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RNS

Final Results

Released 07:00 05-Mar-2018

RNS Number : 6161G
Ultra Electronics Holdings PLC
05 March 2018
 

 

 

Embargoed until 0700                                                                                                          5 March 2018

 

AS IT RELATES TO THE TERMINATION OF THE MERGER WITH SPARTON, THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF EU REGULATION 596/2014

 

Preliminary Results for the Year Ended 31 December 2017

Ultra Electronics Holdings plc ("Ultra" or "the Group")

 

 

Year ended

31 Dec 2017

Year ended

31 Dec 2016

Change

Order intake

£901.4m

£778.3m

+15.8%

Revenue

£775.4m

£785.8m

              -1.3%

Underlying operating profit*(1)

£120.1m

£131.1m

              -8.4%

Underlying profit before tax*(2)

£110.0m

£120.1m

              -8.4%

IFRS profit before tax

£60.6m

£67.6m

            -10.4%

Underlying basic earnings per share(2)

116.7p

               134.6p

              -13.3%

Basic earnings per share

66.2p

82.8p

-20.0%

Dividend per share - final

35.0p

33.6p

             +4.2%

                  - total

49.6p

47.8p

             +3.8%

Net debt to EBITDA

x0.56

x1.76

 

           

* see notes on page 2

 

KEY POINTS

 

·    Results in line with revised November 2017 guidance

·    Continued strong operating cash performance with cash conversion of 97% (2016: 92%) 

·    Robust balance sheet with net debt of £74.5m at year end (2016: £256.7m)

·    Sound operating margins of 15.5% (2016: 16.7%)

·    Order intake strong, with momentum late in the year; 2018 opening order cover of 62% (2017: 56%)

·    Sparton merger terminated; £134m share buy-back to be implemented

 

Douglas Caster, Executive Chairman, commented: 

"2017 was a challenging year in the Group's core defence markets and, as previously reported, Ultra experienced delays to a number of programmes and contracts relatively late in the year. Overall this contributed to the underlying operating profit decline of 8.4%. The Group continued its focus on managing costs and efficiencies within the businesses, which enabled sound operating margins to be achieved. The Group's cash performance was strong, with a cash conversion of 97%, and follows a similar performance in 2016. Order intake in 2017 for delivery in future years was also strong, in part reflecting the expected upturn in the defence market cycle.

 

Ultra entered 2018 with good visibility.  The Group had an opening order book of £914m, which excludes over £1.5bn of expected mid-term orders from long-term positions, and an opening order cover on expected 2018 revenues of over 62%. As previously disclosed, the Board's expectations remain for the Group to make modest progress in underlying revenue and operating profit at constant currencies in 2018 after investing for the future through increased R&D and capital expenditure.

 

The proposed merger with Sparton was initiated following Sparton's decision to put itself up for sale in April 2016. We are disappointed with the outcome of the antitrust review that has led to Sparton's and Ultra's decision to mutually terminate the merger process.  This decision means that the relationship between Ultra and Sparton continues for now as joint venture partners through the ERAPSCO JV.  Ultra has supplied the US Navy with sonobuoys since the 1940s, whether through its predecessors, ERAPSCO or other affiliates.  With our world-leading technology in sonobuoys, Ultra expects to continue to serve this important customer for years to come. Through the share buy-back announced today, we intend to return the net proceeds of the previous equity raise to shareholders, whilst preserving balance sheet strength.

 

Ultra has extensive intellectual property, strong market positions, differentiated technologies, talented people and a strong balance sheet. The Group's core strengths include world-leading positions in many of its specialist capabilities. It has positions on many long-term platforms and programmes, significant exposure to the strengthening US defence budget, and growing demand for advanced defence technologies. This supports the Board's confidence in the Group's future."

(1) before the S3 programme, amortisation of intangibles arising on acquisitions, impairment charges, adjustments to contingent consideration net of acquisition and disposal related costs, and the Oman contract termination related costs.  IFRS operating profit was £61.5m (2016: £89.7m). See Note 2 for reconciliation.

(2) before the S3 programme, amortisation of intangibles arising on acquisitions, impairment charges, fair value movements on derivatives, unwinding of discount on provisions, defined benefit pension curtailment gain and interest charges, adjustments to contingent consideration net of acquisition and disposal related costs, the Oman contract termination related costs and, in the case of underlying earnings per share, before related taxation. Basic EPS 66.2p (2016: 82.8p). See Note 9 for reconciliation 

  Under the new revenue recognition standard IFRS 15 which is applied from 1 January 2018

 

FINANCIAL RESULTS

 

 

Year ended

31 December 2017

£m

Year ended

      31 December 2016

£m

Growth

Order book

 

 

 

      - Aerospace & Infrastructure

283.2

267.8

+5.8%

      - Communications & Security

258.7

227.0

+14.0%

      - Maritime & Land

355.5

304.5

+16.7%

Total order book

897.4

799.3

+12.3%

 

 

 

 

Revenue

 

 

 

      - Aerospace & Infrastructure

203.2

204.7

-0.7%

      - Communications & Security

242.7

259.0

-6.3%

      - Maritime & Land

329.5

322.1

+2.3%

Total revenue

775.4

785.8

-1.3%

Organic revenue movement *

 

 

-3.3%

 

 

 

 

Underlying operating profit*

 

 

 

      - Aerospace & Infrastructure

32.6

32.4

+0.6%

      - Communications & Security

28.2

39.7

-29.0%

      - Maritime & Land

59.3

59.0

+0.5%

Total underlying operating profit*

120.1

131.1

-8.4%

Organic underlying operating profit movement *

 

 

-7.1%

IFRS operating profit

61.5

89.7

-31.4%

 

 

 

 

Underlying operating margin*

 

 

 

      - Aerospace & Infrastructure

16.0%

15.8%

 

      - Communications & Security

11.6%

15.3%

 

      - Maritime & Land

18.0%

18.3%

 

Total underlying operating margin*

15.5%

16.7%

-120bps

 

 

 

 

Finance charges*

(10.1)

(11.0)

 

 

 

 

 

Underlying profit before tax*

110.0

120.1

-8.4%

IFRS profit before tax

60.6

67.6

-10.4%

 

 

 

 

Underlying operating cash flow*

116.5

120.4

-3.2%

Underlying operating cash conversion*

97%

92%

 

IFRS Cash generated by operations

97.4

112.0

-13.0%

Net debt to EBITDA

0.56x

1.76x

 

Net debt* at year-end

74.5

256.7

 

Bank interest cover*

11.9x

11.9x

 

Underlying earnings per share

116.7p

134.6p

-13.3%

* see notes below

 

underlying operating profit before the S3 programme, amortisation of intangibles arising on acquisition, impairment charge, adjustments to contingent consideration net of acquisition and disposal related costs, and the Oman contract termination related costs. IFRS operating profit was £61.5m (2016: £89.7m). See Note 2 for reconciliation.

organic growth (of revenue or profit) is the annual rate of increase or decrease in revenue or profit that was achieved at constant currencies, assuming that acquisitions made during the prior year were only included for the same proportion of the current year, and adjusted for disposals made during the prior year to reflect the comparable period of ownership.

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 the S3 programme, amortisation of intangibles arising on acquisition, impairment charges, fair value movements on derivatives, unwinding of discount on provisions, defined benefit pension curtailment gain and interest charges, adjustments to contingent consideration net of acquisition and disposal related cost, and the Oman contract termination related costs. Basic EPS 66.2p (2016: 82.8p). See Note 9 for reconciliation. 

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, R&D, LTIP share purchases and excluding cash outflows from the S3 programme, acquisition and disposal related payments and the Oman performance bond/ contract termination related costs.

EBITDA is the underlying operating profit before depreciation charges and before amortisation arising on internally generated intangible assets and on other, non-acquired, intangible assets. The figure is adjusted to remove the EBITDA generated by businesses up to the date of their disposal in the period.

net debt comprises borrowings, less cash and cash equivalents.

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

underlying order intake includes orders from acquisitions since acquisition date.

underlying order book growth excludes the impact of foreign exchange and the order book arising on acquisition.

 

Order intake for the year was £901.4m, a 15.8% increase over the £778.3m achieved in 2016. After adjusting for foreign exchange and disposals, the underlying increase was 12.0%. At the end of 2017 the order book was 12.3% higher than in 2016 at £897.4m (2016: £799.3m). The underlying increase was 16.8%, partially offset by a decrease of 4.5% arising from foreign exchange. Opening order cover for 2018 is 62% (2017: 56%).

 

Revenues of £775.4m represented a decrease of 1.3%, or £10.4m, on the prior year (2016: £785.8m). The 2016 revenues included a £13.3m contribution from the ID business, which was disposed of in August 2016. Revenues decreased organically by 3.3% owing to a slowdown in UK spending which accelerated during the latter part of the second half and a higher level of engineering activity compared to the prior year, some of which was unexpected due to the additional SEWIP module wins.  The weakening of sterling during the year meant there was a positive foreign exchange impact of 3.7% from the translation of overseas revenues. The average US dollar rate in 2017 was $1.29 compared to $1.35 in 2016.

 

Underlying operating profit* was £120.1m (2016: £131.1m), a decrease of 8.4% on the prior year and reflected the decline in revenues.  Foreign exchange increased profit by 0.5%, whilst the disposal of the ID business (2016: operating profit - £2.3m) in 2016 resulted in a profit reduction of 1.8%.  Profit therefore declined organically by 7.1%. 

 

As noted in August 2017 there was a higher proportion of development contracts in the Communications & Security division which required increased investment during the year. This, together with lower sales to the UK and the end of the UK Crypto production contract, contributed to the decreased underlying operating margin of 15.5% (2016: 16.7%).

 

Underlying profit before tax* was £110.0m (2016: £120.1m), after net financing charges* of £10.1m (2016: £11.0m).  The latter reflects the lower debt levels offset by higher US interest rates. Reported (IFRS) profit before tax was £60.6m (2016: £67.6m); the reconciliation to underlying profit before tax is set out on the next page.

 

The Group's underlying tax rate in the year increased to 21.6% (2016: 21.1%).

 

Underlying earnings per share decreased to 116.7p (2016: 134.6p). This decrease was due to the reduction of profit after tax and the dilutive impact of the share placing undertaken in July 2017 (see below) which increased the number of shares in issue by 7.05m. 

 

The proposed final dividend is 35.0p, bringing the total dividend for the year to 49.6p (2016: 47.8p). This represents an annual increase of 3.8%, with the dividend being covered 2.35x (2016: 2.8x) by underlying earnings per share. If approved, the dividend will be paid on 3 May 2018 to shareholders on the register at 6 April 2018.

 

Underlying operating cash flow* was £116.5m (2016: £120.4m) and the ratio of cash to underlying operating profit increased to 97% (2016: 92%). This represents the highest cash conversion percentage achieved since 2011. Excluding the annual pension deficit reduction payments of £9.5m (2016: £9.0m), cash conversion improved to 105% (2016: 99%).

 

Ultra's net debt* at the end of the year improved to £74.5m compared to £256.7m at the end of 2016. Net proceeds of £133.5m were raised from the July 2017 share placing. This, together with the strong cash flow performance, resulted in a net debt/EBITDA ratio improving to 0.56x (2016: 1.76x).

 

 

 

 

 

*See footnote on page 2

Reported (IFRS) profit before tax was £60.6m (2016: £67.6m) and reflected the combined effects of the elements detailed below:

 

All £m

         2017

         2016

Underlying profit before tax

110.0

120.1

Amortisation of intangibles arising on acquisition

(28.5)

(32.7)

Impairment charges

(1.6)

-

S3 programme

(7.8)

(6.5)

Net interest charge on defined benefit pensions

(2.7)

(3.0)

Gain/(loss) on fair value movements on derivatives

12.0

(19.1)

Acquisition and disposal related adjustments

(12.8)

(2.2)

Oman contract termination related costs

(8.0)

-

Unwinding of discount on provisions

-

(0.4)

Disposal loss (after intangible and goodwill eliminations)

-

(4.1)

Pension scheme curtailment gain

-

15.5

Reported IFRS profit before tax

60.6

67.6

 

The Group's Standardisation and Shared Services (S3) programme remains on track. S3 savings of £13.5m (2016: £6.9m) were realised in the period whilst costs on the programme increased to £7.8m (2016: £6.5m). £2.5m of these costs (2016: £2.7m) related to setting up our GBS capabilities in Rochester, New York and Wimborne, Dorset.

 

The gain on the mark-to-market valuation of our forward foreign exchange contracts and interest rate swap was £12.0m in 2017 (2016: £19.1m loss). This was primarily caused by the significant strengthening of sterling against the US dollar as at 31 December 2017 compared to 31 December 2016.

 

Acquisition and disposal related costs of £12.8m include those associated with the proposed Sparton Corporation ("Sparton") acquisition and 3 Phoenix staff retention payments which were put in place at the time of acquisition of that business. There was a £8.0m charge for legal fees relating to the Ithra (Oman) contract and a £1.6m impairment of an intangible asset. In 2018 there will be approximately £4m costs relating to the Sparton transaction charged to the profit and loss account. In addition, there will be charges relating to the unwinding of the $250m foreign exchange forward contract taken out to hedge the cost of the transaction.

 

The £4.1m disposal loss in 2016 represented the legal intercept assets disposed of in December 2016, offset by the gain on the divestment of the ID business. The Group's UK Defined Benefit pension scheme was closed to future accrual on 5 April 2016. This resulted in a one-off curtailment gain of £15.5m, which was recognised in 2016.

 

A detailed project has been undertaken to determine the impact of IFRS 15, the new revenue recognition standard. The 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 will change on certain contracts including identification of material rights. A small number of contracts 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. The timing of revenue recognised on the substantial majority of sale-of-goods contracts is not significantly affected with revenue continuing to be recognised as control of goods is passed to the customer.

 

If IFRS 15 had applied in 2017, revenues would have been £7.1m lower and operating profit would have been £2.4m lower.  The net impact to the 1 January 2018 opening balance sheet is a £11.4m reduction in net assets, £10.5m of this is a reduction to 'amounts receivable from contract customers' mainly due to changes in the timing of the revenue recognition on some of our development contracts.  The 1 January 2018 opening order book increases by £17.0m to £914.4m.  Further detail on the IFRS 15 impact assessment is set out in note 17.

*See footnote on page 2

 

INVESTING FOR GROWTH

 

Ultra continued its programme of R&D to position for medium to long-term growth, with total R&D spending in 2017 of £161.1m (2016: £146.9m), the highest it has ever been.  This represented a 10% increase and reflected a higher proportion of engineering contracts. The funding required is dependent on the type of engineering contracts awarded; some require Ultra to fund the development phase while others attract customer funding. In 2017 company funded investment was 3.9% of revenue at £29.9m (2016: £34.1m - 4.3%) while customer funding increased to 16.9% of revenue at £131.2m (2016: £112.8m - 14.4%).  The Group's three divisions are at different stages of their investment cycles and this mix is reflected in the total figure and will continue to vary as the divisions develop.  The Group continues to progress a wide-range of long-term growth opportunities across all eight market segments.

 

The S3 initiative is starting to yield tangible benefits. Key successes across the eight workstreams include a further 5% reduction in property footprint; the establishment of a UK indirect procurement IT system; the centralisation of payroll systems within the UK and the US; and the opening of the US shared service centre. Ultra is continuing a programme of IT investment in conjunction with the S3 project, with two Ultra businesses undertaking IT system ('ERP') implementations over the year and a number of others in their planning phase.  The Command & Sonar Systems business successfully went live in Q4 2017 and the PCS business achieved its key implementation dates, with its Cheltenham site going live in August 2017 and the Greenford site at the beginning of January 2018.  The final PCS site will go live in H1 2018.  A further five businesses are starting ERP implementations during 2018. 

 

SPARTON

 

In April 2016, the Board of Sparton Corporation ('Sparton') decided to seek a buyer for the entire Sparton group. Given that decision, Ultra considered the acquisition of Sparton made sound strategic sense and ultimately negotiated a merger agreement with Sparton. On 7 July 2017 Ultra announced its intention to merge its wholly-owned subsidiary with Sparton subject, inter alia, to the approval of the United States Department of Justice ('DOJ') under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ('HSR').  Following recent discussions with the DOJ, and competition concerns raised by it, Ultra and Sparton have mutually agreed to terminate the merger. 

 

The US Navy has indicated that it is now considering ways to increase competition in the sonobuoy procurement process over time, including between Ultra and Sparton.  The DOJ has stated that it intends to take steps to open an antitrust investigation into the ERAPSCO JV.  Ultra anticipates working closely with the US Navy during a transition to independently developing, producing and selling sonobuoys.

 

In the meantime, Ultra will continue to fulfil its obligations with Sparton under the ERAPSCO JV, which has been supplying sonobuoys to the US Navy under an Indefinite Delivery Indefinite Quantity ('IDIQ') contract since 2014. The current IDIQ period of performance will end in 2020 and the ERAPSCO JV submitted bids, in both November 2017 and January 2018, for the next two concurrent IDIQ contracts (for Fiscal years 2019-2023). Demand for sonobuoys from the US Navy is growing and sonobuoys continue to be a vital, strategic capability of the utmost importance for the US Navy and the ERAPSCO JV's international customers, which need reliable products and continuity of supply. It is also likely that sonobouys will become more complex in their design to counter the threats being faced today and in the future.

 

Ultra has world leading technology and expects to continue to play a significant role in this market.  Sonobuoys are complex electro-mechanical devices that are required to deploy and function reliably in harsh maritime operating environments after being launched from ASW platforms. As they are expendable devices, there is considerable focus on delivering the necessary capabilities at the lowest unit cost. Ultra believes that it is pre-eminent in knowing how to build the various sonobuoy products required by the US Navy and its international customers, and how to do so at a low unit cost. Ultra and Sparton, through the ERAPSCO JV, produce tens of thousands of sonobuoys each year and they are two of the very few defence manufacturers of these large volume, high tech products. This has required a culture of working together with the cooperation of the US Navy to value engineer sonobuoy designs.  In the future, the US Navy is likely to choose for any new devices to be supplied by more than just the ERAPSCO partners. Nevertheless, Ultra believes that a considerable period of time will be needed by any new entrants to design and produce sonobuoys to meet the rigorous performance standards of the customer.

 

In anticipation of the acquisition of Sparton, in July 2017 the Group completed a placing of new ordinary shares representing approximately 9.9% of Ultra's existing issued share capital, raising net proceeds of approximately £134m to part fund the acquisition. The Group remains highly cash generative with good balance sheet strength and the Group remains comfortable with debt levels of approximately 1.5x net debt to EBITDA. The Group therefore intends to undertake, over time, a share buy-back through on-market purchases in order to return the net proceeds of the earlier equity issue to its shareholders. The existing buy-back authority from the 2017 AGM allows for up to 7,047,169 shares to be bought back. Additional authority will be sought at the 2018 AGM. Any shares bought back are expected to be cancelled.

*See footnote on page 2

 

BOARD

 

A number of Board changes took place during the year. Geeta Gopalan and Victoria Hull were appointed to the Board as Non-Executive Directors with effect from 28 April 2017. Mark Anderson, Group Marketing Director, stepped down from the Board on 1 June 2017.  

 

Rakesh Sharma stepped down as Chief Executive and from the Board on 10 November 2017 and the current Chairman, Douglas Caster, assumed the role of Executive Chairman until a successor is appointed. Douglas Caster was Chief Executive of Ultra from 2005 to 2010.

 

The search for a new Chief Executive is well underway and the Group will update the market when appropriate.

 

OPERATIONAL REVIEW

 

Aerospace & Infrastructure

 

·     Revenue decreased by 0.7% to £203.2m (2016: £204.7m)

·     Underlying operating profit increased by 0.6% to £32.6m (2016: £32.4m)

·     Order book was up by 5.8% to £283.2m (2016: £267.8m)

 

Aerospace & Infrastructure revenues were broadly flat.  The Precision Control Systems business saw increased revenues through development work on equipment for the Mitsubishi Regional Jet and a ramp up in production activity on certain armoured vehicle programmes, offset by lower license sales compared to 2016, and lower demand for industrial products elsewhere in the division. 

The division's margins improved to 16.0% (2016: 15.8%). This was helped by the increased revenues from higher margin sales in the period and an improved operational performance at our aerospace business, which benefitted from slightly lower R&D expenditure as a number of large programmes approached production. Margins also benefitted from S3 related business consolidations and cost reduction initiatives.  2018 margins are expected to reduce due to the impact of foreign exchange.

 

The division's order book increased compared to 2016 owing in part to the orders noted below, which will underpin the division's future performance:

 

·     Orders for the electronic control unit that manages the US Air Force Joint Strike Fighter aircraft engine's Electrical Ice Protection System amounting to US$36m

 

·     Securing the position on Saab's new Gripen fighter aircraft, with an initial production order valued at £9m, to provide it with Ultra's HiPPAG airborne compressor system solution

 

·     Partnering with NuScale Power in the US to submit the first-ever Small Modular Reactor design certification application to the US Nuclear Regulatory Commission

*See footnote on page 2

 

Communications & Security

 

·     Revenue decreased by 6.3% to £242.7m (2016: £259.0m, including £13.3m from ID business)

·     Underlying operating profit decreased by 29.0% to £28.2m (2016: £39.7m, includes £2.3m profit from ID business)

·     Order book increased by 14.0% to £258.7m (2016: £227.0m)

 

Communications & Security's 2016 results include a part-year contribution from the ID business, which was disposed of in August 2016. Revenues in the division were impacted by the slowdown in UK spending, with delays to a number of crypto programmes, and by the increase in a number of contracts in the development phase at Herley in the US. Forensic Technology, based in Canada, increased revenues as a result of bullet identification product sales to customers in SE Asia and TCS, our Montreal based military radio business, continued to grow in 2017.

 

The Communications & Security division currently has a greater proportion of contracts in the early development phase. Consequently, margins reduced to 11.6% compared to 15.3% in 2016. These include the US Navy Surface Electronic Warfare Improvement Programme and an Electronic Warfare contract for the F-15 aircraft platform, which together required investment in excess of £6m in 2017.  The customer-requested pause in a UK Crypto contract also reduced profits in 2017.   2018 margins are expected to be higher than achieved this year.

 

The division's order book continued to increase, ending the year at £258.7m.  This was due to good order intake at Herley and some notable wins outlined below:

 

·     The securing of a £16.6m programme to support the provision of advanced surveillance capability until 2019

 

·     A $16.2m contract awarded by the US Department of the Navy to design, develop, integrate and install a variety of cyber-secure systems for critical infrastructure control and monitoring

 

·     The award of an $18m multi-layered surveillance and security system to a programme for the oil and gas industry

 

Maritime & Land

 

·     Revenue increased by 2.3% to £329.5m (2016: £322.1m)

·     Underlying operating profit increased by 0.5% to £59.3m (2016: £59.0m)

·     Order book increased by 16.7% to £355.5m (2016: £304.5m)

 

Revenues increased in the Maritime & Land division, driven by higher sales of US and international sonobuoys, and there was a positive FX impact. These helped offset the slowdown in UK spending, where our Command & Sonar Systems business experienced delays to orders that had been expected in the year. Increased torpedo sales to the US Navy from our Ocean Systems business compensated for strong torpedo countermeasure sales to the Australian Navy by Avalon Systems in 2016.  Revenues from the new Indian Navy contract win also contributed this year.

 

The order book grew significantly over the previous year owing to an Indian Navy contract win and the maritime propulsion system order. Ocean Systems also won a number of countermeasures contracts, including a $10m order from the UK MOD. Our US sonobuoy business, USSI, had a strong order intake year, particularly from international customers.

 

Within Maritime & Land, margins remained at a high level, ending the year at 18.0% (2016: 18.3%), largely owing to the production phase of a number of US sonobuoy contracts.  2018 margins are expected to reduce due to mix of development and production contracts.

The order book increased by 16.7%, owing to a number of contract wins that will underpin future performance including:

 

·     A £30m contact in partnership with Mahindra for the supply of the first batch of Surface Ship Torpedo Defence Systems to the Indian Navy

 

·     A £37m programme for a maritime propulsion system

 

·     An initial $8.5m contract for the production of MK48 Torpedo Nose Array subassemblies with options to extend the contract for a further three years that could increase the value of the contract to $18m

 

*See footnote on page 2

 

MARKET OVERVIEW

 

The global aerospace and defence industries have been experiencing upward trends based upon increased defence spending in the US and Europe and higher aircraft production rates, which in turn have supported elevated demand for commercial aerospace suppliers.

 

Continuing instability within a number of key regions, coupled with improving economic conditions around the world, is set to increase overall global defence expenditure in 2018 by 3.3%. This is being driven by the largest year-on-year increase in forecast US spending since 2008 (Source: Janes Defence Budgets Report). The UK however is likely to stay flat until the delayed Defence Review (renamed the Defence Modernisation Programme) is completed mid-year.

 

In Asia-Pacific, strategic defence factors are becoming a more prominent factor behind rising expenditure. In recent years Chinese actions in the East and South China Sea, the North Korean ballistic missile threat and insurgencies throughout South East Asia have all caused additional funding to be diverted towards defence.

 

RISKS AND UNCERTAINTIES

 

The Group faces a number potential risks and uncertainties that may have a material impact on its performance in 2018 (and beyond), and, as a consequence of which, actual results may differ materially from expected and/or historic results. During the year, the Board has endorsed the implementation of the risk management framework across the Ultra businesses. The framework provides the Board with a formal process to identify the principal risks that can undermine the Group's strategic plans, future performance, solvency and liquidity. The Group's principal risks are listed below. These risks are managed by the Executive Team and are key matters for the Board. An explanation of these risks, and the robust business strategies that Ultra uses to manage and mitigate such risks, can be found in the annual report which is available for download at www.ultra-electronics.com/investors/annual-reports.aspx. 

 

Key risks identified by the Board include:

 

1.   Growth

2.   Delivering change

3.   People and culture

4.   Information management and security

5.   Supply chain

6.   Governance and internal controls

7.   Pensions

8.   Legislation/regulation

9.   Health, safety and environment

 

There are strong indications of a return to growth in the defence market, particularly in the US. Our use of market-facing segment strategies and improvements in our planning for future political and economic realities in our key markets leaves us well placed to exploit this upturn. Programme delays or cancellations and pressures in the funding of UK defence programmes continue to present a risk to Ultra.

 

As part of Ultra's continuous drive for operational improvements there are a number of major change management programmes being implemented across the Group. The business benefits realised to date and improvements in good practice on controls and processes across major change programmes means that the overall level of risk for the 'Delivering Change' risk is unchanged.   

 

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 judgements and assumptions are unchanged, that appropriate mitigations are in place and that emerging risks are captured.

 

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 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 risks as discussed above

 

The Directors' long-term viability statement is included in the annual report and accounts.

 

OUTLOOK

 

The Group entered 2018 with good visibility. The Group had an opening order book of £914m, which excludes over £1.5bn of expected orders from long-term positions, and an opening order cover on expected 2018 revenues of over 62%. The Group currently expects to face a foreign exchange headwind in 2018; it has a US$ budgeted exchange rate of $1.45 for 2018. The 2018 effective tax rate is expected to be broadly flat on 2017. Revenue performance is expected to be within customary weightings with a slightly heavier second half weighting to trading performance. As previously disclosed, the Board's expectations remain for the Group to make modest progress in underlying revenue and operating profit at constant currencies in 2018 after investing for the future through increased R&D and capital expenditure.

 

Ultra has extensive intellectual property, strong market positions, differentiated technologies, talented people and a strong balance sheet. The Group's core strengths include world-leading positions in many of its specialist capabilities. It has positions on many long-term platforms and programmes, significant exposure to the strengthening US defence budget, and growing demand for advanced defence technologies. This supports the Board's confidence in the Group's future.

 

- End -

 

 Under the new revenue recognition standard IFRS 15 which is applied from 1 January 2018

 

Enquiries:

 

Ultra Electronics Holdings plc                                                                                      020 8813 4307

                                                                                                                       www.ultra-electronics.com 

Douglas Caster, Executive Chairman                                                                                                     

Amitabh Sharma, Group Finance Director                                                                                             

Susan McErlain, Corporate Affairs Director                                                                     07836 522722

 

James White, MHP Communications                                                                              020 3128 8756

 

NATURE OF ANNOUNCEMENT

 

This preliminary announcement of Ultra's audited results for the year ended 31 December 2017 does not serve as the dissemination announcement as required by Rule 6.3 of the Disclosure and Transparency Rules ('DTR'). A separate dissemination announcement will be made when the annual financial report is made public in accordance with DTR requirements.

 

This preliminary announcement 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 preliminary announcement 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 preliminary announcement 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.

 

The person responsible for arranging the release of this announcement on behalf of the company is Amitabh Sharma, Group Finance Director.

 

Further information about Ultra:

 

Ultra Electronics is a group of businesses which manage a portfolio of specialist capabilities, generating highly differentiated solutions and products in the defence & aerospace, security & cyber, transport and energy markets by applying electronic and software technologies in demanding and critical environments to meet customer needs.

 

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

 

·     Aerospace

·     Land

·     Communications

·     Maritime

·     C2ISR

·     Nuclear

·     Infrastructure

·     Underwater Warfare

Market segment environment

 

Aerospace (17% of 2017 Group revenue, 2016: 17%) - The commercial aerospace sector continues to grow, with major manufacturers forecasting the need for between 35,000 and 42,000 jet airliners over the next 20 years. A backlog exceeding 14,000 aircraft shows a growth in platform numbers, driven by the demand for new aircraft in developing regions, as well as replacement aircraft for ageing fleets in more established markets. Demand for defence and military aircraft is also increasing, due to rising global tensions. Countries such as South Korea, Japan, Saudi Arabia and the UAE are increasing spend on purchase and development of next generation military equipment.

 

Infrastructure (4% of 2017 Group revenue, 2016: 4%) - Transportation, including airport and rail systems, remains an area of strong investment worldwide. In addition, increasing global demand for energy is resulting in investment in power generation, power distribution, secure power management and the renewables market. Energy dominates the global trend in smart infrastructure, with Smart Grid and secure energy management lying at the heart of Smart Cities and Critical National Infrastructure. Although infrastructure demand is largely being driven by China, India, and the Middle East and North Africa regions, at least 50% of the global market for smart solutions lies in Europe and North America.

 

Nuclear (8% of 2017 Group revenue, 2016: 8%) - With over 445 commercial nuclear power reactors operating in 29 countries worldwide and providing over 11% of the world's electricity the focus in Western markets has largely shifted to safety system upgrades, life extensions, emergency management and plant sustainment programmes. The UK however, is proceeding with a new commercial model it has pioneered in support of new nuclear build ambitions and a further new 61 reactors are under construction, mainly in emerging economies. With the nuclear market being a highly-regulated one and the qualification costs of sensors and products being extremely high, the sector retains many barriers to entry.

 

Communications (16% of 2017 Group revenue, 2016: 15%) - This is a broad market, spanning airborne, air-to-ground, ground-based, underwater and ship-borne communications, each encompassing a diverse range of requirements and capabilities. A continued demand for increased bandwidth and broader connectivity, coupled with a need for multi-platform and multi-user interoperability, exists within both military and security sectors. As nations seek to modernise their systems, the ability to deliver security across real-time voice and data with ad-hoc mesh capabilities has become essential.

 

C2ISR (19% of 2017 Group revenue, 2016: 21%) - Large amounts of interconnected data collected from sensory equipment generate a need to efficiently receive, understand, filter and transmit useable information for government, security and critical national infrastructure operations. Within defence, C2ISR remains a priority capability due to continually rising global tensions and increased investment in modern warfare systems. Military solutions across a variety of platforms continue to drive the demand for ISTAR. Increased capability of sensors and communications solutions, along with increased interoperability and mobility, provides timely situational awareness that is critical to combating emergent threats.

 

Underwater Warfare (25% of 2017 Group revenue, 2016: 25%) - Growing global trends in large-scale submarine procurement, mainly led by Russia and China, pose a considerable threat as nations invest in projecting their power. Numerous smaller nations, particularly in Asia Pacific and the Middle East, are also rapidly procuring submarines in efforts to protect their national interests. The underwater battlespace is complex and consists of a combination of airborne, surface and subsurface platforms. Improvements in stealth and submerged endurance of the modern submarine have catalysed the development and procurement of a new generation of airborne anti-submarine warfare sensors, sonar systems and advanced torpedoes to track and detect underwater threats.

 

Maritime (8% of 2017 Group revenue, 2016: 7%) - Naval spending is increasing as world powers continue employing naval presence to control strategic areas of the world's oceans. The US, UK, Australia and Canada have all recently adopted national shipbuilding strategies to stimulate long-term new ship construction to meet evolving threats. Additionally, nations are coming under pressure to establish an indigenous capability in new production programmes, making technology transfer an increasingly important factor to win work in the export market.

 

Land (3% of 2017 Group revenue, 2016: 3%) - Mounting regional instability is generating requirements for lighter tanks, armoured personnel carriers, mine-resistant ambush protected vehicles and unmanned ground vehicles. Additionally, the concept of the dismounted soldier as an effective electronics and weapons platform is now widely accepted and developments are underway to improve situational awareness and soldier-machine interfaces both when mounted in the vehicle, as well as when dismounted and remote from it.

 

 

 

 

 

Ultra Electronics Holdings plc

Results for the Year Ended 31 December 2017

Consolidated Income Statement

                                                                                

 

 

 

 

 

 

 

2017

2016

 

Note

£'000

£'000

 

 

 

 

 

 

 

 

Revenue

1

775,400

785,764

Cost of sales

 

(545,178)

(536,561)

Gross profit

 

230,222

249,203

 

 

 

 

Other operating income

 

249

1,770

Distribution costs

 

(1,066)

(1,081)

Administrative expenses

 

(134,857)

(144,893)

Other operating expenses

 

(15,648)

(8,777)

Oman contract termination costs

4

(7,958)

-

Impairment charge

2

(1,608)

-

S3 programme

 

(7,850)

(6,497)

Operating profit

 

61,484

89,725

Loss on disposals (net)

3

-

(4,076)

Retirement benefit scheme curtailment gain

15

-

15,500

Investment revenue

5

12,439

197

Finance costs

6

(13,331)

(33,725)

Profit before tax

1

60,592

67,621

Tax

7

(11,666)

(9,363)

Profit for the year

Attributable to:

 

48,926

58,258

  Owners of the Company

 

48,956

58,260

  Non-controlling interests

 

(30)

(2)

 

 

 

 

Earnings per ordinary share (pence)

 

 

 

 

 

 

 

 

- basic*

9

66.2

82.8

 

- diluted*

9

66.1

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.

 

Ultra Electronics Holdings plc

Results for the Year Ended 31 December 2017

Consolidated Statement of Comprehensive Income

 

 

 

 

 

 

2017

2016

 

 

£'000

£'000

 

 

 

 

Profit for the year

 

48,926

58,258

 

 

 

 

Items that will not be reclassified to profit or loss:

 

 

 

Actuarial profit/(loss) on defined benefit pension schemes

 

24,135

(49,343)

Tax relating to items that will not be reclassified

 

(4,113)

9,973

Total items that will not be reclassified to profit or loss

 

20,022

(39,370)

 

 

 

 

Items that may be reclassified to profit or loss:

 

 

 

Exchange differences on translation of foreign operations

 

(44,089)

99,349

Reclassification of exchange differences on disposals

 

-

(1,895)

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

 

20,567

(43,078)

Transfer from profit and loss on cash flow hedge

 

27

-

Profit on cash flow hedge

 

407

-

Tax relating to items that may be reclassified

 

(74)

43

Total Items that may be reclassified to profit or loss

 

(23,162)

54,419

 

 

 

 

Other comprehensive income for the year

 

(3,140)

15,049

 

 

 

 

Total comprehensive income for the year

 

45,786

73,307

Attributable to:

 

 

 

  Owners of the Company

 

45,816

73,309

  Non-controlling interests

 

(30)

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ultra Electronics Holdings plc

Results for the Year Ended 31 December 2017

Consolidated Balance Sheet

 

 

 

 

 

 

2017

2016

 

Note

£'000

£'000

 

 

 

 

Non-current assets

 

 

 

Goodwill

10

394,529

415,593

Other intangible assets

 

136,889

173,637

Property, plant and equipment

 

59,150

66,195

Deferred tax assets

 

15,659

21,377

Derivative financial instruments

 

2,025

3

Trade and other receivables

12

32,225

16,352

 

 

640,477

693,157

 

 

 

 

Current assets

 

 

 

Inventories

11

76,627

78,177

Trade and other receivables

12

205,627

215,731

Tax assets

 

11,127

9,444

Cash and cash equivalents

 

149,522

74,625

Derivative financial instruments

 

437

251

 

 

443,340

378,228

 

 

 

 

Total assets

 

1,083,817

1,071,385

 

 

 

 

Current liabilities

 

 

 

Trade and other payables

13

(215,080)

(193,243)

Tax liabilities

 

(2,255)

(7,339)

Derivative financial instruments

 

(11,203)

(12,507)

Borrowings

 

(51,752)

-

Short-term provisions

14

(8,665)

(16,633)

 

 

(288,955)

(229,722)

 

 

 

 

Non-current liabilities

 

 

 

Retirement benefit obligations

15

(82,732)

(113,177)

Other payables

13

(8,114)

(9,972)

Deferred tax liabilities

 

(11,337)

(6,555)

Derivative financial instruments

 

(2,688)

(11,594)

Borrowings

 

(172,227)

(331,325)

Long-term provisions

14

(5,553)

(5,469)

 

 

(282,651)

(478,092)

 

 

 

 

Total liabilities

 

(571,606)

(707,814)

 

 

 

 

Net assets

 

512,211

363,571

 

 

 

 

Equity

 

 

 

Share capital

 

3,887

3,523

Share premium account

 

200,911

64,020

Own shares

 

(2,581)

(2,581)

Hedging reserve

 

(48,059)

(68,986)

Translation reserve

 

95,403

139,492

Retained earnings

 

 262,611

228,034

Equity attributable to owners of the Company 

 

512,172

363,502

Non-controlling interests

 

39

69

Total equity

 

512,211

363,571

                                                                      
 

Ultra Electronics Holdings plc

Results for the Year Ended 31 December 2017

Consolidated Cash Flow Statement

 

 

 

 

 

Note

2017

2016

 

 

£'000

£'000

 

 

 

 

Net cash flow from operating activities

16

77,565

92,834

 

 

 

 

Investing activities

 

 

 

Interest received

 

455

197

Purchase of property, plant and equipment

 

(7,098)

(4,645)

Proceeds from disposal of property, plant and equipment

 

102

293

Expenditure on product development and other intangibles

 

(5,680)

(2,728)

Disposal of subsidiary undertakings

 

-

22,040

Acquisition of subsidiary undertakings

 

-

(5,199)

 

Net cash (used in)/from investing activities

 

(12,221)

9,958

 

 

 

 

Financing activities

 

 

 

Issue of share capital

 

137,255

2,976

Dividends paid

 

(34,959)

(32,583)

Loan syndication costs

 

(2,040)

-

Repayments of borrowings

 

(168,975)

(114,419)

Proceeds from borrowings

 

83,493

60,000

Minority investment

 

-

2,000

Net cash from/(used in) financing activities

 

14,774

(82,026)

 

 

 

 

Net increase in cash and cash equivalents

 

80,118

20,766

Cash and cash equivalents at beginning of year

 

74,625

45,474

Effect of foreign exchange rate changes

 

(5,221)

8,385

 

 

 

 

Cash and cash equivalents at end of year

 

149,522

74,625

 

 

 

 

 

 

Ultra Electronics Holdings plc

Results for the Year Ended 31 December 2017

Consolidated Statement of Changes in Equity

 

 

 

 

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 year

-

-

-

-

-

58,260

(2)

58,258

Other comprehensive income for the year

-

-

-

(43,078)

97,454

(39,327)

-

15,049

Total comprehensive income for the year

-

-

-

(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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2017

3,523

64,020

(2,581)

(68,986)

139,492

228,034

69

363,571

 

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

-

48,956

(30)

48,926

Other comprehensive income for the year

-

-

-

20,927

(44,089)

20,022

-

(3,140)

Total comprehensive income for the year

-

-

-

20,927

(44,089)

68,978

(30)

45,786

 

 

 

 

 

 

 

 

 

Issue of share capital

352

133,195

-

-

-

-

-

133,547

Equity-settled employee share schemes

12

3,696

-

-

-

682

-

4,390

Dividend to shareholders

-

-

-

-

-

(34,959)

-

(34,959)

Tax on share-based payment transactions

-

-

-

-

-

(124)

-

(124)

Balance at 31 December 2017

3,887

200,911

(2,581)

(48,059)

95,403

262,611

39

512,211

                     

 

Ultra Electronics Holdings plc

Results for the Year Ended 31 December 2017

Notes

1.  Segment information

 

(i)      Revenue by segment

2017

2016

 

External revenue

Inter segment

Total

External revenue

Inter segment

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

203,174

10,219

213,393

204,685

8,114

212,799

242,708

7,000

249,708

258,975

2,807

261,782

329,518

14,920

344,438

322,104

21,869

343,973

-

(32,139)

(32,139)

-

(32,790)

(32,790)

775,400

-

775,400

785,764

-

785,764

 

 

(ii)     Profit by segment

 

2017

 

Aerospace & Infrastructure

£'000

Communications

 & Security

£'000

Maritime

& Land

£'000

 

 

    Total

   £'000

 

 

 

 

 

Underlying operating profit

32,638

28,235

59,263

120,136

Amortisation of intangibles arising on acquisition

(1,136)

(20,070)

(7,242)

(28,448)

Impairment charge

-

(1,608)

-

(1,608)

Oman contract termination costs

(7,958)

-

-

(7,958)

Adjustments to contingent consideration net of acquisition and disposal related costs

1,163

(366)

(13,585)

(12,788)

S3 programme

(1,085)

(3,446)

(3,319)

(7,850)

Operating profit

23,622

2,745

35,117

61,484

 

 

 

 

 

Investment revenue

 

 

 

12,439

Finance costs

 

 

 

(13,331)

Profit before tax

 

 

 

60,592

Tax

 

 

 

(11,666)

Profit after tax

 

 

 

48,926

 

The acquisition and disposal related costs of £12,788,000 include those associated with the proposed Sparton Corporation acquisition and 3 Phoenix staff retention payments which were put in place at the time of the acquisition of that business.

 

The S3 programme is the Group's Standardisation & Shared Service Programme.

 

 

 

 

1.  Segment information (continued)

 

    (b)    Profit by segment

 

 

2016

 

Aerospace & Infrastructure

£'000

Communications

& Security

£'000

Maritime

& Land

£'000

 

     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 and disposal related costs

(337)

(1,457)

(463)

(2,257)

S3 programme

(2,594)

(2,406)

(1,497)

(6,497)

Operating profit

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

 

 

(iii)   Capital expenditure, additions to intangibles, depreciation and amortisation

 

 

Capital expenditure and additions to intangibles (excluding goodwill and acquired intangibles)

Depreciation

and amortisation

 

2017

 2016

2017

 2016

 

£'000

£'000

£'000

£'000

 

 

 

 

 

Aerospace & Infrastructure

3,546

1,647

4,783

5,894

Communications & Security

4,840

3,460

25,516

34,127

Maritime & Land

4,392

2,266

11,862

9,512

Total

12,778

7,373

42,161

49,533

 

The 2017 depreciation and amortisation expense includes £31,995,000 of amortisation charges (2016: £38,034,000) and £10,166,000 of property, plant and equipment depreciation charges (2016: £11,499,000). 

 

(iv)  Total assets by segment

           

 

 


2017

 
2016

 

 

 

£'000

£'000

 

 

 

 

 

Aerospace & Infrastructure

 

 

227,932

233,110

Communications & Security

 

 

428,884

463,713

Maritime & Land

 

 

248,231

268,862

 

 

 

905,047

965,685

Unallocated

 

 

178,770

105,700

Consolidated total assets

 

 

1,083,817

1,071,385

 

 

 

 

1.    Segment information (continued)

 

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

 

 

(v)   Total liabilities by segment

           

 

 

2017

2016

 

 

 

£'000

£'000

 

 

 

 

 

Aerospace & Infrastructure

 

 

61,376

55,751

Communications & Security

 

 

81,443

71,832

Maritime & Land

 

 

102,085

104,042

 

 

 

244,904

231,625

Unallocated

 

 

326,702

476,189

Consolidated total liabilities

 

 

571,606

707,814

 

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

 

 

(vi)  Revenue by destination

           

 

 

2017

2016

 

 

 

£'000

£'000

 

 

 

 

 

United Kingdom

 

 

161,293

185,135

Continental Europe

 

 

78,199

82,818

Canada

 

 

22,844

18,617

USA

 

 

384,330

391,754

Rest of World

 

 

128,734

107,440

 

 

 

775,400

785,764

 

 

(vii) Other information (by geographic location)

 

Non-current assets

Total assets

Additions to property, plant & equipment and intangible assets (excluding acquisitions)

 

2017

2016

2017

2016

2017

2016

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

United Kingdom

206,433

205,253

342,792

344,157

4,742

3,213

USA

317,613

362,313

426,826

478,083

6,069

3,356

Canada

91,057

96,449

123,646

126,995

1,341

767

Rest of World

7,689

7,762

11,784

16,450

626

37

 

622,792

671,777

905,048

965,685

12,778

7,373

Unallocated

17,685

21,380

178,769

105,700

-

-

 

640,477

693,157

1,083,817

1,071,385

12,778

7,373

 

 

 

2.   Additional non-statutory performance measures

 

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

 

 

2017

2016

 

£'000

£'000

 

 

 

 

Operating profit

61,484

89,725

 

Amortisation of intangibles arising on acquisition

28,448

32,655

 

Impairment charge

1,608

-

 

Adjustments to contingent consideration net of acquisition and disposal related costs

12,788

2,257

 

Oman contract termination costs

7,958

-

 

S3 programme

7,850

6,497

 

Underlying operating profit

120,136

131,134

 

 

 

 

 

Profit before tax

60,592

67,621

 

Amortisation of intangibles arising on acquisition

28,448

32,655

 

Impairment charge

1,608

-

 

Adjustments to contingent consideration net of acquisition and disposal related costs

12,788

2,257

 

Unwinding of discount on provisions

-

367

 

(Gain)/loss on fair value movements of derivatives

(11,983)

19,103

 

Net interest charge on defined benefit pensions

2,741

2,983

 

Retirement benefit scheme curtailment gain

-

(15,500)

 

Oman contract termination costs

7,958

-

 

S3 programme

7,850

6,497

 

Loss on disposals (net)

-

4,076

 

Underlying profit before tax

110,002

120,059

 

 

 

 

 

Cash generated by operations

97,432

112,002

 

Purchase of property, plant and equipment

(7,098)

(4,645)

 

Proceeds on disposal of property, plant and equipment

102

293

 

Expenditure on product development and other intangibles

(5,680)

(2,728)

 

Oman contract termination related costs/Oman performance bond

9,836

8,230

 

S3 programme

8,949

5,613

 

Acquisition and disposal related payments

12,966

1,669

 

Underlying operating cash flow

116,507

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 'underlying' 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. The non-statutory performance measures are consistent with how business performance is planned and reported within the internal management reporting to the Divisional management teams, Executive Committee and to the Board. Some of the measures are used for setting remuneration targets. The Group also uses 'organic' performance measures for the order book, order intake and the income statement. 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:

 

 

2.    Additional non-statutory performance measures (continued)

 

•    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 the 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.

•    EBITDA is the underlying operating profit before depreciation charges and before amortisation arising on internally generated intangible assets and on other, non-acquired, intangible assets. The figure is adjusted to remove the EBITDA generated by businesses up to the date of their disposal in the period.

•    Net debt comprises loans and overdrafts less cash and cash equivalents. The determination of net debt is set out in note 16.

 

3.    Disposals

                

The Communications & Security division disposed of its ID business in August 2016 and its remaining legal intercept assets, from the former SOTECH business, in December 2016. Cash proceeds of £22m were received in the prior year.  After disposals of intangible fixed assets and allocation of goodwill, the accounting loss on disposal in the prior year 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.

 

           

 

 

2017

2016

 

 

 

£'000

£'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)

4.    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 to pursue claims against the customer on behalf of the interested parties. In 2017, £8.0m (2016: £nil) of legal costs associated with the Oman Airport IT contract termination were charged to the income statement. 

 

 

5.    Investment revenue

           

 

 

2017

2016

 

 

 

£'000

£'000

 

 

 

 

 

Bank interest

 

 

456

197

Fair value movement on derivatives

 

 

11,983

-

 

 

 

12,439

197

 

6.   Finance costs

           

 

 

2017

2016

 

 

 

£'000

£'000

 

 

 

 

 

Amortisation of finance costs of debt

 

 

1,281

848

Interest payable on bank loans, overdrafts and other loans

9,309

10,424

Total borrowing costs

 

 

10,590

11,272

Retirement benefit scheme finance cost

 

 

2,741

2,983

Unwinding of discount on provisions

 

 

-

367

Fair value movement on derivatives

 

 

-

19,103

 

 

 

13,331

33,725

 

 

7.    Tax

           

 

 

2017

2016

 

 

 

£'000

£'000

Current tax

 

 

 

 

United Kingdom

 

 

2,319

3,701

Overseas

 

 

3,710

11,205

 

 

 

6,029

14,906

Deferred tax

 

 

 

 

Origination and reversal of temporary differences

 

7,676

(7,124)

(Recognition)/de-recognition of deferred tax assets

 

 

(2,077)

1,576

US tax rate change

 

 

38

-

UK tax rate change

 

 

-

5

 

 

 

5,637

(5,543)

 

 

 

 

 

Total

 

 

11,666

9,363

             

 

 

 

8.    Dividends

   

 

 

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

 

 

 

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

11,312

9,952

 

 

 

34,959

32,583

 

 

 

 

 

Proposed final dividend for the year ended 31 December 2017

of 35.0p (2016: 33.6p) per share

 

27,124

 

23,597

 

 

The 2017 proposed final dividend of 35.0p per share is proposed to be paid on 3 May 2018 to shareholders on the register at 6 April 2018. It was approved by the Board after 31 December 2017 and has not been included as a liability as at 31 December 2017.

 

 

 

9.    Earnings per share

 

 

 

2017

2016

 

 

 

Pence

Pence

 

 

 

Basic underlying (see below)

116.7

134.6

Diluted underlying (see below)

116.5

134.5

Basic

66.2

82.8

Diluted

66.1

82.8

 

The calculation of the basic, underlying and diluted earnings per share

is based on the following data:

           

 

 

  2017

2016

 

 

 

 

£'000

£'000

 

Earnings

 

 

 

 

 

Earnings for the purposes of earnings per share being profit for

the year

 

 

48,956

                               58,260

 

 

 

 

 

 

 

Underlying earnings

 

 

 

 

 

Profit for the year

48,956

58,260

 

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

(9,411)

16,008

 

Amortisation of intangibles arising on acquisition (net of tax)

20,005

22,419

 

Unwinding of discount on provisions (net of tax)

-

367

 

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


10,394


2,100

 

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

2,275

2,386

 

Retirement benefit scheme curtailment gain (net of tax)

-

(12,400)

 

Impairment charges (net of tax)

997

-

 

Oman contract termination costs (net of tax)

7,097

-

 

S3 programme (net of tax)

5,983

5,503

 

Disposals (net of tax)

-

48

 

Earnings for the purposes of underlying earnings per share

86,296

94,691

 

 

 

 

 

The adjustments to profit are explained in note 2.

 

 

 

 

 

 

2017

2016

 

 

 

Number of shares

Number of shares

The weighted average number of shares is given below:

 

 

Number of shares used for basic earnings per share

73,959,565

70,330,384

Effect of dilutive potential ordinary shares - share options

86,340

73,320

Number of shares used for fully diluted earnings per share

74,045,905

70,403,704

                   

 

           

 

 

      2017

     2016

 

 

 

£'000

    £'000

 

 

 

 

 

 

 

 

Underlying profit before tax (see note 2)

110,002

120,059

Tax rate applied for the purposes of underlying earnings per share

21.58%

21.13%

 

 

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.
 

10.  Goodwill

           

 

 

2017

2016

 

 

 

£'000

£'000

Cost

 

 

At 1 January

478,565

428,166

Exchange differences

(26,758)

55,577

Derecognised on disposal

-

(8,305)

Other changes

-

3,127

At 31 December

 

 

451,807

478,565

Accumulated impairment loss

 

 

At 1 January

(62,972)

(52,281)

Exchange differences

5,694

(10,691)

Carrying amount at 31 December

 

 

394,529

415,593

 

 

Other changes in 2016 related to the re-assessment of initial fair values at Herley, which predominantly related to inventory and provisions, and to Furnace Parts adjustments to deferred tax balances.

 

 

The Group's market-facing-segments, which represent Cash Generating Unit (CGU) groupings, are; Aerospace, Infrastructure, Nuclear, Communications, C2ISR, Maritime, Land and Underwater Warfare. These represent the lowest level at which the goodwill is monitored for internal management purposes. Goodwill is allocated to CGU groupings as set out below: 

 

 

 

 

 

 

 

 

·                            

           

 

 

2017

2016

 

2017

 2016

 

 

 

·      Discount rate

Discount Rate

 

£'000

£'000

 

 

 

 

 

 

Aerospace

10.1%

10.1%

 

32,531

32,784

Infrastructure

10.1%

10.1%

 

28,276

28,159

Nuclear

10.1%

10.1%

 

18,030

19,411

Aerospace & Infrastructure

 

 

 

78,837

80,354

 

 

 

 

 

 

Communications

10.1%

10.1%

 

90,894

93,182

C2ISR

10.1%

10.1%

 

115,135

124,926

Communications & Security

 

 

 

206,029

218,108

 

 

 

 

 

 

Maritime

10.1%

10.1%

 

33,716

36,025

Underwater Warfare

10.1%

10.1%

 

75,947

81,106

Maritime & Land

 

 

 

109,663

117,131

Total - Ultra Electronics

 

 

 

 

 

394,529

415,593

 

 

 

 

 

10.    Goodwill (continued)

 

Goodwill is initially allocated, in the year a business is acquired, to the CGU group expected to benefit from the acquisition. Subsequent adjustments are made to this allocation to the extent operations, to which goodwill relates, are transferred between CGU groups. The size of a CGU group varies but is never larger than a reportable operating segment.

 

The recoverable amounts of CGUs are determined from value-in-use calculations. In determining the value-in-use for each CGU, the Group prepares cash flows derived from the most recent financial budgets and strategic plan, representing the best estimate of future performance. These plans, which have been approved by the Board, include detailed financial forecasts and market analysis covering the expected development of each CGU over the next five years. The cash flows for the following ten years are also included and assume a growth rate of 2.5% per annum. Cash flows beyond that period are not included in the value-in-use calculation.

 

The key assumptions used in the value-in-use calculations are those regarding the discount rate, future revenues, growth rates, forecast gross margins, underlying operating profit and operating cash conversion. Management estimates the discount rate using pre-tax rates that reflect current market assessments of the time value of money and risks specific to the Group, being the Weighted Average Cost of Capital (WACC). The WACC is then risk-adjusted to reflect risks specific to each business. The pre-tax discount rate used during 2017 was 10.1% (2016: 10.1%). Future revenues are based on orders already received, opportunities that are known and expected at the time of setting the budget and strategic plans and future growth rates. Budget and strategic plan growth rates are based on a combination of historic experience, available government spending data, and management and industry expectations of the growth rates that are expected to apply in the major markets in which each CGU operates. Longer-term growth rates, applied for the ten-year period after the end of the strategic planning period, are set at 2.5%. Ultra considers the long-term growth rate to be appropriate for the sectors in which it operates. Forecast gross margins reflect past experience, factor in expected efficiencies to counter inflationary pressures, and also reflect likely margins achievable in the shorter-term period of greater defence spending uncertainty.

 

Within each of the strategic plans a number of assumptions are made about business growth opportunities, contract wins, product development and available markets. A key assumption is that there will be continued demand for Ultra's products and expertise from a number of US government agencies and prime contractors during the strategic plan period.

 

Sensitivity analysis has been performed on the value-in-use calculations to:

(i)  reduce the post-2022 growth assumption from 2.5% to nil

(ii)  apply a 20% reduction to forecast operating profits in each year of the modelled cash inflows

(iii) consider specific market factors as noted above.

 

Certain of these sensitivity scenarios give rise to a potential impairment in Infrastructure. Headroom, which represents the value derived from the key growth assumptions in the Infrastructure value-in-use calculations, is £6.0m. Sensitivity (ii) results in a £0.9m impairment in Infrastructure; the CGU grouping is sensitive to the ability of the remaining operations to win sufficient new customers over the medium term.

 

For all other CGUs, the value-in-use calculations exceed the CGU carrying values in the sensitivity scenarios.

 

 

 

 

 

11.  Inventories

           

 

 

2017

2016

 

 

 

£'000

£'000

 

 

 

Raw materials and consumables

48,965

48,147

Work in progress

18,787

21,452

Finished goods and goods for resale

8,875

8,578

 

 

 

76,627

78,177

 

12.  Trade and other receivables

 

           

 

 

2017

2016

 

 

 

£'000

£'000

Non-current:

 

 

Amounts receivable from contract customers

32,225

16,352

 

 

 

32,225

16,352

           

 

 

 

2017

 

2016

 

 

 

£'000

£'000

Current:

 

 

Trade receivables

102,934

98,977

Provisions against receivables

(1,505)

(1,307)

Net trade receivables

101,429

97,670

Amounts receivable from contract customers

84,507

95,919

Other receivables

 

 

12,897

11,891

Prepayments and accrued income

 

 

6,794

10,251

 

 

 

205,627

215,731

           

 

13.  Trade and other payables

 

 

 

 

 

 

 

 

 

2017

2016

 

 

 

£'000

£'000

Amounts included in current liabilities:

 

 

Trade payables

89,205

68,341

Amounts due to contract customers

55,166

46,310

Other payables

 

 

21,007

30,207

Accruals and deferred income

 

 

49,702

48,385

 

 

 

215,080

193,243

             

  

 

2017

2016

 

 

 

£'000

£'000

Amounts included in non-current liabilities:

 

 

Amounts due to contract customers

3,541

6,146

Other payables

12

243

Accruals and deferred income

 

 

4,561

3,583

 

 

 

8,114

9,972

 

 

14. 

14.  Provisions

 

 

Warranties

Contract related provisions

Other provisions

 

Total

 

£'000

£'000

£'000

£'000

 

 

 

 

 

At 1 January 2017

4,444

6,739

10,919

22,102

Created

1,983

1,223

815

4,021

Reversed

(300)

(1,471)

(193)

(1,964)

Utilised

(1,300)

(3,192)

(4,662)

(9,154)

Exchange differences

(161)

(168)

(458)

(787)

At 31 December 2017

4,666

3,131

6,421

14,218

 

 

 

 

 

Included in current liabilities

2,608

2,301

3,756

8,665

Included in non-current liabilities

2,058

830

2,665

5,553

 

4,666

3,131

6,421

14,218

 

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, for example include provisions for liquidated damages or agent fees, and will be utilised over the period as stated in the contract to which the specific provision relates. Other provisions include re-organisation costs, contingent consideration, dilapidation costs and provisions associated with the Oman Airport IT contract termination, which were fully utilised during 2017. 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.  Retirement benefit schemes

 

The amount included in the balance sheet arising from the Group's obligation in respect of its defined benefit retirement schemes is as follows: 

           

 

 

2017

2016

 

 

 

£'000

£'000

 

 

 

Fair value of scheme assets

306,302

287,340

Present value of scheme liabilities

(389,034)

(400,517)

Scheme deficit

(82,732)

(113,177)

Related deferred tax asset

 

 

14,130

19,517

Net pension liability

 

 

(68,602)

(93,660)

 

 

The UK defined benefit pension scheme was closed to future benefit accrual from 5 April 2016 and a curtailment gain of £15.5m was recognised in the income statement in 2016. As set out in note 2, this has been treated as a non-underlying item.

 

The discount rate used in the actuarial assessment of the UK defined benefit scheme at 31 December 2017 was 2.50% (2016: 2.55%).
 

16.  Cash flow information

           

 

 

2017

2016

 

 

 

£'000

£'000

 

 

 

Operating profit

61,484

89,725

Adjustments for:

 

 

Depreciation of property, plant and equipment

10,166

11,499

Amortisation of intangible assets

 

 

31,995

38,034

Impairment charge of intangible assets

1,608

-

Cost of equity-settled employee share schemes

682

984

Adjustment for pension funding

(8,964)

(8,468)

Loss on disposal of property, plant and equipment

565

291

Decrease in provisions

 

 

(7,086)

(8,975)

Operating cash flow before movements in working capital

90,450

123,090

 

 

 

 

 

(Increase)/decrease in inventories

 

 

(2,093)

8,295

Increase in receivables

 

 

(15,367)

(339)

Increase/(decrease) in payables

 

 

24,442

(19,044)

Cash generated by operations

 

 

97,432

112,002

 

 

 

 

 

Income taxes paid

 

 

(10,324)

(9,012)

Interest paid

 

 

(9,543)

(10,156)

Net cash from operating activities

 

 

77,565

92,834

 

 

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

2017

2016

£'000

£'000

 

 

 

Net increase in cash and cash equivalents

80,118

20,766

Cash inflow from movement in debt and finance leasing

85,482

54,419

Change in net debt arising from cash flows

165,600

75,185

Loan syndication costs

 

 

2,040

-

Amortisation of finance costs of debt

 

 

(1,281)

(848)

Translation differences

 

 

15,884

(35,465)

Movement in net debt in the year

 

 

182,243

38,872

Net debt at start of year

 

 

(256,700)

(295,572)

Net debt at end of year

 

 

(74,457)

(256,700)

 

 

Net debt comprised the following:

2017

2016

£'000

£'000

 

 

 

Cash and cash equivalents

149,522

74,625

Borrowings

 

 

(223,979)

(331,325)

 

 

 

(74,457)

(256,700)

 

Cash and cash equivalents comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.

 

Reconciliation of changes in financing liabilities:

2017

2016

 

 

 

£'000

£'000

 

 

 

Borrowings at start of year

(331,325)

(341,046)

Repayments of borrowings

168,975

114,419

Proceeds from borrowings

(83,493)

(60,000)

Loan syndication costs

 

 

2,040

-

Amortisation of finance costs of debt

 

 

(1,281)

(848)

Translation differences

 

 

21,105

(43,850)

Borrowings at end of year

 

 

(223,979)

(331,325)

 

 

17. 

17.  IFRS 15 - Revenue from contracts with customers

 

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. 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 table below sets out the impact to the 2017 income statement and balance sheet if IFRS 15 had been applied during the year:

 

£'m

Income Statement impact

 

2017 as presented

Adjustment

2017 if presented under IFRS 15

Revenue

775.4

(7.1)

768.3

Cost of sales

(545.2)

4.7

(540.5)

Gross profit

230.2

(2.4)

227.8

Underlying operating profit

120.1

(2.4)

117.7

Statutory operating profit

61.5

(2.4)

59.1

Statutory profit before tax

60.6

(2.4)

58.2

Tax

(11.7)

0.7

(11.0)

Statutory profit after tax

48.9

(1.7)

47.2

 

£'m

Balance Sheet impact

 

2017 as presented

Adjustment

2017 if presented under IFRS 15

Inventories

76.6

1.2

77.8

Amounts receivable from contract customers

116.7

(10.5)

106.2

Amounts due to contract customers

(58.7)

(2.8)

(61.5)

Tax liabilities

(13.6)

0.7

(12.9)

Net assets

512.2

(11.4)

500.8

Adjustment to retained earnings

262.6

(11.4)

251.2

 

 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.

The 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 will change on certain contracts including identification of material rights. A small number of contracts 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. The timing of revenue recognised on the substantial majority of sale-of-goods contracts is not significantly affected with revenue continuing to be recognised as control of goods is passed to the customer.

 

 

 

17.  IFRS 15 - Revenue from contracts with customers (continued)

 

The project determined that 2016 consolidated group revenue would have been £1.6m higher at £787.4m, and 2016 underlying operating profit would have been £0.2m lower at £130.9m if IFRS 15 had been applied. As set out in the table above, 2017 consolidated group revenue would have been £7.1m lower at £768.3m, and 2017 underlying operating profit would have been £2.4m lower at £117.7m if IFRS 15 had been applied. The 1 January 2018 opening order book increases by £17.0m to £914.4m.

 

The Group will recognise the cumulative effect of applying IFRS 15 at the 1 January 2018 transitional date. The prior period will not be restated.

 

18.  Five-year review

 

 

 

 

2013

2014

2015

   2016

   2017

 

     £m

     £m

     £m

£m

£m 

 

 

 

 

 

 

Revenue

 

 

 

 

 

Aerospace & Infrastructure

230.4

198.6

193.2

204.7

203.2

Communications & Security

237.7

224.4

239.3

259.0

242.7

Maritime & Land

277.1

290.7

293.8

322.1

329.5

Total revenue

745.2

713.7

726.3

785.8

775.4

 

 

 

 

 

 

Underlying operating profit(1)

 

 

 

 

 

Aerospace & Infrastructure

46.2

29.6

28.7

32.4

32.6

Communications & Security

27.5

37.0

40.4

39.7

28.2

Maritime & Land

48.0

51.5

50.9

59.0

59.3

Total underlying operating profit(1)

121.7

118.1

120.0

131.1

120.1

 

 

 

 

 

 

Margin(1)

16.3%

16.5%

16.5%

16.7%

15.5%

 

 

 

 

 

 

Profit before tax

49.3

21.5

34.8

67.6

60.6

Profit after tax

38.2

6.5

25.0

58.3

48.9

 

 

 

 

 

 

Operating cash flow(2)

79.0

83.1

81.3

120.4

116.5

Free cash before dividend payments, acquisitions and financing(3)

46.7

52.8

48.4

86.0

65.3

Net debt at year-end(4)

(42.2)

(129.5)

(295.6)

(256.7)

(74.5)

 

 

 

 

 

 

Underlying earnings per share (p)(5)

127.1

123.1

123.9

134.6

116.7

 

 

 

 

 

 

Dividends per share (p)

42.2

44.3

46.1

47.8

49.6

 

 

 

 

 

 

Average employee numbers

4,274

4,787

4,843

4,466

   4,172

             

 

Notes:   

 

1)      Before adjustments to contingent consideration net of acquisition and disposal related costs, amortisation of intangibles arising on acquisition, the S3 programme, impairment charges and Oman contract termination and liquidation related costs.

2)      Cash generated by operations, and dividends from associates less net capital expenditure, R&D, LTIP share purchases and excluding cash outflows from the S3 programme, acquisition and disposal related payments and the Oman performance bond and Oman contract termination related costs in 2017.

3)      Free cash flow before dividend payments, acquisitions and financing has been adjusted to include the purchase of LTIP shares, which are included in financing activities. Prior periods have been restated to include dividends received from equity accounted investments.

4)      Loans and overdrafts less cash and cash equivalents.

5)      Before adjustments to contingent consideration net of acquisition and disposal related costs, amortisation of intangibles arising on acquisition, the S3 programme, impairment charges, fair value movement on derivative financial instruments, defined benefit pension curtailment gain and interest charges and unwinding of discount on provisions.

 

19.     Financial Information

 

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2017 or 2016, but is derived from those accounts. Statutory accounts for 2016 have been delivered to the Registrar of Companies and those for 2017 will be delivered following the company's annual general meeting. The auditor has reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.

 

The preliminary announcement has been prepared on the basis of the accounting policies as stated in the financial statements for the year ended 31 December 2016.  The company expects to publish full financial statements on 21 March 2018. 

 

The following IFRIC interpretations, amendments to existing standards and new standards have been adopted in the current year but have not impacted the reported results or the financial position:

·     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. 

 

IFRS 9 Financial Instruments - is effective from 1 January 2018 and will introduce a number of changes in the presentation of financial instruments.

 

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. The key findings and determination of impact are set out in note 17. The Group will recognise the cumulative effect of applying IFRS 15 at the 1 January 2018 transitional date. The prior period will not be restated.

 

IFRS 16 Leases - is effective from 1 January 2019. The new standard requires all leases to be recognised on the balance sheet with the exception of short-term and immaterial leases. The Group is assessing the impact of the new standard on its financial statements.

 

Whilst the financial information included in this announcement has been computed in accordance with International Financial Reporting Standards ("IFRS"), this announcement does not itself contain sufficient information to comply with IFRS.

 

Copies of the annual report will be sent to shareholders who have elected to receive a copy of the annual report in due course and will also be available from the Company's registered office at 417 Bridport Road, Greenford, Middlesex, UB6 8UA. The report will also be available on the Company's website: www.ultra-electronics.com.

 

 

 

 

 

 

 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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