Qinetiq

QinetiQ

Company type	Public (LSE: QQ.)
Industry	Security and Defence industry
Founded	2001
Headquarters	UK and North America. Head Office - Farnborough, Hampshire
Key people	Sir John Chisholm, Chairman Graham Love, CEO
Products	Security and Defence
Revenue	$1.45 billion (2004)
Number of employees	10,000 (2005)
Website	www.QinetiQ.com

QinetiQ (LSE: QQ.) (pronounced [kɪ.ˈnɛ.tɪk], as in kinetic energy) is a British defence technology company, formed from the greater part of the former government agency DERA when it was split up in June 2001 (with the smaller part becoming Dstl). The Chief Executive at inception was the present day Chairman Sir John Chisholm. The current CEO is Graham Love. As a privatised company, QinetiQ is now one of the largest defence research organisations in the world and employs over 11,400 people.

Mission

Dassault-Breguet/Dornier Alpha Jet of the UK defence technology organisation QinetiQ

QinetiQ solves defence and security problems that involve science and technology. For example, it made the semi-intelligent ultrasound scuba diver detector called Cerberus. The defence research sites that now form QinetiQ were previously involved in the invention of liquid crystal displays, the technology for one type of flat panel speakers, microwave radar, Chobham armour, and thermal imagers. In recent years QinetiQ has also developed software products, especially those for the defence and security industries. Examples include the "SURVIVE" vulnerability and recoverability assessment tool, which was originally developed to assess the vulnerability of ships to weapon attack, but has been expanded to cover: naval recoverability (damage control, firefighting, capability restoration); escape and evacuation; explosive safety; and, in recent years, tri-service vulnerability (aircraft, vehicles) and infrastructure (buildings, fortifications, etc.). In so doing, it has become Europe's leading tri-service vulnerability assessment tool.

QinetiQ has a long term agreement (25 years) with the UK Ministry of Defence (MoD) to manage military ranges. It is a major stakeholder in the UK Defence Technology Centre which places military research contracts on behalf of the MoD.

Organisation

Since April 2005, the QinetiQ group has been split into three divisions: Defence and Technology, Security and Dual Use, and North America (see North American acquisitions below).

The major UK sites are at Farnborough, Hampshire (the historical Royal Aircraft Establishment) and Malvern, Worcestershire (the historical RSRE/RRE/TRE), each having more than 2,000 employees. Trials aircraft are flown out of Boscombe Down, Wiltshire (the historical A&AEE). The number of UK employees is believed to be around 9,000 as of April 2005.

History

In 2001, when Defence Minister Lewis Moonie announced the creation of QinetiQ in 2001, he said that it would remain a British company based in the UK. The MoD would keep a 'Special Share' in the company, and safeguards would be in place to prevent conflicts of interest. In February 2003, the U.S. private equity firm The Carlyle Group acquired a 33.8% share in the company for £42m. Prior to stock market flotation, ownership was split between the MoD (56%), Carlyle Group (31%) and staff (13%). The Carlyle Group was expected to invest for three to five years, after which a stock exchange float would take place. The flotation of the company has been dogged with controversy. Ennobled in 2005, Lord Moonie who handled the initial sale, said in 2006 that the government's 31 per cent stake in Qinetiq should not have been sold when equity markets were languishing in 2002. He said that he had argued for the sale to be delayed but was overruled by the Treasury who had convinced the Ministry of Defence to go ahead.

Stock Exchange listing

QinetiQ was floated on the London Stock Exchange in February 2006. The company had been valued at between £1.1bn and £1.3bn, with the MoD holding estimated to be worth £616m - £728m, the Carlyle Group's holding £341m - £403m, and staff/management's holding worth £143m - £169m. Controversy was generated by the very large returns for the Carlyle Group and senior managers, with figures of over £20m suggested in the media for Sir John Chisholm. Financial press speculation concerning a stock exchange float increased in January 2006. On January 12 an announcement was made in parliament by Dr John Reid, Secretary of State for Defence. He said that the Carlyle Group, 'will continue to retain a significant stake in the company', and that the British government would continue to hold a 'Golden Share' in QinetiQ to protect the United Kingdom's security and defence interests.

Controversy also arose around the fact that retail investors were to be excluded from the Initial Public Offering (IPO) due to QinetiQ's complexity and the fact that institutional investors would require less complicated marketing and financing. This led to contrasts with the 'Sid' campaign for British Gas plc in 1986, where retail investors were encouraged to buy shares, both with discounts and a large advertising campaign. The issue was partially resolved by allowing some brokerage firms to place orders in the IPO as part of a combined order, allowing the firm to purchase as though an institutional investor, but on behalf of clients. While this did not result in a public campaign or retail investor discounts, it did allow many investors to purchase shares directly in the IPO.

The company floated on 10 February 2006, with an IPO of 200p per share, which gave QinetiQ an initial market value of £1.3bn. On 13 February 2006 (the Monday after the Friday IPO) QinetiQ shares closed at 219.5p per share, valuing the company at over £1.4bn. However, by late March 2006 QinetiQ shares dropped 15% from that peak (7% from the IPO price) to 186p each.

Speculation that a consortium including QinetiQ may be about to win a £10bn MoD training contract helped push their share price back above 190p in early Nov 2006. It was announced on 17 January 2007 that the QinetiQ-led Metrix consortium was the preferred bidder for package two of the MoD's Defence Training Rationalisation programme, worth approx £16bn.

Company developments

Acquisitions

In September 2004 QinetiQ acquired the U.S. defence companies Westar and Foster-Miller (maker of the Talon robot). Also in 2004, it acquired HVR Consulting Services Ltd. a leading UK based engineering consultancy. In early August 2005, the company announced it would acquire Apogen Technologies, Inc., pending regulatory approval. The QinetiQ website lists this merger as costing $288.0m (£162.7m). In September 2005, it acquired a 90% share of Verhaert Design and Development NV (VDD), the Belgian space systems integrator. In October that year, it acquired Broadreach Networks Limited, a supplier of Wi-Fi internet to the European rail industry; in February 2006, Graphics Research Corporation Ltd, developer of the Paramarine software suite of ship and submarine design tools; and in January 2007, Analex, a U.S. corporation providing high technology professional services and solutions, principally to the US Government and its agencies.

In February 2007 the acquisition of ITS Corporation, a provider of IT services to the US government and its agencies, was announced. The disposal of Aerospace Filtration Systems (formerly part of Westar) was announced at the same time. In June, QinetiQ Group plc announced that its U.S. subsidiary Apogen Technologies Inc. had completed the acquisition of 3H Technology LLC, a specialist IT company with US government and commercial clients. In October, the company completed the acquisition of Boldon James Holdings Limited. Boldon James is a UK-based provider of software solutions for high end secure messaging, primarily for military, government and security customers worldwide.

Employment

QinetiQ is one of the top 10 largest UK employers of science and engineering graduates, recruiting around 150 a year. Between 2002-2006, it has appeared in the Times Top 100 Graduate Employers list.

In September 2005, Graham Love replaced Sir John Chisholm as Chief Executive. John Chisholm became Executive Chairman; the previous chairman Dame Pauline Neville-Jones having resigned earlier in the year. In October 2006, ex-CIA Director George Tenet joined QinetiQ as an independent non-executive director.

NAO Inquiry

In 2007, the National Audit Office conducted an inquiry into the privatisation of QinetiQ to determine whether UK taxpayers got good value for money from the sale. The NAO inquiry looked at the following issues:

• choice of privatisation strategy;
• management of the process (the split of the Defence Evaluation and Research Agency into two, the sale to Carlyle and the flotation);
• costs incurred and the proceeds achieved; and,
• whether the deal met its objectives.

In November 2007, the NAO reported that taxpayers could have gained "tens of millions" more and was critical of the incentive scheme given to QinetiQ managers, the 10 most senior of whom gained £107.5m on a total investment of £540,000 in the company's shares. The return of 19,990% on their investment was described as "excessive" by the NAO. The role of QinetiQ's management in negotiating terms with the Carlyle Group, while the private equity company was bidding for the business, was also criticised by the NAO. Carlyle bought a third of the business for £42m which grew in value to £372m in less than four years. However, the Ministry of Defence defended the sale:

"It has delivered excellent value for money, generating more than £800m for the taxpayer, while protecting UK defence and security interests," said Baroness Taylor, Minister for Defence Equipment and Support.

There will be a hearing by the Public Accounts Committee in December 2007.

See also

QinetiQ's experimental RV Triton

• Mercator (Unmanned Aerial Vehicles)
• QinetiQ 1 (balloon)
• RV Triton (trimaran vessel formerly owned by QinetiQ)
• Railgun
• Scramjet
• Topsat
• Zephyr

External links

• Share price chart

QinetiQ companies

• QinetiQ
• Westar
• Foster-Miller (Foster-Miller web site)
• Apogen
• Verhaert Design and Development NV
• QinetiQ Nanomaterials Ltd
• Composite Metal Technologies Plc
• ITS Corporation
• boldonjames
• ASAP Calibration Services