Shareholder Executive

Defence Science and Technology Laboratory (Dstl)

Purpose

The Defence Science and Technology Laboratory's (Dstl) role is to provide independent, objective, high quality scientific, analytical, technological and engineering advice and services to the MoD and UK Armed Forces. It carries out work in those areas that are inappropriate for the private sector. Its mission is to create the winning edge for UK Forces and Government through the best use of science and technology.

Legal Status and Ownership

Dstl is a trading fund of the Ministry of Defence.

Government's Objectives

Dstl's objective is to use its assets and capabilities to deliver timely advice and solutions to the Government's most important defence and national security related problems in the most efficient and effective manner.

Value is created and delivered to the taxpayer in the following areas:

• meeting the requirements of the MoD
• meeting the defence and national security-related requirements of other Government customers
• exploiting Dstl's intellectual property, in line with Government policy for technology transfer.

To fulfil its role Dstl is expected to:

• maintain a high-level overview of science and engineering
• be world leading in areas such as systems and capability engineering advice
• actively engage with industry, Government laboratories and academia
• be world class in strategic areas of defence-critical science and technology.

Financial Performance

£m	2008	2007	2006
Turnover	380	367	353
Operating Profit	14	19	19
Profit/(Loss) for the year	18	23	22
Net Cash flow	(28)	9	17
Net Operating Assets	209	159	145
RONA	6.5%	12.0%	12.9%
ROCE	5.3%	8.1%	8.8%
Shareholders' Funds	266	243	218
Dividends	3	3	3

Commentary

Dstl has performed robustly this year. Turnover rose from £366.8m (in 2006- 07) to £378.9m (group turnover including Ploughshare Innovation Ltd amounted to £379.9m). Excluding Ploughshare, Dstl's profit for the financial year fell from £22.8m in 2006-07 to £18.9m and ROCE fell from 7.9% to 5.5% over the same period, due mainly to costs being incurred on non-capital infrastructure investments relating to the strategic integrated laboratory (i-lab) transition programme and a new financial/HR system. Manpower change rates continued to be held below the target for the sixth consecutive year, indicating a reduction in real terms of the cost to customers.

This year Dstl has achieved or exceeded all its financial targets in terms of cash flow management and internal investment affordability. Dstl has refocused its Programmes Area to strengthen the coherence of delivery of its services and products, embedded account management within the organisation and improved management of its customer processes. Dstl has established a Sales and Order Book to enable it to assess future business prospects and priorities more accurately. Customer satisfaction levels remain high at 73.5% for Dstl's overall service provision. Feedback demonstrates that this is having an impact on customers' key issues from military capability development and major acquisition programmes, to direct support to defence and security-related operations in theatre.

Dstl's wholly owned technology management company, Ploughshare Innovations Ltd has successfully managed the sale of Acolyte Biomedica Ltd to 3M Healthcare, and the assets of a second company have also been sold. Ploughshare has also formed four new spin-out companies and has tripled the annual income received from licence fees and royalties.

Looking to the future, Dstl is continuing to develop its partnerships in line with the Defence Industrial Strategy and the Defence Technology Strategy. This includes the new Defence Equipment and Support organisation, other customers, industry and science and technology providers. This is being done while continuing to invest in Dstl's future capabilities. i-lab remains a key enabler to this, with the most significant issues over the next two years being (a) to rationalise the Dstl estate to three core sites in order to maximise synergy and coherence of delivery to customers, and to reduce unnecessary duplication in laboratories, facilities and support functions, and (b) to ensure Dstl has in place an integrated corporate business environment by the end of 2008-09. These themes are reflected in Dstl's new Key Targets.

Sir Richard Mottram was appointed Chairman, taking over from Richard Maudslay, in August 2008.