QinetiQ Group plc Annual Report & Accounts 2008

To assess Group performance, the Board uses a range of key performance indicators (KPIs) comprising both financial and non-financial metrics including:

KPI 2008 2007 2006 Comment

Organic revenue growth 8.6% 2.3% 2.3% The rate of organic growth in revenue. The Group is targeting to deliver sustainable organic growth of at least 6-7% per annum, supplemented by growth from major opportunities such as DTR.

Proportion of revenue generated by QNA 39.5% 31.2% 23.6% The Group aims to generate 50% of its revenue in the medium term from QNA, through a combination of organic growth and acquisitions.

Book to bill ratio 1.09:1 1.24:1 0.93:1 The ratio of orders to revenue to identify the rate of prospective growth in the business. LTPA non-tasking revenue is excluded from this calculation as no annual order is associated with this revenue. The Group aims to achieve an average of at least 1.1:1 over the medium term.

Funded backlog £947.7m £850.9m £608.4m The value of contractually funded future orders (excluding the LTPA) providing visibility over future revenues. Total funded backlog including the LTPA is £5.7bn.

Underlying operating profit margin 9.3% 9.2% 8.6% The percentage return on sales achieved based on underlying operating profit. The Group is targeting an underlying operating margin of 11% in the medium term.

Underlying EPS growth 18.8% 10.4% 16.3% The rate at which underlying earnings per share increased over the prior year expressed as a percentage. The entry point for the Group’s long-term incentive schemes equates to an average EPS growth rate of 7.0% per annum with full vesting achieved if the EPS growth rate averages 15.0% per annum.

Total shareholder return 4.5% (2.3)% n/a The measure of total shareholder value creation (including dividends) each year expressed as a percentage.

Operating cash conversion 77% 56% 84% The percentage of underlying operating profit converted into underlying operating cash flow (after capital expenditure). The Group targets an underlying operating cash conversion rate of 80%.

Health and safety of employees: UK Reporting of Injuries, Diseases & Dangerous Occurrences Regulations (RIDDOR) is expressed as the number of RIDDOR events in any period per 1,000 people amongst our EMEA employee base. Our target is to remain below the industrial average for all industries, which was 5.36 for 2006/2007. The average for public administration and defence companies was 13.46 in 2006/2007.

UK RIDDOR 2.28 3.47 3.85

USA OSHA 5.66 10.78 n/a Expressed as the number of Occupational Safety & Health Administration (OSHA) 'days away from work' cases per 1,000 employees amongst our North America employee base.

Employee attrition rate 10.3% 7.1% 5.8% Employee turnover (excluding redundancies) measured as the number of resignations expressed as a percentage of total headcount per annum. The increase in attrition reflects the increasing proportion of our business in North America where the workforce is historically more mobile.

KPI	2008	2007	2006	Comment
Organic revenue growth	8.6%	2.3%	2.3%	The rate of organic growth in revenue. The Group is targeting to deliver sustainable organic growth of at least 6-7% per annum, supplemented by growth from major opportunities such as DTR.
Proportion of revenue generated by QNA	39.5%	31.2%	23.6%	The Group aims to generate 50% of its revenue in the medium term from QNA, through a combination of organic growth and acquisitions.
Book to bill ratio	1.09:1	1.24:1	0.93:1	The ratio of orders to revenue to identify the rate of prospective growth in the business. LTPA non-tasking revenue is excluded from this calculation as no annual order is associated with this revenue. The Group aims to achieve an average of at least 1.1:1 over the medium term.
Funded backlog	£947.7m	£850.9m	£608.4m	The value of contractually funded future orders (excluding the LTPA) providing visibility over future revenues. Total funded backlog including the LTPA is £5.7bn.
Underlying operating profit margin	9.3%	9.2%	8.6%	The percentage return on sales achieved based on underlying operating profit. The Group is targeting an underlying operating margin of 11% in the medium term.
Underlying EPS growth	18.8%	10.4%	16.3%	The rate at which underlying earnings per share increased over the prior year expressed as a percentage. The entry point for the Group’s long-term incentive schemes equates to an average EPS growth rate of 7.0% per annum with full vesting achieved if the EPS growth rate averages 15.0% per annum.
Total shareholder return	4.5%	(2.3)%	n/a	The measure of total shareholder value creation (including dividends) each year expressed as a percentage.
Operating cash conversion	77%	56%	84%	The percentage of underlying operating profit converted into underlying operating cash flow (after capital expenditure). The Group targets an underlying operating cash conversion rate of 80%.
Health and safety of employees:				UK Reporting of Injuries, Diseases & Dangerous Occurrences Regulations (RIDDOR) is expressed as the number of RIDDOR events in any period per 1,000 people amongst our EMEA employee base. Our target is to remain below the industrial average for all industries, which was 5.36 for 2006/2007. The average for public administration and defence companies was 13.46 in 2006/2007.
UK RIDDOR	2.28	3.47	3.85
USA OSHA	5.66	10.78	n/a	Expressed as the number of Occupational Safety & Health Administration (OSHA) 'days away from work' cases per 1,000 employees amongst our North America employee base.
Employee attrition rate	10.3%	7.1%	5.8%	Employee turnover (excluding redundancies) measured as the number of resignations expressed as a percentage of total headcount per annum. The increase in attrition reflects the increasing proportion of our business in North America where the workforce is historically more mobile.

Key performance indicators