part of the company’s capital and reserves and
associated dividend within dividends
2 investment in subsidiary undertakings
2006 2005
£m £m
subsidiary undertakings – 100 of ordinary share capital of qinetiq holdings limited 923 923 
3 debtors
2006 2005
£m £m
amounts owed by group undertakings 1528 19
tax and social security 06 –
other debtors 01 381
1535 400
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4 creditor amounts due within one year 
2006 2005
£m £m
bank overdrafts 03 –
amounts due to group undertakings – 724
accruals and deferred income –75
03 799
5 share capital
the company’s share capital is disclosed in note 35 to the group financial statements
6 reserves
capital
issued share preference redemption share profit
capital shares reserve premium and loss total equity
£m £m £m £m £m £m
at 1 april 2004 15 1125 – 114 34 1220
equity shares issued 01 – – – – 01 
profit – – – – 164 164 
preference share dividend accrual charged to the 
profit and loss account – – – – 111 111
preference shares redeemed in year – 750 19 – 19 750
at 31 march 2005 16 375 19 114 – 524
adoption of frs 25 – 375 – – – 375 
at 1 april 2005 restated 16 – 19 114 – 149 
profit – – – – 889 889
preference shares redeemed in year – – 375 – 375 –
share options – – – – 02 02
ipo costs – – – 136 – 136
bonus issue – – 05 46 – 41
issue of new shares 49 – – 1543 – 1592
at 31 march 2006 65 – 399 1475 516 2455
the capital redemption reserve is not distributable and was created following redemption of preference share capital and the bonus issue of shares
7 sharebased payments
the company’s sharebased payments are as those detailed in note 37 to the group financial statements however the total sharebased payment
expense has been dispersed to other group undertakings 2005 £nil
8 initial public offering
on 15 february 2006 the company listed on the london stock exchange  the transactions relating to the company’s ipo are analysed in note 45 to
the group financial statements
9 other information
the company had no employees during the year directors emoluments excluding company pension contributions were £21m 2005 £17m these
emoluments were all in relation to services provided on behalf of the qinetiq group with no amount specifically relating to their work for the company 
the remuneration of the company’s auditors for the year to 31 march 2006 was £5000 2005 £5000
qinetiq group plc  annual report 2006 113
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114 qinetiq group plc  annual report 2006
fouryear review
uk gaap ifrs
2003 2004 2005 2006
£m £m £m £m
defence  technology 6314 6577 6649 6696
security  dual use 1288 1345 1209 1337
qinetiq north america 16 03 701 2484
central 131 29 – –
turnover 7749 7954 8559 10517
defence  technology 488 507 513 565
security  dual use 122 20 230 97
qinetiq north america 56 06 80 245
central 47 20 – –
operating profit before amortisation and impairment of intangibles 
arising from acquisitions restructuring costs and ipo costs 357 541 823 907
operating profit margin before amortisation and impairment of intangibles
restructuring costs and ipo costs 46 68 96 86
profit before tax 107 513 780 725
profit after tax 71 412 723 604
average number of employees 9384 8898 9632 11024
cash flow from operations 44 1427 369 1076
free cash flow 331 1359 557 1413
net debt 1332 36 1766 2330
the combined and consolidated financial information has been prepared as set out below to show the results and financial position of the company
as if it has existed as a discrete operation from 1 april 2002
• for the year ended 31 march 2003 the consolidated financial statements of qinetiq holdings limited for the period from 1 april 2002 to
28 february 2003 aggregated with the consolidated financial statements of qinetiq group plc for the period to 31 march 2003 and
• for the years ended 31 march 2004 and 31 march 2005 the consolidated financial statements of qinetiq group plc
the capital structure of the group and its interest charges and goodwill amortisation up to 28 february 2003 are significantly different from those 
that have existed since the acquisition of qinetiq holdings limited by qinetiq group plc on 28 february 2003
note 46 to the group financial statements details the principal differences between uk gaap and ifrs relevant to the group’s financial statements 
for the year ended 31 march
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qinetiq group plc  annual report 2006 115
glossary
agm – annual general meeting
backlog – the expected future value of turnover 
from contractuallycommitted and funded
customer orders excluding £50bn value 
of remaining 22 years of ltpa contract
bn – billion
book to – ratio of orders in year to turnover in year
bill ratio
bps – basis points
cats – combined aerial target service
cots – commercial off the shelf
cr – corporate responsibility
dt – qinetiq’s defence  technology sector
darpa – us defense advanced research 
projects agency
dda – defence diversification agency
dera – defence evaluation and research agency 
a qinetiq predecessor organisation
dhs – us department of homeland security
dod – us department of defense
dra – defence research agency a qinetiq
predecessor organisation
dti – department of trade and industry
dtr – mod’s defence training rationalisation
programme
ebitda – earnings before interest tax depreciation 
and amortisation
esa – european space agency
eu – european union
fcs – future combat system
free cash – net cash flow from operating activities less 
flow the net cash flow from the purchase of
intangible assets and the purchase and sale
of plant property and equipment
fres – future rapid effect system
gps – global positioning system
ias – international accounting standard
ifrs – international financial reporting standard
ip – intellectual property
ipo – initial public offering
lcd – liquid crystal display
lse – london stock exchange
ltp a – long term partnering agreement – 25year
contract established in 2003 to manage the
mod’s test and evaluation ranges
m – million
mod – ministry of defence
non – ipo costs major restructuring costs 
recurring disposals of property plant and equipment 
items and amortisation of intangible assets arising from 
acquisition acquisitions and impairment of goodwill
amortisation and current assets 2005 only
oem – original equipment manufacturer
osec – ocean systems engineering corporation
qna – qinetiq’s north america sector
rd – research and development
sdu – qinetiq’s security  dual use sector
seta – systems engineering and technology
assistance
uk gaap – uk generally accepted accounting principles
underlying – the tax charge for the year excluding 
effective the tax impact of nonrecurring items 
tax rate and acquisition amortisation expressed as 
a percentage of underlying profit before tax
underlying – the ratio of cash flow from operations 
operating excluding cash spend on major restructuring
cash items less cash outflows on the purchase of 
conversion of intangible assets and property plant and
equipment and before additional pension
contributions to underlying operating profit
excluding share of posttax loss of equity
accounted joint ventures and associates
underlying – underlying operating profit expressed
operating as a percentage of turnover
margin
underlying – earnings before interest tax and sale of 
operating investment in equity accounted associate
profit in 2005 excluding ipo costs major
restructuring costs property plant and
equipment disposals amortisation of
intangible assets arising on acquisitions
underlying – profit before tax excluding ipo costs
profit major restructuring costs property plant
before tax and equipment disposals sale of interest in
equity accounted associate amortisation of
intangible assets arising from acquisitions
and impairment of goodwill and current
asset investments and including 2005
preference share dividend
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116 qinetiq group plc  annual report 2006
financial calendar
28 july 2006 annual general meeting   
2 august 2006 exdividend date
23 august 2006 final ordinary dividend payable   
30 september 2006 interim financial period end   
30 november 2006 interim results announcement   
31 march 2007 financial year end
may 2007 preliminary results announcement
advisers
auditors
kpmg audit plc
8 salisbury square
london ec4y 8bb
corporate brokers
jpmorgan cazenove
20 moorgate 
london ec2r 6da
merrill lynch international
2 king edward street
london ec1a 1hq
legal advisers
herbert smith llp
exchange house 
primrose street
london ec2a 2hs
principal bankers
lloyds tsb bank plc 
25 gresham street
london ec2v 7hn
registrars
lloyds tsb registrars
the causeway
worthing
west wessex
bn99 6da
c12357qinqar06p111116qxp  14606  154 pm  page 116 company registration number 4586941
registered office
85 buckingham gate
london
sw1e 6pd
designed and produced by pauffley ltd  wwwpauffleycom
photography by mike ellis
images by corbis getty images inmagine mod photolibrary 
and the highways agency 
warrior tank picture on page 8 by giles penfound 
© crown copyrightmod image from wwwphotosmoduk
reproduced with the permission of the controller of her
majesty’s stationery office
printed by st ives westerham press
qinetiq at a glance
strategy capabilities
mod research 
with its defence industry heritage
and innovative expertise across a
range of advanced technologies
dt is the leading supplier of
research to the mod
technology supply  
since qinetiq’s transition to 
the private sector dt has had
growing opportunities to inject
its technology into the defence
equipment supply chain in this
way it increasingly supports prime
contractors in upgrading the 
uk’s defence capability  
procurement  
capability support
dt provides expert support to
the mod in terms of assessing 
the technology offered by 
prime contractors both at
the procurement stage and
throughout the lifetime of 
the system 
managed services
this part of dt covers the 
longterm supply of technology
and trainingbased services 
the main component is the long
term partnering agreement ltpa
under which dt manages the
mod’s test and evaluation ranges 
security 
sdu offers worldclass research
advice consultancy and technology
based products and services to
government and civilian customers
in the security and counter
terrorism markets 
space
sdu’s work for space sector
customers like the european space
agency esa includes research
and technology for individual
space missions and for services
such as gps global positioning
systems and small satellites  
technology development 
 exploitation 
this business provides research and
development services in optronics
and materials for the mod and
other customers it also helps to
exploit qinetiq’s technology
through product development
royalties licence fees partnerships
and joint ventures  
managed services 
sdu offers its clients a portfolio
of managed services in areas such
as fuel and lubricant testing and
analysis instrument calibration
and supporting technical services
it also provides real estate
procurement facilities and 
asset management services
technology
offering hightechnology research
for defence and security customers
the combined capabilities
including robotics provide
advanced products across a range
of technologies
systems engineering 
technology assistance
providing independent systems
engineering and support services
for major military programmes 
and equipment in north america
it services
this business serves the fast
growing demand for advanced 
it services particularly on the part
of the department of defense and
the department of homeland
security 
the defence  technology sector dt forms the core of
qinetiq’s uk defence business providing technology and
services to support the armed forces of the uk and its allies 
its success depends on maintaining and expanding its
relationship with the uk ministry of defence mod and
continuing to apply its unique intellectual property in line
with the uk government’s defence and spending policy in
addition to its mod work dt addresses other defence
markets by offering solutions and services to allied
governments and forming partnerships with defence
contractors in the uk and elsewhere     
the security  dual use sector sdu takes technologies
and services developed for the mod and other defence
customers and applies them in new ways to create 
highvalue solutions for civilian use 
combining its technological advantages with a deep
understanding of the commercial marketplace it works
mainly – though not exclusively – for customers in adjacent
sectors such as security and counterterrorism there is a
continual demand for its expertise and sdu intends to 
grow in nondefence markets where its capabilities offer
competitive advantage 
our fastdeveloping north american sector qna links the 
worldclass technology developed in the uk with the 
world’s largest defence and security market – the us 
still in its formative stages the business offers significant
potential for growth 
qinetiq established a us bridgehead by setting up qinetiq
inc in 2002 and has since acquired six us companies the 
aim is to achieve strong organic growth in the region while
strengthening us capabilities and introducing more uk
technologies and services into the north american market 
defence  technology
security  dual use
north america
andrew sleigh
managing director 
hal kruth
managing director 
phil odeen
chief executive officer
c12357qinetic coverqxd  15606  316 pm  page 2 customer contact team 
qinetiq
cody technology park 
ively road   farnborough
hampshire gu14 0lx 
united kingdom
tel 44 08700 100 942
wwwqinetiqcom
© qinetiq group plc
qinetiqsdumsar0601200
transforming technology into solutions
annual report 
 accounts 2006
qinetiq group plc  annual report 2006
qinetiq is a leading international defence and security technology
company the qinetiq group delivers innovative technology solutions
and support services to governmental organisations including the 
uk ministry of defence mod uk national intelligence and security
agencies the us department of defense dod the us department
of homeland security dhs and other us intelligence and security
agencies additionally it services leading aerospace defence and
security original equipment manufacturers oems and bluechip
commercial customers around the world
over the past 50 years qinetiq and its predecessor organisations
have built up significant intellectual capital being a leading 
supplier of defence research to the uk government in 1993 the 
uk government transferred its nonnuclear defence research
establishments to a separate trading fund originally as the defence
research agency dra and subsequently as the enlarged defence
evaluation and research agency dera in 2001 the majority of
dera was transferred into qinetiq limited and to date the uk is the
only advanced nation to permit on this scale its national defence
laboratories to be transformed into a separate entity as an arm’s
length commercial enterprise and to operate as a private sector entity
qinetiq has over 11400 talented employees who contribute to the
development of its intellectual capital base by winning customer
funded research assignments and exploiting qinetiq’s strengths 
in technology research by selling systems solutions products and
licences into a broad spectrum of defence security technology and
related commercial markets
01 highlights
02 chairman’s statement
04 chief executive officer’s statement
07 expert solutions in key markets
24 operating and financial review
40 board of directors
42 report of the directors
44 statement of corporate governance
50 report of the remuneration committee
55 independent auditors’ report
56 financial statements
114 fouryear review
115 glossary
116 financial calendar
116 advisers
contents
qinetiq annual report  accounts 2006
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qinetiq group plc annual report 2006 01
highlights
achievements
– 229 increase in turnover to £11bn 
2005 £09bn
– underlying operating margin improved to 86
2005 76 excluding profit on disposal of
interest in psimedica limited
– underlying operating cash conversion of 844
2005 272
– execution of us strategy continued with three
further acquisitions in year
– successful ipo on the london stock exchange
raising net proceeds of £1327m
– underlying earnings per share growth of 163
– maiden dividend proposed of 225p per share
financial summary
fouryear summary
10517
8559
7954
7749
turnover £m
06
05
04
03
06
05
04
03
907
652
541
357 
underlying operating profit £m
excluding profit on disposal of interest in psimedica limited in 2005  
11446
10430
8898
9384
employees at 31 march
06
05
04
03
1413
557
1359
331
free cash flow £m
06
05
04
03
2006 2005
group turnover £10517m £8559m
underlying operating profit £907m £823m
underlying operating profit excluding profit
on disposal of interest in psimedica limited £907m £652m
underlying operating margin excluding profit
on disposal of interest in psimedica limited 86 76
underlying profit before tax £801m £582m
underlying earnings per share 102p 88p
basic earnings per share 100p 120p
net debt £2330m £1766m
free cash flow £1413m £557m
backlog £6084m £5720m
underlying effective tax rate 227 162
dividend per ordinary share 225p nil
see glossary on p115 for definition of nongaap terms used throughout the annual report
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