Mission Critical… …Superior Performance High Integrity

Ultra Electronics Holdings plc Annual Report and Accounts 2007 mission critical… 07 …superior performance Ultra at a Glance Why Ultra is different Ultra Electronics is an internationally successful defence and aerospace company with a long, consistent track record of development and growth, achieving 18% compound annual growth of total shareholder return since flotation in 1996. Ultra businesses constantly innovate to create solutions to customer requirements that are different from and better than those of the Group’s competitors. By applying these differentiated solutions to a wide range of platforms and programmes, Ultra has built an exceptionally broad range of niche market positions. 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 so that they may provide exceptionally agile and responsive support to customers and partners. Ultra’s independence allows it to work with all the world’s major defence, aerospace and civil prime contractors. The major market sectors in which Ultra operates are: battlespace IT systems and equipment • sonar systems • equipment for civil and military aircraft • specialist equipment for defence applications • specialist civil systems and equipment Operationally, the Group is organised into three divisions: Aircraft & Vehicle Systems Information & Power Systems Tactical & Sonar Systems Major activities Airframe ice protection systems; Active Airport information management Acoustic countermeasure systems; noise and vibration control; Aircraft systems; Airport-wide systems Airborne anti-submarine warfare system electronics; Aircraft system test integration; Land mine countermeasure systems; Autonomous underwater equipment; High-integrity data bus systems; Combat systems; Command, surveillance systems; Airborne targeting network nodes; Armoured vehicle control and information systems; pods; Communications network electronic systems; Collaborative Nuclear reactor control and interfacing equipment; Cryptographic working environment solutions; Crisis instrumentation; Nucleonic sensors; equipment; Data link communication information management systems; Data fusion systems; Local situational systems; Loitering munition systems; High integrity software and systems; awareness systems; ID card printers; Radio communication systems; Sea HiPPAG airborne compressors; Radar and electro-optic systems; mine disposal systems; Secure video Specialist pneumatic sub-systems; Surveillance and tracking systems; conferencing systems; Sonar systems; Human/machine interface equipment; Naval power conversion; Gas turbine Sonobuoys; Submarine tactical Manned and unmanned vehicle control electric start and regeneration systems; communication systems; Tactical radio equipment; Remote weapon station Signature measurement and control systems; Torpedo defence systems; control equipment; Rugged aircraft systems for naval vessels; Transit Underwater acoustic countermeasures; harness systems system power conversion and controls Voice and data communication systems Businesses ControlsI Advanced Tactical SystemsL AudiopackL Datel I Airport Systems I CriticomL Electrics I Command & Control Systems I DNE TechnologiesL Measurement Systems Inc.L EMSL Flightline SystemsL Precision Air Systems I Manufacturing & Card Systems I Maritime SystemsL PMESI Ocean SystemsL SML Technologies I Sonar & Communication Systems I Tactical Communication SystemsL UnderSea Sensor Systems IncL Number of employees 712 1,111 1,216 Major customers BAE Systems BAA Australian DoD Boeing BAE Systems Avon Bombardier British Energy BAE Systems Cobham BP Boeing EADS EADS Canadian DND Finmeccanica General Dynamics Cubic General Dynamics Lockheed Martin Korean DoD UK MoD Rolls-Royce Scott United Technologies UK MoD UK MoD US DoD US DoD US DoD Revenue £100.0m 24% £126.6m 31% £186.8m 45% L Businesses in North America I Businesses in the United Kingdom (2006: £93.9m) (2006: £120.5m) (2006: £162.6m) Cautionary Statement This document contains forward looking statements that are subject to risk factors associated with, amongst other things, the economic and business circumstances occurring from time to time in the countries and sectors in which the group operates. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a wide range of variables which could cause actual results to differ materially from those currently anticipated. Annual Report and Accounts 2007 Financial Highlights Contents 01 Financial highlights 02 Chairman’s statement Revenue £m 412.9 377.0 342.4 310.7 284.4 +10% £412.9m Introduction (2006: £377.0m) 2003 2004 2005 2006 2007 03 Ultra’s objectives Operating profit* £m 04 Ultra’s strategies to achieve the 377.062.9 342.457.5 Group’s objective 51.1 06 Key performance indicators 43.3 07 Ultra and its strategic positioning 37.5 in growing niche markets +9% 14 Ultra’s performance in 2007 £62.9m 2006 16 Operational review 18 Influences on the Group’s (2006: £57.5m) 2003 2004 2005 2006 2007 long-term value 22 Financial position of Ultra report Chief Executive’s 25 Corporate responsibility 28 Board of Directors Profit before tax* £m 30 Executives and advisors 61.1 31 Directors’ report 54.9 47.4 33 Corporate governance 37 Remuneration report 40.1 £61.1m 34.4 +11% (2006: £54.9m) 2003 2004 2005 2006 2007 governance Corporate 44 Independent auditors’ report Earnings per share* pence – Group 65.4 46 Consolidated income statement 58.4 47 Consolidated balance sheet 50.7 48 Consolidated cash flow statement – Group 43.7 38.2 48 Consolidated statement of +12% recognised income and expense 49 Notes to accounts 65.4p – Group Financials (2006: 58.4p) 2003 2004 2005 2006 2007 73 Statement of accounting policies in respect of the Group’s consolidated financial statements 79 Independent auditors’ report Dividend per share pence – Company 21.2 81 Company balance sheet 18.5 82 Notes to accounts 15.9 – Company 13.8 – Company 12.3 86 Statement of accounting policies 21.2p +15% for the Company accounts (2006: 18.5p) 2003 2004 2005 2006 2007 Financials *see footnote 88 Shareholder analysis Footnote 89 Five Year Review Throughout this document, the terms headline operating profit, headline profit before tax and headline earnings per share have the same meaning as, and are used interchangeably with, operating profit*, profit before tax* and earnings per share* respectively. headline operating profit*, operating profit* and operating margin* are before amortisation of intangibles arising on acquisition. IFRS profit from operations £59.0m (2006: £53.9m). See Note 2 for reconciliation. headline profit before tax and earnings per share* are before amortisation of intangibles arising on acquisition Shareholders and fair value movement on derivatives. IFRS profit before tax £56.6m (2006: £55.0m). See Note 2 for reconciliation. operating cash flow* is cash generated by operations, less net capital expenditure, R&D and LTIP share purchases. cash conversion* is cash generated by operations, less net capital expenditure, R&D and LTIP share purchases as % of profit from operations before amortisation of intangibles arising on acquisition. net debt* comprises bank overdrafts and loans less cash and cash equivalents. Ultra Electronics Holdings plc 01 Annual Report and Accounts 2007 Chairman’s statement Total dividend per share 15% growth 21.2p (2006: 18.5p) Dr Julian Blogh, Chairman Dear shareholder The Board has an evaluation process in which the effectiveness of I am pleased to report that 2007 has been another good year for the Board, its subcommittees and each individual Director are Ultra. Your company has continued to benefit from its long-term assessed over a rolling two year period. In 2007 the effectiveness focus on gaining strong market positions through being a niche of the individual Directors was reviewed with the assistance of an supplier of electronic systems, products and services in growing external consultant. sectors within the defence and aerospace markets. In many With regard to the new Transparency Directive all companies have instances, Ultra’s systems, equipment or services are mission-critical to produce Interim Management Statements. We will be doing for the platform to which they contribute. this but will not be moving to quarterly reporting. The Board The Group increased profit before tax* by 11% and generated an believes that the financial return derived from pursuing the Group’s operating cash flow* of £52 million whilst investing more in new strategy is only evident over a longer time frame. markets, technologies, products and capabilities. As a result of At the centre of Ultra’s success are its employees and, on behalf this performance we are proposing to increase the total dividend of the Board, I thank our people for their hard work and per share by 15% to 21.2p. This is in line with the Group’s policy dedication. With so much professionalism, commitment and of maintaining dividend cover at about three times. enthusiasm in the Group, talent management is an area where Most importantly, the year has also seen us make good progress we place great emphasis in order to recruit, retain and develop towards the Board’s main objective of delivering superior the skills of staff at all levels of the organisation. The investment performance to shareholders, as measured through total that we make in our people is vital to equip Ultra to meet the shareholder return. In terms of total shareholder return, Ultra challenges

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