Group Chief Executive Officer, QinetiQ Group
QinetiQ Investor Seminar - US Growth Strategy
QinetiQ Group Investor Seminar (March 2021)
About Steve Wadey
Steve Wadey, Group Chief Executive Officer at QinetiQ, has been outlining the company's growth strategy, with a particular focus on the U.S. market. During a March 2021 investor seminar, Wadey stated that the company's strategy "has laid out a clear path to double the size of our u.s business to over 600 million dollars in revenue by 2026." He noted that the U.S. Department of Defense has invested over $15 billion in relevant technologies, a market growing at 15 percent annually, and that over 50 percent of QinetiQ's current revenue is in this growth area. Wadey expressed confidence in the plan, describing it as a "50 50 notional organic" split, and emphasized the importance of a strategy-led approach to acquisitions, saying the company is "not looking for acquisition for acquisition's sake." Wadey also highlighted three key differentiators for QinetiQ's approach: "the right strategy," "the right product," and "the right people." In a separate seminar, he discussed the company's broader ambition to deliver "at least the same level of growth in the next five years as we have in the last five years," targeting mid-single-digit organic revenue growth supplemented by strategic mergers and acquisitions. In an earlier 2019 interview, Wadey described QinetiQ as a global company focused on test and evaluation services and unique solutions, noting that in Australia the company partners with organizations like DST and the Australian Defence Force to provide sovereign test and evaluation capabilities.
Transcript (35 segments)
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Mary0:00
I'm delighted for the opportunity to speak to you today as the president of Kinetic 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 Kinetic leadership team after M-Tech was acquired by Kinetic. The reason I'm here today is because with Kinetic, 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 M-Tech 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 Kinetic team. In Connecticut, I found like-minded leadership and dedication to advancing our customers' mission with a genuine care and compassion for our employees. We at Kinetic share a desire for pulling through high-quality research and development faster and working closely with our customers to field 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 Kinetic 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 five 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.
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Narrator2:11
In the U.S., we are embarking on a multi-year growth strategy fueled by targeted investments. We are integrating our leadership in robotics and autonomous systems with advanced sensors to create a new, more expansive market proposition that we are calling mission-led innovation at pace. This fresh approach, combined with our recently integrated business model, is delivering disruptive solutions that are meeting and exceeding our customers' changing needs. We are excited about our future and see a clear path to year-over-year growth to double the size of our business in the next five years. Kinetic is driving mission-led innovation at pace across the U.S. defense and security market. We introduce disruptive technology that aligns with the modernization priorities of our customers. Our established U.S. Army and Navy development programs and ongoing research and development investments have positioned us to grow as a differentiated mid-tier integrator. Kinetic recently delivered prototypes of the Army's next-generation robotic combat vehicle light for operational evaluation. This is one of several technical innovations that we are advancing as we collaborate closely with our customers to design technologies for real operational use in the hands of servicemen and women. Our combination of design, prototyping, and product line experience lets us create advanced, disruptive, customer-centric solutions at pace. Kinetic prides itself on having the best and brightest engineers, scientists, technicians, and functional staff in the industry. Our cross-functional teams collaborate in order to develop, support, and drive mission-led innovation. Throughout the pandemic, it has been our priority to ensure the health and safety of our employees and their families while supporting our customers and sustaining our company. Kinetic in the U.S. leverages strong customer relationships, solid business strategy, and best-in-class talent to enable our growth strategy while delivering to our customers at pace. So what fuels our growth? It is a U.S. market that demands innovation to modernize. The U.S. defense market is the largest in the world. Our customers are modernizing.
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Mary4:44
Well 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 Kinetic'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 invested over $15 billion 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 customers 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 are renowned leaders in robotics and autonomous systems. This combined with our advanced sensing solution brings added capability to support our customers' urgent modernization priorities.
Kinetic continues to deliver innovation for our customers. We are building on our strength across Connecticut. Our global technology leverage pulls through capabilities from across the company to bring better solutions to our customers. Here on the 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 the U.S. Shown on the right are a few exemplar programs that demonstrate how we are innovating using capabilities and developing disruptive products that are leading to larger, longer-term contracts. These are at the heart of our mission-led innovation approach. Please follow as I walk through each of these examples. Kinetic 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-its-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 gave Kinetic 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 for several hundred millions of dollars. Next, with the acquisition of M-Tech, 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. The system combined with multiple sensing modalities and processing provides improved standoff performance and situational awareness. This first-to-market capability significantly improves performance due to its integration into an 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, Kinetic 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 UK. 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, including 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 multi-billion dollar programs and huge growth opportunities for Kinetic. 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 Kinetic's ESG commitments, which Ian will speak to further in the presentation. These capabilities collectively bring to life how Kinetic 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 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're expanding our role in major modernization programs. These changes, along with our expanded leadership team talent, provide 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 tank, 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 group leverage as well as strategic acquisitions. We're 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 Kinetic 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.
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John14:39
Thank you very much, Mary. So to ask your question, please use the raise hand feature. Please could I ask you to introduce yourself and the organization you're calling from?
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Richard Page14:51
Richard Page. Hi all, thank you for those presentations. 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 you would 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.
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Mary15:29
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 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 we are looking to get in growth from our organic growth, as you say, 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. I appreciate the question. It 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.
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Steve Wadey16:34
Steve, no, I think thank you Mary, but I think you've covered all the key points. And good to hear you, Richard. I mean, you well, we've had ambitious plans that you've seen us deliver in the years gone by. And you know, 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 five years, and we're confident of the plan that Mary just outlined. Yeah, 50-50 notional organic. Mary's got a good team and a good plan on the programs of record and trying 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 seven 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 expand into other customers will be part of our thinking there. But those are just some additional thoughts there to answer your question, Richard.
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Richard Page18:16
Yes, it does. I guess one additional point or question now on that is how does the core RDT&E market fit within the U.S. and your ambitions there? Are you more referring to the value into the test and evaluation side?
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Steve Wadey18:37
Well, I don't know. Mary, I'll go first but 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 how do 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, test and evaluation is a huge strength for the company. So where we can ultimately bring that leverage together and then move into that type of sphere 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?
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Mary19:19
Yeah, 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 funding line, which is different than test evaluation, but you take it to the field, you get feedback from the customers, and you iterate that solution to quickly deliver technology. That 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 in a 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.
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Steve Wadey20:15
And I'm sorry, Mary, you just triggered me to steal one of Nick's sandwiches that will be coming later. You know, so it's part of our investment in digital T&E. We're looking at how we can move to the next generation of T&E, and 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 adding that more rapid development and test cycle in the U.S. customer based on what you're going to hear from Nick.
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John20:51
Okay, thank you very much. Thank you very much, Richard. Let's try Charlotte's line again. Technology isn't working today on Charlotte's side, so we'll come back to her later. Let's go to Sash Tutor.
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Sasha21:16
Thank you very much. I've got two questions. One is just about the M&A environment in the U.S. I will start with that. Arguably, the tremendous stroke of luck with M-Tech is that you acquired it before the boom of the SPACs, 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 wondered how 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 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 good for shareholder value.
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Mary22:09
Yeah, well, I'll start, Sasha, 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 six 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 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, Sasha, 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 a 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.
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Steve Wadey23:16
Yeah, I mean, I think a couple of builds on what Mary said. The first thing, you make me smile at that. I wouldn't use the word luck and M&A acquisition with M-Tech in the same sense. 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, you're without a doubt in 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 four 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 number one test. And then we will, once we've worked out the nature of business and identified the right business, we'll 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 will get the right return from the companies that we ultimately choose to pursue. David, is there anything you'd like to build on?
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David24:43
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 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 M-Tech is a great example where that's really worked through very well for us. And when we're not the sort of company that's going to get into a bidding war 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.
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Sasha25:49
Oh great, thank you. I mean, I apologize for the use of the word luck then. Unfortunately, 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. That was definitely my error. So just one follow-up. One of the examples you gave, Mary, was bringing hybrid electric drive technology from the UK 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 on a UK basis because there are some quite well-known examples of where technology has been transferred from a UK 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 do you manage the ITAR issues associated with that process?
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Mary26:00
Well, I think that's a good question, and we can learn from the past. So what we're doing right now is we understand those risks, and we're actually looking at the strategy going forward to be able to leverage the technology in both the UK 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 UK, and they are continuing to use that technology for programs in the UK. So we don't see it being a major risk because we're planning to be successful from the start and 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 UK. And we're managing that pretty well right now, Sasha. And we will continue to manage that process. I don't know, Steve, did you want to build on that question?
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Steve Wadey27:58
No, I think no, you covered it perfectly.
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John28:12
Okay, thank you. Thank you, Sasha. So next we'll go to the line of Jack Barrett.
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Jack Barrett28:22
Hello, can you hear me? Hi Jack. Lovely. Hello everybody. Thank you for that. That was great. Just one from me if I may. Some of the things that you talked about, whether it be autonomous, robotic, AI, the hybrid, are all sort of such key parts of what the DoD is going to be spending on and priorities for the next 5, 10, 15 years. I just love you to give me a bit of confidence or scale the size of the U.S. business now within Kinetic that you can sort of compete at that high end. There are some things where being a plucky newcomer is a benefit, but some of these big strategic visions that the DoD has, are they not much better giving it to a big prime rather than giving it to Kinetic U.S. business? So reassuring me on your right to win in the U.S. on these projects would be really helpful to understand.
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Mary29:16
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 OTAs transitioning directly to production programs. And if you look at some of the major programs we're running like RCV Light, the hybrid electric drive 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 you the following programs. So by developing innovative technologies such as the ISR system I'm talking about, the RCV Light, and partnering with our teaming partners, both the large tier ones 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 and bringing that together and working with our customers to bring them what they're asking for. And you know, I just can't say that the track record is what's winning us those follow-ons. And 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: we're already doing it. We're building those relationships with the customer, and they want to move faster, and we can help them do that. And we do understand we 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 larger rate production programs. And Jack, I'm going to hand the floor over to Steve to see if he wants to build on my answer.
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Steve Wadey31:09
Well, I think what you've 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.
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Jack Barrett31:57
Does that answer your question? Yeah, 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 the original pitch to partnering to then going into full rate, maybe mirroring the first journey of that, that'd be really helpful to try and understand.
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Mary32:17
I think maybe Mary just say a few additional words on our CV Lite 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 Connecticut North America and M-Tech to actually move this program on at greater pace with our customer. So maybe Mary, would you like to just say a few more words about that? Yeah, so Jack, if you look at RCV Light versus the other RCV systems, our RCV Light has probably been the most successful getting a robotic vehicle out there to support the future exercises and demonstrations that are in the Army strategy and plan. So we've gone through and developed in record time, delivered four units plus a 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 a 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 delivery. So that program will be a huge program for Kinetic. 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 Kinetic 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 a better understanding of programs like RCV Light. We have quite a few of those in our portfolio that we are working.
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John34:30
Great, thank you. That's really helpful. It gives me something to ask about in the future if nothing else. I really appreciate it. Thank you very much for taking the time. 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 we're going to... I think we've got time for one more, and I'm just going to try Charlotte's line again. So if we can have success this time.
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Charlotte34:41
Hi everyone, can you hear me? Oh yes, I'm lucky. Charlotte. I'm sorry about the, I've been trying. Just, so thanks for taking my questions. I've just got a couple actually. One was really just sort of hopping back to history. I'm thinking about the U.S. services business which was built by the predecessor's predecessor state, but I mean I appreciate that was operating under a proxy wall and now under an SSA you've got things like UK board seats as privileges. But how are you doing things differently this time would be the question. And then secondly, on the areas where you've articulated where you're aligned to priority spend and I guess that's the basis of which you're going to outpace defense growth, like autonomy and robotics, you cite things like technical superiority. And I guess it would be useful just to hear a little bit more about the R&D requirements or capex behind that in your growth strategy obviously to maintain that lead on the incremental revenue ambitions you've got for the U.S.
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Mary35:52
Okay, so do you want to talk about history, Steve, since I am not here for history? Well, I'd be interested. I mean, I will have to answer the question on history which I will do, but do you want to say a few words first? 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 a 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 the mission. 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 challenges they're facing? And it's not bringing just our capability to address a 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 the hybrid drive, and we have other things that we're doing as well, like 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. So it's really bringing value to the U.S. market. And as well as, I'll go ahead and answer your second question then I'll hand this 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 team of partners there combined with 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 ones to bring advanced capabilities to a customer. And we feel like we've done that well. We've been first to market on that model, and we continue 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 that gives you an answer to somewhat both of your questions in one fell swoop.
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Steve Wadey39:00
Yeah, thank you. Thank you, Mary. And it's a great question, Charlotte. And you know, 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 wasn't when I was here, reflecting on the lessons of that period to ensure that history wouldn'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 three 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, 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 said this when we announced the acquisition of M-Tech, there had been approximately two and a half years of work that led us to the announcement in October 2019 about the acquisition of M-Tech. Because having done the lessons learned on the previous Kinetic history, we were crystal clear that we would not re-enter 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 UK about re-entering 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 executive. 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 whenever it's over?
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David42:42
Yeah, well maybe I'll just say a word here. I think 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 programs of record, making sure that we've got everything in place for those. I mean, these are not huge amounts of money, but they're very, 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. They'll be manageable.
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John43:35
Great, thank you very much for your questions. And there will be further time at the end for further questions as needed.