AstraZeneca Annual Report and Form 20-F Information 2008

Measuring performance

The following measures are referred to when reporting on our performance both in absolute terms but more often in comparison to earlier years in this section of the Directors’ Report;

• Reported performance. Reported performance takes into account all the factors (including those which we cannot influence, principally currency exchange rates) that have affected the results of our business as reflected in our Financial Statements prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) and as issued by the International Accounting Standards Board.
• Core financial measure. This is a non-GAAP measure because unlike reported performance it cannot be derived directly from the information in the Group’s Financial Statements. This measure is adjusted to exclude certain significant items, such as charges and provisions related to restructuring and synergy programmes, amortisation and the impairment of the significant intangibles arising from corporate acquisitions and those related to our current and future exit arrangements with Merck in the US, and other specified items. See the table titled Reconciliation of reported results to core results.
• Constant exchange rate (CER) growth rates. CER is also a non-GAAP measure. This measure removes the effects of currency movements (by retranslating the current year’s performance at previous year’s exchange rates and adjusting for other exchange effects, including hedging). See Results of Operations - Summary Analysis of Year to 31 December 2008 for a reconciliation of Core to reported performance.
• Gross margin and operating profit margin percentages, which set out the progression of key performance margins and demonstrate the overall quality of the business.
• Prescription volumes and trends for key products, which can represent the real business growth and the progress of individual products better and more immediately than invoiced sales.
• Net debt, representing our interest bearing loans and borrowings less cash and cash equivalents and current investments.

We believe that Core financial and growth measures allow us to analyse more transparently the progress of our business. Our recent reported results have been impacted by the global restructuring and synergy programmes together with impacts arising from corporate acquisitions.

Accordingly, in this Financial Review, we show financial and growth measures adjusted for the effects of these items. For 2008, we adjust for the effects of the restructuring and synergy costs, amortisation and impairment charges recorded against MedImmune and amortisation arising on the historic arrangements with Merck.

CER measures allow us to focus on the changes in sales and expenses driven by volume, prices and cost levels relative to the prior period. Sales and cost growth expressed in CER allows management to understand the true local movement in sales and costs, in order to compare recent trends and relative return on investment. CER growth rates can be used to analyse sales in a number of ways but, most often, we consider CER growth by products and groups of products, and by countries and regions. CER sales growth can be further analysed into the impact of sales volumes and selling price. Similarly, CER cost growth helps us to focus on the real local change in costs so that we can manage the cost base effectively.

We recognise that CER growth rates and Core financial measures should not be used in isolation and, accordingly, we also discuss comparative reported growth measures that reflect all the factors that affect our business.

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