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RNS

Half-year Report

Released 07:00 07-Aug-2017

RNS Number : 2164N
Ultra Electronics Holdings PLC
07 August 2017
 

                                                         

Embargoed until 0700                                                                                                          7 August 2017

 

 

Ultra Electronics Holdings plc

("Ultra" or "the Group")

 

Interim Results for the six months to 30 June 2017

 

 

FINANCIAL HIGHLIGHTS

 

 

 

Six months to

30 June 2017

 Six months to                  1 July 2016

Change

 

 

 

 

Revenue

£366.4m

£366.6m

-0.1%

Underlying operating profit*(1)

£57.6m

£57.7m

-0.2%

Underlying profit before tax*(2)

£52.3m

£52.4m

-0.2%

IFRS profit before tax

£30.9m

£32.6m

-5.2%

Underlying earnings per share(2)

58.3p

58.1p

+0.3%

Interim dividend per share

14.6p

14.2p

+2.8%

 

·   Half year results in line with management expectations

·   Cash conversion at 53%: remain on track for full year performance of around 80%

·   Net debt to EBITDA of 1.78x (H1 2016: 2.29x)

·   Operating margin in line with prior period, at 15.7%

·   Organic growth in order intake of 1.5% with book to bill of 1.07

·   Conditional Merger Agreement to acquire Sparton Corp signed in early July

 

 

Rakesh Sharma, Chief Executive, commented:

"As previously indicated, 2017 will be more heavily weighted to the second half than normal and this is reflected in these interim results. Market conditions remain largely unchanged since our preliminary announcement in March. The US Federal budget was not approved until May and this, together with the recent UK General Election, has affected the progress of some contract awards. Nevertheless, following the strong order intake in the final part of the period, which has continued through July, we are pleased with our current order position.

Ultra enters the second half of the year with an order cover of 82% (2016: 84%). We anticipate the momentum in contract awards to continue as the year progresses. Furthermore, some additional export opportunities, such as the recently announced Indian defence systems contract, are edging closer to being secured. Our S3 initiative continues to drive efficiencies and investment in a further three ERP systems is to be implemented in 2017/18.  The through-cycle cash conversion guidance is unchanged at above 85%.  Based on the same £/US$ assumptions made in March ($1.30), the Board remains confident of making further progress in 2017 and our expectations for the full year remain unchanged."

 

(1)  before Oman contract termination related costs, amortisation of intangibles arising on acquisitions, impairment charges, the S3 programme and adjustments to contingent consideration net of acquisition and disposal related costs. IFRS operating profit was £25.4m (2016: £38.8m). See Note 4 for reconciliation.

(2)  before Oman contract termination related costs, amortisation of intangibles arising on acquisitions, impairment charges, the S3 programme, fair value movements on derivatives, unwinding of discount on provisions, defined benefit pension curtailment gain and interest charges and adjustments to contingent consideration net of acquisition and disposal related costs and, in the case of underlying earnings per share, before related taxation. Basic EPS 37.6p (2016: 38.4p). See Note 10 for reconciliation.

 

INTERIM MANAGEMENT REPORT

FINANCIAL RESULTS

 

Six months to

30 June 2017

£m

Six months to

1 July 2016

£m

Growth

Order book

 

 

 

-  Aerospace & Infrastructure

-      

255.8

255.4

+0.2%

-  Communications & Security

234.5

218.8

+7.2%

-  Maritime & Land

317.5

311.5

+1.9%

Total order book

807.8

785.7

+2.8%

 

 

 

 

Revenue

 

 

 

-  Aerospace & Infrastructure

 

96.0

93.0

+3.2%

-  Communications & Security

109.8

119.8

-8.3%

-  Maritime & Land

160.6

153.8

+4.4%

Total revenue

366.4

366.6

-0.1%

 

 

 

 

Organic underlying revenue movement

 

 

-6.7%

 

 

 

 

Underlying operating profit*

 

 

 

-  Aerospace & Infrastructure

 

16.1

15.2

+5.9%

-  Communications & Security

13.0

15.8

-17.7%

-  Maritime & Land

28.5

26.7

+6.7%

Total underlying operating profit*

57.6

57.7

-0.2%

 

 

 

 

Organic underlying operating profit movement

 

 

-5.4%

 

 

 

 

Underlying operating margin*

 

 

 

-  Aerospace & Infrastructure

 

16.8%

16.3%

 

-  Communications & Security

11.8%

13.2%

 

-  Maritime & Land

17.7%

17.4%

 

Total underlying operating margin*

15.7%

15.7%

-

 

 

 

 

Finance charges*

(5.3)

(5.3)

 

 

 

 

 

Underlying operating profit before tax

52.3

52.4

 

 

 

 

 

Underlying operating cash flow*

30.5

38.5

-20.8%

Operating cash conversion*

53%

67%

 

Net debt/EBITDA*

1.78

2.29

 

Net debt* at period-end

260.4

325.4

 

Bank interest cover*

10.9x

10.9x

 

Underlying earnings per share*

58.3p

58.1p

+0.3%

 

 

 

 

 

* see notes below:

 

 

underlying operating profit before Oman contract termination related costs, amortisation of intangibles arising on acquisition, impairment charges, the S3 programme and adjustments to contingent consideration net of acquisition & disposal related costs.

organic growth (of revenue or profit) is the annual rate of increase in revenue or profit that was achieved, assuming that acquisitions made during the prior year were only included for the same proportion of the current year at constant currencies.

underlying operating margin is the underlying operating profit as a percentage of revenue.

finance charges exclude fair value movements on derivatives, defined benefit pension interest charges and discount on provisions.

underlying profit before tax before Oman contract termination related costs, amortisation of intangibles arising on acquisition, impairment charges, the S3 programme, fair value movements on derivatives, unwinding of discount on provisions, defined benefit pension curtailment gain & interest charges and adjustments to contingent consideration net of acquisition & disposal related costs. IFRS profit before tax was £30.9m (2016: £32.6m).

underlying tax is the tax charge on underlying profit before tax. The underlying tax rate is underlying tax expressed as a percentage of underlying profit before tax.

underlying operating cash flow is cash generated by operations and dividends from associates, less net capital expenditure, acquisition & disposal related payments, S3 programme payments, Oman performance bond payment, R&D and LTIP share purchases.

operating cash conversion is underlying operating cash flow as a percentage of underlying operating profit.

EBITDA is the underlying operating profit for the rolling 12 months ended 30 June, before depreciation charges and before amortisation arising on internally generated intangible assets and on other, non-acquisition, intangible assets. The figure is adjusted to remove the EBITDA generated by businesses up to the date of their disposal.

net debt comprises loans and overdrafts less cash and cash equivalents.

bank interest cover is the ratio of underlying operating profit to finance costs associated with borrowings.

 

 

The order book increased 2.8% to £807.8m (2016: £785.7m) and also showed an improvement from the 31 December 2016 position of £799.3m. The order book increase compared to June 2016, included 1.8% organic growth and a foreign exchange benefit of 1.0%.  Compared to the order book at the end of December 2016, overall growth of 1.1% included organic growth of 3.9% offset by a foreign exchange reduction of 2.8%.

 

Order intake increased 7.4% to £390.3m and was particularly strong in the last two months of the half year, resulting in a pleasing book to bill ratio for the period of 1.07 (2016: 1.0). Foreign exchange accounted for 8.7% of the increase; disposals reduced growth by 2.8% and underlying order intake increased by 1.5%. Order book cover for the remainder of 2017 remains broadly the same as last year at 82% (2016: 84%).

 

Revenue in the period was £366.4m (2016: £366.6m). The disposal of the ID business in August 2016 impacted revenue by 2.7%. Revenue decreased organically by 6.7% due to the delay in the award of a number of contracts and the higher level of engineering activity compared to the prior year. These factors were offset by exchange rate movements which improved revenue by 9.3%.

 

Underlying operating profit* was £57.6m (2016: £57.7m). Profit decreased organically by 5.4% principally due to the expected lower margin engineering revenue and there was a 2.8% impact on profit from the disposal of the ID business. Foreign exchange, arising from translating overseas subsidiaries' results, contributed 8.0%. The resulting underlying operating margin* was 15.7% (2016: 15.7%).

 

Underlying profit before tax* was £52.3m (2016: £52.4m), after net financing charges* of £5.3m (2016: £5.3m).

 

The Group's underlying tax* rate in the period was 21.5% (2016: 22.0%) and the increase in underlying earnings per share was 0.3% to 58.3p (2016: 58.1p).

 

Reported (IFRS) profit before tax was £30.9m (2016: £32.6m) and reflected the combined effects of the elements detailed below:

 

All £m

2017 H1

 

2016 H1

 

Underlying profit before tax

52.3

52.4

 

 

 

 Amortisation of intangibles arising on acquisition

(14.7)

(15.3)

 Net interest charge on defined benefit pensions

 (1.4)

 (1.7)

 Profit/(loss) on fair value movements on derivatives

12.1

(14.5)

 Acquisition and disposal related adjustments

(10.4)

(0.8)

 Ithra termination related costs

(2.4)

-

 Unwinding of discount on provisions

-

(0.2)

 S3 programme

(3.0)

(2.8)

 Pension scheme curtailment gain

 -

15.5

 Impairment charges

(1.6)

-

 

 

 

Reported profit before tax

30.9

32.6

 

 

Operating cash conversion* in the period was 53% (2016: 67%) with operating cash flow* of £30.5m (2016: £38.5m).  At the end of the period Ultra had net debt* of £260.4m (1 July 2016: £325.4m).

 

The Group's S3 programme remains on track. S3 savings of £5.6m (2016: £2.3m) were realised in the period whilst costs on the programme increased to £3.0m (2016: £2.8m). £1.3m of these costs (2016: £1.1m) related to setting up our GBS capabilities in Rochester, New York and Wimborne, Dorset.

 

The Group's balance sheet remains strong, with net debt/EBITDA* ratio of 1.78x and net interest payable on borrowings covered around 11 times by underlying operating profit*. Subsequent to the period end a share placing was undertaken to part-fund the Sparton acquisition. This raised net proceeds of £133.9m.

 

Acquisition and disposal related costs include Sparton Corp acquisition expenses over the six month period and 3 Phoenix staff retention payments which were put in place at the time of acquisition of that business. There was a £2.4m charge for legal fees relating to the Ithra contract and a £1.6m charge for impairment of an intangible asset.

 

The proposed interim dividend is 14.6p, an increase of 2.8%, with the interim dividend being covered 4.0 times (2016: 4.1 times) by underlying earnings per share. The dividend will be paid on 21 September 2017 to shareholders on the register at 1 September 2017.

 

INVESTMENT

 

Total R&D in the period was £76.6m (2016: £68.6m) of which company funded investment was 4.5% of revenue at £16.6m (2016: £15.5m). Of this, £0.6m of investment was capitalised on specific long-term programmes.  The Group's three divisions are at different stages of the investment cycle and this is reflected in the total figure. Depending on the type of engineering contracts awarded, some require Ultra to fund the development phase while others attract customer funding and this will vary as our Divisions progress through the investment cycle. While the Group has a good level of engineering projects, a number of these in the immediate future will be customer funded and therefore it is expected that company funded R&D as a percentage of revenue, will decrease by the end of 2017.

 

On 7 July 2017, Ultra announced that it had entered into a conditional merger agreement to acquire Sparton Corporation ("Sparton"), its 50/50 partner in the long-standing ERAPSCO joint venture, which develops, manufactures and supports all current US sonobuoys supplied to the US DoD. The proposed acquisition values Sparton's total equity at approximately $234.8m (£180.6m) and as part of the acquisition, Ultra will repay Sparton's debt at completion.  The Group also completed a placing of new ordinary shares representing approximately 9.9% of Ultra's existing issued share capital to raise net proceeds of £133.9m to part fund the acquisition. Completion of the deal to acquire Sparton is expected by 1 January 2018.

 

OPERATIONAL REVIEW

 

Aerospace & Infrastructure

 

Revenue in Aerospace & Infrastructure increased by 3.2% to £96.0m (2016: £93.0m) and underlying operating profit increased by 5.9% to £16.1m (2016: £15.2m). The order book was unchanged at £255.8m (2016: £255.4m).

 

Aerospace & Infrastructure revenues benefitted from the increased activity on a number of land vehicle programmes as well as foreign exchange.  The continued improvement in the operational performance at our contract manufacturing business, part of NCS, improved the profitability of this division. 

 

This division benefited most from the currency translational impacts arising from the continued weakening of sterling against the US dollar, resulting in a divisional margin of 16.8% (2016: 16.3%).

 

Highlights of activities in the period that will contribute to the division's future performance include:

 

·     Delivery of the first NuScale reactor module protection suite with US regulatory approval. The suite is worth £60m to the Group over the life of the programme.

·     Ultra has won the supply of the HiPPAG stores management solution for the Saab Gripen NG aircraft. This is the first time a dual purpose HiPPAG system has been fielded, capable of providing stores ejection and seeker head cooling from the same unit. First production contracts are expected towards the end of 2017 at £7m.

·     Boeing has awarded Ultra a contract to supply the first HiPPAG system for sonobuoy ejection in New Zealand.

·     The FAA approved the certification plan for the innovative WheelTug system, for which Ultra is providing the electronic control. This programme is potentially worth £70m.

 

Communications & Security

 

Revenues in Communications & Security division decreased to £109.8m (2016: £119.8m) and underlying operating profit reduced to £13.0m (2016: £15.8m). When excluding the ID business, revenues in the division were flat year on year at £109.8m and underlying operating profit reduced by 8.5% to £13.0m (2016: £14.2m). The order book at the end of the period increased by 7.2% to £234.5m (2016: £218.8m).

 

This division had a greater level of development programmes in the period when compared to 2016, which lowered revenues and margins in the period.  The division was also impacted by the Continuing Resolution which moved revenues out of the first half.  The ECU RP programme largely concluded in 2016, which had improved margins in the prior period. The divisional margin was 11.8% (2016: 13.2%).

 

Encouragingly, strong order intake across the division, notably at CIS, resulted in a 7.2% improvement in the order book.

 

Highlights of activities in the period that will contribute to the division's future performance include:

 

·     Ultra has won a contract for the Singapore EW programme initially valued at £8m with discussions underway for potential future opportunities.

·     The receipt of multiple orders worth $11.6m for integrated ballistics equipment and systems expanding the Group's geographic range of customers.

·     An initial order received worth $1.5m for ARA-63 Carrier Landing System contract with production and delivery to commence in H2 2017.

·     Ultra has won an $18m integrated security system contract.  

 

Maritime & Land

 

Revenue in Maritime & Land increased by 4.4% to £160.6m (2016: £153.8m). The division's underlying operating profit increased by 6.7% to £28.5m (2016: £26.7m). The order book increased by 1.9% to £317.5m (2016: £311.5m).

 

Increased demand for both US domestic and international sonobuoys continued over the six month period. Elsewhere in the division, revenues were impacted by the Continuing Resolution and the end of the Fatahillah ship refurbishment contract in 2016.

 

Margins improved to 17.7% (2016: 17.4%) due to the release of risk reserves as an international sonar programme came to an end.

 

Highlights of activities in the period that will contribute to the division's future performance include:

 

·     Ultra received a FY17 order of $36m to supply SSQ-53G sonobuoys to US Navy ASW platforms. In addition, orders of $15.9m were received for sonobuoys to international customers.

·     A $10m order to provide submarine launched torpedo countermeasures to the UK Royal Navy.

·     A £6m initial order to commence design development and qualification of the RN Dreadnought SSBN Electric Cruise Propulsion system.

·     Ultra delivered UltraLynx soldier systems to the US Army for evaluation within the Nett Warrior programme through an initial contract of $1m. In addition, Ultra successfully participated in a major UK warfighting exercise with its UltraLynx system to support the future UK dismounted soldier systems programme.

 

MARKET ENVIRONMENT

 

Aerospace (18% of 2017 H1 Group revenue) - In the large civil aircraft market, Airbus and Boeing have combined order backlogs of more than 12,000 aircraft and as these orders are executed Ultra will see further revenue growth. This, along with the continuing increase in passenger demand will help support future growth. The regional aircraft market has a number of new entrants including the MRJ from Mitsubishi Aircraft Corporation on which Ultra has a significant shipset value.  Military aircraft will be dominated by the F-35 JSF programme and by medium size military transports where the Group is already established on these programmes. The military rotorcraft market is less buoyant has been in decline, however the recently announced five-year production contract awarded to Sikorsky to build Black Hawk helicopters for US Army is welcome. There are also opportunities for Ultra especially for the new Health Usage Monitoring System product line.

 

Infrastructure (4% of 2017 H1 Group revenue) - Passenger demand continues to drive growth within the aviation industry creating significant opportunities for more airport integrated systems and data management driving wider infrastructure demand. The UK rail improvement programme is now primarily AC with DC opportunities focused around specific regional sectors. As the infrastructure sector embraces a digital transformation, traditional offerings are becoming increasingly commoditised with value being generated from rapid innovation and smart technology.

 

Nuclear (7% of 2017 H1 Group revenue) - As the first generation of nuclear power plants in the western world reach the end of their operational lives, demand for reactor upgrades, life extensions and support is increasing. Funding challenges continue for new-builds with new construction programmes now dominated by China and increasingly India. Ultra's specialist sensors are qualified for most major global reactor designs and Ultra's partnership with Nuscale on Small Modular Reactor (SMR) development continues to open up new international interest. Increased global terror threats have increased the market potential for Ultra's radiation monitoring suite of products.

 

Communications (16% of 2017 H1 Group revenue) - Globally the communications market is subject to radical technology development and Ultra is well placed with the provision of broadband communications (radios, satcom), data links, telemetry and information assurance; all of which are increasingly required.  In the UK and US, defence encryption programmes are balancing high-security against more commercial solutions at lower security levels. Tactical communications and data link demand is evident in a number of national programmes but funding and timing remain problematic.  Light, mobile, high-bandwidth, low power, software-defined radios offering IP-solutions and comprehensive tactical data link systems remain attractive.  Ultra's ability to work closely with customers to provide the most resilient systems that helps defeat the cyber threat to data and infrastructure that is increasing at both Government and commercial levels.

 

C2ISR (19% of 2017 H1 Group revenue) - Increased global threat levels are driving demand for ISTAR, particularly systems suitable for unmanned platforms. There is a significant interest in border surveillance for long and remote land and maritime borders as well as for the protection of fixed critical infrastructures and utilities. Command & Control (C2) solutions must securely interface with an exponentially increasing amount of sensors and communication systems to compete effectively.

 

Underwater Warfare (26% of 2017 H1 Group revenue) - The growing undersea threat environment, particularly from Russia, China, North Korea, and Iran, is driving increased investment by allied navies in advanced Anti-Submarine Warfare (ASW) capabilities. New frigate procurement programmes in the US, Canada, UK, and Australia are underway and include extensive sonar requirements.  In addition, the airborne ASW market continues to expand as the Poseidon P-8 maritime patrol aircraft is being adopted by more nations driving increases in international sonobuoy acquisition.  Furthermore, other nations are looking to upgrade their current ASW assets or add an ASW capability to an existing platform.  

 

Maritime (8% of 2017 H1 Group revenue) - Long-term submarine programmes in the US and UK provide the Group with a robust revenue platform. However ship programmes with these core customers are more vulnerable to funding pressures. Replacement frigate programmes in Australia and Canada as well as export through Spanish and Turkish shipyards provide opportunities for growth. Small ship refits and capability upgrades in overseas markets complement our more established markets in the US and UK.

 

Land (2% of 2017 H1 Group revenue) - Funding issues continue in the land sector as Army budgets have reduced post Iraq and Afghanistan conflicts. Nevertheless technology is being used to improve the fighting ability of infantry vehicles and dismounted soldiers. Ultra is heavily involved in the definition of electronic architecture for armoured vehicles and has been selected as a member of the consortium of companies considered for development of the Next Generation Combat Vehicle-Prototype (NGCV-P), which will be tested by the US Army in 2023-2024. The NGCV family is planned to replace Bradley vehicles and Abrams tanks.  The increase in connectivity in the battlefield is being extended to the electronic soldier and Ultra is involved in this development with its soldier-worn electrical power and data architecture capabilities.

 

 

RISKS AND UNCERTAINTIES

 

A number of potential risks and uncertainties exist which could have a material impact on the Group's performance in 2017 and beyond and which could cause actual results to differ materially from expected and historical levels.  The Directors consider that the principal risks and uncertainties identified in the Group's Annual Report for 2016 remain valid.  An explanation of those risks, and the robust business strategies that Ultra uses to manage and mitigate them, can be found in the annual report which is available for download at www.ultra-electronics.com/investors/annual-reports.aspx . In addition, certain risks relating to the acquisition of Sparton Corp were identified in the Group's announcement of the acquisition issued on 7 July 2017, which is available for download at https://www.ultra-electronics.com/investors/press-0717.aspx.

 

In the defence sector, which contributes around 66% of Ultra's revenue, there is continuing pressure on US and UK defence budgets. In the US, there is concern over the timing and feasibility of the proposed US DoD budget, which exceeds the Budget Control Act. This could lead to a more prolonged Continuing Resolution into FY18. It is anticipated that this will increase the time taken to agree and allocate funding to programmes and hence for it to flow down into contract action. Nevertheless, the overall size of defence budgets worldwide, relative to the Group's revenue, provides sufficient headroom to support Ultra's growth potential.

 

There is a risk of programme delays or cancellations but this has always been a feature of the Group's markets.

 

Movements in foreign currency exchange rates result in both transaction and translation effects on the Group's results. Ultra's projected net transaction exposure is mitigated by the use of forward hedging contracts. By their nature, currency translation risks cannot be mitigated.

 

Risks are identified, collated, assessed and managed at the most appropriate level of the business (Board, Executive or Business level). Risks are reviewed regularly to ensure judgments and assumptions are unchanged, that appropriate mitigations are in place and that emerging risks are captured. Key risks identified by the Board include:

 

·     Managing organic and acquisitive growth

·     Delivering major change programmes

·     Attracting, developing and retaining the right people and preserving Ultra's culture

·     Protection of intellectual property and information security

·     Effectiveness of supply chain

·     Legislation and regulation compliance

·     Maintaining governance and internal control

·     Health, safety and the environment

·     Pension management

 

CONFIRMATION OF GOING CONCERN

 

The Directors have considered the guidance issued by the Financial Reporting Council and hereby confirm that the Group continues to adopt the 'going concern' basis in preparing its accounts.

 

The Board has made appropriate enquiries to support this view, looking forward for a period of at least twelve months. Salient points taken into consideration were:

 

-     the Group's long-term record of delivering high quality profits

-     the adequacy of Ultra's financing facilities

-     Ultra's positions in growth sectors of its markets

-     the long-term nature of Ultra's markets and contracts

-     the Group's minimal exposure to trading denominated in the Euro

-     the risks as discussed above

 

PERFORMANCE & PROSPECTS

 

As previously indicated, 2017 will be more heavily weighted to the second half than normal and this is reflected in these interim results. Market conditions remain largely unchanged since our preliminary announcement in March. The US Federal budget was not approved until May and this, together with the recent UK General Election, has affected the progress of some contract awards. Nevertheless, following the strong order intake in the final part of the period, which has continued through July, we are pleased with our current order position.

Ultra enters the second half of the year with an order cover of 82% (2016: 84%). We anticipate the momentum in contract awards to continue as the year progresses. Furthermore, some additional export opportunities, such as the recently announced Indian defence systems contract, are edging closer to being secured. Our S3 initiative continues to drive efficiencies and investment in a further three ERP systems is to be implemented in 2017/18.  The through-cycle cash conversion guidance is unchanged at above 85%.  Based on the same £/US$ assumptions made in March ($1.30), the Board remains confident of making further progress in 2017 and our expectations for the full year remain unchanged.

 

- End -

Enquiries:

                                                                                                                                                         

Ultra Electronics Holdings plc

Rakesh Sharma, Chief Executive                                                                         020 8813 4307

 

Amitabh Sharma, Group Finance Director

                                                                                                                                                             

Susan McErlain, Corporate Affairs Director                                                          07836 522 722

 

MHP Communications

James White                                                                                                         020 3128 8756

 

 

www.ultra-electronics.com

020 8813 4321

 

 

NATURE OF ANNOUNCEMENT

 

This Interim Management Report ("IMR") has been prepared solely to provide additional information to enable shareholders to assess Ultra's strategies and the potential for those strategies to be fulfilled. It should not be relied upon by any other party or for any other purpose.

 

This IMR contains certain forward-looking statements. Such statements are made by the Directors in good faith based on the information available to them at the time of their approval of this report, and they should be treated with caution due to the inherent uncertainties underlying such forward-looking information.

 

This IMR has been prepared for the Group as a whole and therefore gives greatest emphasis to those matters which are significant to Ultra when viewed as a complete entity.

 

Further information about Ultra:

 

Ultra Electronics is an internationally successful defence, security, transport and energy company with a long track record of development and growth. The Ultra Group manages a portfolio of specialist capabilities generating innovative solutions to customer needs. Ultra applies electronic and software technologies in demanding and critical environments ranging from military applications, through safety-critical devices in aircraft, to nuclear controls and sensor measurement. These capabilities have seen the Ultra Group's highly-differentiated products contributing to a large number of platforms and programmes.

 

Ultra has world-leading positions in many of its specialist capabilities and, as an independent, non-threatening partner, is able to support all of the main prime contractors in its sectors. As a result of such positioning, Ultra's systems, equipment or services are often mission or safety-critical to the successful operation of the platform to which they contribute. In turn, this mission-criticality secures Ultra's positions for the long-term which underpins the superior financial performance of the Ultra Group.

 

Ultra offers support to its customers through the design, delivery and support phases of a programme. Ultra businesses have a high degree of operational autonomy where the local management teams are empowered to devise and implement competitive strategies that reflect their expertise in their specific niches. The Ultra Group has a small head office and executive team that provide to the individual businesses the same agile, responsive support that they provide to customers, as well as formulating Ultra's overarching, corporate strategy.

 

Across the Ultra Group's three divisions, Ultra operates in the following eight market segments:

 

·      Aerospace

·      C2ISR

·      Land

·      Nuclear

·      Communications

·      Infrastructure

·      Maritime

·      Underwater Warfare

 

Ultra Electronics Holdings plc

                                                                                  Condensed Group highlights

for the half-year ended 30 June 2017

 

 

 

Six months

 

Six months

 

Year to

 

 

to 30 June

 

to 1 July

 

31 December

 

 

2017

 

2016

 

2016

 

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

Revenue

 

366,392

 

366,612

 

785,764

Underlying operating profit

 

57,633

 

57,668

 

131,134

Operating profit

 

25,427

 

38,843

 

89,725

Underlying profit before tax

 

52,355

 

52,398

 

120,059

Profit before tax

 

30,940

 

 

32,552

 

 

67,621

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Underlying earnings per share (pence)*

 

58.3

 

58.1

 

134.6

Basic earnings per share (pence)*

 

37.6

 

38.4

 

82.8

Dividend per share (pence)

 

14.6

 

14.2

 

47.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* On 7 July 2017 a total of 7,047,168 ordinary shares of 5 pence were placed representing 9.9% of Ultra's issued ordinary share capital prior to the placing. In accordance with IAS 33, earnings per share has not been restated to reflect this post balance sheet event.

 

 

Ultra Electronics Holdings plc

Condensed Consolidated Income Statement

for the half-year ended 30 June 2017

 

 

 

 

Six months

 

Six months

 

Year to

 

 

to 30 June

 

to 1 July

 

31 December

 

 

2017

 

2016

 

2016

 

Note

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

3

366,392

 

366,612

 

785,764

Cost of sales

 

(261,070)

 

(257,296)

 

(536,561)

Gross profit

 

105,322

 

109,316

 

249,203

 

 

 

 

 

 

 

Other operating income

 

834

 

1,461

 

1,770

Distribution costs

 

(471)

 

(510)

 

(1,081)

Administrative expenses

 

(65,908)

 

(64,199)

 

(144,893)

Other operating expenses

 

(7,246)

 

(4,448)

 

(8,777)

Impairment charges

 

(1,645)

 

-

 

-

S3 programme

 

(3,021)

 

(2,777)

 

(6,497)

Oman contract termination costs

5

(2,438)

 

-

 

-

 

 

 

 

 

 

 

Operating Profit

3

25,427

 

38,843

 

89,725

 

 

 

 

 

 

 

Loss on disposals (net)

19

-

 

-

 

(4,076)

Retirement benefit scheme curtailment gain

20

-

 

15,500

 

15,500

Investment revenue

6

12,288

 

87

 

197

Finance costs

7

(6,775)

 

(21,878)

 

(33,725)

 

 

 

 

 

 

 

Profit before tax

 

30,940

 

32,552

 

67,621

 

 

 

 

 

 

 

Tax

8

(4,440)

 

(5,590)

 

(9,363)

 

 

 

 

 

 

 

Profit for the period

 

26,500

 

26,962

 

58,258

Attributable to:

 

 

 

 

 

 

Owners of the Company

 

26,517

 

26,692

 

58,260

Non-controlling interests

 

(17)

 

-

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per ordinary share (pence)*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

10

37.6

 

38.4

 

82.8

 

 

 

 

 

 

 

Diluted

10

37.5

 

38.3

 

82.8

 

 

All results are derived from continuing operations.

 

* On 7 July 2017 a total of 7,047,168 ordinary shares of 5 pence were placed representing 9.9% of Ultra's issued ordinary share capital prior to the placing. In accordance with IAS 33, earnings per share has not been restated to reflect this post balance sheet event

 

Ultra Electronics Holdings plc

Condensed Consolidated Statement of Comprehensive Income

for the half-year ended 30 June 2017

 

 

Six months

 

Six months

 

Year to

 

to 30 June

 

to 1 July

 

31 December

 

2017

 

2016

 

2016

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

Profit for the period

26,500

 

26,962

 

58,258

 

 

 

 

 

 

Items that will not be reclassified to profit or loss:

 

 

 

 

 

Actuarial loss on defined benefit pension schemes

-

 

-

 

(49,343)

Tax relating to items that will not be reclassified

-

 

-

 

9,973

Total items that will not be reclassified to profit or loss

-

 

-

 

(39,370)

 

 

 

 

 

 

Items that may be reclassified to profit or loss:

 

 

 

 

 

Exchange differences on translation of foreign operations

(14,491)

 

64,787

 

99,349

Reclassification of exchange differences on disposals

-

 

-

 

(1,895)

Transfer from profit and loss on cash flow hedge

57

 

255

 

-

Loss on cash flow hedge

(79)

 

(1,267)

 

-

Gain/(loss) on loans used in net investment hedges

12,385

 

(25,600)

 

(43,078)

Tax relating to items that may be reclassified

-

 

-

 

43

Total items that may be reclassified to profit or loss

(2,128)

 

38,175

 

54,419

 

 

 

 

 

 

Other comprehensive (expense)/income for the period

(2,128)

 

38,175

 

15,049

 

 

 

 

 

 

Total comprehensive income for the period

24,372

 

65,137

 

73,307

Attributable to:

 

 

 

 

 

Owners of the Company

24,389

 

65,137

 

73,309

Non-controlling interests

(17)

 

-

 

(2)

 

Ultra Electronics Holdings plc

Condensed Consolidated Balance Sheet

as at 30 June 2017

 

 

 

          At 30 June

 

 

               At 1 July

 

At 31 December

 

 

2017

 

2016

 

2016

 

Note

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

Goodwill

 

403,173

 

403,239

 

415,593

Other intangible assets

 

159,517

 

195,366

 

173,637

Property, plant and equipment

11

62,337

 

68,418

 

66,195

Deferred tax assets

 

19,603

 

5,600

 

21,377

Derivative financial instruments

18

375

 

68

 

3

Trade and other receivables

12

12,945

 

15,987

 

16,352

 

 

657,950

 

688,678

 

693,157

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Inventories

 

82,686

 

89,996

 

78,177

Trade and other receivables

12

222,991

 

197,944

 

215,731

Tax assets

 

6,731

 

-

 

9,444

Cash and cash equivalents

 

80,392

 

39,780

 

74,625

Derivative financial instruments

18

194

 

234

 

251

Assets classified as held for sale

 

-

 

9,930

 

-

 

 

392,994

 

337,884

 

378,228

 

 

 

 

 

 

 

Total assets

3

1,050,944

 

1,026,562

 

1,071,385

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Trade and other payables

13

(189,275)

 

(175,847)

 

(193,243)

Tax liabilities

 

-

 

(555)

 

(7,339)

Derivative financial instruments

18

(6,258)

 

(9,789)

 

(12,507)

Liabilities classified as held for sale

 

-

 

(2,161)

 

-

Short-term provisions

14

(9,419)

 

(16,429)

 

(16,633)

 

 

(204,952)

 

(204,781)

 

(229,722)

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

Retirement benefit obligations

 

(109,852)

 

(66,849)

 

(113,177)

Other payables

13

(9,768)

 

(7,734)

 

(9,972)

Deferred tax liabilities

 

(6,284)

 

(6,153)

 

(6,555)

Derivative financial instruments

18

(5,691)

 

(10,568)

 

(11,594)

Borrowings

 

(340,753)

 

(365,167)

 

(331,325)

Long-term provisions

14

(5,828)

 

(5,381)

 

(5,469)

 

 

(478,176)

 

(461,852)

 

(478,092)

 

 

 

 

 

 

 

Total liabilities

3

(683,128)

 

(666,633)

 

(707,814)

 

 

 

 

 

 

 

Net assets

 

367,816

 

359,929

 

363,571

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

Share capital

15

3,533

 

3,516

 

3,523

Share premium account

 

67,416

 

61,501

 

64,020

Own shares

 

(2,581)

 

(2,581)

 

(2,581)

Hedging reserve

 

(56,623)

 

(52,520)

 

(68,986)

Translation reserve

 

125,001

 

106,825

 

139,492

Retained earnings

 

231,018

 

243,188

 

228,034

Equity attributable to owners of the company

 

367,764

 

359,929

 

363,502

Non-controlling interest

 

52

 

-

 

69

 

 

 

 

 

 

 

Total equity

 

367,816

 

359,929

 

363,571

Ultra Electronics Holdings plc

Condensed Consolidated Cash Flow Statement

for the half-year ended 30 June 2017

 

 

Six months

 

Six months

 

Year to

 

 

to 30 June

 

to 1 July

 

31 December

 

 

2017

 

2016

 

2016

 

Note

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

Net cash inflow from operating activities

16

9,541

 

22,197

 

92,834

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

Interest received

 

114

 

87

 

197

Dividends received from former equity accounted investments

 

3,111

 

-

 

-

Purchase of property, plant and equipment

 

(3,582)

 

(1,998)

 

(4,645)

Proceeds from disposal of property, plant and equipment

 

20

 

91

 

293

Expenditure on product development and other intangibles

 

(1,782)

 

(949)

 

(2,728)

Disposal of subsidiary undertakings

 

-

 

-

 

22,040

Acquisition of subsidiary undertakings

 

-

 

(5,067)

 

(5,199)

Net cash (used in)/from investing activities

 

(2,119)

 

(7,836)

 

9,958

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

Issue of share capital

 

3,406

 

451

 

2,976

Dividends paid

 

(23,647)

 

(22,631)

 

(32,583)

Repayments of borrowings

 

(43,000)

 

(75,000)

 

(114,419)

Proceeds from borrowings

 

64,351

 

72,632

 

60,000

Minority investment

 

-

 

-

 

2,000

Net cash from/(used in) financing activities

 

1,110

 

(24,548)

 

(82,026)

 

 

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

8,532

 

(10,187)

 

20,766

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

74,625

 

45,474

 

45,474

Effect of foreign exchange rate changes

 

(2,765)

 

4,493

 

8,385

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

80,392

 

39,780

 

74,625

Ultra Electronics Holdings plc

Condensed Consolidated Statement of Changes in Equity

for the half-year ended 30 June 2017

 

 

Equity attributable to equity holders of the parent

 

Share capital

£'000

 

Share premium account

£'000

Reserve for own shares

£'000

 

 

Hedging reserve

£'000

Translation reserve

£'000

Retained earnings

£'000

Non-controlling interest

£'000

 

 

 

Total equity

£'000

 

 

 

 

 

 

 

 

 

Balance at 1 January 2017

3,523

64,020

(2,581)

(68,986)

139,492

228,034

69

363,571

 

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

26,517

(17)

26,500

Other comprehensive income for the period

-

-

-

12,363

(14,491)

-

-

(2,128)

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

-

-

-

12,363

(14,491)

26,517

(17)

24,372

 

 

 

 

 

 

 

 

 

Equity-settled employee share schemes

10

3,396

-

-

-

114

-

3,520

Dividend to shareholders

-

-

-

-

-

(23,647)

-

(23,647)

 

 

 

 

 

 

 

 

 

Balance at 30 June 2017

3,533

67,416

(2,581)

(56,623)

125,001

231,018

52

367,816

 

 

 

 

 

 

 

 

 

 

 

 

 

Ultra Electronics Holdings plc

Condensed Consolidated Statement of Changes in Equity

for the half-year ended 1 July 2016

 

Equity attributable to equity holders of the parent

 

 

 

 

 

Share capital

£'000

 

Share premium account

£'000

Reserve for own shares

£'000

 

 

Hedging reserve

£'000

Translation reserve

£'000

Retained earnings

£'000

Non-controlling interest

£'000

 

 

 

Total equity

£'000

 

 

 

 

 

 

 

 

 

Balance at 1 January 2016

3,514

61,052

(2,581)

(25,908)

42,038

238,728

-

316,843

 

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

26,962

-

26,962

Other comprehensive income for the period

-

-

-

(26,612)

64,787

-

-

38,175

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

-

-

-

(26,612)

64,787

26,962

-

65,137

 

 

 

 

 

 

 

 

 

Equity-settled employee share schemes

2

449

-

-

-

129

-

580

Dividend to shareholders

-

-

-

-

-

(22,631)

-

(22,631)

 

 

 

 

 

 

 

 

 

Balance at 1 July 2016

3,516

61,501

(2,581)

(52,520)

106,825

243,188

-

359,929

 

 

 

 

 

 

 

 

 

Ultra Electronics Holdings plc

Condensed Consolidated Statement of Changes in Equity

for the year ended 31 December 2016

 

 

Equity attributable to equity holders of the parent

 

 

 

 

 

Share capital

£'000

 

Share premium account

£'000

Reserve for own shares

£'000

 

 

Hedging reserve £'000

Translation reserve

£'000

Retained earnings

£'000

 

Non-Controlling Interest

£'000

Total equity

£'000

 

 

 

 

 

 

 

 

 

Balance at 1 January 2016

3,514

61,052

(2,581)

(25,908)

42,038

238,728

-

316,843

 

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

58,260

(2)

58,258

Other comprehensive income for the period

-

-

-

(43,078)

97,454

(39,327)

-

15,049

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

-

-

-

(43,078)

97,454

18,933

(2)

73,307

 

 

 

 

 

 

 

 

 

Non-controlling interest's investment

 

 

 

 

 

 

 

 

made in subsidiary

-

-

-

-

-

1,929

71

2,000

Equity-settled employee share schemes

9

2,968

-

-

-

984

-

3,961

Dividend to shareholders

-

-

-

-

-

(32,583)

-

(32,583)

Tax on share-based payment transactions

-

-

-

-

-

43

-

43

 

 

 

 

 

 

 

 

 

Balance at 31 December 2016

3,523

64,020

(2,581)

(68,986)

139,492

228,034

69

363,571

 

 

 

 

 

 

 

 

 

Ultra Electronics Holdings plc

Notes to the Condensed Consolidated Interim Financial Statements

for the half-year ended 30 June 2017

 

 

1.            General information

 

The information for the year ended 31 December 2016 does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies.  The auditor's report on those accounts was not qualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.

 

These interim financial statements, which were approved by the Board of Directors on 7 August 2017, have not been audited or reviewed by the Auditor.

 

2.            Accounting policies

 

The annual financial statements of Ultra Electronics Holdings plc are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.  The condensed consolidated financial statements included in this half-yearly financial report have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with International Accounting Standard 34 'Interim Financial Reporting' as adopted by the European Union.

 

The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest annual audited financial statements. The following Standards and interpretations were adopted as at 1 January 2017:

·      IAS 12 Income Taxes - Amendments regarding the recognition of deferred tax assets for unrealised losses

 

A number of new standards and amendments to existing standards have been issued but are not yet effective and, in the case of IFRS 16 - Leases, are not yet endorsed by the EU.  IFRS 15 Revenue from contracts with customers - is effective from 1 January 2018.  A detailed project has been undertaken to determine the impact of IFRS 15 had it been applied in 2016. The project has assessed revenue and contract terms from across all the Group's business units and contracting types. There is no impact to the timing of the Group's cash flows nor the timing of revenue recognition on the majority of the Group's contracts. The most significant changes relative to current accounting treatments arise in the following areas:

 

(i)      the accounting for multiple elements of long term contracts approved at different times, for example contracts involving product design, followed by subsequent production orders,

(ii)     allocation of the contract price to performance obligations for long term contracts containing multiple deliverables,

(iii)    the accounting for certain transactions currently treated as long term contracts that may need to be treated as sales of goods; and

(iv)    the accounting for certain licences that are determined to provide separately identifiable benefit to the customer. 

 

Long term contract revenue: it is expected that revenue for the substantial majority of contracts that are currently recognised using contract accounting will continue to be accounted for over the life of the contract, however the method by which performance obligations are determined may change on certain contracts including identification of material rights. A small number of contracts may no longer qualify to be contract accounted and revenue will instead be recorded at the point at which control of the goods transfers to the customer.

 

Revenue from sale of goods: the timing of revenue recognised on the substantial majority of such contracts is not expected to be significantly affected by IFRS 15 with revenue continuing to be recognised as control of goods is passed to the customer.

 

The process of implementation is complex as many of the Group's businesses will need to revise current processes and systems used for monitoring contract phases and performance to collect the required information, even if this does not give rise to a material change in revenue or profit recognised. The Group will continue to analyse and assess the potential impact until the transition date, and provide any further update as necessary.

 

 

 

 

 

 

3.            Segment information

 

 

Six months to 30 June 2017

Six months to 1 July 2016

 

External revenue

£'000

Internal revenue

£'000

 

Total

£'000

External revenue

£'000

Internal revenue

£'000

 

Total

£'000

Revenue

 

 

 

 

 

 

Aerospace & Infrastructure

95,978

5,218

101,196

93,018

4,062

97,080

Communications & Security

109,827

3,107

112,934

119,797

742

120,539

Maritime & Land

160,587

7,312

167,899

153,797

11,860

165,657

Eliminations

-

(15,637)

(15,637)

-

(16,664)

(16,664)

Consolidated revenue

366,392

-

366,392

366,612

-

366,612

 

 

Underlying operating profit

16,089

12,995

28,549

57,633

Amortisation of intangibles arising on acquisition

(795)

(10,427)

(3,511)

(14,733)

S3 programme

(454)

(1,617)

(950)

(3,021)

Oman contract termination costs

(2,438)

-

-

(2,438)

Adjustments to contingent consideration
net of acquisition & disposal related costs

(70)

(356)

(9,943)

(10,369)

Impairment charges

-

(1,645)

-

(1,645)

Operating profit

12,332

(1,050)

14,145

25,427

Investment revenue

 

 

 

12,288

Finance costs

 

 

 

(6,775)

Profit before tax

 

 

 

30,940

Tax

 

 

 

(4,440)

Profit after tax

 

 

 

26,500

 

 

 

 

 

 

 

 

Aerospace & Infrastructure

£'000

Communications

& Security

£'000

Maritime

& Land

£'000

Six months

to 1 July

2016

 

Total

£'000

 

Underlying operating profit

15,158

15,812

26,698

57,668

 

Amortisation of intangibles arising on acquisition

(806)

(13,008)

(1,460)

(15,274)

 

S3 programme

(1,735)

(649)

(393)

(2,777)

 

Adjustments to contingent consideration
net of acquisition & disposal related costs

(17)

(744)

(13)

(774)

 

Operating profit

12,600

1,411

24,832

38,843

 

Retirement benefit scheme curtailment gain

 

 

 

15,500

 

Investment revenue

 

 

 

87

 

Finance costs

 

 

 

(21,878)

 

Profit before tax

 

 

 

32,552

 

Tax

 

 

 

(5,590)

 

Profit after tax

 

 

 

26,962

 

                 

 

 

 

3. Segment information (continued)

 

 

Aerospace & Infrastructure

£'000

Communications

& Security

£'000

Maritime

& Land

£'000

Year to 31 December 2016

 

Total

£'000

Underlying operating profit

32,378

39,703

59,053

131,134

Amortisation of intangibles arising on acquisition

(1,604)

(26,964)

(4,087)

(32,655)

Adjustments to contingent consideration net of acquisition & disposal related costs

(337)

(1,457)

(463)

(2,257)

S3 programme

(2,594)

(2,406)

(1,497)

(6,497)

Operating profit/(loss)

27,843

8,876

53,006

89,725

Loss on disposals (net)

 

 

 

(4,076)

Retirement benefit scheme curtailment gain

 

 

 

15,500

Investment revenue

 

 

 

197

Finance costs

 

 

 

(33,725)

Profit before tax

 

 

 

67,621

Tax

 

 

 

(9,363)

Profit after tax

 

 

 

58,258

 

 

 

 

 

At 30 June

2017

 

 

At 1 July

2016

 

At 31 December 2016

 

 

£'000

 

£'000

 

£'000

Total assets by segment

 

 

 

 

 

 

Aerospace & Infrastructure

 

232,209

 

234,507

 

233,110

Communications & Security

 

450,966

 

481,819

 

463,713

Maritime & Land

 

260,474

 

264,554

 

268,862

 

 

943,649

 

980,880

 

965,685

Unallocated

 

107,295

 

45,682

 

105,700

Total assets

 

1,050,944

 

1,026,562

 

1,071,385

 

Unallocated assets represent current and deferred tax assets, derivatives at fair value and cash and cash equivalents.

 

 

 

 

 

At 30 June  2017

 

 

At 1 July  2016

 

At 31 December 2016

 

 

£'000

 

£'000

 

£'000

Total liabilities by segment

 

 

 

 

 

 

Aerospace & Infrastructure

 

48,011

 

53,480

 

55,751

Communications & Security

 

76,034

 

72,182

 

71,832

Maritime & Land

 

96,214

 

86,431

 

104,042

 

 

220,259

 

212,093

 

231,625

Unallocated

 

462,869

 

454,540

 

476,189

Total liabilities

 

683,128

 

666,633

 

707,814

 

Unallocated liabilities represent derivatives at fair value, current and deferred tax liabilities, retirement benefit obligations, bank loans and loan notes.

 

 

Six months

 

Six months

 

Year to

 

to 30 June

 

to 1 July

 

31 December

 

2017

 

2016

 

2016

 

£'000

 

£'000

 

£'000

Revenue by geographical destination

 

 

 

 

 

United Kingdom

80,222

 

89,038

 

185,135

Continental Europe

32,606

 

31,003

 

82,818

Canada

10,332

 

13,168

 

18,617

USA

185,113

 

186,609

 

391,754

Rest of World

58,119

 

46,794

 

107,440

 

366,392

 

366,612

 

785,764

 

4.            Additional performance measures

 

To present the underlying profitability of the Group on a consistent basis year-on-year, additional performance indicators have been used.  These are calculated as follows:

 

 

Six months

 

Six months

 

Year to

 

to 30 June

 

to 1 July

 

31 December

 

2017

 

2016

 

2016

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

Operating profit

25,427

 

38,843

 

89,725

Amortisation of intangibles arising on acquisition

14,733

 

15,274

 

32,655

Impairment charges

1,645

 

-

 

-

Adjustments to contingent consideration net of acquisition and disposal related costs

 

10,369

 

 

774

 

 

2,257

Oman contract termination related costs

2,438

 

-

 

-

S3 programme

3,021

 

2,777

 

6,497

Underlying operating profit

57,633

 

57,668

 

131,134

 

 

 

 

 

 

 

 

 

 

 

 

Profit before tax

30,940

 

32,552

 

67,621

Amortisation of intangibles arising on acquisition

14,733

 

15,274

 

32,655

Impairment charges

1,645

 

-

 

-

Adjustments to contingent consideration net of acquisition and disposal related costs

10,369

 

774

 

 

2,257

Unwinding of discount on provisions

-

 

272

 

367

(Profit)/loss on fair value movements on derivatives

(12,174)

 

14,497

 

19,103

Net interest charge on defined benefit pensions

1,383

 

1,752

 

2,983

Oman contract termination related costs

2,438

 

-

 

-

S3 programme

3,021

 

2,777

 

6,497

Loss on disposals (net)

-

 

-

 

4,076

Retirement benefit scheme curtailment gain

-

 

(15,500)

 

(15,500)

Underlying profit before tax

52,355

 

52,398

 

120,059

 

 

 

 

 

 

Cash generated by operations (see note 16)

21,955

 

30,743

 

112,002

Purchase of property, plant and equipment 

(3,582)

 

(1,998)

 

(4,645)

Proceeds on disposal of property, plant and equipment

20

 

91

 

293

Expenditure on product development and other intangibles

(1,782)

 

(949)

 

(2,728)

Dividend from former equity accounted investment

3,111

 

-

 

-

Oman performance bond

-

 

8,230

 

8,230

S3 programme

3,682

 

2,135

 

5,613

Acquisition and disposal related payments

7,070

 

270

 

1,669

Underlying operating cash flow

30,474

 

38,522

 

120,434

 

 

The above analysis of the Group's operating results, earnings per share and cash flows, is presented to provide readers with additional performance indicators that are prepared on a non-statutory basis. This presentation is regularly reviewed by management to identify items that are unusual and other items relevant to an understanding of the Group's performance and long-term trends with reference to their materiality and nature. This additional information is not uniformly defined by all Companies and may not be comparable with similarly titled measures and disclosures by other organisations. The non-statutory disclosures should not be viewed in isolation or as an alternative to the equivalent statutory measure. See note 21 for further details.

 

 

 

 

5.            Oman contract termination costs

 

In 2015, 'Ithra' ("Ultra Electronics in collaboration with Oman Investment Corporation LLC"), the legal entity established with the sole purpose of delivering the Oman Airport IT contract, was placed into voluntary liquidation.  A liquidator was appointed and is pursuing claims against the customer on behalf of the interested parties. In 2017 £2.4m of legal costs associated with the Oman Airport IT contract termination were charged to the income statement.

 

 

 

6.            Investment revenue

 

 

Six months

 

Six months

 

Year to

 

to 30 June

 

to 1 July

 

31 December

 

 

2017

 

2016

 

2016

 

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

Bank interest

 

114

 

87

 

197

Fair value movement on derivatives

 

12,174

 

-

 

-

 

 

12,288

 

87

 

197

 

7.            Finance costs

 

 

Six months

 

Six months

 

Year to

 

to 30 June

 

to 1 July

 

31 December

 

2017

 

2016

 

2016

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

Amortisation of finance costs of debt

417

 

418

 

848

Interest payable on bank loans, overdrafts and other loans

4,975

 

4,939

 

10,424

Total borrowing costs

5,392

 

5,357

 

11,272

Retirement benefit scheme finance cost

1,383

 

1,752

 

2,983

Unwinding of discount on provisions

-

 

272

 

367

Fair value movement on derivatives

-

 

14,497

 

19,103

 

6,775

 

21,878

 

33,725

                                  

8.            Tax

 

 

Six months

 

Six months

 

Year to

 

to 30 June

 

to 1 July

 

31 December

 

2017

 

2016

 

2016

 

£'000

 

£'000

 

£'000

Current tax

 

 

 

 

 

United Kingdom

1,358

 

2,778

 

3,701

Overseas

1,580

 

3,236

 

11,205

 

2,938

 

6,014

 

14,906

Deferred tax

 

 

 

 

 

United Kingdom

140

 

(105)

 

1,413

Overseas

1,362

 

(319)

 

(6,956)

 

1,502

 

(424)

 

(5,543)

 

 

 

 

 

 

Total tax charge

4,440

 

5,590

 

9,363

 

 

 

The main rate of UK corporation tax was 19% at 1 April 2017.

 

 

 

 

 

9.             Ordinary dividends

 

 

Six months

 

Six months

 

to 30 June

 

to 1 July

 

2017

 

2016

 

£'000

 

£'000

 

 

 

 

Final dividend for the year ended 31 December 2016 of 33.6p (2015: 32.3p) per share

23,647

 

22,631

 

 

 

 

Proposed interim dividend for the year ended 31 December 2017 of  14.6p (2016: 14.2p) per share*

10,282

 

9,951

 

 

The interim 2017 dividend of 14.6p pence per share will be paid on 21 September 2017 to shareholders on the register at 1 September 2017. It was approved by the Board after 30 June 2017 and has not been included as a liability at 30 June 2017.

 

*On 7 July 2017 a total of 7,047,168 ordinary shares of 5 pence were placed representing 9.9% of Ultra's issued ordinary share capital prior to the placing. This post balance sheet event increases the proposed interim dividend based on shares in issue at 30 June 2017 of £10,282,000 stated above, to £11,311,000.

 

 

10.          Earnings per share

 

Six months

 

Six months

 

Year to

 

to 30 June

 

to 1 July

 

31 December

 

2017

 

2016

 

 

2016

 

 

Pence

 

Pence

 

Pence

From continuing operations

 

 

 

 

 

Basic underlying (see below)

58.3

 

58.1

 

134.6

Diluted underlying (see below)

58.2

 

58.1

 

134.5

Basic

37.6

 

38.4

 

82.8

Diluted

37.5

 

38.3

 

82.8

 

The calculation of the basic, underlying and diluted earnings per share is based on the following data:

 

 

Six months

 

Six months

 

Year to

 

To 30 June

 

To 1 July

 

31 December

 

2017

 

2016

 

2016

 

£'000

 

£'000

 

£'000

Earnings

 

 

 

 

 

Earnings for the purposes of earnings per share being profit for the period

26,517

 

26,962

 

58,260

 

 

 

 

 

 

Underlying earnings

 

 

 

 

 

Profit for the period

26,517

 

26,962

 

58,260

(Profit)/loss on fair value movements on derivatives (net of tax)

(9,831)

 

11,597

 

16,008

Amortisation of intangibles arising on acquisition (net of tax)

9,799

 

10,370

 

22,419

Unwinding of discount on provisions

-

 

218

 

367

Acquisition and disposal related costs net of contingent consideration (net of tax)

7,569

 

774

 

2,100

Net interest charge on defined benefit pensions (net of tax)

1,148

 

1,437

 

2,386

Retirement benefit scheme curtailment gain (net of tax)

-

 

(12,710)

 

(12,400)

Oman contract termination related costs (net of tax)

2,438

 

-

 

-

Impairment charges (net of tax)

1,020

 

-

 

-

S3 programme (net of tax)

2,439

 

2,222

 

5,503

Disposals (net of tax)

-

 

-

 

48

Earnings for the purposes of underlying earnings per share

41,099

 

40,870

 

94,691

 

 

10.          Earnings per share (continued)

 

The weighted average number of shares is given below:
 

 

Six months

 

Six months

 

Year to

 

to 30 June

 

to 1 July

 

31 December

 

2017

 

2016

 

2016

 

 

 

 

 

 

Number of shares used for basic earnings per share

70,513,316

 

70,300,621

 

70,330,384

Effect of dilutive potential ordinary shares - share options

152,775

 

66,653

 

73,320

Number of shares used for fully diluted earnings per share

70,666,091

 

70,367,274

 

70,403,704

 

 

Six months

 

Six months

 

Year to

 

to 30 June

 

to 1 July

 

31 December

 

2017

 

2016

 

2016

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

Underlying profit before tax

52,355

 

52,398

 

 

120,059

Taxation charge on underlying profit

(11,256)

 

(11,528)

 

(25,368)

Underlying profit after tax attributable to equity shareholders

 

41,099

 

 

40,870

 

 

94,691

Tax rate applied for the purposes of underlying earnings per share

21.5%

 

22.0%

 

21.1%

 

 

On 7 July 2017 a total of 7,047,168 ordinary shares of 5 pence were placed representing 9.9% of Ultra's issued ordinary share capital prior to the placing. In accordance with IAS 33, earnings per share has not been restated to reflect this post balance sheet event.

 

 

11.          Property, plant and equipment

 

During the period, the Group spent £3.6m on the acquisition of property, plant and equipment. The Group did not make any significant disposals during the period.

 

 

12.          Trade and other receivables

 

 

 

At 30 June

 

 

At 1 July

 

At 31 December

Non-current

2017

 

2016

 

2016

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

Amounts receivable from contract customers

12,945

 

15,987

 

16,352

 

12,945

 

15,987

 

16,352

 

 

 

 

 

At 30 June

 

 

At 1 July

 

At 31 December

Current

2017

 

2016

 

2016

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

Trade receivables

91,949

 

83,439

 

98,977

Provisions against receivables

(1,236)

 

(1,181)

 

(1,307)

Net trade receivables

90,713

 

82,258

 

97,670

Amounts receivable from contract customers

109,969

 

83,947

 

95,919

Prepayments and other receivables

22,309

 

31,739

 

22,142

 

222,991

 

197,944

 

215,731

 

 

 

13.          Trade and other payables

 

 

 

At 30 June

 

 

At 1 July

 

At 31 December

 

2017

 

2016

 

2016

 

£'000

 

£'000

 

£'000

Amounts included in current liabilities:

 

 

 

 

 

Trade payables

73,626

 

59,541

 

68,341

Amounts due to contract customers

50,426

 

54,325

 

46,310

Other payables

65,223

 

61,981

 

78,592

 

189,275

 

175,847

 

193,243

 

 

 

 

 

 

Amounts included in non-current liabilities:

 

 

 

 

 

Amounts due to contract customers

2,975

 

918

 

6,146

Other payables

6,793

 

6,816

 

3,826

 

9,768

 

7,734

 

9,972

 

 

 

 

 

 

 

14.          Provisions

 

 

 

 

Warranties

 

 

Contract related provisions

 

 

Other

 

 

Total

 

£'000

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

 

At 1 July 2016

3,678

 

7,580

 

10,552

 

21,810

 

 

 

 

 

 

 

 

At 31 December 2016

4,444

 

6,739

 

10,919

 

22,102

 

 

 

 

 

 

 

 

At 30 June 2017

4,058

 

1,065

 

10,124

 

15,247

 

 

 

 

 

 

 

 

Included in current liabilities

1,669

 

376

 

7,374

 

9,419

Included in non-current liabilities

2,389

 

689

 

2,750

 

5,828

 

4,058

 

1,065

 

10,124

 

15,247

 

Warranty provisions are based on an assessment of future claims with reference to past experience. Such costs are generally incurred within two years after delivery. Contract related provisions will be utilised over the period as stated in the contract to which the specific provision relates. Other provisions include contingent consideration and dilapidation costs. Dilapidations will be payable at the end of the contracted life which is up to fifteen years. Contingent consideration is payable when earnings targets are met.

 

 

15.          Share capital

 

195,770 shares, with a nominal value of £9,789 have been allotted in the first six months of 2017 under the terms of the Group's various share option schemes. The aggregate consideration received by the Company was £3,406,000. 

 

On 7 July 2017 a total of 7,047,168 ordinary shares of 5 pence were placed representing 9.9% of Ultra's issued ordinary share capital prior to the placing. Net proceeds received were £133.9m.

 

 

16.            Cash flow information

 

 

Six months

 

Six months

 

Year to

 

to 30 June

 

to 1 July

 

31 December

 

2017

 

2016

 

2016

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

Operating profit

25,427

 

38,843

 

89,725

Adjustments for:

 

 

 

 

 

Depreciation of property, plant and equipment

5,159

 

5,735

 

11,499

Amortisation of intangible assets

16,433

 

17,115

 

38,034

Impairment charges

1,645

 

-

 

-

Cost of equity-settled employee share schemes

114

 

129

 

984

Adjustment for pension funding

(4,708)

 

(4,222)

 

(8,468)

Loss on disposal of property, plant and equipment

267

 

34

 

291

Decrease in provisions

(4,973)

 

(7,370)

 

(8,975)

Operating cash flow before movements in working capital

39,364

 

50,264

 

 

123,090

 

 

 

 

 

 

(Increase)/decrease in inventories

(6,058)

 

(2,346)

 

8,295

(Increase)/decrease in receivables

(11,624)

 

11,387

 

(339)

Increase/(decrease) in payables

273

 

(28,562)

 

(19,044)

Cash generated by operations

21,955

 

30,743

 

112,002

 

 

 

 

 

 

Income taxes paid

(7,439)

 

(3,428)

 

(9,012)

Interest paid

(4,975)

 

(5,118)

 

(10,156)

Net cash inflow from operating activities

9,541

 

22,197

 

92,834

 

 

 

 

 

 

 

Reconciliation of net movement in cash and cash equivalents to movement in net debt

 

 

 

Six months

 

Six months

 

Year to

 

to 30 June

 

to 1 July

 

31 December

 

2017

 

2016

 

2016

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

8,532

 

(10,187)

 

20,766

Cash (inflow)/outflow from (increase)/decrease in debt and finance leasing

 

(21,351)

 

 

2,368

 

 

54,419

Change in net debt arising from cash flows

(12,819)

 

(7,819)

 

75,185

Amortisation of finance costs of debt

(417)

 

(418)

 

(848)

Translation differences

9,575

 

(21,578)

 

(35,465)

Movement in net debt in the  period

(3,661)

 

(29,815)

 

38,872

Net debt at start of period

(256,700)

 

(295,572)

 

(295,572)

Net debt at end of period

(260,361)

 

(325,387)

 

(256,700)

 

 

 

 

 

 

Net debt comprised the following:

 

 

 

 

 

 

 

At 30 June

2017

 

 

At 1 July

2016

 

At 31 December

2016

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

Cash and cash equivalents

80,392

 

39,780

 

74,625

Borrowings

(340,753)

 

(365,167)

 

(331,325)

 

(260,361)

 

(325,387)

 

(256,700)

 

 

17.          Going concern

 

The Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing these condensed consolidated half year financial statements.

 

18.          Financial Instruments

 

Exposure to currency risks arises in the normal course of the Group's business.  Derivative financial instruments are used to hedge exposure to all significant fluctuations in foreign exchange rates.  All of the Group's financial instruments have been assessed as Level 2 and comprise foreign exchange forward contracts.

 

The directors consider that the carrying amount of all financial assets and liabilities approximates to their fair value.

 

Fair value measurements as at 30 June 2017 are set out in the table below. These forward exchange contracts have been fair valued using forward exchange rates that are quoted in an active market.

 

 

 

At 30 June

2017

 

 

At 1 July

2016

 

At 31 December

2016

 

£'000

 

£'000

 

£'000

Financial assets:

 

 

 

 

 

Derivatives used for hedging

569

 

302

 

254

 

Financial liabilities:

 

 

 

 

 

Derivatives used for hedging

(11,949)

 

(20,357)

 

(24,101)

 

                   

 

 

19.          Disposals

         

In 2016 the Communications & Security division disposed of its ID business and its remaining Legal Intercept assets, from the former SOTECH business.  After disposals of intangible fixed assets and allocation of goodwill, the accounting loss on disposal in 2016 was £4.1m.  Further proceeds could be received over the following two years based on agreed targets; any such proceeds will be accounted for in the year of receipt.

 

                 

 

 

2016

 

 

 

£'000

 

 

 

 

Cash proceeds received

 

 

22,040

Intangible assets and allocated goodwill disposed of

 

 

(21,992)

Other net assets disposed of

 

 

(6,019)

Release from translation reserve

 

 

1,895

Net loss on disposal

 

 

(4,076)

 

 

20.          Retirement benefits

 

The UK defined benefit scheme closed to future benefit accrual from 5 April 2016 following a consultation process with members.  A one-off curtailment gain of £15,500,000 was credited to the income statement in 2016. As set out in notes 4 & 21, this one-off curtailment gain was treated as a non-underlying item. 

 

 

21.          Other matters

 

Seasonality

 

The Group's financial results have not historically been subject to significant seasonal trends.

 

Related party transactions

 

There were no significant related party transactions, other than the remuneration of key management personnel during the period.
 

21.          Other matters (continued)

 

Post balance sheet events

 

On 7 July 2017, Ultra announced that it had entered into a conditional merger agreement to acquire Sparton Corporation ("Sparton"), its 50/50 partner in the long-standing ERAPSCO joint venture, which develops, manufactures and supports all US sonobuoys supplied to the US DoD. The proposed acquisition values Sparton's total equity at approximately $234.8m (£180.6m) and as part of the acquisition, Ultra will repay Sparton's debt at completion. Completion of the deal is expected by 1 January 2018.  The Group also announced a placing of new ordinary shares; on 7 July 2017 a total of 7,047,168 ordinary shares of 5 pence were placed representing 9.9% of Ultra's issued ordinary share capital prior to the placing. Net proceeds received were £133.9m.

 

Non-statutory performance measures

 

In the analysis of the Group's operating results, earnings per share and cash flows, information is presented to provide readers with additional performance indicators that are prepared on a non-statutory basis. This presentation is regularly reviewed by management to identify items that are unusual and other items relevant to an understanding of the Group's performance and long-term trends with reference to their materiality and nature.

This additional information is not uniformly defined by all Companies and may not be comparable with similarly titled measures and disclosures by other organisations. The non-statutory disclosures should not be viewed in isolation or as an alternative to the equivalent statutory measure. Information for separate presentation is considered as follows:

•      Contract losses arising in the ordinary course of trading are not separately presented, however losses (and subsequent reversals) are separately disclosed in situations of a material dispute which are expected to lead to arbitration or legal proceedings.

•      One-off curtailment gain arising on closure of defined benefit pension scheme.

•      Material costs or reversals arising from a significant restructuring of the Group's operations, such as the S3 programme, are presented separately.

•      Disposals of entities or investments in associates or joint ventures, or impairments of related assets are presented separately.

•      The amortisation of intangible assets arising on acquisitions and impairment of goodwill or intangible assets are presented separately.

•      Other matters arising due to the Group's acquisitions such as adjustments to contingent consideration, payment of retention bonuses, acquisition and disposal costs and fair value adjustments for acquired inventory made in accordance with IFRS 13 are separately disclosed in aggregate.

•      Furthermore, IAS 37 requires the Group to discount provisions using a pre-tax discount rate that reflects the current assessment of the time value of money and the risks specific to the liability, this discount unwind is presented separately when the provision relates to acquisition contingent consideration.

•      Derivative instruments used to manage the Group's foreign exchange exposures are 'fair valued' in accordance with IAS 39. This creates volatility in the valuation of the outstanding instruments as exchange rates move over time. This has minimal impact on profit over the full term of the instruments, but can cause significant volatility on particular balance sheet dates, consequently the gain or loss is presented separately.

•      The defined benefit pension net interest charge arising in accordance with IAS 19 is presented separately.

•      The Group is cash-generative and reinvests funds to support the continuing growth of the business. It seeks to use an accurate and appropriate measure of the funds generated internally while sustaining this growth. For this, the Group uses operating cash flow, rather than cash generated by operations, as its preferred indicator of cash generated and available to cover non-operating expenses such as tax and interest payments. Management believes that using cash generated by operations, with the exclusion of net expenditure on property, plant and equipment and outflows for capitalised product development and other intangibles, would result in an under-reporting of the true cash cost of sustaining a growing business.

     

RESPONSIBILITY STATEMENT

 

We confirm that to the best of our knowledge:

(a)   these condensed financial statements have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting";

(b)   this half year report includes a fair review of the information required by Disclosure and Transparency Rule (DTR) 4.2.7R (indication of important events during the period and description of principal risks and uncertainties for the remainder of the financial year); and

(c)   this half year report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

 

By order of the Board

 

Rakesh Sharma                                                                                                               Amitabh Sharma

Chief Executive                                                                                                                  Group Finance Director

7 August 2017


This information is provided by RNS
The company news service from the London Stock Exchange
 
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Half-year Report - RNS