Defence Business: Qinetiq now in Oz | ADM Mar 08

1 March 2008

By Gregor Ferguson

A high-technology spin-off from the UK's former Defence Evaluation and Research Agency (DERA) has plunged into the Australian market with a rapid purchase of three local high-technology SMEs.

British defence technology company QinetiQ Plc has spent over $30 million buying a strategic position in Australia's defence consultancy market.

The Farnborough-based research and engineering services company in December last year bought three Australian high-technology firms: Canberra-based Ball Solutions Pty Ltd for $12 million, Brisbane-based Novare Pty Ltd for $8 million, and Melbourne based Aerostructures Pty Ltd for $11 million.

These purchases provide Qinetiq with an immediate and credible footprint in the Australian defence market, according to Clive Richardson, Chief Operating Officer (COO) for Europe, the Middle East and Australasia.

The three businesses will employ some 288 personnel with a combined turnover of $48 million next year, he told ADM during the pacific 2008 conference and expo.

And Qinetiq remains on the look out for further local purchases, he said.

This is all part of Qinetiq's strategy of building consultancy and advisory service businesses based on the research and development it carries out in-house, according to Richardson.

Qinetiq is the privately-owned element of the British government's former Defence Evaluation and Research Agency (DERA).

History lesson
When DERA was privatised in 2001, a minority remained under government control as the Defence Science and Technology Laboratory (DSTL).

The remainder went into private ownership as Qinetiq; in 2006 the company was floated on the London Stock Exchange as Qinetiq Plc.

The new company had three key thrusts: to expand into North America (it has bought a number of high-technology US firms since 2004), to spin off new business ventures to exploit the Intellectual Property (IP) generated by its research, and to provide technical solutions for customers based on its knowledge and expertise.

That final thrust, says Richardson, includes what he terms 'managed services' - operating test and range facilities and the like; technical supply offerings - that is, providing test and evaluation expertise, engineering design and prototyping, and consulting.

Qinetiq aims to become a significant player in each of these niche areas within Australia, he told ADM, starting with the consulting activities of its new acquisitions.

Ball Solutions was formerly part of the US-based Ball Aerospace group and specialises in systems engineering and test and evaluation.

This will be re-branded as Qinetiq Consulting Pty Ltd, according to Dr Rodger Manning, who heads Qinetiq's corporate office in Adelaide.

Novare, to be re-branded as Qinetiq Novare, is a specialist in aerosystems and propulsion reliability and structural integrity testing as well as ordnance and ammunition requirements analysis and test and evaluation, and has close links already with Qinetiq's armaments research centre at Fort Halstead in England.

The re-branded Qinetiq Aerostructures is a specialist airframe and structural engineering firm which carries out complex design and analysis of airframes and has significant expertise in structural testing.

Like Novare, Aerostructures has had a lengthy and close relationship with Qinetiq's aerospace structural research facility at Farnborough; it also has a close relationship with the Defence Science &Technology Organisation's aerospace platforms division at Fishermens Bend in Melbourne.

New structure
All three companies will continue to operate as independent business under the Qinetiq umbrella, with Rodger Manning's Adelaide office providing the link back to the UK and guiding their transition into the Qinetiq structure, Richardson aid.

Qinetiq's Australian operations and local customers would benefit from the company's ability to 'reach back' to its UK technology base for advice and expertise, he said - this applies across all of the company's operations in Australia.

According to Qinetiq's strategic business development director, Graeme Ferrero, the so-called 'above the line' market for consultancy and advisory services in Australia is worth between $120 and $150 million a year and could rise to $200 million a year as major new defence projects get under way over the next few years.

Qinetiq has less than 20 per cent of this market and is keen to secure a bigger market share, Ferrero said.

Qinetiq sees its role principally as an 'above the line' service provider with the department, DSTO and the DMO, along with some of the major prime contractors, as its key market.

For example, says Richardson, Qinetiq Aerostructures is responsible for structural testing of carbon fibre composite components manufactured by Boeing Hawker de Havilland in Melbourne for the new Boeing 787 airliner; DSTO is a specialist sub-contractor, responsible for building the complex rigs on which the components are tested.

However, there are opportunities for Qinetiq to expand into the managed service area also, according to Rodger Manning.

In the UK, Qinetiq operates all of the Ministry of Defence's test and evaluation ranges, including operating range target systems and infrastructure.

In 2009 Defence will call tenders under JP66 to replace the RAN's current aerial target system, based on the BAE Systems MQM-107E drone.

When the current contract expires this would be a good opportunity for Qinetiq, according to COO Clive Richardson, who told Defence News that Qinetiq will seek a strategic partner to provide and operate the new target system.

Qinetiq's experience of operating such systems in the UK qualifies the company to be prime contractor, but he said he would prefer to be a strategic team member instead.

DSTO's Deputy Chief Defence Scientist, Dr "Nanda" Nandagopal, told ADM that he welcomed Qinetiq's expansion into Australia.

DSTO works with and respects the companies Qinetiq has bought, he said, and he is keen to see what other capabilities Qinetiq will bring to Australia.

UK work
Former Chief Defence Scientist Dr Ian Chessell, who has been a consultant for Qinetiq, told ADM company carries out some $500 million-worth of R&D each year under contract to the UK Ministry of Defence so has a very strong technology base and many synergies with DSTO's own R&D programs.

While DSTO will continue to engage with DSTL under Australia-UK government to government programs, much of Qinetiq's technology base was established during the DERA days and Qinetiq's expansion into Australia makes this more accessible too, which is to be welcomed.

A spokesman for the UK government's Defence Export Services Organisation (DESO), who was attending Pacific 2008 told ADM, "We welcome their [Qinetiq's] acquisition strategy - it gives them an opportunity to work closely with the Australian ministry of defence in offering innovative technology solutions for their future requirements."

'Above the line' is an expression coined originally by Ball Solutions and refers to companies providing an advisory or support service to customers such as the Department of Defence in Canberra, the DMO, the DSTO and large prime contractors.

'Below the line' operators are equipment and service vendors selling direct to the customer.