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Driving global growth Message from the Chief Executive "Our strategy and investment plans are 2008 Executive Committee Top Ten Objectives working to good effect and we are developing As a leadership population, we need to lead and engage our people at all levels in our Company to: a strong competitive advantage with a broad global portfolio of businesses, based on our 1. Meet 2008 f in ancia l targets and set chall enging and rea listic 6 . Grow our U.S . business, including execution of planned longer term plans investments six Home Markets:' 2. Deve lop our partnering approach to meet our customers' capability 7. Progress delive ry of the Sa udi Industrialization Plan and further requ irements develop busin ess in the Kingdom of Saudi Arabia 3 . Ensure cont inued quality application of our ma ndated business 8. Contin ue to implement the UK Defence Ind ustrial Strategy, policies and processes inclu ding execution of our transformation and investment plans 4. Further enhance program execution through schedule and cost 9. Progress export opportunit ies fro m each of our Home Markets performance 10. Co ntinue to drive performance in Safety, Eth ics, and Diversity 5. Progress development of our security capabilities in our Home Markets Mike Turner Chief Executive High lights of 2007 2007 has been anotiler busy yea r for BAE Systems. The marllet ancl our Delivering on our global strategy 45 ships and th e first Astute submarin e. The fi rst Type 45 destroye r, shareholders expect us to delive r yet another good year of financial resu lts Du ring 2007, our strategy Il as evolved to reflect the current position HMS Daring, successfu ll y co mpleted Iler stage one sea trials, bu ilt on improvi ng program performance and good execution of our Group and plans we Il ave in our Home Marllets in Au strali a, Saucli Arabia, performing beyond expectati ons. In Jul y, we receive d tile commitment - Ou r financial and program performance Strategy. Our overall performance once aga in reflects good progra m, cost Soutll Afri ca , Sweden, the UK, and the U.S . to tile UK 's Future Aircraft Ca rri er (CV F) program. Til is program and sclledule execution ac ro ss the Company, coupled Witll a focus on secures a major element of the UK 's nava l wo rllioad for yea rs to In til e U.S ., it has been a tremendous year for our Land & Arm aments - Saudi Arabian Typhoon order furtiler enllancing our long-term relationshi ps wi th our customers in eacll of business and we continu e to benefit from ve hi cle reset and refu rbisllment come and Il as enabled us to proceed towa rd tile con soli dation of th e our six Home Marllets. Tlli s peliormance Ilas provided a robu st base line to - Successful execution of ou r wheeled vehicle activities. Thi s is a co nsequence of the sustained high leve l of equi pm ent nava l sector as an important element of til e implementation of tile whi cll we can adcl stretcll an d th e delive ry of strategic opportunities. Our UK Defence Indu stri al Strategy (DIS). Our UK Land Systems bu siness strategy sllarellolders are pleased Witil tlleir investment and our strategy is use in U. S. military operations. The Armor Holdings acquisition Ilas accelerated de livery of our strategy to address the tactica l whee led ve hicle is investi ng in Systems Integration Facilities at Leicester. Tll is is a understood and widely supported. - Astute 'first of class' launch sector. major transform ation mil estone as we respond to th e chall enges set Our multi-Home Marllet strategy continues to generate opportunities out in the UK DIS, all owing faster, more cost-effective , and better for growtll, particularly in the Kingdom of Saudi Arabia, with worll on The relationsll ip between Sa udi Arabia and the UK has been ve ry importan t integrati on at lowe r ri sll. - Continued MRAP orders in the U .S. for a number of decades. Sustaining and growing our business in support the modernization of assets and tile Typhoon program under way, The UK Government's publi cation of the DIS version 2 (DI S 2) has -Successful Type 45 sea trials and the transition to a Home Market we ll advanced. of th at relati onship is a Iley objective. Therefore, th e signing in September 2007 by tile two governments of the contract to buy 72 Typll oon aircraft now been delayed into 2008 to talle account of th e diffi cult decisions Another notable success is the very strong growth in our land systems requ ired in tile UK MOD's cu rrent Planning Round 08 foll owing til e 2007 - Armor Holdings acquisition was of grea t signifi ca nce to BAE Systems, the UK, and Sa udi Arabia. Th e business where we are establi slling a clear globa l leadersllip position, implementati on of tile governm ent-to-government agreement lies at the Co mprehensive Spending Review. The fundamental objective for our whi cll was reinforced by tile acqui sition of Armor Hold ings . Ileart of tllis strategy and involve s moderni zation of ex isting assets in Co mpany and the rest of tile UK's defense industrial base is to ensure til at - UK Ca rrier decision the ori ginal pri nCiples art icu lated in til e UK DI S in December 2005 are In tile U.S., we co ntinue to see th e fruits of a we ll executed acqu isition addition to th e procurement of Typhoon. To ac hi eve bOtil the Kingdom's and main tained. To deli ve r value for money and meet current and future strategy witll good profitable growtll from wllat is now a ve ry our own goals, we are transitioni ng our Saud i bu siness to on e in whi ch eq ui pm ent needs of the armed forces , securing Tllrough-Li fe Capability substantial business. BAE Systems Ilas an even grea ter and growing in-Kingdom presence. Management and appropriate Long-Term Partnering Agreements (LTPAs ) will Our UK operations con tinue to acllieve good program sclledule and cost In th e UK, we have made good progress in further establishing our through­ be even more necessary under difficult budgetary condition s. performance, bui lding on tile sensible terms of business now being secured li fe bu sinesses with th e implementation of the multi-yea r Availabi li ty We also continue to malle good progress in developing our Au stralian, wi til tile UK Ministry of Defence (MOD). Transformation: Torn ado Airc raft Con tract (ATIAC) - a major achievement. In our nava l systems businesses, we have now launcll ed three Type South Afri ca n, and Swedish Home Marllets. 2 www. baesystems.com BAE Systems Company Strategy 2008 3 Driving global growth (continued) "Looking forward into 2008, our three largest Home Markets - the U.S. , Saudi Arabia, and the UK - are clearly key to sustaining and growing the value of the Company:' Th e MRAP program reflects both our industrial capacity and our ability to co llaborate acro ss sites and businesses globall y. Ou r Company's reputation is of paramount importance to us all and we Delivering the strategy in 2008 expect tllat all of our employees accept ethica l behavior as an integral part Loolling fOlward into 2008, our tllree largest Home Marllets - tile U.S., of their worll . We Ilave establi shed an independent committee chaired by Sa udi Arab ia, and the UK - are clea rl y Iley to sustaini ng and growing the Lord Woolf, the former Lord Chief Justice of England and Wa les, to review va lu e of the Company. We must focus on delivering organic growth based and eva luate the Company's pol icies and processes - and their appli cation on bOtll cu rrent and planned IBP investments. We wil l also co ntinue to - relating to etllics and business conduct. Th e comm ittee's pursue acqu isitions in growth marllet segments. recommendations will be fully implemented . In the U. S. , organic growtll continues and opportunities exist fo r During 2007, we also thorougllly reviewed our po li cies and processes for further acquisitions. undertall ing export business. Exports will co ntinue to be important to the sustainment and growtll of our busin ess and we wi ll continue to 10011 for We are mov ing forward in Saudi Arab ia with asset modernization and and promote export opportunities from our six Home Marllets. th e Typhoon program. Our in-Kingdom plans and investments, in line wi tll our comm itments to the Sa udi Arab ian and UK governments, are we ll 2008 Group Strategy Framework adva nced. We have reviewed and refined our Group Strategic Objectives to ensure that Implementation of DIS in the UK is now under way but remains cllallenging. tlley rema in re levant. In particular, we I,ave clarified the intent of We are worlling witll tile UK MOD as a partner to demonstrate tllat we are the objective 'Develop our capabil ities in emerging growth marllets' by mailing a difference : more capability and lower cost for tile UK Armed separating it into two parts. Tile first part - 'Deve lop our capabilities in Forces and satisfactory profitability for our Company and sharellolders. Th e sa fety of our employees and those existing and new Home Marllets ' - now foc uses on developing our multi­ We will furtller develop our position in our Home Marllets of Australi a, working on our si tes is of paramount Home Marllet strategy.

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