QinetiQ Group plc (QQ) Earnings Call Transcript & Summary

Good afternoon. Thank you for joining, and welcome to our investor seminar: Renewed Ambition to Accelerate Sustainable Growth. I'm John Haworth, Group Head of Investor Relations for QinetiQ. The session will be led by Steve Wadey, Group CEO; David Smith, Group CFO; and 3 members of our global leadership team, as Steve will shortly introduce. [Operator Instructions] There will be plenty of opportunity for Q&A throughout the seminar after each of the 3 topics and at the end of the presentation. [Operator Instructions] Before I hand over to Steve, we will start the seminar with a short video that demonstrates the breadth of our capabilities and our value proposition. Thank you. [Presentation]

Good afternoon, and welcome to our third investor seminar. In 2016, I launched our vision-based strategy to reverse decline and drive growth by focusing on our customers' needs and our competitiveness. I'm really pleased to say that we are on track to deliver our fifth year of growth. Building on this success and reflecting on the impact of COVID-19, I was delighted to announce at our half year results our renewed ambition and evolved strategy. Today, we will be talking to you about 3 key enablers that are integral to this ambition and strategy to accelerate our next phase of sustainable growth. So the agenda for today's investor seminar is as follows: following a short introduction from myself, I have chosen 3 subjects to strengthen your understanding of the investment case in QinetiQ. First, we'll look at our U.S. growth strategy, our largest market opportunity. Then we'll look at digital Test & Evaluation, our newest investment. And third, we'll look at our environmental, social and governance responsibility, fundamental to how we do business. Finally, we'll draw the presentation together with a financial summary of how we are growing sustainably and profitably to drive shareholder returns. The presentation will take just under 2.5 hours. We have opportunities to stop and take questions after each subject and then again at the end. At our half year results in November, I set out our new ambition and evolved strategy to accelerate our global growth. Since launching our vision-based strategy at the start of FY '16, we have delivered strong operational performance, as shown from the left of this slide to the middle: growing our revenue by 60%, increasing the share of international revenue from 21% to 35%, growing operating profit by 28% and doubling our order book to just over GBP 3.1 billion. Our ambition, moving from the middle to the right of this slide, is to accelerate our growth trajectory to FY '26 and beyond by building an integrated global defense and security company, a company with a clear purpose: protecting lives, defending sovereign capability and securing the vital interests of our customers; a company that is renowned for delivering mission-led innovation in our 6 home and priority countries with international revenues of more than 50%; a company with major presence in the United Kingdom, United States and Australia, making a difference to global and national security. The scale of our ambition, as shown on the right, is to grow by at least 60% over the next 5 years, with mid-single-digit organic revenue growth complemented by strategy-led acquisitions. Based on this new ambition and growing our maturity, we'll continue to convert revenue growth into sustainable profitable growth at stable margins of between 12% to 13% in the medium to long term, thereby enhancing returns to shareholders. To deliver this ambition, our evolved strategy provides even greater focus for our business decisions and our investment choices. We have a clear customer value proposition that we call, mission-led innovation, co-creating efficient solutions to meet our customers' needs across the capability life cycle at pace, known as create it, test it and use it. We also have a clear focus on where, what and how we deliver value for our customers: where: building an integrated defense and security company through global leverage of our unique skills and capabilities into our 6 home and priority countries. Our largest market opportunity is in the United States; what: Sharpening our focus on co-creating and delivering distinctive offerings that add value to our customers, differentiated from our competitors; how: applying disruptive innovation to accelerate solutions for our customers with greater agility and pace. Our newest investment is in digital Test & Evaluation. The foundation of our strategy is our high-performance inclusive culture, where we live by simple values and behaviors and adhere to the highest environmental, social and governance standards. As you can see, our subjects for today, U.S. growth, digital T&E and ESG are integral to our growth strategies. So let me now say a few words on each of these subjects. Our largest market opportunity is in the U.S., where our strategy is to double our revenues to more than $600 million per annum over the next 5 years. Following the acquisition of MTEQ, a new governance model and a new leadership team, our objective is to build a disruptive mid-tier defense business, a leader of advanced sensing, robotics and autonomy in the largest defense and security market in the world, adding value to the U.S. Warfighter. We'll achieve this through organic growth with complementary, strategy-led acquisitions. To ensure we are even more relevant to the changing character of warfare and stay ahead for our customers' advantage, one important area of our digital transformation program is our investment in digital T&E to enable the rapid development of next-generation products and services. This investment will expand our strong physical offerings into the virtual world to add greater value and pace to our customers and enable our future growth. Throughout the company, including at Board level, we take our environmental, social and governance responsibility seriously and adhere to the highest standards. ESG is an integral part of our growth strategy and runs through everything we do. We're committed to delivering responsibly, sustainably and for the benefit of all our stakeholders, customers, employees and shareholders. Whilst not a complete list, these 3 enablers are fundamental to my long-term ambition: growing an integrated global company at stable margins to deliver enhanced returns to our shareholders. Let me introduce 3 members of my global leadership team that will be leading the presentation this afternoon. Firstly, we have Mary Williams, who joined QinetiQ in 2019, following the acquisition of MTEQ. Mary is the President of our U.S. business. We then have Nic Anderson, who joined QinetiQ in 2018. Nic is the Group Managing Director for our Air & Space business and also the leader of our digital transformation of Test & Evaluation. And also we have Ian Beresford, who joined QinetiQ in 2006. Ian is the Group Functional Director for our technical function and also the leader of our environmental responsibility, as part of our group-wide ESG agenda. Then finally, David Smith, our CFO, who you know well. David will lead us through our financial summary at the end of the presentation. This is an excellent team to lead you through these subjects today. I hope you enjoy the presentation, and I look forward to some lively questions. Thank you. And over to you, Mary.

Thank you, Steve. I'm delighted for the opportunity to speak to you today. As the President of QinetiQ Inc, I'm leading our integrated U.S. business. We're building a mid-tier defense and security company that leverages group capability and brings improved solutions to our customers. As Steve stated, we seek significant growth through our U.S. business. A little over a year ago, I joined the QinetiQ leadership team after MTEQ was acquired by QinetiQ. The reason I'm here today is because with QinetiQ, we bring a common philosophy and focus on our customers, their mission and a passion for bringing disruptive technology to advance that mission. The drive to start MTEQ was a deep passion for developing technology that helps our servicemen and women in the U.S. I am excited about being part of the QinetiQ team. In QinetiQ, I found like-minded leadership and dedication to advancing our customers' mission with a genuine care and compassion for our employees. We, at QinetiQ, share a desire for pulling through high-quality research and development faster and working closely with our customers to build solutions quickly. We do this with an approach we call mission-led innovation at pace. I look forward to sharing with you our strategy and vision for growth in the U.S. Today, I would like to share with you, first, the why, why the U.S. market is ripe for growth and why QinetiQ is well positioned for outsized growth in the U.S.; the what, what we do and what disruptive capabilities and solutions we bring to our customers; and finally, the how, how we are implementing our strategy to execute year-over-year growth to double the size of our U.S. business in the next 5 years. Before we begin the heart of our presentation, however, we'd like to play a short video from some of the leadership team in the U.S. We hope the video brings to life what we do for our customers, what makes us different and how we operate to deliver. [Presentation]

So what fuels our growth? It is the U.S. market that demands innovation to modernize. U.S. defense market is the largest in the world. Our customers are modernizing -- can you go back a slide? Thank you. So the U.S. is modernizing at a record pace. This modernization is leveraging technologies such as robotics and autonomy and advanced sensors. These, combined with AI and machine learning, are providing greater standoff through layers of sensors and robotic systems. Our customers not only seek the technology, but the rapid integration of these technologies into advanced solutions. This is QinetiQ's strength. Through the employment of our mission-led innovation at pace business model, we drive growth through focused alignment of our investments, resources and capabilities with our customers' priorities. As we see tightening and focused defense spending, the U.S. continues to prioritize investments in technological superiority. Technologies such as advanced sensors, robotics and autonomous systems continue to be well resourced and funded. The U.S. Department of Defense spent -- invested over $15 million -- $15 billion, sorry, in these technologies last year. This has been growing at a rate of 15% in recent years. Over 50% of our current revenue is in this growth market. We see continued and growing demand for the innovative products and services we provide. Through our customer and mission focus, we ensure that we are addressing evolving and urgent challenges. When executing programs at pace, our agile, innovative model ensures solutions are iterated and relevant. We follow our create it, test it, use it iterative advancement process. This approach leads to differentiated as well as disruptive solutions that are relevant, in demand and address our customers' critical needs. We're renowned leaders in robotic and autonomous systems. This, combined with our advanced sensing solutions, brings added capability to support our customer's urgent modernization priorities. QinetiQ continues to deliver innovation for our customers. We are building on our strength across QinetiQ. Our global technology leverage pulls through capabilities from across the company to bring better solutions to our customers. Here on this slide, on the left, we highlight our core capabilities that we bring to our customers. Programs within these capability areas make up the majority of our business sales in U.S. Shown on the right are our few exemplar programs that demonstrate how we are innovated -- innovating using capabilities and developing disruptive products that are leading to larger, longer-term contracts. These are the heart of our mission-led innovation approach. Please follow as I walk through each of these examples. QinetiQ is a leader in robotics and autonomous platforms and technology. We're expanding our RAS offering to our customers. The Robotic Combat Vehicle – Light shown here is a medium autonomous robotic system. This advanced system provides a versatile platform that will revolutionize the way robotic vehicles are used to support autonomous operations. We produced and delivered the first-of-a-kind system for our customer this year. This program is a major success for our Army customer and is a pathfinder for next-generation robotic vehicles. Our customer was so pleased with the initial deliveries, the General in charge gave QinetiQ an awesome shout out on social media. But more importantly, this program will continue to fuel our growth in the robotic market. This current program is opening a pathway to programs of record opportunities for kinetic worth several hundred millions of dollars. Next, with the acquisition of MTEQ, we have expanded our technical offering to our customers to include a broad array of advanced sensor systems. We have developed state-of-the-art airborne surveillance systems. This system, combined with multiple-sensing nodalities processing -- and processing provides improved standoff performance and situational awareness. This first-to-market capability significantly improves performance due to its integration into advanced compact and stabilized airborne pod. This provides easy installation into manned and unmanned aircraft. We have delivered prototypes and are moving into the production phase of this program. This solution is a game changer for the surveillance community, and our customers are investing in the success of this technology. This project is leading to multi-hundreds of million dollar programs in the near-term and larger multi-hundreds of million dollar programs across multiple customers in the next few years. Finally, QinetiQ is leading the way to bring hybrid drive technology to the troops. The final program shown here demonstrates our global technology leverage in action. This program is being executed through our single route to market approach, which simplifies the way we interact with our customers. Our U.S. customers sought innovative ways to take existing military vehicles and make them hybrid tanks. By using our hybrid electric drive technology developed by our colleagues in the U.K., we're able to accelerate the program and rapidly transform an existing vehicle into an electrified tank. This demonstration vehicle will bring our customer greater capability and vehicle performance to include mobility and endurance. Our technology will reduce logistical requirements for fuel and provide quiet modes of operation for stealth operations. Although this is a concept demonstration program, the Army plans to convert larger numbers of existing and future vehicles to hybrid systems. These are multibillion-dollar programs and huge growth opportunities for QinetiQ. We're advocates for this technology, not only for its value for the troops, but for its reduced impact on our environment, which is aligned with QinetiQ's ESG commitments, which Ian will speak to further in the presentation. These capabilities collectively bring to life how QinetiQ is relevant and aligned to our U.S. modernization priorities. Our strategy for growth follows our simplified plan to integrate, build, grow and expand. Integrate. We continue to integrate and streamline our people, processes and systems in the U.S. We are aligned with the group and are leveraging investments in technology to realize improved performance to scale efficiently as we grow. We have integrated our leadership team and functions across the U.S. and aligned our organizational design with group. We have expanded our leadership team with new talent that augments our current team and prepares us for growth. . We also employed common business systems across all corporate functions. We have integrated our business winning teams and are growing our capability offerings to our customers. By offering integrated capability for robotic platforms and sensors, we are expanding our role in major modernization programs. These changes, along with our expanded leadership team talent, provides a strong business platform for organic and acquisition-based growth. Next, build. We are building upon our agile, scalable and differentiated business model with our mission-led innovation approach. We are leveraging capabilities across the group to build upon our core customer base to expand our offerings. A great example of this is utilizing our single route to market approach to connect better with our customers to solve challenging problems, such as the hybrid tanks. And then growing our margins. By maturing products that address mission-critical modernization needs, we're expanding our margins through our disruptive portfolio of product offerings. We're actively doing this through our creation of game-changing and affordable products while streamlining our operations. And then finally, expand. We are expanding by bringing our mission-led innovation model to new customers, winning larger and longer-term contracts and expanding our capability offerings to new domains through growth -- group leverage as well as strategic acquisitions. We are making this happen through investments in strategic capture planning and ensuring we have the capabilities and capacity to pursue and deliver larger-scale opportunities. To summarize, through our mission-led innovation at-pace approach, we are exceptionally well positioned for growth in the U.S. We have a solid base of customers, capabilities and products. We have upgraded our operations and aligned with group, giving us the platform to grow both organically and through strategically aligned acquisitions. Our clear focus on delivering ISR sensing systems, robotic and autonomous solutions and leveraging QinetiQ Group technology is fueling our growth. Our strategy has laid out a clear path to double the size of our U.S. business to over $600 million in revenue by 2026. We're excited about the future and have a great team dedicated to deliver our customers' mission. I will now hand the floor back to John, and we would be delighted to take any questions.

Thank you very much, Mary. [Operator Instructions] First question is from Charlotte Keyworth. Go ahead, Charlotte. Seems like we can't hear Charlotte. We'll come back to you, Charlotte. Richard Paige?

Just -- I guess, obviously, the first thing that strikes me is about how ambitious that U.S. doubling of revenue target looks. And I guess I'd like to understand a bit more how we plan to achieve that. Obviously, what is already almost -- I hate to say the word guarantee. But obviously, with the programs of record positioning as to where you are, what is coming through organically? And obviously, you mentioned acquisitions. And what would be assumed within that, please?

Absolutely. Thank you, Richard. And that's a good question. And we do have an ambitious growth, but we do have a strategic plan laid out, well focused to get there. And many of them are built, as what you said, on our program of record capture, which we have positioned well for as well as some major programs that we have highlighted in our plan that we are well positioned to attain. So if you look at what are we looking to get in growth in -- from our organic growth, as you say, that we have a well-laid-out plan, that's about 50% of that growth. And then we're looking for additional growth through our acquisition, and we are looking for a strategic complementary company to bring in new technology and new customers so that we continue this mission-led innovation approach. So we do have a solid plan, Richard. And I appreciate the question is ambitious, but it is well thought out and well planned. With that said, though, I do want to hand the floor over to Steve and give him an opportunity to build on that answer. Steve?

No, I think -- thank you, Mary. But I think you've covered all the key points. And good to hear you, Richard. Yes. I mean, well, we've had ambitious plans that you've seen us deliver in the years gone by. And this is, as I said in my opening, it's our largest market opportunity. We're pleased to share with you that our plan is to double in the U.S. in the next 5 years, and we're confident in the plan that Mary just outlined. Yes. 50-50 notional organic, inorganic. Mary has got a good team. We had a good plan on the programs of record and try to move into the multi-hundred million dollar programs that will drive that organic growth. And then it comes down to what we've done with our last 7 acquisitions, which is strategy-led first. And now we have a clear strategy to grow in the U.S. We can use that as a lens on the type of companies that we are looking at. And we're clearly looking at companies that not just fit with the U.S. strategy but are complementary to the group strategy. The one additional comment I would make, because you'll probably come back and ask for more details about the acquisitions, which we won't be specific on, but bear in mind that our U.S. business is probably about 90% a land business. So it's very dominated in terms of delivering for the U.S. Army. So as part of the U.S. government modernization, we would clearly be looking at how we can expand, in line with Mary's strategy, into other domains. So thinking about how we can serve both the U.S. Army customer, but expanding to other customers will be part of our thinking there. But they're just some additional thoughts there. Did that answer your question, Richard?

Yes, it does. I guess one additional point or question on that is, how does the core RDT&E market fit within the U.S. and your ambitions there as well?

Are you more referring to the valuation?

Yes, into the Test & Evaluation side.

Well, I mean, Mary -- I don't know, Mary, you -- I'll go first and then you can add. I think what we're trying to do is recognize that we have a real core strength and a real core competence around sensing, robotics and autonomy, and it's kind of we build out from that strength in the short term and expand into other customers. But of course, in the long term, as you know, I mean, Test & Evaluation is a huge strength for the company. So where we can ultimately bring that leverage together and sort of then move into that type of spare in the U.S. market, it's probably more medium to long term. But it's certainly part of our thinking. . Mary, what sort of additional thoughts would you have?

Yes. So I just wanted to build on what you just said, Steve. And in the U.S., Richard, the way the military is looking to modernize is more of a rapid iteration of capabilities. So they have a new way of doing acquisitions, which is a rapid acquisition, where you rapidly develop through an RDT&E funding line, which is different than test and evaluation. But you take it to the field, you get feedback from the customers and you iterate that solution to quickly deliver technology, which is a new way of working in the U.S., which we are really well suited to do because we can quickly prototype, bring in our teaming partners to build an exemplar system that we build upon and bring into better capability. So that create it, test it, use it iterative model is really well suited to the new acquisition strategy in the U.S., and that's what we're building upon. So thank you, Richard.

And sorry, Mary, you just triggered to steal one of Nic's sandwiches that will be coming later. So as part of our investment -- sorry, Nic -- as part of our investment in digital T&E, we're looking at how we can move to the next generation of T&E. We're designing that in a sense that the tools and techniques that we will be investing in will be globally available in our company. And therefore, there will be a point where Mary can start to deliver value-add in that more rapid development and test cycle in the U.S. customer, based on what you're going to hear from Nic.

Thank you very much, Richard. Let's try Charlotte's line again. Technology isn't working today on Charlotte's side, so I will come back to her later. Let's go to Sash Tusa.

I've got 2 questions. One is just about the M&A environment in the U.S. I'll start with that, which is that, arguably, the tremendous stroke of luck with MTEQ is that you acquired it before the boom of the stacks. And there's now a huge amount of hot money, some of which is very specifically focused on defense M&A that's sloshing around the U.S. market looking for targets. . And so I just wonder, are you seeing that being reflected in the prices being asked for businesses you're looking at? Or are you fishing in a slightly different pool into, whether in terms of size or technology? Because clearly, if all you did was to participate in that sort of feeding frenzy, it might not be terribly, terribly good for shareholder value.

Yes. Well, I'll start, Sash, and then I'll hand it back over to Steve. But I will say you are exactly right. The market has heated up in the last 6 months. There's a lot of acquisition and consolidation in the U.S. market. So there's a lot of money going after companies to do what I call bolt-on acquisitions. . That's not what our strategy is. Our strategy is looking for complementary technical companies with a passion for the mission. And that might be, and we're hoping, is a different look at that lens. And we might -- from our perspective, we're looking for a different type of acquisition that will be better suited for our growth strategy. We're not looking for acquisition for acquisition's sake, but something that's a good fit. And we are starting to see those opportunities, Sash, and we hope that, that will continue and that we will find the right acquisition for us and that we won't be competing for kind of a drive for price going forward. But with that said, I'll hand it over to Steve because we are tracking some opportunities now that are kind of in line with what we're talking about. Steve?

Yes. I mean, I think a sort of a couple of builds on what Mary said. I mean, the first thing -- you made me smile,, Sash, is I wouldn't use the word luck and M&A acquisition with MTEQ in the same sentence. It was a very well strategy thought-through and selected and relationship development choice. And you're right, when you talk about the U.S. M&A environment, certainly, when we compare what's going on in the U.S. to Europe, without a doubt, you're in a sort of a hotter, more intense environment and higher prices are being commanded. But I think that takes me right back to my first point. Our whole approach to M&A in the last 4 years has been strategy-led. So we have a clear strategy. We understand our strengths. We know the sort of businesses that we're looking at. That is our #1 test, and then we will -- once we've worked out the nature of business and identified the right business, we will test it against our normal investment criteria. We'll look for the right integration that will create the right leverage to get the right return on that investment. So yes, it's a hotter environment, but the methodology that we're applying to select the type of businesses, I think, will assure investors that we'll get the right return from the companies that we ultimately choose to pursue. Dave, is there anything you'd like to build on a financial perspective?

I was just going to really reinforce what you're saying. I think in our acquisition strategy, we're really looking for the opportunity to jointly create value with the company that we acquire. So that doesn't mean just buying the value at the beginning. But it actually has a joint strategy that we've agreed in advance, basically, about how we can bring the companies together and create value. And that may make us a bit unique in the market, but we'll be pretty patient about that approach. And clearly, I think, MTEQ is a great example where that's really worked through very well for us. And we're not the sort of company that's going to get into bidding more for the top price in the company. We'll absolutely be looking for a strategy where we've got full alignment with the team that we're buying in terms of how we can create value and capability jointly.

Okay. No, I apologize for the use of the word luck then. I'm forced to. In fact, when it comes to timing, though, I would still -- work because you came in just before...

I know what you mean.

Just one follow-up.

You just gave me the perfect opportunity to reinforce it was strategy-led. That was the only comment I was making, Sash.

Yes. That was definitely my error. So just one follow-up. An example -- one of the examples you gave, Mary, was bringing hybrid electric drive technology from the U.K. to U.S. armor programs. I wondered if you could just discuss what, if any, issues there are associated with ITAR, managing the transfer of that technology and yet still being able to use that technology in a -- on a U.K. basis? Because there are some quite well-known examples where technology has been transferred from a U.K. defense company to a U.S. subsidiary for a U.S. program, and then they've not been able to get the technology back again. So how would you manage the ITAR issues associated with that process?

Well, I think that's a good question and that we can learn from the past. So what we're doing right now is we're -- we understand those risks, and we're actually looking at that strategy going forward to be able to leverage the technology in both the U.K. and the U.S. So right now, those ITAR relationships, we're managing very closely. We understand the risks, so that we are planning the program so that we can move forward in that vein. With that said, we are transferring capabilities and technology. That is still technology owned by the U.K., and they are continuing to use that technology for programs in the U.K. So we don't see it being a major risk because we're planning to be successful from the start in addressing challenges to make sure we're not just handing over the technology, modifying the technology and then can't bring that back to the U.K. And we're managing that pretty well right now, Sash. And we will continue to manage that process. I don't know, Steve, did you want to build on that question?

No, I think you covered it perfectly.

Yes. Okay. Thank you, Sash.

Thank you very much, Sash. So next, we'll go to the line of Jack Barrat.

Hello, can you hear me?

We can, Jack.

We can, Jack.

Lovely. That was great. Just one for me, if I may. Some of the things you talked about, whether it be autonomous, robotics, AI, the hybrids, are all sort of such key parts of what the DoD is going to be spending on in priorities for the next 5, 10, 15 years? I'd just love you to give me a bit of confidence or scale the size of the U.S. business now within QinetiQ that you can sort of compete at that high end. Sort of there are some things where being sort of the plucky newcomer is a benefit. But you'd suggest some of these big strategic divisions that the DoD has, are they not much better giving it to a big prime rather than giving it to sort of QinetiQ U.S. business? So just to reassure me on your right to win in the U.S. on these projects would be really helpful to understand.

No, I appreciate that, Jack. And I do understand your point. But I think if you look at the acquisition strategy, how it's changed, there's more OTAs and OTA transitioning directly to production programs. And if you look at some of the major programs we're running like RCV-Light, the hybrid electric driver we're working with BAE, we are playing a significant role. We are teaming with larger companies. We are that mid-tier that is bringing value in these products. And just take RCV-Light, for example. We are really succeeding and demonstrating, and a track record is what gets to the follow-on programs. So by developing innovative technologies, such as the ISR system I'm talking about, the RCV-Light and partnering with our teaming partner, both the large Tier 1s and the small niche companies to bring in that innovation, that's what we're doing. And we can only continue to do that with our success in bringing that together and working with our customers to bring them what they're asking for. And I just can't say that the track record is what's winning us these follow-ons. We are looking at some of our programs being brought in and leveraging our current contract vehicles to really start moving those programs out faster. So that's the confidence we can give you, is we're already doing it. We're building that relationship with the customer. And they want to move faster, and we can help them do that. And we do understand we do rely heavily on our teaming partners to really help with getting that product fielded quickly. So our supply chain, we're working closely with our supply chain partners to get those programs, from demonstrators limited-rate production to a larger rate production program. And Jack, I'm going to hand the floor over to Steve to see if he wants to build on my answer to that question. Thank you.

Well, I think what you just described is what we call mission-led innovation at pace. And that's where we see an area of the U.S. market where there's an opportunity to build a company that brings even greater value to the U.S. Warfighter. So I think that it's next-generation technology by drawing upon the industrial base and the small to medium enterprises that Mary just described, and can also partner or prime directly to the customer, partner with large primes or partner directly with the customer to deliver that outcome at pace. And that's the strategy, and that's the track record that Mary and the team are building as we pursue this growth plan. Does that answer your question?

Yes, it does. I guess the proof will be in the pudding over time. If you could sort of bring an example or maybe you're going to bring an example in some of the upcoming slides about how you have transitioned from sort of the original pitch to partnering to then going into full rate.

Well, maybe Mary...

The first journey of that, that would be really helpful to try and understand.

So I think maybe, Mary, just say a few additional words on RCV-Light because I think RCV-Light is a great example, where already within -- I mean, we're just over a year into the acquisition and integration process. We've been leveraging skills and technology between what was previously QinetiQ North America and MTEQ to actually move this program on a greater pace with our customer. So maybe, Mary, would you like to just say a few more words about that?

Yes. So Jack, if you look at RCV-Light versus the other RCV systems, RCV-Light has probably been the most successful getting a robotic vehicle out there to support the future exercises and demonstrations that's in the Army's strategy and plan. So we've gone through and developed, and in record time, delivered 4 units plus fifth one to keep for us for testing and assessment and iterating. But we're looking at future buys in the near term to get us to higher-rate production because that's what the customer is looking for, to get more of these out there to support those missions. So our goal is to continue to build larger quantities and build on that and then move into what we call the program of record, which will be happening starting next year. We'll see the acquisition strategy for that. And we're well positioned with our track record and our deliveries. So that program will be a huge program for QinetiQ. We are partnered with very strong teaming partners, and we have a demonstrated track record. So we feel confident that, that program is going to continue and continue with QinetiQ driving that program. . So that's really an exemplar. We could go into some others, but there's some commercial sensitivity to some of them that we just didn't want to talk about here. But hopefully, Jack, that gives you better understanding of programs like RCV-Light. We have quite a few of those in our portfolio that we are working.

Great. That's really helpful. It gives me something to ask about in the future, if nothing else. I really appreciate that.

No worries, Jack. And we look forward to presenting more on the programs as they progress. So thank you. And thank you all for your questions. John, I don't know if we have any time for more? Or are we...

I think we've got time for one more, and I'm just going to try Charlotte's line again to see if we can have success this time.

Everyone, can you hear me?

Yes.

It's our lovely Charlotte.

So sorry about earlier. But let me try. I just got a couple actually. One was really just sort of hopping back to history, thinking about the U.S. services business, which was built by your predecessors -- predecessors' day. But I mean, I appreciate that was operated under a proxy will. And now under an SSA, you've got things like U.K.-bought seats as privileges. But how are you doing things differently this time, will be the question. And then secondly, on the areas where you've articulated, where you aligned your priority spend. And I guess that's your -- the basis on which you're going to outpace your friends' growth, like [indiscernible]. You say it's the things like technical superiority. I guess it would be useful just to hear a little bit more about the R&D requirements and CapEx behind that in your growth strategy, obviously, to maintain that lead on the incremental revenue ambitions you've got in the U.S.

Okay. So do you want to just talk about history, Steve? Since I am not here for history.

Well, at the interest -- I mean, I -- we'll have to answer the question of history, which I will do. But if you want to say a few words first, and maybe we can get David to talk about the R&D and CapEx?

I will. So Charlotte, thank you for your questions. The first one is the SSA versus the proxy. So I have been part of the transition from the proxy to the SSA. And how are we doing things different? . The SSA is the government's opportunity for us to really allow us to collaborate from a business perspective. The governance for the FOCI mitigation is there. We have an SSA Board, but really how we're doing things differently is we're looking for a common strategy of how we move forward as a company. We're investing in technology and focusing on emissions. So we're looking less on how do we build and aggregate bolt-on services. That's not what we're doing. We support research and development to help advance technology that we can rapidly transition to bring better solutions for our customer. And that's our focus. And that's that mission-led innovation at pace. We're co-creating capabilities and disruptive solutions with our customers, with a mission focus. What is it that their needs? What are the -- what is the challenges they're facing. And it's not bringing just our capability to address the problem because we have the capability. We actually look at our teaming partners and bring in innovation to make that happen. So that's really where we, again, take our ability to leverage our SSA in the way we're governed to bring in capabilities just like we're bringing in with E-X Drive. And we have other things that we're doing, as well as the targeting in Canada, bringing into the U.S. The SSA is allowing us to simplify the way we operate and work with our customers to bring innovation. That's really bringing value to the U.S. market. And as well as -- I'll go ahead and answer your second question, and then I'll hand the floor over to Steve. But on alignment to the priorities and technical superiority, that happens, Charlotte, not just by bringing exquisite solutions. It's sometimes the pragmatic solution, bringing AI machine learning and our teaming partners there, combined with the advanced sensors to provide that leap of capability and performance for our customers. And that's really where we've done well. As a mid-tier defense and security company, we're partnering with the small niche companies that bring innovation both in the commercial market as well as in the defense market and working with the large Tier 1s to bring advanced capabilities to our customer. And we feel like we've done that well. We've been first to market on that model, and we've continued to innovate and perfect that. And by leveraging the whole group capability, we are really refining that model and becoming stronger in what we're delivering. So with that said, I'm going to hand the floor back over to Steve. But I think if that gives you an answer to somewhat both of your questions in one fell swoop. So Steve?

Yes, thank you. Thank you, Mary, and it's a great question, Charlotte. And we were very, very conscious before we went back into the U.S. market, so to speak, that we learned from history for exactly the reason that you raised the question. And I think that the most important thing about history is that you can learn from it. And we spent a lot of time reflecting even though it was -- when I was here, reflecting on the lessons of that period to ensure that history won't repeat. And I think that the approach that we have adopted and are adopting is fundamentally different so that history won't be repeated. And I would really summarize that there are 3 things that we're doing differently. I feel that we've really got the right strategy, I think that we've got the right product. And I think most importantly, and I'll come back to this at the end, we've got the right people to ensure that our U.S. growth is successful. When I talk about the strategy, and I think I have said this when we announced the acquisition of MTEQ, there have been approximately 2.5 years of work that led us to the announcement in October '19 about the acquisition of MTEQ because, having done the lessons learned on the previous QinetiQ history, we were crystal clear that we would not reenter the U.S. market and undertake another acquisition under a proxy arrangement. And we had proactively engaged the U.S. government with our good reputation and relationship in the U.K. about reentering on the basis of a special security agreement. And Mary will know well that as part of the negotiation of the deal, that was a conditional precedent that we put on the deal closure. And I think our strategy said that we had to have the right governance model around the investment and the right product. And that sort of takes me on to the product. The difference of the services business to what we have now is the nature of the product and the activity. We are talking about a high value-add, intellectual property based business, where we have retained value inside the company, which is part of the overall value-add to the customer. And by building around that type of product and capability set, we're confident that we can command the type of growth strategy that we're describing and margins that we expect. And then probably, not most importantly, but equally, maybe most importantly, is the right people. We've built an SSA Board around the business. David and I are both members of the Board. But I'm really delighted with the quality of people that we have established on the SSA Board, a huge experience of the marketplace and also experience in managing these type of governance arrangements, of which we have a very strong relationship as Board members, but also between the U.S. Board members and Mary and her executives. So I think we're taking a very different approach, having learned lessons and set out a clear strategy, the right product base and the right people to navigate the years ahead. Does that answer your question, Charlotte? Do you want a bit more from David on CapEx and R&D?

Or at the end or whenever David wants, yes.

Yes. Maybe, David, you could pick it up in your financial section.

Yes. Well, maybe I'll just say a word here. I think -- and we have an R&D budget that we spend in the U.S., and we will be incrementing that, especially around the strategic captures that Mary was describing, so that the program is in record, making sure that we've got everything in place for those, i.e. -- I mean these are not huge amounts of money, but they are all very important parts of money to make sure that we're developing the right capability, whether it's supply chain or manufacturing or business capture capability going forward. So we have taken that into account in the plan that we're doing. But I don't think these are going to be huge amounts of money that we manage.

Great. Thank you very much for your questions, and there will be further time at the end for further questions as needed. Let's now move on to the second major topic of the seminar, please, Digital Test & Evaluation. So Nic, over to you.

Hello. I'm Nic Anderson, Group Managing Director for Air & Space. In the next 20 minutes, I'm going to explain some of the drivers for mission-led innovation and how this strategy creates a fantastic opportunity for QinetiQ in digital transformation. We intend to build a digital test and evaluation capability that will support our customers achieve quality, cost and time scale improvements, while simultaneously offering QinetiQ a range of new products and services that will enable sustained growth. As with Mary's update, there'll be plenty of time for questions once I run through the presentation. With the growing strength of China and the resurgence of Russian influence, combined with their willingness to sponsor state and non-state [Audio Gap] nations now [Audio Gap] living in an [Audio Gap] and multi [Audio Gap] the West's traditional supremacy systems has driven [Audio Gap] approaches, myriad of new threats described by [Audio Gap] such as asymmetric and cyber, compared to the exploitation [Audio Gap] political, economic and military instruments available to achieve their desired effects. Since the Cold War, our adversaries continue to invest in new technologies, from hypersonics to autonomous systems, coupled with the use of commercial off-the-shelf capabilities such as drones. Equally, our reliance on networks and information has opened up the relatively new, but core domain of cyber warfare. To counter these threats, we need to help our customers develop techniques that enable innovative capabilities to be rapidly delivered to operators. As Steve has said, we call this mission-led innovation, where we focus on the technologies and methods that enable our customer to benefit from lower cost, fit-for-purpose capabilities generated at pace. We've heard a number of examples of mission-led innovation from Mary, and our U.S. business is leading this collaborative approach with our customers. Fundamental to the future of mission-led innovation will be the exploitation of the so-called digital thread, a concept that I'll explore in a moment, which runs from creation of the capability through to mission rehearsal. In QinetiQ, we're in the ideal position to offer customers distinctive new products and services based on the digital thread and digital test and evaluation that supports our mission-led innovation strategy. We see this opportunity as another layer in our suite of services, a layer that will enable global leverage for growth, which builds on our position as a partner in the provision of mission-critical capabilities. Before I focus on further customer opportunities and the growth potential of digital test and evaluation, which is a core global campaign in QinetiQ, I would like to share a video that explains what we mean by the digital thread, and I hope this will help set the scene. [Presentation]

I hope you like the video, which describe the benefits of the digital thread to defense, speeding up development and reducing the cost of delivering capability to frontline users and integrational performance for key parts of mission innovation. We begin evaluation journey, and we see great potential for new products and services for our customers through this capability. We have started a multiyear investment program in the region of GBP 8 million to GBP 10 million of OpEx and similar CapEx in FY '22. And this is included in the forward guidance David has already provided. We expect returns on this investment in line with our overall company revenues and margin. In the next 3 slides, I'm going to share how we're targeting this investment in key areas that are critical to our customers. This will mean we can embed services that are core to our customers, ensuring we can continue to grow over the long term. As you know, we're implementing what we call the capability investment for term partnering agreements. This is progressing well. As part of this investment, we have a digitization program to create distinctive new services for our existing customers and to attract new customers. These services include areas such as sensing and control, remote, more centralized command and control, which will enable live and for training of massive boost runners, capture and storage, our capture and storage systems and networks, therefore, allowing easy integration and accessibility by QinetiQ and our customers, processing, exploitation and dissemination, matching value to customers' time scales and needs through secure information analysis and transfer. These digital test and evaluation investments will bring about significant improvement for our customers, enabling capability to be evaluated rapidly, both live and virtually, and delivering insights that will improve mission performance through exploitation of managed and shared information. The digital thread video shows that we can start the customer journey on capability assurance much earlier in the life cycle than has been the case traditionally, labeled traditional test and evaluation on the slide. We have called this new concept assure as you go in the create it space. And we believe it will help customers validate capability much earlier and in steps, and so take costs out of the assurance of equipment providers programs, where significant resources are currently consumed. When we look at use it, we see opportunities for much more mission rehearsal in the use it space. We anticipate more testing at full system level and at the systems of systems level, where live and virtual players are connected together to improve operational performance. Enabling virtual players also supports our and our customers drive to reduce carbon emissions, in line with our ESG commitments, as Ian will describe in the next presentation. Assure as you go is designed to build evidence of the assurance needed throughout the life cycle of a military system, utilizing evidence derived from synthetic modeling in the earlier stages of the life cycle. For our customer, this will enable faster, more cost-effective decision-making, thereby accelerating capability to the front line. For QinetiQ, it enables us to left shift our services and engage in the earlier stages of the equipment life cycle than we have done traditionally. It also enables the establishment of the digital thread for the life of the system. An early example of this approach is the future combat ships programs in Australia, Canada and the U.K. We are developing a digital application that is targeted at providing an assurance dashboard for decision-makers, showing the maturity of the assurance evidence as you go and highlighting any assurance risk. On major programs, this offers a service opportunity to support our customers with a long-standing challenge of knowing assurance levels at any given time on a major acquisition program, and thereby reducing acquisition timescales. This is an offering we can build into another of our long-term customer partnerships, EDP for the U.K. MOD's defense and equipment support procurement agency. As I touched on earlier, building on our existing capabilities, such as those within the long-term partnering agreements, we're investing in the development of the digital architecture needed to enable the introduction of virtual assets alongside live test and evaluation and training scenarios. As single platforms no longer operate independently and the systems of systems become ever more complex, involving submarines, ships, air platforms and so on, then a more flexible approach to testing and exercising is required. For example, one approach is that test and evaluation that does not require all the assets to be physically located together. Live and virtually connected synthetic players allow complex activities to take place in this way, increasing the value, reducing cost and also reducing the burden on life platforms. For QinetiQ, we can right shift into these mission rehearsal services to enhance our offerings to new and existing customers. QinetiQ has recently signed a 5-year contract with the U.S. Air Force in Europe for the F-15E and F-35 fifth generation fighter aircraft training on the long-term partnering agreement ranges. The 5-year framework contract with QinetiQ was up to $27 million provides USAFE a fully instrumented and safe training location for the F-15E, and their flagship defense platform, the F-35 fifth generation fighter aircraft when it is fully deployed in the U.K. and Europe. This contract will provide their frontline forces with the best available environment in which they can fully exercise their equipments and people, offering challenging practice scenarios and unique solutions to meet their overall operational goals. The program will open the door for new weapons to be certified in the U.K. for the first time. Our adoption of digital test evaluation capabilities, including live and virtual players, enables us to bring greater capability to users introducing new digital threats to training. We believe this will enable new service for our U.K. customer, USAFE, as well as attract European countries, a number of whom are procuring the F-35 to utilize the capability. Through our investment, you can see that digital test and evaluation offers opportunities for sustained growth, building on the success of our long-term partnerships. All of the above will be underpinned by a cloud-based IT infrastructure investments, including secure data hosting, management and connectivity. And our plans include the creation of a collaborative environment to host tools, capabilities and services for our customers. Perhaps most powerful of all is this infrastructure can be used globally across QinetiQ and is key to our core cyber domain, where we can leverage the investment for new product development. These foundational improvements are key enablers to support and sustain our long-term growth. On this slide, I'm going to give you 3 more examples across create it, test and use it to explain how our digital investment benefits customers with their core challenges and how that creates sustained growth opportunities for QinetiQ. Firstly, create it. Team Tempest has been established under the U.K.'s future combat air strategy as a technology demonstrator program to inform the customer's procurement decision on the U.K.'s Combat Air Acquisition Programme, or CAP. CAP will procure the next-generation combat air system, which is anticipated to be one of the largest future programs in the U.K. The current in-service date for the program is 2035, and the system is planned to be in service for 30 to 40 years. QinetiQ has been invited to join the team of U.K. companies leading Team Tempest and has so far taken some GBP 20 million worth of orders. Through Team Tempest, we are targeting a lead role in the approach to digital test and evaluation. We're investing in 2 digital T&E capabilities for application to Team Tempest. The first will enable assure as you go, this is the concept I've already described, enabling assurance earlier in the life cycle. The second will enable equipment manufacturers to test performance of connected synthetic models in a secure environment. We believe this will create a new service offering that we can take to customers across their domains, both in the U.K. and internationally. This approach is attracting significant interest across U.K. MOD's defense equipment and support organization, where last month, we had a workshop with the customer's chief engineers to explain our investment program and the benefits of digital test and evaluation in the creative space. This has resulted in an appetite to develop a series of digital T&E demonstrators as the first stage in potential collaboration across a broad range of our customer programs. Secondly, test it. Looking at the second picture, you can see the uncrewed air systems flight test range that QinetiQ developed in partnership with the Queensland government, which we are now operating and maintaining for the customer. The range enables uncrewed air systems operators to conduct single or dual platform trials in a safe and compliant airspace. This success was based on leveraging QinetiQ's U.K. range expertise, specifically drawn from the long-term partnering agreement. The Queensland government wants to develop the range to become a world center of excellence for uncrewed air systems testing. This means we have an excellent opportunity to leverage our digital test and evaluation capabilities. Based on the developments I described in the long-term partner agreement, we intend to develop the Queensland range to provide a deeper long-term partnership with the customer. Enhancements planned include: secure connectivity to enable data streaming to the customer's home base; introduction of virtual players to enable a broader and more cost-effective evaluation; and connectivity to other Australian ranges for more experimentation and training benefit between live and virtual players. This is another great example of leveraging our digital T&E investment through our home countries. And then finally, use it. As Mary has said, the U.S. is leading QinetiQ's approach to mission-led innovation and works in partnership with customers to solve mission challenges. This involves using the digital thread to develop products that enhance customer performance and enable them to embed mission learning by rehearsing in the virtual environment. One great example of this is the Joint Effects Targeting System, which is a target designation training emulator for the U.S. Army. In this case, we took a rapid approach to developing a fully immersive simulator for training solutions based on mission information. The solution we developed also uses leading edge augmented reality to support a rich and flexible mission training experience. This capability enables operators to be more prepared and effective in the field. This also enabled QinetiQ to establish an excellent track record with the U.S. Army, fielding 18 emulators at various field and classroom locations. Our mission-led innovation approach has placed us in a strong position to compete for the future Call For Fire Training 3, a competition expected next year. So to summarize. The characteristics of warfare are changing, and this is driving new opportunities for mission-led innovation. Through our proposition of create it, test it and use it, we believe we can create value for customers and sustain growth for QinetiQ. Digital test and evaluation is an area where we can develop new and distinctive products and services that are needed by our customers to improve performance, reduce costs and reduce delivery time scales of their equipment programs. These products and services build on the successful growth we've achieved through the long-term partnering agreement and enable us to enhance performance to attract new customers to QinetiQ, providing significant commercial advantage. We see great opportunities for digital T&E capabilities. This is by expanding our service earlier into the equipment life cycle through assure as you go, and later in the life cycle, by exploiting the digital thread in mission rehearsal and training. These capabilities are supported by a new foundation, a secure cloud-based IT infrastructure that serves our people globally, enabling us to create new products for digital test and evaluation as well as for our customers in our core cyber domain. We're investing in this program in a meaningful way, working in partnership with our customers. This will ensure we create solutions that will provide them with maximum benefit and places at the heart of their critical capabilities. We believe this will accelerate our next-generation of global products and services and support sustained growth for QinetiQ. Thank you, and we'll now welcome questions on this topic.

Thank you, Nic. [Operator Instructions] Thank you. First question is from the line of Sash Tusa.

Exactly who your customer is at each stage? Are you selling to the prime contractor or the expected prime contractor for a program? Or are you selling to the ultimate customer, the defense ministry? And perhaps if you can use Tempest as the example there, who -- you said GBP 20 million of orders. Whom did you actually sell those to? Was that BAE, MOD or someone else?

Yes. Thank you, Sash. A great question. I don't know whether we came into it -- a little way into it, but I think I got the gist of the question. So I'll try and answer it. I mean I think you're highlighting who are we selling these products and services to. Is it the ultimate customer in terms of each of our home countries, departments of defense, in this case, the MOD, or the OEMs or both? And I think the short answer is both actually. So with the -- if I take the U.K. MOD in Tempest as an example, we obviously want to help that customer, the U.K. MOD, understand how they can benefit from the digital revolution and really be able to ingest the synthetic models that are going to become more and more common in a way they understand the capability, the risk, and ultimately get the assured service or assured product from them. Equally, the equipment providers have to learn how to provide that evidence. And that's a developing technical activity as well, from additive manufacturing through to getting their synthetic players across systems of systems playing together. So we can sell both products and services to help the OEMs. And to answer your question directly on the Team Tempest GBP 20 million so far, that has been contracted through Team Tempest, not the MOD. Anybody else who want to add to that?

Next question is from the line of [ Jack Baron ].

Just one on the sort of evolution of QinetiQ's offering in sort of the wider T&E space. I mean just in terms of how you would think about market share or your ability to execute or your ability to grow within the market, just could you sort of size the different levers for me in the best way you can about, is the market bigger than it's ever been before? Are you better able to compete in terms of the ability to grow than you had done before because you're the only one offering digital and others aren't? Is much more being outsourced? Just -- I'm trying to understand which is the most powerful growth driver for this part of the business in the next sort of 3 to 5 years.

Well, I'll give you my thoughts, and I'm sure there'll be some perhaps from Steve and Ian. But I think my thoughts are, the digital change is going to happen. Okay? I mean it's happening at all our industries. I'm sure fintech is experiencing just as many trends like this. I think we're in a unique position based on our current discriminators, our technical, deep technical expertise, our know-how in T&E, and our co-creative and collaborative approach with customers, and I think as I've tried to describe, that means we can move up the life cycle and help customers get assurance earlier, and down the life cycle, to help use additional thread in mission rehearsal. And I think we're fairly uniquely positioned to do that, if I'm honest. I think we're in a great position to do it. And the real beauty of that is those -- that know-how, that deep technical expertise can be transferred and leveraged globally. So some of the examples I gave, I think, try to illustrate how we can be the leading edge of that, not just where you know as well with the long-term partnering agreement, but is to build on the back of that in our home countries. So I mean, I think this is a fundamental change that's going to happen in the market space, and I think we're brilliantly positioned to exploit it.

I mean I agree, Nic. And it's a good question, [ Jack ]. And it's -- this isn't sort of like a complete revelation or we're sharing something new for the first time. I think we've been progressively building this story. And think of QinetiQ, we are and known as we are a world leader in test and evaluation capability today, particularly in the U.K. market. But it's worth just sort of pausing and thinking about what are the unique strengths about QinetiQ in the field of T&E? And I'm going to do what you might find strength which is ask you to park out of your mind all of the physical assets that we run currently, let's say, through the LTPA, and say, other than the unique physical assets, what is there that's unique and differentiated about QinetiQ? And I think there are 3 things that we provide over and above the physical assets that are really unique and value-add to us. One is -- and Nic has touched on all of these. But one is the sort of multi-domain experience. The fact that we have that breadth across all domains at an overall system and system level is really something that is unique. And secondly, the nature of what we do at equipment and system and system level. That level of activity and understanding that we can apply for our customers: safety, performance, interoperability, they are really unique characteristics or capability that we can add. And then thirdly, and this is a complement to our partners in industry, we operate far above what is called the equipment line of development at an overall capability level. So how training people, systems, infrastructure all come together to give an overall fighting capability. So if you look at those characteristics, they are the value of QinetiQ over and above the physical asset that you recognize in T&E. So you're probably thinking, well, what does that mean in terms of the growth levers? Well, if you think about those as value-add, those value-adds can apply in the virtual world as much as the physical world. So what Nic has just really described to you is how do we build upon the strength of those characteristics in the physical world, and how do we expand them into the virtual world. So the first lever is how do you expand physical test and evaluation with those unique characteristics into a blend of both physical and virtual test and evaluation. And that's going to be really important as the next-generation of systems come online, because the next-generation of systems will require a form of testing that you can't do in the digital world. One example, the application of artificial intelligence in next-generation unmanned air systems. And once you've been able to transport those capabilities into the virtual world, it's very easy to left shift, as Nic described, from test and evaluation into operational experimentation. It's very easy to right shift from virtual test and evaluation into training and mission rehearsal. So this is a really central part of our growth strategy. And in the way that Nic has described it, not just in the U.K., but we do that on a global platform, and hence, the comment when I ate his sandwiches earlier when we were talking about the U.S. market. So those are the primary growth levers, [ Jack ], if that makes sense to you.

It does. That's really helpful. And then just to follow-up about -- because you brought it up at the end the penetration of the U.S. opportunity within T&E and just sort of given how dominant you are within the U.K., how you see the evolution of the T&E business in the U.S. going over the next 5 to 10 years? The opportunity there would be really helpful.

Well, just to sort of build upon what I said earlier. And as everything we've done in the last 5 years, everything we do is with a long-term strategy in mind, with coherent short-term actions to get there. Our focus in the U.S. is what we said, which is building out on our strengths of sensing of autonomy and robotics. But of course, we do have our eye to, well, where will the U.S. market go in this area? And it's no surprise. If you look at what our U.K. customer and our U.S. customer are talking about, they are talking about modern digital methods around test and evaluation. So the fact that we're investing and developing state-of-the-art thinking in this field definitely gives us that more medium to long-term opportunity in the U.S., but that's very much in our longer-term horizons as opposed in the short to medium-term that we're working on in the U.S. market right now. But it's in our sights.

Steve, can I build on that? Do you mind?

Please, Mary.

Okay. So part of the pedigree that we brought with the MTEQ is we do a lot of live virtual constructive, not on the testing side, but on the evolution of sensing technology with platforms. And so we have a strong live virtual constructive that is in sync with the digital thread, and we're growing that. With that, we built a Ground Combat SIL for system integration laboratory that we're working with our government customers to bring sensors, platforms, AI, machine learning together in a collaborative environment where our teaming partners can bring in their technology, constructive environment towards further it's going to advance the mission before our customers bring those technologies to the field. So we already [Audio Gap] lot of demand with our SIL to advance that strategy as we move into bringing sensors at different layers on to platforms to advance the mission. So it's already going in that direction, and we see more of that as well, Steve. So although it is in the future for other things, we also have some hypersonic targeting when we get into the other elements of testing. The future of testing is going to require advanced threat target technology that we are also bringing to the market as well in the U.S.

Can I just add one more point? Which I think is -- if it didn't register through, I hope it will. The secure cloud environment, the data exchange layer, the application layer will then enable us to operate this development environment on a global basis. So as we develop products and services for customers, over time, we will have a library which can be exploited through every country. So I think what we're actually doing are these foundations are going to serve us well for the mid and long-term of the sustained growth plan.

Excellent. Thank you. Thank you, Jack. Thank you, Nic. So we're now going to move on to the third topic of the seminar, ESG. Ian, hand over to you, please.

Thanks. Hello, everyone. I'm Ian Beresford, Group Functional Director, responsible for QinetiQ's engineering, safety and technical assurance and for the deployment of our technical resources into our U.K. business units. In this section of the presentation, I'll talk to you about our approach to Environment, Social and Governance matters, what it means to us and how our approach is for the benefit of all of our stakeholders. I'm really pleased to present this section, both because of my technical role, as I have formal responsibility for aspects of the ES&G agenda, but also as a leader of the business where I believe this is an enabler for our success. We are proud of what we have achieved so far, and we have come a long way already on our ESG journey, and are pleased to be rated as AA by MSCI, and the highest ranked in the aerospace and defense sector by Sustainalytics. I will talk about our core purpose and provide you with some examples of our work across the ES&G to bring the different elements to life. And I will end with a video highlighting a few case studies. And with previous presenters, I will take questions at the end of my presentation. Our purpose is clear on what drives us as a business and as employees is our critical role in defense and security, protecting the lives of troops and the societies in which we operate, and defending sovereign capability. Whilst I will talk in this presentation to the wider benefit we bring to the environment and society, this core purpose is central to our organization and is at the heart of our business: defense of the realm and ensuring the safety of our citizens. Our value proposition is in providing mission-led innovation, working alongside our customers, to help solve their complex defense and security challenges. As Steve, Mary and Nic have already touched on, we help customers create it, for example, in the development of new sensing and autonomy platforms using robotics to take troops out of harm's way. We help our customers to test it, ensuring the equipment works as it should, improving safety and accuracy. And we help our customers use it, supporting our customers with their training needs, often in a combined live and synthetic environment, reducing emissions, costs and improving safety. Our purpose is underpinned by our commitment to operate responsibly and sustainably for the benefit of all of our stakeholders. Climate change is one of the biggest global challenges. And increasingly, it will affect regional stability, supply chain resilience, biodiversity and our health. Environmental stewardship has therefore never been more important. And there is a clear understanding that as a business, we have our part to play, reducing our impact and contributing to biodiversity. We also create products and services which help our customers meet their environmental requirements. There are a few examples of this -- on this and subsequent slides, and I will touch on just a few of them, and our video at the end will illustrate further. For our customers, as Mary and Nic have already explained, we are using our hybrid electric drive expertise in the U.S. to fuel the next-generation of tracked military vehicles, reducing weight and enhancing operational performance. And we have developed a range of virtual training and testing platforms, combining live and virtual exercises, reducing the environmental impact. In 2019, we committed to target -- to a target to reduce our Scope 1 and 2 greenhouse gas emissions by 25% by 2025, aligned to science-based targets. We are well on track to deliver this, but we know it is not enough, and we are currently working on our net 0 strategy. We will also be including greenhouse gas emissions as one of our nonfinancial KPIs. Net 0 is a tough challenge, and we are working closely with our key customers on how this can be addressed more broadly by the defense enterprise. Due to the significant number of sites we operate on across the world, we are uniquely placed to contribute to conservation and biodiversity through the management and development of these sites. For example, we are responsible for 53 conservation sites across the world, including 12 sites of special scientific interest, 16 special areas of conservation, 4 wetlands of international importance and a double world heritage site. It is therefore very important that we conduct our complex test and evaluation operations in these environments in a way that is sensitive and responsible to the environment and our surrounding communities. For us, society encompasses our people, our supply chain, our local communities and wider society. The work we do for our customers focuses on the safety and protection of the societies in which we operate. Recently, we have leaned in utilizing our IP portfolio to support the COVID-19 efforts. One specific example is using our expertise in respiratory and battery power to develop a cost effective and lightweight COVID mass respirator with the performance and protection of higher cost PPE at a much reduced cost and weight. We are in discussions around licensing the design and technology. Another area that we aren't able to talk much about is the significant work that we do around cybersecurity and in the work we do with law enforcement and security agencies. This is a fascinating area, which is becoming more and more important as the world becomes more digital, with AI, 5G, the Internets of Things and the like, and an area where QinetiQ has some of the most accomplished experts in the field that are deployed alongside our customers to keep society safe from digital threats. Furthermore, our work in robotics and autonomy are significant, whether that be our robots that are used for reconnaissance or intelligence gathering or our robotic appliqué kits that can transform a standard digger into a remotely controlled vehicle for safe standup route clearance and to investigate large IEDs, thereby keeping our military, first responders and civilians out of harm's way. For our people, we take a proactive approach to flexible working and inclusion through our Inclusion 2025 strategy and D&I leadership. And whilst our safety and well-being programs have always been important, these have become even more so over the last difficult year. We place a strong emphasis on our employee engagement, ensuring actions taken from local employee feedback and our global employee voice community. We are a people-based business. And so we are constantly looking at how we can create the skills our people need for the future, be that through apprenticeships or supporting PhDs and other professional development, as well as understanding where we have critical skill gaps for future customer needs, driving our recruitment and M&A strategies. We have an active STEM outreach program to inspire the next-generation of scientists and engineers, with a particular focus on encouraging girls into STEM. Many of us also volunteer for charitable organizations outside of work. For example, I am a trustee and Deputy Chair of the Royal Air Force Charitable Trust, something that QinetiQ actively encourages and supports. As a further example, we have over 230 registered STEM ambassadors. In a typical year, we will connect with about 90 schools and run events and activities reaching about 7,000 young people on bespoke sessions. Last but not least, our approach to good governance. For our customers, good governance is about creating trusted and reliable approaches, so that all products and services, plus the management of our supply chain, can be relied on to protect the lives of the troops and to protect the security of our citizens. This is core to our services and fundamental to our values as a business. We have a wide-ranging role across our international customers, acting as the lead safety and security authority, whether that be the approval of a platform as safe to release to service or advice on the disposal of weapons. Formidable Shield is an example of a hugely complex trial where QinetiQ has accountability to design, manage, coordinate and deliver the deployment of a range of platforms and assets in a safe and controlled way. We are entrusted by our customers to create the governance framework for maritime, space and air activities, including live firing, to enable nature to undertake the most sophisticated exercise in a safe and secure way. The ethics of defense can be perceived as challenging, whether that be in relation to specific products, countries or customers, and particularly the combination of all 3. We have a Group Code of Conduct, and all our employees, our leaders and our Board received training in business ethics, underpinning how we do business. Through our Business Ethics Committee, we carefully consider all our risk opportunities and assess where they align with our products and services trading policy. There have been some situations where we have deemed it not appropriate to pursue opportunities where they have not aligned with our high ethical standards and approach. Furthermore, we take a leading role in the defense sector, being the Chair of the trade body ADS sustainability group and the Chair of the Defence Suppliers Forum sustainability group. We are also proactive with our supply chain through our [ Collaborate ] program. We will now play a video which summarizes our approach to ESG and brings to life a few examples. [Presentation]

So I hope you can tell from my presentation and the video that for us, ESG is not just a box-ticking exercise or a nice-to-have. Ensuring it is embedded into our business operations and strategy reduces risk and creates value. We also support and enable our customers' ESG needs and expectations through the services and products we deliver for them. As we have briefly touched on today, we have so many fascinating examples of the breadth of our capabilities and how focusing on ESG benefits customers and our business. We have come a long way already on our ESG journey. And as I mentioned at the start, we are pleased by our rating with MSCI and Sustainalytics. But ESG is rapidly evolving, and we recognize we have more to do with a particular focus on our net zero plan this year. We welcome your feedback, so we can continue to improve and meet your expectations. We have a strong strategy in place to grow the company, and we will only do so whilst delivering responsibly and sustainably for the benefit of all of our stakeholders. Thank you, and I'm now happy to take any questions that you might have on this topic.

Thank you, Ian [Operator Instructions] Richard Paige, do go ahead.

I was just wondering to what extent you -- the customers care about your ESG credentials and whether there's the level of variability within your customer list as well.

Yes. I mean it's a great question, Richard. Look, it is a growing area of focus for our customers. And particularly [ those ] that are government-related customers, their higher level authorities place a mandate on them, and they're looking to those who can partner with them to drive for this agenda. So I would say it is strong, and it is strengthening not just in our customer [ supply chain ] community but also in our partner and our supply chain community, which, again, we're keen to support an agenda.

Sorry, just to follow that up, could -- are you able to win business because of it? Is there any examples of...

Yes. There are plenty of examples where we -- carbon reduction has to be a priority for our customer. They have to be shown to be delivering that. So the topic we've already touched on, hydroelectric drive for combat vehicles, manned vehicles, our customer there not only sees the operational benefit that is brought by the application of that technology, and it does, it enhances the performance of the vehicle, but also sees the benefit and is able to recognize with their authorities the benefit it brings in terms of the environment. So in this case, the use of diesel, the supply chain of diesel, the -- all of that is part of what comes along with big products and services that we offer. So that's one example. I'll give you another one. When we're doing hull designs through our maritime teams down in Portsmouth, they're doing hull design and they're refining hull designs for both military and civil purposes for various reasons, but not least to create efficiency in terms of fuel utilization of vehicles at sea. And again, it's another great example where our civil and military customers are really actively pursuing environmental agenda.

Yes. Ian, if I can add to that, I mean, Richard, it is a great question. I think that, yes, Ian's right, it is an important agenda for the customer right now, but I think it's going to be increasingly important for our customer over the years ahead. If I take just one of our markets, which is the U.K., as an example, the U.K. is introducing a policy where what they call social value will be a parameter that they will consider within the competitive process and award points to contractors that really add more in terms of social value, in terms of environmental or social value-add within the economy. And they're just working through the process now of how they will apply such procurement rules. And I think Ian's spot-on. At one end of the spectrum, you will have the operational importance of the ESG agenda. So as he's described, the example around Haslar, well, the impact of climate change will affect the top speed of warships, so how you adjust the design of warships to deal with that effective climate change. And then, of course, the U.K. MOD are setting up their own policy for their own net zero plan, so how does their enterprise and the work of contractors support the MOD in reducing their own carbon footprint. So you've got a full spectrum of growing importance of the ESG agenda, and it will become a feature in terms of a differentiator or a competitive edge for those companies that really adhere to it. And those principles that we've talked through there are growing and applying in all of the key countries that we focus on. It's not something that is just within the U.K. marketplace.

Next question from the line of Ross Law.

Can you hear me?

Yes, we can hear you, Ross.

Great. I guess a bit of a big-picture question really on, I guess, the split of your products. I mean if you can just broadly split them between the products that you really class as offensive or that have end uses that are offensive and then, obviously, on the flip side of that, products that you would class as defensive or defensive end uses. So I guess just a kind of high-level split of your current product portfolio. And then as a follow-on to that, kind of how that trends going forward. Are you making any kind of moves away from maybe some of these products that may be seen as offensive?

Yes, I mean that's a tricky one to answer and this specific because I don't know that I'm equipped to do that at the moment. I don't know if anybody else on the team is. I would say, look, the products that we're developing are products that are mission-led. And if you're getting to the point about the ESG agenda, we talked about our ethical approach and our ethical overview of everything we're doing. So some of our activity, of course, is to support the military forces and is offensive in nature. But it is something that is well considered with government advice and with customer advice and, of course, our own view through our Ethics Committee on whether that's something we should be pursuing or not. Steve, I don't know if we can -- I'm not able to break down the percentages [ of the products ].

Yes. I mean, Ross, I mean it's a good question. We don't split our products and service offering by an offensive or defensive category. In fact, all of what we do is for the defense and security market. But I think as Ian has eloquently described in his presentation and the answer to that question, what we do think about is, very carefully, the customer, the nature of the activity, the product or service and whether it meets the government's standards and our own standards. As an example, you saw it on one of Ian's slides. About 18 months ago, as the discussion about the defense industry and the growing importance of autonomy really started to develop, we wanted to think about our own ethical stance on autonomy. And we developed a policy, which actually has been through and had a plc Board approval, which really sets out in simple terms that we will support the development of autonomy and artificial intelligence. But any product or service that we'll support, we'll expect ultimately there to be a human in the loop in terms of any decision-making in terms of the customers that we would sell those products or services to. So we don't think about the question in an offensive-defensive split. We think about all of our products in terms of the nature of the customer and the nature of the product and service and whether it meets the governments that we would support selling our activity to in terms of their standards but then our own ethical standards, as Ian said, through our own Ethics Committee and ultimately up to the plc Board. I hope that answers your question.

Next question from the line of [ Harry Jack ]. No?

[ He's probably shy ].

Okay. Fine, we'll come back to you, [ Harry ], later on. So let's run through the final section of the presentation now. So I'll hand over to David to run through the financial summary and then to Steve for final summary. Thank you.

Hi. So good afternoon, everybody. For those who don't know me, I'm David Smith, Group CFO. As you've heard, we've had significant ambition and a clear route to deliver this, underpinned by the 3 elements we've been describing today. Our U.S. business is central to our future success. Our digital investment program is a key enabler of our future growth. And ESG is a core underpin of our strategy running throughout the DNA of the company. At our interim results in November and earlier today, Steve has talked about our renewed ambition. This renewed ambition is based on the foundations of delivering a strong track record of growth across revenue and profit, our order pipeline and forward contract cover. We have a strong balance sheet with cash in excess of GBP 100 million and the option to leverage the balance sheet to support our future M&A growth. Our ambition is to deliver at least the same level of growth in the next 5 years as we have in the last 5 years. And what that means is that we are targeting organic revenue growth of mid-single-digit percentage on a compound rate over time plus strategic M&A. As Mary outlined earlier, MTEQ is a great example of strategic M&A with strong U.S. growth potential and good synergies with the rest of our business, both in the U.S. and globally. We are presently in a capital-intensive phase to support our growth. We've invested and committed over GBP 750 million in the last 5 years to support current and future growth. And that includes about GBP 370 million of LTPA investment recovered through that contract and nearly GBP 270 million in M&A. M&A aside, the next phase of growth will have a lower capital intensity, thereby supporting a strong long-term return on capital employed. The guidance we provided in November at our interim results remains, and all elements discussed in this seminar are included within that guidance. We intend to grow the international share of revenue from about 35% today to over 50% in the next 5-plus years. We intend to grow at stable margins, albeit slightly suppressed in the next 2 years related to the upfront digital investment that Nic outlined earlier, targeting our mid- to long-term margin at 12% to 13%. And a key part of our strategy is to deploy our balance sheet to target -- to support targeted and strategically aligned acquisitions to further bolster this growth. As I've touched on at our interim results and our quarterly trading update, we delivered a resilient performance through fiscal '21 with continued strong order intake and delivery throughout the COVID-19 pandemic. And we remain on track to deliver our fifth consecutive year of organic growth and maintain our expectations for the full year. Our preliminary results will be announced on May 20. Finally, our financial strategy remains the same. We intend to deliver revenue growth at stable margins, delivering attractive return to our shareholders. Our revenue strategy is focused around delivering growth in our 3 home and 3 priority markets and leveraging the capability of our global business in distinctive products and services with disruptive innovation. Our track record underpins our confidence in this strategy. We'll support this growth with careful organic investments, strategic M&A and continued strong delivery and cost discipline to deliver strong returns to shareholders. And this financial strategy supports us delivering responsibly and sustainably for the benefit of all our stakeholders. I'll now hand back to Steve to conclude.

Great. Thank you, David, and thank you for joining us this afternoon. We have covered a lot of ground, so let me just draw out again the 3 key strands. So firstly, our largest market opportunity is in the United States, and we have a strategy to double our revenue to more than $600 million revenue per annum over the next 5 years through both organic growth complemented by strategy-led acquisitions. Secondly, our newest investment is in digital test and evaluation to deliver next-generation products and services for our customers by expanding our strength of live offerings into the virtual world and enabling the next phase of growth. And finally, fundamental to how we do business is our environmental, social and governance responsibility. We do take this seriously and see ESG is an integral part of our growth strategy, delivering benefits to all our stakeholders. Now with that, we have about 0.5 hour left for this seminar, and we'll be pleased to open up the floor and take any questions on the 3 subjects that we've tabled this afternoon or anything else that you may have for us. So we'll open the floor and back to you for questions. And hopefully, [ Harry ], we'll be able to get your audio working as well.

Excellent. Thank you. So the first question is from the line of Rory Smith.

It's Rory at Investec. Can you hear me okay?

Yes, we can.

We can, Rory.

First question -- 2 questions, if I may, please. First question is for David. On your Slide 28 there, you've got GBP 370 million of essential CapEx committed under LTPA. I was just wondering if you could remind us how that's broken down in terms of what's already been spent and what's still to be spent and over what time frame, please. And maybe I'll come back to the second question after that.

Yes, by the end of this year, we would have spent about half of that money. The next 2 years probably, there or thereabouts another GBP 50 million each. And then there's a lower amount over the remaining life through 2028 of the program. So we're a good way into the investment now. There's a lot of different projects to deliver, but that's about where we are.

Great. And my second question, just taking to Mary's section on U.S. growth. Forgive me if I've misunderstood this, but is that sort of 50-50 organic M&A split predicated solely on RCV-L going to a program of record? Or does it also include some wins on some of the other RCV programs? And if so, which of the U.S. Defense primes are you competing with or which ones are you potentially partnering with on some of those other programs in order to reach that organic revenue target in 5 to 6 years?

Rory, thank you. We're -- this is actually a multiple, probably a dozen or more programs that we're looking at the growth in. We have programs both in the Maritime business which we're partnered with GA, [ EV ], [ Electroflow ] on those programs. And we have other program -- teaming partners that we're going forward on other modernization programs in the maritime market. And as Steve articulated, our strongest market is in the land, the Army domain. So in that market, RCV is one. We're looking at partnering in other programs such as OMFV, optionally manned fighting vehicle. We're partnering with Oshkosh on that program going forward. And we have several other programs in that domain. Also with the ISR portfolio, we partner with some large businesses we are prime. Our first to market we work with the large businesses to include Raytheon Vision Systems and Raytheon Global. So we do have a broad range of teaming partners, Rory, and we do have a dozen of more really strategic capture programs we're going after to build that portfolio. So it isn't just RCV Light, that is an exemplary program, but it is one of our strongest and successful programs. But we have other ones in the portfolio. Yes.

Yes. I'll just build on that, Mary. Yes, just to be crystal clear, Rory, the overall growth to more than doubling the U.S. business is what we were saying would be 50-50 through organic-driven growth and complementary strategy-led acquisitions. Yes, as Mary said, RCV Light is just but one of the programs that we're pursuing that would support that organic growth. But it is just one, and it's a very important one that we're doing very well on, but there are a number of programs across the air, land and maritime space that we are pursuing. And I'd also remind you, as you've been following the story of QinetiQ's development over recent years, Mary also mentioned moving into larger, longer-term programs. And as you all know, that's been part of our group strategy for many years, and that gives us strength in the organic growth component. Many of the programs that we're now pursuing in the U.S. are multi-ten or multi-hundred million dollar program. So we're not reliant on just the success of one program to support this growth strategy, we're pursuing numerous programs as part of the growth. I hope that answers your question, Rory.

It does.

Thank you, Rory.

The next question is from the line of Liren Li.

Yes, I'm Liren from MFS. I have 2 questions, please. So my first one is just around your kind of midterm organic growth target. I was just wondering how much of that depends on the overall defense budget environment being, I guess, in the growth mode especially in the U.K. I guess, in the U.S., it's sort of flattening out. Just what's the kind of assumption you're baking into your growth outlook with regards to the defense budget? And then my second question is around the LTPA investment. I know part of the reason for the investment was to help you grow your international customer base through your service offering, the LTPA investment. Do you have any -- can you give some -- I guess, just how is that panning out at the moment? Are you attracting international interest through your investment into these facilities? Just some color on that would be helpful.

Great question, Liren, and I'm very pleased to do that. I'll pick up the LTPA growth and give you a couple of examples. And I'll make a comment on overall macro budgets and then hand over to David to sort of pick up the specific on midterm guidance. You're absolutely right. When we actively chose to invest in the long-term partner agreement to modernize the capabilities, that was, first and foremost, to modernize them and meet our U.K. customer needs but also to ensure that we could then attract other customers in to utilize those ranges in the U.K. and export the knowledge and skills to support our wider international growth. But as Nic said, the overall investment in the capability improvement plan our U.K. capability is going exceptionally well. And we're certainly on track to complete all elements of the 2-year transformation program by the end of March, this month, in fact. So that's going very well. And then in terms of using that investment to leverage wider growth opportunities, yes, we have made good inroads on that, and we're already seeing financial benefits as a result of that activity. I tend to think about this as both import and as export. In terms of import, Nic also mentioned a contract that we won towards the end of last year with the U.S. Air Force in Europe. A customer that used to use the LTPA ranges about 5 to 10 years ago but actually found that they weren't fit for purpose. Now it's part of our overall modernization. We've been able to resecure that customer. Now already the U.S. Air Force is using our ranges in the U.K. with their F-15 fleet based in Lakenheath and is also looking to expand that into wider assets that are here in the U.K. such as their F-35 base going forward. So it's a real positive win and additional growth that's coming to our customer -- to our company from an import perspective. And then from an export point of view, we have been able to export some of the knowledge and skill from what we undertake in the LTPA to our team in Australia. And over the last 18 months, they've been able to position, win, design, develop and construct an unmanned air systems test range in Queensland. And that test range is being utilized. In fact, you probably saw only in the last week that Boeing have undertaken their first flight trials of their Loyal Wingman unmanned [ aircraft ] that's been designed and built in Australia. And that's been at this range, which has benefited from exporting the skills, knowledge and capability from the U.K. So the LTPA modernization is going extremely well. It absolutely is now yielding its wider growth from that investment. And the investment in the digitization of test and evaluation that Nic mentioned will take us even further forward. In terms of your question on midterm guidance, I always like to try to position QinetiQ in the markets that it operates in relative to the macro budget. And as you said, the budget in the United States is huge. And we are a relatively small player, and we are following the modernization vectors so that we can effectively dislocate our growth trajectory from any macro trends. And it's absolutely possible to see the level of growth that we are predicting in the U.S. market. When it comes to the U.K. market, clearly, there are some positive trends too with a 4-year settlement, GBP 16 billion additional investment going into U.K. defense spending. And again, here, I would bring our strategy to bear, a strategy that is about mission-led innovation, it's about delivering more for less for our customer. And despite the headline benefits in defense, we know that over the coming weeks and months, some of the announcements will have some pressure on the external programs coming from them. Yes, and our strategy as a company is to understand the pressures, whether it's about the threat vector, whether it's about economic pressure, yes, and work with our customer to deliver more for less. And if I give one example of the Engineering Delivery Partner program, EDP, that's been extremely successful over the last 2 years. And that's because we are partnering with the customer in a way to deliver more value for their expenditure, and they're seeing that as a key enabler for that strategy. So from a strategy side, we absolutely can see the growth trajectory that we're on based on a focused strategy and the right mindset in working with our customers. But David, could you maybe then pick up on the medium-term guidance that we've given within the update today?

Yes. So basically, what we said is that we believe that we can grow the business organically at mid-single-digit growth rates over time. And in fact, actually, Mary's picture really would be higher than that. We do expect double-digit growth in the U.S. And that's really borne out by what Steve's saying that if we look at the U.S., and Mary did have a chart on this, the kind of area of the market that we're operating in, particularly around robotics autonomy and sensing, is growing at double-digit rates already. So actually, that's a very reasonable sort of growth projection, we think, for that business especially if we are able to start capturing the programs of records and the growth that comes through that. In the rest of our markets, I mean, the Australians are significantly increasing their defense spend. And they have a lot of they have a lot of similar needs, I think, in terms of modernizing capability to the U.K. and, indeed, the U.S. And therefore, the kind of things that we are capable of globally will be very useful, I think, in the U.S., and therefore, we see good potential to grow that market. And then in the U.K., the government has announced the next 4-years defense spend, which does include an increment over GBP 20 billion from the previous version. But as Steve says, what we know that we have to do as a company is really focus on how we can get them the right help to develop new solutions to the changing threats that they're facing up to and particularly, I think, how we can do that in a way that also save some money and also help some save carbon as well, I think, going forward. So we see plenty of opportunity. So I think the mid-single-digit growth -- organic growth target is a very achievable target that we're setting out to deliver. And we would absolutely see the opportunity to further enhance that with inorganic growth as well.

If I can, just a follow-up on the first -- sorry, the LTPA bid. I'm not sure if you're able to just quantify the international opportunity overall that you're seeing so far. What sort of percentage of incremental opportunity are we talking about?

Well, as I think my colleagues described, the specifics contracts like the USAFE is $27 million. We're running at the moment Formidable Shield, which is not part of the LTPA but facilitated by LTPA facilities. That is a multimillion-dollar project as well. So we are now getting good revenue streams from these sort of projects. I mean this year, we're probably going to see, I would guess, in the sort of GBP 20 million, GBP 30 million range. It will increase over time. So it's becoming a very viable way to grow the business in addition to other opportunities that we see as well, so it's an important byproduct of modernizing the U.K. facilities.

The next question is from the line of David Barker.

Can you hear me okay?

We can.

Fantastic. So I've got a couple. I think first, a lot of the focus today has been on your international opportunity in the U.S. In your pie charts, you're also highlighting some growth in, I think, Germany, Canada and Belgium. Can you talk a little bit about these growth opportunities? Are they starting from a small base today? And do you need to do any M&A to get there? And then, I guess sticking on the regions as well, what are you thinking in terms of the Middle East for those with smaller exposure for you at the moment?

I mean, maybe, David, if I can start. And given we've got the leader of Space in the room, I'll ask Nic to say a few words on Space. I think, first of all, David, I would start with the focus of our strategy. And we've been really clear on the geographies that are important. So we're trying to build breadth and depth in our chosen, what we call, home and priority countries. And first of all, if I define what we mean by home country, by home country, we mean that we have an indigenous industrial capability or scale, more than 250 people with a direct customer relationship. And those 3 countries that we have that meet that criteria are the United Kingdom, the U.S. and Australia. And the first layer of our strategy is really about building out and growing those countries. And as you've seen within the United States, that was a very long and thought-through strategy about how we would reenter that market and grow by changing the governance, thinking about the strategy, finding the right company and driving the integration and then pursuing the next phase of growth through organic and then complementary acquisitions. The same approach is applied in Australia. We've already undertaken one acquisition in Australia. In fact, the first of our 7 acquisitions was in Australia, and the same strategy applies. We are growing rapidly in Australia through organic growth, and we're also looking at complementary acquisitions. So that's our 3 home countries. We then have 3 priority countries. And what we mean by that is these are 3 countries that we are focused on. In the next 5 to 10 years, we could see them meeting the criteria of what I've just described as our home country. And as you pointed out, that's Belgium, Canada and Germany. So by definition, all of them today are much smaller than the 3 home countries that I've described. But all of them, we see specific opportunities that align with our overall growth trajectory. And those opportunities will certainly be organic in nature and may or may not actually incorporate some acquisitions going forward. We were just talking about test and evaluation and the LTPA. Yes, and as an example, Canada is an example where we see modernization of test and evaluation opportunity. We're undertaking, I think I've mentioned this before publicly, yes, a study for the Canadian Air Force right now, looking at their test ranges and how they might go about modernization. And that might bring a significant opportunity for us in Canada. Just before I hand over to Nic, yes, we do have some interest in the Middle East. We do those through joint ventures, but it's a much smaller part of our overall company portfolio than the 6 key countries that we're focused on from a home and priority perspective. Nic, do you just want to pick up a few words about Belgium?

Yes. I mean, I think, first of all, space is a domain that defense and security customers are getting much more interested in, and you can see that in the trends globally. And we've got some really excellent capabilities in cyber information security to serve that domain, and we're looking closely at how we continue our growth trajectory in it. In Belgium, we've got a super space products business, that it's primarily been working for the European Space Agency, developing, what I'd say, it's highly stable, unique small satellites and berthing and docking mechanisms and early-stage interesting robotics. We are keen to grow that into the military domain. We're hoping to sign up a first notary customer for a major program. So it forms a great capability. And actually, over the last year or 2, we've seen it grow almost by 50%. So it's doing really well right now. Just to give you a little flavor of space and some of the things we do.

David, does that answer your question? Or would you like some more...

No, that's very helpful. I have one quick follow-up. This one's a different topic. Obviously, I think in the last 12 months, OptaSense and QTS had been in drags on the group to some degree. Obviously, OptaSense is no longer a concern. What's the kind of latest on QTS in terms of trading momentum? And how do you expect this to impact the next sort of 6 to 12 months?

Yes, I'll say a few words, and maybe David would like to add. I mean OptaSense -- sorry, QTS was clearly impacted directly by the pandemic. As travel restrictions were put in place, customers weren't able to travel. It made it more difficult to transport the product, and a number of trials and exercises around the world were suspended or canceled. So without a doubt, we reported that it had the impact on QTS during the course of the year. Momentum has certainly started to rebuild, and we've reported previously that we've seen green shoots of customers returning and reordering, yes. And we're really pleased with the level of rebuilding momentum. And we would expect next year, things to start to return to normality from a QTS point of view. And long term, we absolutely are still confident in the business. It's an integral part to our overall company strategy. Next-generation targets are absolutely part of how we deliver test and evaluation, operational experimentation and training rehearsal, so a really integral part to our business. And it's just the consequence of the pandemic that we saw during the financial year that we just concluded. David, would you like to put some quantification around that?

Yes. I mean we did have a difficult first half for QTS. And they have seen improvement in order intake. We're back into the black in terms of operational results as well, which is pleasing. And I think by next year, sometime during this year, maybe second half, we'll be back to previous levels of business there. I think the other thing about QTS is, increasingly, it's part of the integrated view of how we're developing the business. So we just -- we're just investing actually in a new project in Australia, and one of the product streams of that will be selling QTS products into Australia down the road. We're looking at opportunities in the U.S. as well for their products, and we've got an active program there. So increasingly, I think the future of QTS as an integrated part of our business in most of our countries that we operate in is really being assured. And we've done -- we've made a lot of progress, I think, on that over the last 6 months or so.

So I think we just got time for one last question from the line of [ Sam Thomas ]. Unfortunately, no answer. So Steve, I think I'll hand back to you to close.

Okay. Thank you, John. So -- well, thank you again to all of you for joining us this afternoon. My key message is that we're on track for delivering a successful fifth year of growth, and we have a significant growth opportunity ahead over the next 5 years. This seminar has focused on 3 enablers, which are key to realizing our renewed ambition to accelerate sustainable growth and deliver enhanced returns for our shareholders. I really do hope this seminar has provided you with a greater understanding and support to your investment case in QinetiQ. And we really welcome your feedback to help shape topics for the future that you would find good for your benefit. Thank you, again, for your time, and we look forward to your further questions off-line. Thank you.