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Performance against our objectives

Our performance and the progress we have made against the objectives we have set ourselves are described below and on the following pages. This includes commentary on our financial results and information on the performance and financial results of each business in the business sections.

We measure the achievement of our objectives through the use of qualitative assessments and through the monitoring of quantitative indicators, called key performance indicators (KPIs). In line with our operating objectives, we use both financial and non-financial KPIs. Where relevant, KPIs are used as our primary measures of whether we are achieving our objectives; however, the scale and size of our operations means we use many other detailed performance measures in addition to KPIs. We also use KPIs to measure performance against our primary objective of growing our businesses to create value for our shareholders. We use qualitative assessments to judge progress against our objectives in areas where numerical measures are less relevant.

The majority of our KPIs are unchanged from last year, except that we have reflected the acquisition of the Rhode Island gas distribution business in all our KPIs this year. We have also included new KPIs measuring our financial performance. These comprise indicators of our performance in: obtaining a return on investment through a return on equity measure; financial discipline through measures for interest cover and return of cash to shareholders through our share repurchase programme; and shareholder return through a dividend growth measure. Total shareholder return is now presented as a cumulative three year measure. We have retained the KPI for gas safety-related service standards in the UK, but it is now presented as part of the Gas Distribution section.

We have incorporated the KeySpan acquisition into certain of our KPIs, in particular financial KPIs which reflect the results of operations acquired from their acquisition on 24 August 2007, together with the associated increase in interest on debt used to finance the acquisition. To assist in understanding the financial impact of the acquisition we have also included ‘pro forma’ financial measures which illustrate what our financial performance might have been like if we had owned KeySpan for the entire financial year commencing on 1 April 2007. The remaining KPIs will be updated in next year’s Annual Report and Accounts to reflect the integration of KeySpan into our businesses.