Annual Report and Accounts 2009

Corporate Governance report

This part of the Annual Report, together with the Report of the Remuneration Committee, describes how QinetiQ has applied the principles contained in the revised Combined Code on Corporate Governance published in June 2006 (‘the Combined Code’).

Combined Code

Subject to the exception noted below, QinetiQ has complied with the provisions of the Combined Code throughout the last financial year.

On appointment as Chairman in 2005, Sir John Chisholm was not regarded as independent under the Combined Code as he was formerly QinetiQ’s Chief Executive Officer (CEO). The Combined Code recommends that a company’s chairman should 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 gave its reasons for non-compliance both in the prospectus published as part of the Company’s Initial Public Offering, in 2006 and in subsequent Annual Reports.

The Board – governance, processes and systems
Composition of the Board

Sir John Chisholm is the Non-executive Chairman of QinetiQ. The roles of Chairman and Chief Executive Officer are separate, with their responsibilities having been clearly articulated by the Board in writing. The Chairman is responsible for the effective operation of the Board and ensures that all Directors are enabled and encouraged to play their full part in Board activities. The Chief Executive Officer, Graham Love, is responsible to the Board for directing and promoting the profitable operation and development of the Group consistent with enhancing long-term shareholder value, which includes the day-to-day management of the Group, formulating, communicating and executing Group strategy, and the implementation of Board policies.

The Board comprises a Non-executive Chairman, six Non-executive Directors and two Executive Directors, namely the Chief Executive Officer and the Chief Financial Officer (CFO), with the objective of achieving a balance of Executive and Non-executive 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 decision-making.

The Senior Independent Non-executive Director is Sir David Lees. Sir David is also Deputy Chairman of the Board and serves as an additional point of contact for shareholders should they feel that their concerns are not being addressed through the normal channels. Sir David is, furthermore, available to fellow Non-executive Directors, either individually or collectively, should they wish to discuss matters of concern in a forum that does not include the Chairman, the Executive Directors or the senior management of QinetiQ.

The Shareholder Relationship Agreement entered into between QinetiQ and MOD at IPO entitled the MOD to nominate one Non- executive Director to the Board, for so long as the MOD continued to hold at least 10% of QinetiQ’s issued ordinary share capital. The MOD sold its entire ordinary shareholding in the Company on 9 September 2008, at which point its right to nominate a Non-executive Director came to an end. Colin Balmer has been the MOD’s nominated director since IPO, and notwithstanding the fact he ceased to act in such capacity on 9 September 2008 for the reasons set out above, he has continued as a member of the Board throughout the financial year ended 31 March 2009.

On 30 May 2008, Doug Webb resigned as Chief Financial Officer to join The London Stock Exchange Group plc and was replaced by David Mellors, who joined the Board as an Executive Director on 20 August 2008.

The Directors are responsible for the management of the business of the Group and their powers are subject to the Memorandum and Articles of Association and any applicable legislation and regulation.

Rules concerning the appointment and replacement of Directors of the Company are contained in the Articles of Association and changes to these articles must be submitted to shareholders for approval.

Directors’ independence

Of the current Directors of the Company, the Board considers Sir David Lees, Nick Luff, Dr Peter Fellner, Noreen Doyle and Admiral Edmund P. Giambastiani to be independent of QinetiQ’s executive management and free from any business or other relationships that could materially interfere with the exercise of their independent judgement. Of the remaining Non-executive Directors, the Board considers that both Sir John Chisholm and Colin Balmer are not independent for Combined Code purposes, Sir John on the basis that he was formerly QinetiQ’s Chief Executive Officer and exercised certain executive responsibilities until 1 October 2006, and Mr Balmer as he was (until MOD sold its entire ordinary shareholding in the Company on 9 September 2008) the MOD’s nominated director.

Based on the above, the Board considers that over half of its members were independent Non-executive Directors throughout the last financial year.

Board structure

The Board considers that the skills and experience of its individual members, particularly in the areas of UK/US defence and security, the commercialisation of innovative technologies, corporate finance and mergers and acquisitions, have been fundamental in the pursuit of QinetiQ’s growth strategies in the past year. In addition, the quoted company experience available to members of the Board in a variety of industry sectors and international markets has also been invaluable to the Group as it seeks to penetrate new markets and geographic territories.

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Directors’ Report – Business Review
2009 Highlights
What we do Defence Security and Intelligence Energy and Environment
Our businesses QinetiQ North America Europe, Middle East and Australasia
Chairman's statement
Chief Executive Officer's review Our performance Our future priorities Overview of operations Our strategic vision Our markets
Our global capabilities in action Autonomy and Robotics Sensors and Spectrum Training and Simulation Cyber Security and Resilience
Performance review – QNA
Performance review – EMEA
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Directors' Report - Governance
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Corporate Governance report
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Financial Statements
Independent Auditors' Report to the Members of QinetiQ Group plc
Consolidated financial statements Consolidated income statement Consolidated balance sheet Consolidated cash flow statement Consolidated statement of recognised income and expense
Notes to the financial statements 1. Significant accounting policies 2. Revenue 3. Segmental analysis 4. Profit before tax 5. Gain/(loss) on business divestments and unrealised impairment of available for sale investments
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