Performance

KPIs

The Board uses a range of financial and non-financial performance indicators, reported on a periodic basis, to monitor the Group's performance over time. Directors' remuneration is linked to certain of these measures.

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Financial
Programme execution
Mandate policies and processes
Corporate responsibility

Financial
Link to strategy	Financial KPIs are used to measure financial performance which underpins the Group's Strategic Objectives, Business Portfolio Actions and Integrated Business Plans.
Link to 2008 Executive Committee top ten objectives	1. Meet 2008 financial targets 5. Progress development of security business 6. Grow our US business, including through investments 7. Progress the business in the Kingdom of Saudi Arabia 8. Continue to implement the UK Defence Industrial Strategy 9. Progress export opportunities
Measure	Description	Performance	Comment
Order intake (£bn)	Order intake represents the value of funded orders received from customers in the year. It is a measure of in-year performance and supports future years' sales performance.	2008: £21.3bn +0.5% 2007: £21.2bn	The year's intake has benefited from high demand for armoured wheeled vehicles in the US, awards for the new 15-year UK munitions capability contract and Saudi Tornado Sustainment Programme, and the Group's share of the Future Carrier award. Prior year intake included the Saudi Typhoon contract.
Sales (£bn)	Sales represents the amounts derived from the provision of goods and services, and includes the Group's share of sales of its equity accounted investments.	2008: £18.5bn +18% 2007: £15.7bn	The significant increase in sales this year has primarily been driven by the Land & Armaments operating group due to high armoured wheeled vehicle volumes in the US and full-year impact of the Armor acquisition.
Underlying EBITA¹ (restated) (£m)	Underlying EBITA¹ is used by the Group for internal performance analysis as a measure of operating profitability that is comparable over time.	2008: £1,897m +31% 2007: £1,449m	Underlying EBITA¹ increased in line with the improved 2008 sales performance and a 1.0 percentage point improvement in return on sales.
Underlying earnings² per share (EPS) (restated) (p)	Underlying earnings² represent profit for the year attributable to equity shareholders from continuing operations excluding amortisation and impairment of intangible assets, non-cash finance movements on pensions and financial derivatives, profit/(loss) on disposal of businesses and uplift on acquired inventories (see note 10 to the Group accounts). Underlying EPS provides a measure of shareholder return that is comparable over time.	2008: 37.1p +23% 2007: 30.1p	Underlying EPS has again increased mainly reflecting higher underlying EBITA¹.
Operating business cash flow (£m)	Operating business cash flow represents net cash flow from operating activities after capital expenditure (net) and financial investments, and dividends from equity accounted investments.	2008: £1,595m -19% 2007: £1,978m	The 2008 reduction in operating business cash flow largely reflects utilisation of Saudi Typhoon advances received in 2007 and an agreed repayment to the UK Ministry of Defence in respect of the Astute programme.
Links to further information	Further explanation of these Group financial KPIs for the years ended 31 December 2008 and 2007 are included within the Financial review. Individual operating group financial KPIs are included within the Operating group reviews, and a reconciliation to the Group KPIs is presented in the Operating group performance summary. Directors’ remuneration is linked to certain of these measures. Further information is given within the Remuneration report.

1 Earnings before amortisation and impairment of intangible assets, finance costs and taxation expense (EBITA) excluding profit/(loss) on disposal of businesses and uplift on acquired inventories. Restated to exclude profit/(loss) on disposal of businesses. Find out more...
2 Earnings excluding amortisation and impairment of intangible assets, non-cash finance movements on pensions and financial derivatives, profit/(loss) on disposal of businesses and uplift on acquired inventories. Restated to exclude profit/(loss) on disposal of businesses. Find out more...

Programme execution
Link to strategy	Excellence in programme execution is at the core of the successful delivery of the Group's strategy. Partnering relationships with our customers are increasingly important to the long-term future and sustainability of the Group.
Link to 2008 Executive Committee top ten objectives	2. Develop our partnering approach 4. Further enhance programme execution through schedule and cost performance
Measure	Description	Performance	Comment
Programme margin variation	Programme margin variation measures outturn projections of and movements in margin of key customer-funded projects. It provides an indicator of our ability to effectively manage major programmes.	The Group targets an aggregated year-on-year improvement in programme margin across its major contracts. The targeted improvement was achieved.	Contract management metrics are consistently used by the Board to provide oversight of contract performance. These metrics can only be fully interpreted and understood on a contract-by-contract basis and, therefore, aggregated data is not presented.
Schedule adherence	Schedule adherence measures the timing of achievement of key milestones. It shows how well we are performing against our stated key contract commitments.	The Group targets an aggregated improvement in schedule adherence metrics relating to milestones across its major contracts. This targeted improvement was achieved.	Contract management metrics are consistently used by the Board to provide oversight of contract performance. These metrics can only be fully interpreted and understood on a contract-by-contract basis and, therefore, aggregated data is not presented.
Customer satisfaction	Customer satisfaction surveys are used to collect customer opinions on key customer-funded projects. This provides an opportunity for customers to share information on perceived performance levels, and identify areas of strength and weakness.	The Group targets an aggregated year-on-year improvement in customer satisfaction across its major contracts. This targeted improvement was not achieved.	Plans to improve the performance on those contracts reporting a deterioration in customer satisfaction are being implemented on a contract-by-contract basis.
Links to further information	Programme margin variation, schedule adherence and customer satisfaction are regularly reviewed under Lifecycle Management (LCM), which is a mandated core business process under the Operational Framework. It provides a structured approach to managing commitments and investments throughout project and product lifecycles. Further information on LCM is given in the Resources and Corporate governance section.

Mandated policies and processes
Link to strategy	Having a high-performance culture underpins the Group’s ability to achieve its strategy.
Link to 2008 Executive Committee top ten objectives	3. Ensure continued application of business policies and processes
Measure	Description	Performance	Comment
Operational Assurance Statement (OAS)	The OAS requires that each part of the business completes a formal review of its compliance against the Operational Framework, including operational and financial controls, and risk management processes, every six months. The level of application of mandated policies is assessed against defined scoring criteria. Where scores are below the minimum standard, action plans to achieve the minimum standard are implemented.	47% Improvement The Group targeted an improvement in scores below the minimum by 20% during 2008. The actual improvement in scores during 2008 was 47%. Newly acquired businesses are targeted to reach minimum standard in 75% of mandated policies within 12 months of acquisition. The ex-Armor Holdings business achieved 88% compliance.	The Tenix, Detica and ex-VT Group businesses acquired during the year have been excluded from the analysis. The 2008 OAS submissions for these businesses will be used to measure achievement of this objective in 2009.
Performance Centred Leadership (PCL)	PCL addresses the setting of objectives and performance assessment, together with the determination of reward, development needs and potential, of the Group’s employees.	562 Additional employees The Group target was to increase the roll-out of PCL from 6,200 to 6,700 executives across the Group. PCL was deployed to 6,762 employees across the Group.	The 2008 target was exceeded. Roll-out of PCL to the newly acquired businesses will continue in 2009.
Links to further information	OAS is a mandated policy under the Operational Framework. More on Operational Framework. PCL is a mandated core process under the Operational Framework. Further information on PCL is given in Resources and in the Corporate governance section.

1 Restated.

Corporate responsibility
Link to strategy	High standards of corporate responsibility are essential to the Group’s strategy of delivering sustainable growth.
Link to 2008 Executive Committee top ten objectives	10. Continue to drive performance in safety, ethics and diversity
Measure	Description	Performance	Comment
Safety	Days lost to work-related injuries is monitored to minimise the risk to our employees and our operations, and drive continual performance improvement.	Days lost to work-related injuries (per 100,000 employees)	The Group targeted a 10% reduction in the gap between Group performance and the external benchmark of 2,000 days lost per 100,000 employees. The target was not met as the actual reduction was just over 9% during 2008.
Links to further information	Further information on the Group's performance is given within the Corporate responsibility review. Directors' remuneration is linked to certain of these measures. Further information is given within the Remuneration report.

1 Restated.

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