DSTL Annual_report 2005-06

8/9/2019 DSTL Annual_report 2005-06

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Annual Report and Accounts2005/2006


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Dstl Annual Report2005/06Contents

Contents

02 Our mission, vision and values

03 The work we do

04 Chairmans statement

05 Chief Executives statement

06 Technical highlights

12 Programmes, capabilities and exploitation

14 Programmes, capabilities and collaboration

16 Exploitation and technology transfer

18 Our people

20 The integrated laboratory i lab

22 Corporate social responsibility

23 Financial highlights

24 Key targets

26 Statement on internal control

31 Directors Remuneration Report

34 Accounts


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Dstl Annual Report2005/06

Defence Science and Technology Laboratory

Annual Report and Accounts 2005/2006

Presented to Parliament pursuant to section 4 (6) ofthe Government Trading Funds Act 1973 as amendedby the Government Trading Act 1990.

Ordered by the House of Commons to be printed17 July 2006.

HC 1163 London: The Stationery Office 15.00

Note: on 1 July 2001, in accordance with the Statutory Instrument2001 No. 1246, the Defence Science and Technology Laboratory (Dstl)

was created as a result of the separation of the Defence Evaluation andResearch Agency (DERA); Dstl continuing as the Trading Fund.

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Dstl Annual Report2005/06Mission, vision and values

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Our mission, vision and values

MissionOur mission describes the fundamental purpose of theorganisation in terms of the impact we want to make in theworld. It addresses what we are passionate about doing, whatmotivates us.

Our mission is to create the winning edge for UK forces andgovernment through the best use of science and technology.

VisionOur vision describes the kind of organisation we aspire to be.It is an expression of what would constitute success in three,five or ten years.

Our vision is to be the indispensable source of science andtechnology at the heart of defence.

ValuesThe type of organisation Dstl becomes, and what willdistinguish us from others, will be defined by the way webehave as individuals. Our values describe the way we behave,day by day.

Supporting each other regardless of position in the organisation

Cherishing knowledge Commitment to the public interest Responsiveness Excellence Creativity


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Dstl Annual Report2005/06The work we do

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Dstl provides science and engineering-based products, services andexpertise to government on defence and security issues. This work fallsinto six main product areas:

Decision support

Defence enterprise management support

Support to operations

Innovative capability and systems concepts

Innovative technology exploitation

Science and technology services

Our work creates the evidence base for major decisions covering thefull range of policy, operational, military capability, scientific andacquisition issues. We support customers in their planning,procurement and risk management activities, and deliver assurance ofthe science and technology they exploit.

We work extensively with industry and academia to help understand,develop and evaluate a range of options to meet customers futurecapability requirements. We also exploit advances in science andtechnology to deliver practical solutions to defence and security-relatedproblems in areas of national and international sensitivity.

Our wide-ranging expertise is underpinned by an authoritativeunderstanding of defence policy, complete systems and sub-systemsand world-class research capabilities. Dstls unique position in MODgives us an overview of our customers problems, across domains and

over time, which helps to bring an integrated and coherent approach toour programmes.

The breadth of our work means that our highly skilled and professionalworkforce is operating at the leading edge of defence science andtechnology. We are therefore a key source of specialist staff for MODand other government departments and our people also work onsecondment, or interchange, in these organisations.

The work we do


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Chairmans statement

Dstl Annual Report2005/06Chairmans statement

04

Dstl's aim is to deliver excellent solutions to our customers most importantproblems. Over the last year, the organisation has made significant progresstowards this goal and is, in many cases, exceeding expectations. In terms ofmeeting key MOD targets, we are delivering across the board with encouragingprogress in all areas, most notably in technical competency benchmarking.

Once again Dstl met all of its financial targets thus maintaining an unbrokenrecord in this area since its formation. This is a significant achievement and isindicative of strong performance across the business.

Dstl is going through a period of great change. The i lab change programme,which is essential for improving cross-functional working and creating greaterefficiencies, will see around 40% of our staff working in different locationswithin the next 36 months.

Excellent progress has been made on various aspects of i lab this year. Withbuilding plans finalised and planning permission secured, Project INSPIRE cannow begin. This is the major rationalisation project that will consolidate Dstl'sactivities onto three core sites and create a better equipped, more flexibleworking environment for our people.

The last year has seen several changes on the Dstl Board. We now have our fullcomplement of Non Executive Directors who bring a wealth of experience,knowledge and expertise. I am confident that this new Board will greatly assistDstl in fulfilling its mission.

We have also seen changes in our Executive team. After five years of leadingDstl, Martin Earwicker has moved to a new role as Director of the NationalMuseums of Science and Industry. On behalf of the Board, I would like to paytribute to Martin's many achievements, which have laid sound foundations forDstl's future. We wish him great success in his new role. Frances Saunders,who moved from Technical Director to Director of Operations during the year, isacting Chief Executive until a permanent successor is appointed.

Technology organisations and companies across the world rely heavily on theexcellence of their staff to deliver success. Dstl is no exception and I have beenprivileged to meet many of our excellent people during my first year asChairman. I would like to take this opportunity to thank all of our staff for theirprofessionalism and contribution to our goals.

Richard Maudslay FREng

Chairman

05 July 2006


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This year we have continued to build on Dstls track record of achievement. Overall, our businessperformance remains strong and we have delivered well against our key targets and financialobjectives. We have continued to make progress with our technology transfer and exploitationactivities. Ploughshare Innovations Ltd, our wholly owned subsidiary, is now fully operational andfocused on managing Dstls intellectual property portfolio.

Our technical achievements are equally notable. We have continued to apply our broad science andtechnology expertise to the wide range of defence and security-related problems facing ourcustomers. We have also supported key strategic decisions for some of MODs most importantequipment procurement programmes and have successfully piloted new, improved technicalassurance processes.

Support to operations in Iraq continues and a Dstl team has been permanently deployed in theatrethroughout the year. Closer to home, our scientists supported the Metropolitan Police investigationinto the London Bombings in July 2005 and worked tirelessly to retrieve and analyse vital evidence

from the scene. We have also worked closely with colleagues across MOD to set up the new Counter-Terrorism Science and Technology Centre, ensuring that the right facilities and staff were in placebefore its launch in April 2006. Finally, we have continued to deliver exceptional underpinningscience and technology for our customers to exploit in the longer term.

The i lab programme is starting to deliver tangible benefits. Our customer satisfaction survey showedthat changes to the customer interface are having a positive impact. As a result, customers now havea much clearer idea of key points of contact within Dstl. We are also playing an increasinglyimportant role in some of MODs more challenging cross-cutting programmes and our newly formedJoint Systems Department is already building an excellent reputation for working at the highest levelsin MOD. The increasing number of visits from our senior customers, and the tremendous interestthey show in our work, is also testament to our progress on crucial MOD programmes.

In December 2005 we launched our Corporate Social Responsibility (CSR) programme. For anumber of years, we have co-ordinated successful outreach activities to promote science and

technology careers in schools. This new programme is much broader in scope, encompassingcommunity, environmental and social initiatives such as charity events, conservation projects, carsharing and recycling schemes. In the long term, these activities will ensure that we make a lastingcontribution to the wider UK community.

We have achieved great success this year. Maintaining this level of performance requires aconsiderable amount of hard work from all of our people and I would like to thank Dstl staff for theircontribution. We have much to be proud of, but there is much still to do to reap all the benefits frombecoming a truly integrated laboratory.

Frances Saunders

Chief Executive (from 03 May 2006)

05 July 2006

Dstl Annual Report2005/06CEs statement

05

Chief Executives statement

We have a clear vision of where we want to be a single unified laboratory delivering high-quality solutions to our customers most important problems through the excellence of our people, our management and our integrated expertise.


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Dstl Annual Report2005/06Technical highlights

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Frontline forensic supportDstl provided crucial support to the MetropolitanPolice when London became the target of aterrorist attack in July 2005. Suicide bomberstargeted the capitals transport system during themorning rush hour, killing 52 people and leavingmore than 700 people injured.

Forensic explosives experts from Dstl deployedimmediately to the scene and worked round-the-clock to retrieve and analyse as much forensicevidence as possible for this fast-moving policeoperation.

Debris from the explosions, damaged vehicles,underground carriages and other vital evidencewere all examined in meticulous detail. Supportinganalysis was carried out in Dstls unique forensiclaboratories and specialist expertise was drawnfrom across the organisation to support theinvestigation. The findings are expected to play acrucial role in the forthcoming criminal caseslinked to the London bombings.

Every year, Dstl provides forensic support to morethan 300 police investigations involving the criminalmisuse of explosives, from individual criminal casesthrough to terrorist incidents.

UK forces reachback to DstlScientific support to operations in Iraq continueswith the work of Dstls deployed scientific advisers(SCIADs) being highly commended by militarycommanders.

The first SCIAD was deployed to south-east Iraq inJanuary 2005 and performed a multitude of tasks.These included technical trials and demonstrationsof new concepts that addressed some of the mostpressing issues facing UK forces. Of particular usewas the ability of the SCIAD to reachback into thetechnical knowledge base across Dstl. This helpedto solve a broad range of problems quickly andeffectively in theatre.

Six SCIADs have now been deployed and the role isseen as a crucial and ongoing requirement for UKforces in Iraq.

Crash investigation supportThe investigative capabilities of Dstl were calledinto action following the tragic loss of a HerculesC130K in Iraq in January 2005. Nine RAFpersonnel and one soldier were killed in the crash.

Dstl made a significant contribution to the technicalaspects of the RAF Board of Inquiry to determinethe cause of the loss. Working alongside airaccident staff, Dstl scientists from Dstls Missilesand Countermeasures, Air Systems and Energeticsdepartments conducted analysis, assessment,testing and trials.

The Board of Inquiry subsequently concluded thathostile ground-to-air fire was the most likely causeof the crash and made a number ofrecommendations to reduce the risk of a similarincident occurring in the future. The Secretary ofState for Defence has since presented the findingsto the House of Commons.

Technical highlights

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Cutting-edge detection and analysisDstl is unique within the UK in conductingdefinitive, rapid analysis of suspected chemical orbiological warfare agents. Dstls laboratory employsstate-of the-art techniques to provide timely andaccurate analysis of a range of chemicals,pathogens and toxins. In some cases, results are

available within six hours, allowing incident andstrategic management to be adapted accordingly.

This year Dstls scientists received and analysedtheir 1000th sample. Ironically, despite theorganisations worldwide sphere of operations, thesuspect material came from within Wiltshire, just ashort distance from the Porton Down site.Wiltshire Constabulary had reasonable grounds tosuspect that the sample may have posed achemical or biological hazard to the generalpublic, but analysis proved that the material wasin fact a harmless, although threatening, hoax.

Smallpox vaccine breakthroughA new smallpox vaccine that could deliverimproved safety benefits has been pioneered byDstl scientists.

Although naturally occurring smallpox wascertified as being eradicated in 1979, thecausative agent (the variola virus) is stillrecognised as a potential biological warfare threat.The current vaccine, a live virus, is highlyeffective but has a number of complications.These include a newly established link withcardiac abnormality in adult, first-time vaccinees.

Dstls new experimental vaccine offersequivalent protection and should overcomesome of the side effects associated with thecurrent vaccine because it does not replicate inthe body. The vaccine has the potential toprovide a safe, effective medicalcountermeasure against a significant threat.

Tracking the threatKeeping our military forces protected againstcurrent and emerging chemical warfare threatsrequires the latest scientific capabilities.

Dstl experts have devised an innovativechemical hazard detection and monitoringcapability that can identify a much widerspectrum of chemical agents than previouslypossible. High Field Asymmetric WaveformSpectrometry (HiFAWS) is an evolution of IonMobility Spectrometry (IMS) technology, whichis currently used in detectors and monitors.

HiFAWS allows a broad range of chemicalwarfare (CW) agents to be detected, at lowconcentrations, as well as toxic industrialchemicals.

A prototype detector has successfully identifiedCW agents in the presence of materials thatwould cause interference with currenttechnology. Dstl is now seeking industryengagement to develop an integrated detectionsystem. HiFAWS technology could ultimatelylead to a low-cost, small-sized detector.



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Simulation successOver the last year, Dstl has providedcomprehensive support for MODs Future AircraftCarrier and Future Joint Combat Aircraft projects.

Dstl experts have been analysing the policyimplications of the future capability, assessing thelevel of technical risk in the programme anddeveloping simulation software to exploreoperational concepts and tactics for the FutureJoint Combat Aircraft.

Dstl has also helped to develop a new man-in-the-loop air combat simulation facility (Cutlass) at

MOD Abbey Wood. The simulator has been usedto investigate the operational and tactical conceptsthat underpin Joint Strike Fighter (JSF). It has alsoproved invaluable in assessing the complexinteraction of technical issues associated with thisstate-of-the-art, revolutionary aircraft.

This simulation capability is highly regarded by theUS JSF Joint Programme Office and has played asignificant role in the UKs contribution to theproject. The facilities have also supported UKefforts to better understand and influence manyaspects of the programme.

Battlefield benefits for blood-clotting drugA drug used to treat haemophiliacs could help tosave lives on the battlefield thanks to recent Dstlresearch.

Recombinant Factor VIIa (rFVIIa), which has beendeveloped by Danish company Novo Nordisk, haltsuncontrolled internal and external bleeding and isusually only administered in hospitals. Dstlsresearch has shown the potential benefits of rFVIIain a pre-hospital or battlefield scenario to stophaemorrhaging the leading cause of death on thefrontline.

Factor VIIa naturally exists in the bloodstream andenables clot formation in exposed tissue. Byboosting this natural substance with rFVIIa, theclotting time can be reduced and the strength ofthe clot increased. Administering rFVIIaintravenously enhances clotting at sites of vascularinjury, extending casualty survival times to enableevacuation to a surgical facility, such as a fieldhospital.

In the future, it is hoped that the drug could beused as a life-saving treatment for road accidentvictims and other trauma patients.


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Supply chain improvementsOver the past year, Dstl has supported MODsFuture Defence Supply Chain initiative (FDSCi),which is looking to create operationalimprovements and achieve savings of 440 million.

Dstl teamed up with the Defence LogisticsOrganisation to review the Armed Forces materialsstorage and distribution system in the UK andnorth-west Germany. A range of options were

assessed against new, higher delivery standardsfor supply chain services. Dstl analysts looked attheir effectiveness in providing a day-to-day serviceand in handling the surge in demand generated bymajor deployments. In-house services werecompared with industry-partnered solutions interms of value-for-money.

Dstl created a unique simulation model SUSTAIN (storage, utilisation, supply, transportand information networks) to analyse possiblesolutions. This demonstrated how storage siterationalisation, and changes to the transportnetwork and staff deployment, could meet the newdelivery standards and generate significant savingsfor MOD.

In July 2005, the Secretary of State for Defenceannounced that MOD had selected an in-housesolution, which provided the best combination ofimproved effectiveness and lower costs.

Interoperability demonstrationsDstl once again played host to the UK CoalitionWarrior Interoperability Demonstration (CWID) atPortsdown West in June 2005.

CWID is designed to demonstrate emergingtechnologies for C4ISTAR * systems and improveinteroperability between coalition nations.Participants at the 2005 event included Australia,Canada, New Zealand, the United Kingdom and

South Korea.The Dstl laboratory, based at Portsdown West, hasthe capability to represent the land, air, maritime andlogistics component commanders and is designed toimprove war-fighting capacity. The flexible designmeans that the battle laboratory can be adapted tohost command, control and informationinfrastructure experimentation in support of MODprojects.

CWID has repeatedly proven the benefits of livemilitary multinational interoperability exercises andhas generated significant financial savings for MOD.

In 2005, Dstl was awarded a Smart Procurement

Award by the Minister for Defence Procurement forits outstanding contribution to CWID.

*C4ISTAR Command, Control, Communications and Computers(C4) and Intelligence, Surveillance, Target Acquisition andReconnaissance (ISTAR).


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Thinking aheadUnderstanding and influencing the strategic thinkingof your allies and adversaries is all importantwhen defusing a growing diplomatic crisis. Now,novel techniques that unlock the cognitive thoughtprocesses behind adversarial decision making havebeen devised by Dstl.

The Strategic Analysis Group has been investigatingvarious diplomatic, economic, political and military

methods used by government to change enemyintent to pursue a particular course of action. Thework, which exploits role-playing games, strategicstudies and political psychology, has led to a newtechnique that evaluates the cognitive behaviour ofdifferent adversary regimes. Historical analysis hasbeen conducted, in parallel, to verify and validatethe findings.

This work has cross-government support, with inputfrom the Foreign and Commonwealth Office, CabinetOffice, and broad exposure from across MOD.

The findings will enable MOD to develop its policyand planning framework for future military tasks,

which will feed into a range of studies supportingpolicy formulation and capability management.

Understanding and influencing the strategic thinking of your allies and adversaries is all important.

Richard Scott, Programme Director(Science and Technology)


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Dstl Annual Report2005/06Programmes, capabilitiesand exploitation

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Dstl Annual Report2005/06Programmes, capabilitiesand exploitation

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We have made a number of changes over the last year to strengthen programme leadership and make it easier for customers to do business with us.

Peter Starkey, Director of Future BusinessProgrammes, capabilities and exploitation

Strengthening programme leadershipOur continuing business success is built on therange and quality of services we deliver tocustomers and how we meet, and anticipate,their needs. To deliver this strategy, we needstrong programme leadership that co-ordinatesa cohesive and coherent programme of work

and addresses MODs, and wider governments,requirements.

While Dstl has been broadly successful inachieving this aim since its formation, we havemade a number of changes over the last year tostrengthen programme leadership and make iteasier for customers to do business with us.Specifically, the introduction of Programme andFuture Business Directors has ensured that thisprinciple is embedded within the Executive.

Programme Directors are supported by SeniorProgramme Leaders (SPLs) who areresponsible for the leadership of particular

programme domains. Our SPLs provide overallcoherence and ensure that the best and mostrelevant capabilities are brought intoprogrammes from across Dstl and from outsidethe organisation. Key to their effectiveness iscapturing and addressing customersrequirements through direct engagement withthe end user (especially senior-levelmanagement), close engagement with industryand maintaining a clear focus on theexploitation route for the results of the work.

These changes are already starting to have animpact, with an increased level of engagementnoted by our customers and reflected in theirviews of our performance.

Technical focus future businessThis year, for the first time, we have analysed our programmesplit in terms of product service and customer groupings toassist with the development of the future business strategy.

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Policy 4.5 0.1 0.4 6.5 2.0 0.5 0.1 14.1 4%

Capability 11.5 33.1 84.0 33.8 2.8 6.4 0.8 172.4 50%

Acquisition 21.4 8.4 37.9 0.5 4.8 0.3 4.5 77.8 23%

Operations 0.6 0.5 2.6 0.4 7.3 2.3 5.0 18.7 5%

Security 1.0 0.5 11.6 0.0 4.5 0.8 1.3 19.7 6%

OGD 1.1 0.1 9.8 0.1 7.1 0.8 2.6 21.6 6%

Non-Exchequer 1.5 0.6 8.9 2.9 4.5 0.0 0.1 18.5 5%

Totals (M) 41.6 43.3 155.2 44.2 33.0 11.1 14.4 342.8

12% 13% 45% 13% 10% 3% 4%

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Dstl Annual Report2005/06Programmes, capabilitiesand collaboration

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These changes will lead to the development of anew Future Business Strategy that will flow into,and go hand in hand with, revising our TechnicalCapability Strategy. A new technical capabilityplanning process has been developed within i labthat will give senior technical staff anddepartments full responsibility for identifying andresponding to changes in capability requirementson an annual cycle. In parallel with this gearingfor the future, technical benchmarking of ourcurrent capabilities has confirmed the year-on-

year improvement (from 70.6% to 71.6%)required to meet the Dstl key target (72%) nextyear. The process is audited by external assessorsagreed with the Chief Scientific Adviser.

Fostering professional developmentProfessional development of our scientists andengineers remains a key priority:

For the second successive year, Dstl won theInstitute of Physics Best Practice in ProfessionalDevelopment Award.

STEPS*, run by and for the benefit of newstarters, continues to flourish with imaginative

events and networking initiatives. Dstls Chartership Scheme is now formally

accredited by eight professional bodies andapproved by a further three.

The Fellowship Scheme is evolving to moreclosely align the achievement of Fellowship andSenior Fellowship with career level and pay.

Programmes, capabilities and collaboration

Matching our capabilities to MODs needsLooking to the future, we must ensure that our skillsand capabilities are aligned with MODs evolvingneeds, anticipating the trends in our externalenvironment, customer expectations and monitoringthe ever-changing defence and security environment.For this reason, we have taken our strategic guidancefrom MOD, drawing on Defence Strategic Guidanceand the Technology Strategy in particular, coupledwith our own observations of tasking trends acrossour whole programme. This is helping us to better

understand where increasing and decreasingdemand for support will be focused in future years.

The recently published MOD Science and TechnologyCapability Alignment Study has confirmed that Dstlsscience and technology programme is broadly wellmatched to MOD needs but new priorities will emergeto which we must respond. More far-reaching still,the Defence Industrial Strategy will profoundlyinfluence the ways in which future defenceacquisitions are managed when it starts to beimplemented in late 2006. These trends will affectnot just what we do but how we do it.

Support to operations, acquisition (using system-leveladvice from a wide range of technical sources acrossDstl and beyond) and science and technology staffinglevels are areas of growing importance. Demand fortechnology-led work is diminishing slightly, although itremains our largest single area of activity. Withinacquisition support, the Defence Industrial Strategyhas reinforced the importance of systems and theneed to better understand risk and whole-life issues,including cost, technology management andtechnology insertion.

*Scheme for Technical Events and Professional Support

Co-operative engagement with the best overseas laboratories, and with UK industry and academia,enhances our capability and value to MOD.

David Harris, Technical Director


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The Associate Fellowship Scheme has beendeveloped to encourage the brightest and best topursue the scientific career route.

One new Fellowship and one Senior Fellowshipwere awarded this year, as well as theQuinquennial renewal of Fellowship to tenDstl staff.

Wider relationshipsInternational research collaboration continues tounderpin Dstl's ability to deliver MOD programmesand develop our technical capability. Weparticipate in around 20 fora spanning the mainEuropean nations, the US, Australia and Canada.Particular highlights have included prestigiousawards made by the Minister for DefenceProcurement in recognition of outstandingcollaborative activity in The Technical CooperationProgramme (involving the UK, Australia, Canada,New Zealand and the US). Six awards were madeto Dstl staff in areas such as chemical andbiological defence. In this area alone, collaborativework has improved our ability to model agentdispersion in urban environments an important

factor in directing emergency response activities.Dstl's role in forging a new UK/US initiative theInternational Technology Alliance (ITA) has beenrecognised by MOD and the US. Our staff wereclosely involved in the complex tender assessmentwith US colleagues. The ITA will now facilitate jointtechnology development across UK and USgovernments, industrial and academic laboratories.

Finally, a Dstl employee on secondment to thePentagon has been awarded the US Department ofDefense Medal for Distinguished Civilian Service the highest award that can be bestowed on a foreigncivilian for his contribution to the US QuadrennialDefense Review.

Forging linksLaboratory-to-laboratory partnerships are an essentialcomplement to our internal schemes. Agreementswith the French DGA DET Laboratory and the

Institute of St Louis (ISL), under signed letters ofintent, have delivered tangible benefits this year.

Reciprocal meetings on technical benchmarkinghave been held with DET and the first exchange ofstaff is planned for 2006. The Dstl staff secondmentto ISL has worked extremely well, and consolidationof the letters of intent into a co-operation agreementis under consideration.

Nationally, Dstl has continued to forge productivelinks with industry and academia, which hasincluded workshops with Imperial College, QinetiQand Sheffield University. Four members of staff havebeen seconded to the Systems Engineering

Innovation Centre (SEIC), Loughborough and our firstinward industry attachment was sealed with the one-year secondment of a systems engineer from BAESYSTEMS into Dstls Joint Systems Department.

Finally, the external reputation of Dstls top scientistscontinues to be recognised through visitingprofessorships awarded to Dstl staff: tenprofessorships (one honorary and nine visitingchairs) were awarded or renewed this year.


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Dstl Annual Report2005/06Exploitation andtechnology transfer

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Exploitation and technology transfer

Dstl annually turns over approximately 350 million ofmostly UK government funding. Around half of thisfigure is directed at R&D in science and technologyprogrammes for defence and security. Like all publicsector research establishments (PSREs), Dstl has aduty to exploit its world-leading innovative ideas andtechnologies, where appropriate, for the maximumsocial and economic benefit for the UK.

The organisation has already built an excellent trackrecord in exploiting its Intellectual Property (IP)portfolio of 150 patented technologies in areas suchas biotechnology, healthcare, sensors and materials(see table, below right). With a further 2030 patentapplications filed each year, Dstl has a significantpipeline of new technologies ripe for exploitation.

In April 2005 Ploughshare, a wholly owned subsidiary,was formed to manage technology transfer activitieson behalf of Dstl. The companys remit is to exploitIntellectual Property (IP) licensing opportunities andmanage the bulk of Dstls joint venture activities.Ploughshare's Board reports to the Dstl Board and itsactivities are monitored by senior MOD and Dstlofficials and other government stakeholders.

Ploughshare has already signed several new licenceagreements and launched a range of activitiesdesigned to exploit Dstls asset base more efficiently.One such activity has been the launch of quarterlyand rolling intellectual property reviews of IP patentcases. Early involvement from Ploughshare helps toensure that the highest commercial value isgenerated from leading prospects. IP reviews alsoprovide an opportunity to purge the portfolio ofpatents that have low commercial potential, thussaving millions in nugatory protection, maintenanceand enforcement costs.

Over the past year, Dstl and Ploughshare have alsolaunched a Rewards to Inventors scheme, whichencourages Dstl scientists to think innovatively andconsider IP issues by recognising success at patentapplication milestones. Early and generous reward isavailable to both inventing staff and their supportingteams when inventions fulfil their commercial potential.

Other recent achievements have included the launch ofthe Ploughshare Innovation Fund (which helps Dstlscientists to take bright ideas to proof-of-concept stage)

and successful application for capacity building fundingfrom the Public Sector Research Exploitation Fund.

In the short term, over the next one to three years, anincrease in the rate and strength of patent applicationsacross Dstl would reflect increased levels of innovationdriven by Ploughshares activities. This wouldundoubtedly enhance Dstls reputation in its corebusiness paying dividends for Dstl and MOD in thelong term.

Dstls current IP patent portfolioPortfolio Total no. Technologiessegment of cases (examples)

Biotechnology 38 adenylate kinase, luciferases, DNAamplification

Healthcare 35 liposomes, pharmaceuticals, vaccines,virus detection

Sensors 30 fluorescence, UV ionisation, photometry,gas & air monitoring

Decontamination 4 activated carbon, zeolite, micro-emulsions

Protection 9 blast protection, personal and collectiveprotection

Coatings/materials 9 oil/water-repellent coatings, adhesives,novel materials

EM/comms 14 electromagnetic radiation sources and X-ray

Miscellaneous 7 explosives, miscellaneous technologies

Total 146

The impact made by Ploughshare on bringing greater rigour to the exploitation of Dstls intellectual property is very encouraging.

David Harris, Technical Director


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Case study animal vaccine breakthrough

A novel vaccine that could dramatically improve animal health in thepoultry industry is in production thanks to Dstl and Ploughshare.

Dstl scientists approached Ploughshare with a proposal for a newvaccine to fight avian necrotic enteritis a disease with rapid onsetand high mortality rates. Incidence of the disease is expected to soarfollowing the ban on antibiotic growth promoters in animal feeds inthe European poultry market. The new vaccine would protect poultryfrom both necrotic enteritis and salmonellosis diseases caused byClostridium perfringens and Salmonella respectively.

The Dstl team secured financial backing from the PloughshareInnovation Fund (PIF), which helps Dstl scientists move Dstltechnologies towards commercial exploitation in non-defencesectors. Within weeks of PIF funding, Ploughshare formed alicensing agreement with a leading veterinary products supplier tocommercialise the technology.

The project utilises Dstls IP and world-leading expertise in thevaccine field. It also demonstrates how technology developed formilitary purposes can have applications in civilian markets.


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In our corporate plan for 2005/06 we highlighted theimportance of our people in achieving continuedsuccess for Dstl. We are dependent on our staff fortheir skills and knowledge (and the expert applicationof both to deliver customer solutions), their drive forexcellence and their willingness to work together tohelp each other succeed.

Outstanding leadership is undoubtedly a criticalfactor in achieving the very best from our people.This is especially important at a time of change aswe prepare to relocate onto three core sites andadopt new working practices and tools. This year hasseen the clarification of leadership roles andresponsibilities, with an emphasis on leading anddeveloping people to fill the full range ofmanagement roles. Our new leadership developmentprogramme will equip managers with the skills theyneed to support and engage their people, especiallythrough this period of change.

The 2005 staff survey showed that our people nowhave a greater awareness about the i lab changeprogramme and many feel that communication has

improved across the organisation. In Dstl, we seek tomaximise every communication channel to involveour employees in the running of the organisation.This is done through regular in-house newslettersand bulletins, face-to-face briefings, trade unionconsultation and training activities.

Over the past year, we have acted on staff feedbackwhich indicated that career paths were insufficientlyclear. We have since published structures thatdemonstrate the main career paths and options,along with career stories from leading scientists andtechnical experts from across Dstl. These are helping

junior staff to identify how they can use particularskills and experience to fulfil their aspirations. During

the year, a review of training and development hasalso got under way, including an evaluation of resultsdelivered so far. These efforts will ensure that futureimprovements are targeted at the right areas.

Closer to home, we have completely restructured theHR function to ensure that we deliver consistent, high-quality advice to managers. We have also put in placeprofessionally qualified HR practitioners to workalongside the business.

Recruitment and retention remains healthy. More than200 graduates have joined Dstl in the last year and wehave maintained our standing as an employer ofchoice in The Times Top 100 Graduate EmployersSurvey.

We are also recruiting a higher than average*proportion of new entrants from ethnic backgroundsand we employ more than 50 people with disabilities.Dstl is, of course, an equal opportunities employer andevery possible consideration is given to applications foremployment regardless of gender, religion, disability orethnic origin.

In 2005/06, 153 staff resigned from Dstl (4.5% of thetotal workforce), 73 staff retired and 30 stafftransferred to other parts of MOD or other governmentdepartments.

The professional and career development of our staffremains a top priority. We continue to encourageinternal development moves and nearly 400 postswere advertised through the job opportunities bulletinthis year. Around 300 staff successfully gainedpromotion in the annual career level review.

The number of staff secondments has increased thisyear. In total 157 staff are on secondment to MOD andother government departments, including 32 peopleoverseas, and 39 people on inward secondments.

Our people

The 2005 staff survey showed that our people now have a greater awareness about the i lab change programme and many feel that communication has improved across the organisation.

Ruth Davies, Director of Human Resources and Communications

Dstl Annual Report2005/06Our people

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*regional


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This has been another busy year for the trades unions(TUs), with some successes which must be balancedagainst continued uncertainty in other areas.

i labDstls plans to consolidate its activities onto three core siteshave progressed under the i lab change programme. Therelocation of staff, which is a key part of the programme,continues to have the greatest impact on large numbers ofTU members. TU officers are lending their support to helpfacilitate a smooth transition, and we have encouraged staffto work with Dstls On the Move team.Dstls invitation for the TUs to have a seat on all StrategicImprovement Programme (SIP) committees has given us agreater visibility of the i lab process and its implicationsfor staff.

Management transformationThe TUs support management efforts to transform thecareers process. We hope that this will establish logicalpaths for progression, both on the scientific andmanagement axis.The opportunity for staff to rise to senior levels on the basisof technical and scientific merit alone is encouraging. Thisshould help team and group leaders strike a better balancebetween technical and management work, and reducesome of the traditional tensions between management andstaff. We hope that the review of the corporate functions willachieve similar results for support staff.

PayAfter negotiations, we agreed a multi-year pay deal withmanagement. Although this only partially fulfilled the TUsaspirations, it was viewed as a good result that exceededTreasury targets. When viewed against the current Civil

Service pay environment, the agreement seems even morefavourable. However, the TUs remain concerned about theshortfalls between Dstl and MOD additional hourspayments and leave conditions.

PensionsWe welcomed the agreement between government and theCivil Service Unions (CSU) with regard to pensions.However, the Dstl TUs and the CSU remain vigilantfollowing recent speculation in the press and privateindustry regarding civil service pensions.

Age discrimination and retirement ageThe TUs welcomed legislation which outlaws discriminationon the grounds of age and the right of people to work to theage of 65. However, these changes pose major challengesas Dstl adjusts terms and conditions to fulfil its legalobligations. The TUs are keen to work with management toensure that these changes are met, provided that there isno detrimental effect on the workforce.

Health and safetyWe have continued to work closely with Dstls managementto help maintain a safe working environment. The numberof cases of stress in the workplace remains a concern.Against a background of change and uncertainty, the TUssupport management in recent moves to assess andreduce the impact of stress on staff.

Staff moraleTU officers, by the nature of their role, deal with problemsthat arise in the workplace and so their perspective onmorale may at times be rather gloomy. Overall, however,Dstl is a good employer and management tries to work withstaff in the vast majority of cases. However, in areasaffected by relocation plans, morale is more brittle.

Overall pictureAlthough staff are now better informed about the i labchange programme and what it means to them, many are

being moved out of their personal comfort zones. This hascontributed to a busy year for the TUs and relocationactivities continue to present challenges in the short term.

Statement by Dstl trades unions

Dstl Annual Report2005/06Our people

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Dstl Annual Report2005/06i lab

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i lab is Dstls major change programme that aimsto unify all aspects of technical, physical, businessprocess and behaviour across the organisation. Itis designed to sustain and strengthen technicalcapability while increasing efficiency.

This year has been one of firming up andconsolidation for i lab . During the year, the DstlBoard approved the i lab business case and wenow have a roadmap that shows how individualprojects will deliver i labs objectives. A BusinessChange Manager has also been appointed tomonitor key milestones and ensure that theprogramme is delivering tangible results acrossthe organisation.

Our communications activities in relation to i labhave intensified during the year. We havelaunched inform , the quarterly i lab newsletter,revamped the i lab website and briefed newstarters at all Dstl inductions during the year. Wehave also formed i-Friends a group of 50 staffwho review proposals, test web initiatives anddiscuss new ideas for change.

i lab has now moved into the programme deliveryphase and the following summarises keyhighlights from 2005/06.

Delivering a high-quality serviceDstl is responsible for ensuring that the work itundertakes for customers makes a real differenceto them and the wider stakeholder community.This fundamental goal drives the evolution of ourprocesses and systems, our skills and technicalcapabilities, and our behaviours and workingpractices.

We have continued to work with MOD stakeholdersto align our planning processes and share ourthinking on future business and technical strategies.A redesigned customer interface has, for example,helped to increase the level of senior engagementand create a more coherent focus for key customergroups.

We are developing a future business strategy basedaround our services and products and haveintroduced new ways of capturing and responding tocustomer feedback and communicating keyhighlights to our stakeholders.

A review of our project management processes isunder way to ensure that the model meets ourfuture needs. Building on our early work on Dstlstechnical strategy, we are now identifying capabilityareas at risk and implementing mitigation measures.We have published guidelines for technicalcapability planning to achieve a more consistentapproach across departments and further developedour understanding of the range and number ofsystems people Dstl will require in the future.

Investing in our peopleThe success of Dstl is dependent on the skills,knowledge and behaviours of its people. We mustensure that our people deliver the very best theycan, both as individuals and through effectiveteamworking.

This year, we have further clarified theresponsibilities of our leadership community, in bothtechnical and managerial areas. Having the rightmatch of people to roles is a key part of this processand we must ensure that the right development

The integrated laboratory i lab

Overall, i lab has made steady progress over the last year and is in good shape to deliver long-term benefits for Dstl customers, stakeholders and staff.

Nick Helbren, Director of Rationalisation


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Dstl Annual Report2005/06i lab

21

opportunities are in place to help our leaders fulfilthese new expectations.

In the past year we have transformed the HRfunction to better align our services to businessneeds and support strategic organisational change.The introduction of HR Business Partners hashelped us to deliver improved professional advisoryservices across the organisation. The next stage isto focus on streamlining HR support activity,simplifying HR processes and improving our HR ITsystem. We are also developing a new frameworkfor people planning to cover the size, shape andskills mix of our current and future workforce.

Another key project is reviewing Dstls intranet. Theaim is to create a more intuitive user interface thatfits in with our processes and with the way peoplenaturally work.

The future workplaceThis part of i lab is focused on two core objectives.The first is to rationalise onto three sites, forgestrategic partnerships for facilities managementand support services, and introduce new ways ofworking to make better use of our buildings,facilities and assets. The second objective is todeliver seamless business processes and systems.

Project INSPIRE, the main rationalisation project,has made major advancements during the year.Following a robust selection process, Serco hasbeen appointed to undertake building constructionand refurbishment at Porton Down and PortsdownWest and provide facilities management over a 15-year period. Planning applications have beensubmitted and agreement reached with therelevant local authorities. We are working closely

with politicians, planning officials and localcommunities to address queries and concerns asthey arise.

The sister activity to INSPIRE, On the Move, hasalso made significant progress. This project isoverseeing the relocation of staff whose jobs aremoving to new sites. We have regularly briefed ourstaff face to face about relocation plans andprogress, and our people can access regular onlineupdates. A comprehensive relocation informationpack is also available for movers.

Over the last year, we have achieved considerable

success in dealing with legacy site issues(particularly at Porton Down) in conjunction withDefence Estates, and a significant number ofbuildings have been demolished. Major investmentcontinues to be made in building refurbishment atFort Halstead.

One key project is addressing our future workingenvironment how we work in open plan offices,what support is available and how we can makemore effective use of our assets. This will be a keyenabler to introducing new ways of working withinthe organisation.

Another notable success has been categorymanagement. We have continued to rationalise oursupply chain by reducing the number of centrally-managed contracts for items such as stationery,consultancy support and laboratory equipment.Savings have amounted to around 3 million overthe last 12 months. Total savings to date amount to10 million.

Overall, i lab has made steady progress over thelast year and is in good shape to deliver long-termbenefits for Dstl customers, stakeholders and staff.


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In Dstl we recognise the importance of beingsocially responsible and environmentally friendly, asset out in our CSR policy statement:Our aim is to act in a positive way in our dealingswith our staff, customers, suppliers and the localcommunity. In doing so, we shall behave withintegrity and minimise the negative impact on theenvironment and our stakeholders. We will measureour performance and publicise the results.Dstl has, for some years, undertaken manyexcellent social and environmental initiatives. Todevelop these activities further, Dstls CSRprogramme was officially launched in December2005, with 12 initiatives falling broadly into threemain categories community and workplace,environment and ethics. These initiativesencompass schools activities, charity days,

recycling schemes and conservation projects. Wenow report progress against these initiatives and ourgoals for the coming financial year.

Community and workplaceWe continue to raise awareness of and roll out Dstlseducation outreach programme and have 125school ambassadors across the organisation.Ambassadors helped to staff the Institute ofPhysics Lab in a Lorry during National ScienceWeek and continue to make regular visits to localschools and organise science fairs.In March 2006, the first Dstl charity day raisedmore than 2,500 for Marie Curie Cancer Care.

Another 600 was raised for Breast CancerResearch and The Prostate Cancer Charity in aprize raffle. The lucky winner had the chance totake part in the demolition of two disused towers onthe Porton Down range.

EnvironmentWe are working closely with facilities managementservice providers on a range of environmentalinitiatives. These offer dual benefits, contributing toa cleaner environment and reducing Dstlsoperating costs.

Dstl Annual Report2005/06Corporate social responsibility

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Corporate social responsibility

The number of recycling points across core siteshas increased and Dstls Estates team has startedto gather baseline data so that we can set realistictargets against which future improvements can bemeasured. This will help us towards meeting thewaste targets set out in the GovernmentsFramework for Sustainable Development. We havealso been encouraging the purchase of duplexprinters and better environmental practice toreduce paper usage.Dstl takes great care to ensure that work is plannedand performed to minimise the impact on theenvironment, including areas designated Sites ofSpecial Scientific Interest. We are in the process ofsetting up a pan-Dstl conservation committee toensure conservation interests at the core sites areconsistently managed while assisting MOD inachieving Strategic Development in Government(SDiG) biodiversity targets.

EthicsAs many Dstl staff are increasingly required totravel between sites, we are actively promoting acar-sharing scheme and video conferencingfacilities. A prototype car-sharing calendar has beendeveloped and will be launched next year. Staffhave also completed a video conferencingquestionnaire, which has helped to promote theuse of these facilities.Aside from these initiatives, efforts have focused onraising greater awareness about CSR issues across

Dstl. This year has seen the launch of a dedicatedCSR intranet site and consultation group a forumfor employees who want to get more involved inCSR issues and suggest ideas for change.We have now established a sound platform for ourCSR programme but there is still much to achievein the coming years.

Our aim is to act in a positive way in our dealings with our staff, customers, suppliers and the local community. In doing so, we shall behave with integrity and minimise the negative impact on the environment and our stakeholders.


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Dstl Annual Report2005/06Financial highlights

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Turnover remained steady during the period, with the Trading Fundmaintaining the 353.3 million achieved in 2004/05. Groupturnover amounted to 353.4 million. This strong performance

reflects the confidence placed in Dstl by its customers. Althoughwork for the Ministry of Defence declined marginally during theyear, work from other government departments andnonExchequer customers increased. This reverses the trend ofrecent years.Cost control and close monitoring of financial performancethroughout the year contributed to a Group profit* of 18.7 million.This is an increase of 2.7% on last years profit.Dstl had a positive cash inflow during the year amounting to19.8 million (excluding the dividend payment). This inflow ispartly due to the continued monitoring of the balance sheet toensure cash does not get tied up pending investment on the i labprogramme over the next two to three years. Cash and cashequivalents on the balance sheet improved by 16.8 million andcash balances remained positive throughout the period.Cash expenditure on fixed assets was 5.6 million (2005:5.7 million), which included the 4 million capitalisation of costsassociated with Project INSPIRE and the acquisition of newequipment to maintain Dstls position at the leading edgeof technology.During the year Dstl earned interest amounting to 3.1 million fromsurplus funds being placed on the money markets with Treasury-approved institutions. This increase reflects Dstls improved cashposition prior to the forthcoming investment on i lab .The level of government funds, represented by the Group balancesheet value, increased by 19.2 million to 218.1 million, mainlydue to the 18.8 million retained profit for the year. A dividend of3.0 million (2005: 3.0 million) will be paid.The Groups return on capital employed was 8.8% (2005: 9.4%).

Credit payment policy and practiceDstl's policy is to make payments to suppliers within governmentguidelines which comply with the requirements of the LatePayment of Commercial Debts (Interest) Act 1998. During the year,Dstl paid 98.35% of invoices within the agreed credit period onreceipt of an undisputed invoice, or date of confirmation of receiptof an acceptable service. Trade creditors were equivalent to 21.7days purchases during the year.

Transition to International Financial Reporting Standards (IFRS)HM Treasury is fully committed to adopting IFRS as the basis for its

accounting guidance. However, with some issues still to beaddressed, the Treasury has recommended that IFRS is adopted inline with the Accounting Standards Board (ASB) programme,

Financial highlights

A positive financial performance saw Dstl build on the financial foundation of the previous four years, thus enabling plans for new facilities and laboratories to proceed with confidence.

Mark Hone, Finance Directorwhich currently favours a big bang approach for its introductionin January 2009.In accordance with HM Treasury guidance, Dstl will adopt IFRS

in line with the ASB programme. While Dstl is already assessingthe effects of this change, the full impact on the accounts hasnot been quantified.

ProvisionsThe accounts include a provision for certain infrastructuremaintenance and upgrades where Dstl is legally responsible forthe infrastructure concerned and there is a clear obligation toact, resulting in the transfer of economic benefits. This is theonly significant provision held and amounts to 4.1 million.Details of all provisions are included in Note 16 to the Accounts.

Financial risk and Treasury managementThe Treasury function is a centralised service and its role is to

monitor and review the cash flow and future cash requirementsof the business on a daily basis. Funds that are not immediatelyrequired are invested with HM Treasury-approved institutions.The function does not operate as a profit centre and theundertaking of speculative transactions is not permitted.The main financial risks to Dstl are the availability of funds tomeet future business requirements, particularly in the mediumterm as the organisation restructures, and the risk of default bycounterparties to financial transaction (credit risk). To a lesserextent there is an exchange rate risk associated with certaintransactions designated in foreign currencies.Funding and liquidity: Dstl finances its operations from retainedprofits linked to the ability to borrow funds from the Ministry ofDefence. The objective is to ensure continuity of funding. Thepolicy is to minimise any potential borrowings from MOD bycareful planning and ensuring adequate funding is in placebefore commitments are taken on board. Regular contact ismaintained with MOD to plan and agree any borrowingrequirements.Credit risk: The objective is to reduce the risk of loss arising fromdefault by parties engaged in financial transactions. The risk ismitigated to a large degree by the fact that more than 85% ofDstls turnover is with MOD. All non-Exchequer parties are creditchecked prior to contract agreement and regularly monitored.Foreign currency risk: Certain contracts are quoted in foreigncurrencies and it is Dstls policy to minimise the exchange rateexposure as far as possible. To achieve this, most Dstl contractsinclude a clause that allows for the price to be revised if therelevant exchange rate fluctuates by more than 2.5% during thelife of the contract.

*Profit on ordinary activities before interest


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Dstl Annual Report2005/06MOD key targets

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Target

Maintain and by the end of a three-year periodshow an increase in score for scientific andengineering capability in the technical bench-marking exercise from 67% in 2002/03 to 72%in 2005/06 moderated by external assessorsagreed with MODs Chief Scientific Adviser (CSA).

Identify and agree with MODs CSA the top 10Dstl capability needs, their alignment with thefuture programme and the required MOD fundingby March 2006.

By the end of a three-year period show a linearimprovement of at least 1.5% on the FY2004/05customer satisfaction score of 75.4% for serviceprovision.

Implement a process for identifying andpublicising Dstls major achievements during theyear.

Achieve Health and Safety Executive approval ofthe category 4 microbiology containment facilityby 31 October 2005.

Define the scope, structure and fundingrequirements of a new defence and securityresearch and development centre and, subject tonew funding being available from customers,prepare a specific proposal for its creation.

Achieve planned progress within budget to meetthe completion date of 2008 for the transfer ofDstl onto three core sites at Porton Down,Portsdown West and Fort Halstead. The keymilestones for 2005/06 are: appoint the preferredbidder (August 2005); negotiate with thepreferred bidder a reduction in facilitiesmanagement costs for Dstl of at least 15% fromAugust 2006; sign the contract (March 2006).

By December 2005, complete the detailed designand build phases of the new integrated corporateapplications system (iCAS) that will deliver Dstl'sbusiness information requirements from 2006/07.

Maintain the average charge rate for staff for2005/06 and beyond below that for 2001/02uplifted by GDP deflator.

Achieve a ROCE of at least 3.5% averaged over

the period 2004/05 to 2008/09 and a MODdividend of 3 million in 2005/06.

Performance against MOD key targets 2005/06

Outcome

Achieved. Dstl achieved a score of 71.6% in the 2004/05 technicalbenchmarking exercise an improvement on the 2002/03 figures. This putsDstl on track to meet its 2005/06 target of 72%. Audit teams included CSA-approved assessors and comprised a senior MOD official (not a directcustomer), a senior academic and an industry representative.

Achieved. Dstl presented the top capability needs to CSA in February 2006.CSA has already taken action to address these issues, particularly the additionalfunding required to cover the full cost of strategic facilities. CSA and Dstl willassess current strategic reviews and agree key priorities for Dstls researchprogramme and future capability requirements by summer 2006.In the first year against this three-year target, the 2005/06 customer satisfactionscore for service provision (measured with the agreed composite metric) was74.7% a decrease of 0.7% on the baseline 2004/05 score. The principaldriver for this was a notably reduced score from customers in the ResearchAcquisition Organisation (RAO). The areas where improvement would make themost difference include providing a timely, quality service and realistic solutions,and explaining clearly at the outset what the work aims to achieve. Action is nowfocused on addressing these issues and on improving the relationship with MODHead Office and RAO science staff. It should be noted that overall customersatisfaction (measured with a simple metric) actually increased from 80 to 83%.

Achieved. Dstls new Technical Highlights document provides a formalplatform from which to communicate key achievements to senior customers inMOD and wider government. This activity complements our existing public,customer and internal relations work.

Achieved. HSE approval for Category 4 operation was granted in October 2005.Research work with category 4 organisms has now commenced.

Achieved. Working closely with MOD colleagues, Dstl played a key role indeveloping this new centre at Porton Down, ensuring the right people andfacilities were in place before its launch in April 2006.

Overall progress has been good. Serco was appointed as the preferred bidder inAugust 2005. While it was not possible to sign the contract in March 2006, aninterim agreement was signed on 5 May. The actual contract is expected to besigned on or before 16 June, allowing for the handover of facilities managementon 1 August (as planned).Under the new contract, the overall saving is expected to be 10.3 million or23.6% (following completion of rationalisation activities in 2009).

Following Board review in March 2006, the project was frozen in order toreassess, and precisely define, the requirements for the system. This redefinitionis underway and the new target, to have in place an agreed programme todeliver a fully operational integrated information system by April 2008, has beenincluded in the new corporate plan.

Achieved. Actual charge rate for the year was 53.56 lower than the targetrate of 54.46.

Achieved. The ROCE for the year was 8.8% and the accounts allow for a

3 million dividend to be paid to MOD.

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Dstl Annual Report2005/06Dstl key targets

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Dstl key targets 2006/07

Dstl has set out three overarching key result areas tofocus the whole organisations efforts on achievingresults. These therefore shape both our short-termbusiness priorities and the longer-term transformationactivities that, through the i lab programme, will deliverthe Dstl of the future as a single integrated laboratory.These key result areas are:

Delivering high-quality output on the reallyimportant issues.

Enabling people to realise their full potential. Creating an environment in which excellence can thrive.

In addition to these we must continue to deliver theunderlying business essentials expected of Dstl as atrading fund and as an agency of MOD. This meansrunning a safe and secure operation, delivering ourfinancial plans, managing our corporate affairseffectively and with probity, and ensuring all elements ofrisk are identified and managed appropriately.Our key targets for 2006/07 have been chosen to driveus towards achievement of these high-level goals as wellas meeting the short-term demands of the businessessentials.

Delivery1 Achieve a level of overall customer satisfaction in our

delivery of at least 76.4% for FY2006/07 against athree-year target of 76.9% (FY2007/08)

2 Deliver high-quality outputs that have impact on MODcustomers top ten priority issues.

People3 Achieve an overall score of at least 72% for scientific

and engineering capability in the technicalbenchmarking exercise. Develop, and agree with CSA, arobust process for assessing the quality of Dstlsevolving technical capabilities for the period20072011.

Environment4 As part of the strategic aim to bring Dstl onto three sites

by 2009, agree the overarching construction andfacilities management contract and achieve keymilestones on programme to time and cost, includingdelivering predicted efficiency gains.

5 To enable greater knowledge sharing, improvedmanagement and operational efficiencies, by meetingagreed-in-year targets to ensure Dstl has in place anintegrated corporate business environment by the endof FY2008/09.

Business Essentials6 Achieve an average Return on Capital Employed (ROCE)

of at least 3.5% over the period 2004/05 to 2008/9.


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Scope of responsibilityAs Accounting Officer, I have responsibility formaintaining a sound system of internal control thatsupports the achievement of Dstls policies, aims andobjectives, while safeguarding the public funds anddepartmental assets for which I am personallyresponsible. This is in accordance with theresponsibilities assigned to me in GovernmentAccounting.Dstl was established as an Executive Agency of MOD inJuly 2001. It operates as a Trading Fund, for which the

Secretary of State for Defence has ultimate responsibility.The Secretary of State has appointed the Minister forDefence Procurement (Min(DP)) to assist him in thedischarge of his responsibilities with regard to Dstl. Thisincludes determining the policy and resources frameworkwithin which Dstl operates, setting its objectives andtargets, and monitoring its overall performance.The Corporate Plan, agreed with ministers, sets out Dstlsstrategic objectives and key targets and the way in whichthe organisation will deliver impartial, excellent andtrusted advice on science and technology issues. Theplan also identifies corporate-level risks that could impacton our performance, and strategies for risk management.I am responsible for informing ministers and thePermanent Under Secretary of State as the PrincipalAccounting Officer of any material issue which mayinhibit the effective and efficient performance of Dstl.The purpose of the system of internal controlThe system of internal control is designed to manage riskto a reasonable level rather than to eliminate all risk offailure to achieve policies, aims and objectives; it cantherefore only provide reasonable and not absoluteassurance of effectiveness. The system of internal controlis based on an ongoing process designed to identify andprioritise the risks to the achievement of departmentalpolicies, aims and objectives, to evaluate the likelihood ofthose risks being realised and the impact should they be

realised, and to manage them efficiently, effectively andeconomically. The system of internal control has been inplace in Dstl for the year ended 31 March 2006, and upto the date of approval of the Annual Report andAccounts, and accords with Treasury guidance.Capacity to handle riskAs an integral element of its system of internal control,Dstl has a well-established corporate approach to riskmanagement. In the period covered by this report, Dstlhas established a new corporate governance structure toenhance the organisations ability to manage risk in a waythat most suits the business.Dstl policy on corporate governance and the managementof risk is set out in its policy manual, which is issued toall staff. This is currently being updated to reflect Dstlsnew structure and will be reissued in autumn 2006. Dstlsrisk management and corporate governance policies,

including audit and business continuity, are implementedin line with Dstl procedures in the Dstl ManagementSystem (DMS). The Dstl Audit Committee is responsiblefor reviewing Dstls strategies, with a particular focus oninternal control, and internal audit arrangements. Dstlsaudit arrangements comply with government internalaudit standards and details are set out in the DMS.The Risk Advisory Group, which was chaired by theDeputy Chief Executive (Dstls Board representative onrisk management), was charged with the followingobjectives:

Communicate emerging significant departmental risks tothe Dstl Board.

Communicate corporate risk issues to the relevantdepartments.

Review and update the corporate risk register on aregular basis to ensure that key risks are prioritised interms of probability and impact.

Review and revise the risk management process asrequired.

Champion risk management across the organisation. Ensure that best practice is shared across Dstl.

The Risk Advisory Groups membership and terms ofreference are set out in the risk management section ofthe DMS. In 2005/06, the group met every two months.The Risk Advisory Group has now been disbanded andits responsibilities transferred to the operations managersin departments and corporate functions. Operationsmanagers meet on a monthly basis and riskmanagement is a fixed agenda item at these meetings.Training on risk awareness and use of the risk register isan essential part of Dstls internal training for projectmanagers. Dstl has a nominated Risk Co-ordinator, whomaintains a register of agency risks and an overview oftotal risk to the organisation.Dstls strategy for business continuity is set out in theDMS. Drawing on business continuity management

guidelines (as set out in JSP503), the strategy sets outbusiness continuity processes and requirements atcorporate and line management level. Dstls currentbusiness continuity plan includes an evaluation of keybusiness priorities, which is subject to ongoing review toincorporate new business-critical issues. Dstl hasappointed a Business Continuity Co-ordinator to ensurethat sufficient focus is given to this issue.The risk and control frameworkDstls risk management process is based around thestrategic risk cycle, principles and terminology outlined inManagement of Risk (issued by the Treasury in 2004).The procedure sets out a framework to ensureconsistency in the way in which Dstl identifies andassesses risk, reports probability and impact, anddevelops mitigation and contingency plans.The Dstl Assurance Handbook, available on the DMS,

Statement on internal control

Dstl Annual Report2005/06Statement on internal control

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departmental risks and ensuring that departments areinformed about corporate risks that affect their areas. Thisrole is now fulfilled via the Operations Managers Forum.Dstls Chief Executive, who has ultimate responsibility forthe risk management process, attends the AuditCommittee.PKF was appointed as Dstls internal auditor for financialyears 2003/042005/06. Regular reports to seniormanagement and the Dstl Audit Committee provideindependent assessment of the system of internal controland offer recommendations for improvement.

Maturity of risk management arrangementsAs part of the internal audit process, Dstls riskmanagement arrangements were reviewed using HMTreasurys Risk Management Assessment Framework. Theoverall conclusion was that satisfactory levels of internalcontrol were in place in all major respects.

External reviewsDstls management system was subject to two LRQA visitsin 2005/06. In both cases it was concluded that themanagement system continued to meet the requirementsof ISO9001:2000. No major non-conformities were raisedduring the certificate renewal in December 2005 and re-approval was recommended.

The following comments were made: Positive customer feedback and a majority of high scores in

response to customer satisfaction surveys indicated aneffective system.

From the areas sampled, it was clear that Dstls focus wason meeting customer requirements and delivering a high-quality service. Communication of, and alignment with, theDstl Policy Manual and Corporate Plan continues to be welldemonstrated.

Improvement initiatives in a number of areas (via thei lab programme) were well demonstrated. Overallmanagement of the change programme continues to beseen as a model improvement initiative.

i lab was subject to external health checks by the Office ofGovernment Commerce (OGC). These reviews confirmedthat the programme does not suffer from any of theNAO/OGC common causes of failure.Significant internal control problemsThere are presently no significant internal control problems.Based on the audit work carried out in 2005/06, PKFconcluded that Dstls evolving system of internal controlcontinues to be developed, is sound for the purposes ofDstl, and continues to operate effectively in all key areas.

Frances SaundersChief Executive (from 03 May 2006)05 July 2006

Dstl Annual Report2005/06

Statement on internal control

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contains the risk management strategy for theorganisation. In particular, the document describes howDstl meets, and will continue to meet, the Turnbullguidance on risk, including risk reporting andmanagement at Board level. This is currently underreview and will be updated to reflect the new corporategovernance structure of the organisation. Dstl implementsall changes and improvements in a systematic manneracross the organisation. Risk is considered at therequirements capture stage, and is then monitoredthroughout the life span of any project.

It is Dstl policy to actively identify and manage the risksto which it is exposed. Risk assessment is a fundamentalpart of the agencys operational procedures. Riskreporting is encouraged, and Dstl actively manages riskto help meet business and strategic objectives. Thus,there is a process of continual risk identification,assessment and reporting across the organisation,ensuring the currency of the corporate risk register. Riskavoidance, mitigation or recovery plans are developedand monitored as necessary.Dstls major change programme, involving siterationalisation and laboratory integration ( i lab ), wasidentified as an area of significant risk at a corporate leveland was highlighted in the corporate risk register.Review of effectivenessAs Accounting Officer, I have responsibility for reviewingthe effectiveness of the system of internal control. Myreview of the effectiveness of the system of internalcontrol is informed by the work of the internal auditors,and the executive managers within the department whohave responsibility for the development and maintenanceof the internal control framework, and comments madeby the external auditors in their management letter andother reports. I have been advised on the implications ofthe result of my review of the effectiveness of the systemof internal control by the Board and the Audit Committeeand a plan to address weaknesses and ensure

continuous improvement of the system is in place.Audit Committee arrangementsThe Dstl Audit Committee, which meets three times ayear, reports to the Board on the implications ofassurances provided in respect of risk and control in Dstland the adequacy of audit arrangements. The AuditCommittee reviews both the internal and external auditingrequirements, the adequacy of the financial systems, riskmanagement, control and governance.The Dstl Board reviews the system of internal controlthrough reports from its committees and ExecutiveDirectors, who have responsibility for Dstls strategicimprovement programmes and key risks. These reportsare made on an exceptional basis. Where there arecontrol deficiencies, mitigation measures are put inplace. The Risk Advisory Group had a key role inupdating the Dstl Board on emerging significant


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Statement of Dstls and Chief Executives responsibilities

Under Section 4(6) of the Government Trading Funds Act 1973, the Treasury has directed Dstl to prepareaccounts for each financial year in the form and on the basis set out in the Accounts Direction. Theaccounts are prepared on an accruals basis, modified for the effect of changing prices on the valuation offixed assets, and give a true and fair view of Dstls state of affairs at the year end and of its profit, totalrecognised gains and losses, and cash flows for the financial year.

In preparing accounts Dstl is required to:

observe the Accounts Direction issued by the Treasury, including the relevant accounting and disclosurerequirements, and apply suitable accounting policies on a consistent basis;

make judgements and estimates on a reasonable basis;

state whether applicable accounting standards have been followed, and to disclose and explain anymaterial departures in the financial statements;

prepare the accounts on a going concern basis, unless it is inappropriate to presume that Dstl willcontinue in operation;

disclose that the Directors who held office at the date of approval of this report confirm that, so far as theyare each aware, there is no relevant audit information of which Dstl's auditors are unaware; and eachDirector has taken all the steps that they ought to have taken as a Director to make themselves aware ofany relevant audit information and to establish that Dstl's auditors are aware of that information.

The Treasury has appointed the Chief Executive as the Accounting Officer of Dstl. Her relevant

responsibilities as Accounting Officer, including her responsibility for the propriety and regularity of thepublic finances for which she is answerable and for the keeping of proper records, are set out in theAccounting Officers Memorandum issued by the Treasury and published in Government Accounting(The Stationery Office).

So far as the Accounting Officer is aware, there is no relevant information of which Dstl auditors areunaware and the Accounting Officer has taken all steps that she ought to have taken to make herselfaware of any relevant audit information and to establish that Dstls auditors are aware of that information.

Frances SaundersChief Executive (from 03 May 2006)

05 July 2006

Dstl Annual Report2005/06Dstl responsibilities

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Statement of Dstls and Chief Executives responsibilities


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Dstl Annual Report2005/06Audit Report

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The Certificate and Report of the Comptroller andAuditor General to the Houses of Parliament

I certify that I have audited the financial statements of theDefence Science and Technology Laboratory for the yearended 31 March 2006 under the Government TradingFunds Act 1973. These comprise the Profit and LossAccount, the Balance Sheet, the Cashflow Statement andStatement of Total Recognised Gains and Losses and therelated notes. These financial statements have beenprepared under the accounting policies set out withinthem.

Respective responsibilities of the Defence Science andTechnology Laboratory, Chief Executive and auditorThe Defence Science and Technology Laboratory andChief Executive are responsible for preparing the AnnualReport, the Remuneration Report and the financialstatements in accordance with the Government TradingFunds Act 1973 and HM Treasury directions madethereunder and for ensuring the regularity of financialtransactions. These responsibilities are set out in theStatement of the Defence Science and TechnologyLaboratory's and Chief Executives responsibilities.My responsibility is to audit the financial statements inaccordance with relevant legal and regulatoryrequirements, and with International Standards onAuditing (UK and Ireland).I report to you my opinion as to whether the financialstatements give a true and fair view and whether the

financial statements and the part of the RemunerationReport to be audited have been properly prepared inaccordance with the Government Trading Funds Act1973 and HM Treasury directions made thereunder. Ialso report whether in all material respects theexpenditure and income have been applied to thepurposes intended by Parliament and the financialtransactions conform to the authorities which governthem. I also report to you if, in my opinion, the AnnualReport is not consistent with the financial statements, ifthe Defence Science and Technology Laboratory has notkept proper accounting records, if I have not received allthe information and explanations I require for my audit, orif information specified by relevant authorities regarding

remuneration and other transactions is not disclosed.I review whether the statement on pages 26 and 27reflects the Defence Science and Technology Laboratory'scompliance with HM Treasurys guidance on theStatement on Internal Control, and I report if it does not. Iam not required to consider whether the AccountingOfficers statements on internal control cover all risks andcontrols, or form an opinion on the effectiveness of theDefence Science and Technology Laboratory's corporategovernance procedures or its risk and control procedures.I read the other information contained in the AnnualReport and consider whether it is consistent with theaudited financial statements. I consider the implicationsfor my report if I become aware of any apparentmisstatements or material inconsistencies with thefinancial statements. My responsibilities do not extend toany other information.

Basis of audit opinionI conducted my audit in accordance with InternationalStandards on Auditing (UK and Ireland) issued by theAuditing Practices Board. My audit includes examination,on a test basis, of evidence relevant to the amounts,disclosures and regularity of financial transactionsincluded in the financial statements and the part of theRemuneration Report to be audited. It also includes anassessment of the significant estimates and judgementsmade by the Defence Science and Technology Laboratoryand Chief Executive in the preparation of the financialstatements, and of whether the accounting policies aremost appropriate to the Defence Science and TechnologyLaboratory's circumstances, consistently applied andadequately disclosed.I planned and performed my audit so as to obtain all theinformation and explanations which I considerednecessary in order to provide me with sufficient evidenceto give reasonable assurance that the financial statementsand the part of the Remuneration Report to be auditedare free from material misstatement, whether caused byfraud or error and that in all material respects theexpenditure and income have been applied to thepurposes intended by Parliament and the financialtransactions conform to the authorities which governthem. In forming my opinion I also evaluated the overalladequacy of the presentation of information in thefinancial statements and the part of the RemunerationReport to be audited.

OpinionsIn my opinion:

the financial statements give a true and fair view, inaccordance with the Government Trading Funds Act 1973and directions made thereunder by HM Treasury, of thestate of the Defence Science and Technology Laboratory'saffairs as at 31 March 2006 and of its surplus for the yearthen ended;

the financial statements and the part of the RemunerationReport to be audited have been properly prepared inaccordance with the Government Trading Funds Act 1973

and HM Treasury directions made thereunder; and in all material respects the expenditure and income have

been applied to the purposes intended by Parliament andthe financial transactions conform to the authorities whichgovern them.I have no observations to make on these financialstatements.

John BournComptroller and Auditor GeneralNational Audit Office

157197 Buckingham Palace RoadVictoria, London SW1W 9SP07 July 2006


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Dstl Annual Report2005/06Board and Executive

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Dstl Board and Executive

To reflect best practice for the governance of a Ministry of Defence trading fund, the Dstl Board wasreconfigured into a Board and an Executive during the reporting period*.

The Board, which meets bi-monthly, focuses primarily on providing advice on strategic issues and ongovernance of the Trading Fund. The Executive, which meets monthly, is responsible for theleadership and management of the laboratory.

The BoardRichard Maudslay Non Executive Chairman

Martin Earwicker** Chief Executive

Mark Hone Finance Director

Frances Saunders*** Technical Director Until 03 October 2005Director of Operations From 03 October 2005Deputy Chief Executive From 01 January 2006

Mark Preston Non Executive Director Appointed 30 August 2005

Major General Andrew Figgures Non Executive Director

Roger Platt Non Executive Director

Lord May Non Executive Director Appointed 01 March 2006

Professor Patrick Dowling Non Executive Director Appointed 01 November 2005

Christopher Swinson Non Executive Director Appointed 01 November 2005

Admiral Sir Nigel Essenhigh Non Executive Director Appointed 01 November 2005

Alison Stevenson Non Executive Director Resigned 30 August 2005

The ExecutiveMartin Earwicker Chief Executive

Mark Hone Finance Director

Frances Saunders Technical Director Until 03 October 2005Director of Operations From 03 October 2005Deputy Chief Executive From 01 January 2006

Ruth Davies Director of Human Resourcesand Communications

Peter Starkey Director of Future Business From 03 February 2006

Programme Director (Systems) Until 31 March 2006Mike Jenden Director of Future Business Until 04 September 2005

Richard Scott Pro

DSTL Annual_report 2005-06

Documents

Transcript of DSTL Annual_report 2005-06