Ultra Electronics Holdings plc Annual Report and Accounts 2012 positioned for growth through portfolio strength focused on customer need SOLDIER SYSTEMS LOGISTICS AND SUPPORT SATELLITE SYSTEMS RADIO SYSTEMS COMMAND, CONTROL, COMMUNICATIONS AND COMPUTERS AVIONICS DATA TRAFFIC MANAGEMENT MANNED AIRCRAFT SYSTEMS AND QUALITY OF SERVICE AIRCRAFT WEAPON SYSTEMS MISSION SUPPORT UNMANNED AIRBORNE VEHICLE SYSTEMS MANNED NAVAL VESSEL SYSTEMS UNMANNED NAVAL SYSTEMS NAVAL WEAPON SYSTEMS WEAPON SYSTEMS MANNED VEHICLE SYSTEMS UNMANNED GROUND VEHICLE SYSTEMS DATA INTERCEPT DEFENCE WIRELESS SURVEILLANCE SYSTEMS SITUATIONAL AWARENESS INFRASTRUCTURE SECURITY SYSTEMS PROTECTION PROACTIVE DEFENCE SECURITY FIRST RESPONSE MASS TRANSIT TRANSPORT BAGGAGE SYSTEMS PASSENGER SYSTEMS AIRPORT INFORMATION SYSTEMS ENERGY MASTER SYSTEMS INTEGRATION RESOURCE MANAGEMENT REMOTE POWER RENEWABLES OIL AND GAS CIVIL NUCLEAR making a difference Ultra Electronics Holdings plc Annual Report and Accounts 2012 Ultra Electronics is a group of specialist businesses designing, manufacturing and supporting electronic, electro-mechanical and software systems, sub-systems and products for DEFENCE, SECURITY, TRANSPORT and ENERGY applications worldwide. Contents 1. Introduction 3. Performance 5. Group financials Financial and operational highlights 01 Financial performance overview 24 Independent auditor’s report 70 Chairman’s statement 02 Paul Dean, Finance Director Group highlights 71 Douglas Caster CBE, Chairman Aircraft & Vehicle Systems 26 Consolidated income statement 72 Group at a glance 04 Information & Power Systems 28 Consolidated statement of Chief Executive’s report 06 Tactical & Sonar Systems 30 comprehensive income 72 Rakesh Sharma, Chief Executive Financial review 32 Consolidated balance sheet 73 2. Strategic review Making a difference 35 Consolidated cash flow statement 74 Strategic objectives 08 Developing Ultra’s people 36 Consolidated statement of changes in equity 75 Key Performance Indicators 10 Sustainability 38 Notes to accounts 76 Business model 12 Risk management 40 Statement of accounting policies in respect of the Group’s consolidated financial statements 107 Strategic tenets 18 4. Governance Market analysis 20 Board of Directors 44 6. Company financials Executives and advisors 46 Independent auditor’s report 115 Corporate governance 47 Company balance sheet 116 Remuneration report 58 Notes to accounts 117 Directors’ report 67 Statement of accounting policies for the Company accounts 121 7. Five year review Five year review 123 Cautionary statement This document contains forward looking the expectations reflected in these statements statements that are subject to risk factors are reasonable but they may be affected by a associated with, amongst other things, the wide range of variables which could cause For more information: economic and business circumstances occurring actual results to differ materially from those www.ultra-electronics.com/ from time to time in the countries and sectors currently anticipated. investors/irhome.php in which the Group operates. It is believed that Ultra Electronics Holdings plc 01 Annual Report and Accounts 2012 Financial and operational highlights Operational highlights Award of a £19m+ contract A high level of internal Three acquisitions to Introduction with the US Air Force for investment maintained to augment Ultra’s existing 1. provision of airborne underpin future growth. portfolio of specialist communication gateways. niche capabilities. Revenue Underlying earnings per share Underlying operating profit Strategic review 2. 124.5 760.8 122.2 122.1 120.2 731.7 710.0 110.3 107.9 £760.8m 651.0 124.5p £122.2m 97.3 96.4 KPI 515.3 KPI 80.1 77.1 +4.0% +3.6% +0.1% (2011: £731.7m) (2011: 120.2p) (2011: £122.1m) Performance 11100908 12 11100908 12 11100908 12 3. Dividend per share Underlying profit before tax Group order book 40.0 115.6 950.3 114.9 905.0 38.5 102.7 34.6 40.0p £115.6m £905.0m 817.9 783.5 761.8 31.2 89.5 KPI 77.2 26.0 Governance +3.9% +0.6% -4.8% 4. (2011: 38.5p) (2011: £114.9m) (2011: £950.3m) 11100908 12 11100908 12 11100908 12 Dividend The proposed final dividend is 27.8p, bringing the total dividend for the year to 40.0p (2011: 38.5p). This represents an annual increase of 4%, with the dividend being covered 3.1 times (2011: 3.1 times) Group financials by underlying earnings per share. If approved at the Annual General Meeting, the dividend will be paid 5. on 3 May 2013 to shareholders on the register on 12 April 2013. KPI = Key Performance Indicator, see pages 10 and 11 for details Company financials 6. Footnote Underlying operating profit is before Basic EPS 91.5p (2011: 96.2p). Operating cash of acquisition costs. Net debt comprises loans amortisation of intangibles arising on acquisition flow is cash generated by operations and and overdrafts less cash and cash equivalents. and adjustments to deferred consideration net of dividends from associates, less net capital organic revenue/profit growth is the annual acquisition costs. IFRS operating profit £88.7m expenditure, R&D and LTIP share purchases. rate of increase in revenue/profit that was (2011: £99.2m). Underlying profit before tax operating cash conversion is cash generated achieved, assuming that acquisitions made and underlying earnings per share are before by operations and dividends from associates, less during the prior year were only included for the amortisation of intangibles arising on acquisition, net capital expenditure, R&D and LTIP share same proportion of the current year. Five-year review fair value movements on derivatives, unwinding purchases as % of operating profit before 7. of discounts on provisions and adjustments to amortisation of intangibles arising on acquisition deferred consideration net of acquisition costs. and adjustments to deferred consideration net 02 Ultra Electronics Holdings plc Annual Report and Accounts 2012 Chairman’s statement The Group will continue to differentiate itself from its competitors through its technical innovation and the high ʻʻstandards of behaviour for which Ultra is known. Dear shareholder I am pleasedʼʼ to report that Ultra has successfully managed a year of challenging market conditions where expenditure in the Group’s main defence markets continues to be under extreme pressure as governments address their budget deficits and debt levels. Through Ultra’s robust strategic review process, the Group was able to recognise the tightening of defence budgets and has reacted by positioning itself into areas of preferential spend within these markets. At the same time the Group has made good progress in adjacent, non-defence, security, transport and energy markets so that, in 2012, revenue from its traditional defence markets represented less than 60% of the Group total. Ultra’s recent investments in new products and acquisitions have enabled the Group to achieve this repositioning to provide both a degree of resilience to tough market conditions and a platform for future growth. The Group’s overall performance in 2012 underlines the resilience of its business model and this is explained in more detail on pages 12 to 17. Douglas Caster CBE, Chairman Ultra’s strategy is constantly to increase its share of the markets in which it has positioned itself and the Group continues to focus on those specialist sectors within the markets where customers preferentially target their expenditure. An important role of the Board is to participate fully in robustly reviewing and testing the Executive Directors’ strategic plans for the Group, to ensure that they deal not just with the particularly challenging short-term market conditions, but also fully address the need to continue to position for medium and long-term growth. It has long been a core part of Ultra’s strategy to acquire companies that bring world leading niche technologies and market positions to the Group, in addition to supplementing its organic growth. The Board plays a key role in reviewing any potential acquisition to ensure that it is complementary to the existing portfolio, Ultra Electronics Holdings plc 03 Annual Report and Accounts 2012 Introduction 1. 2000 Ultra’s track record of KPI 1800 delivering above average Strategic review shareholder returns 2. 1600 since flotation (pence) 1400 FTSE all share price index FTSE 100 price index 1200 FTSE all share aerospace/defence 1000 Performance 800 3. 600 400 200 0 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Governance 4. achieves an appropriate strategic fit, is Ultra’s major programmes are reviewed by business conduct and corporate valued sensibly and will add to future the Board, during both the bid and governance. This report contains a specific shareholder value. In 2012 Ultra completed execution phases. section devoted to the framework and three acquisitions: GigaSat, Barron McCann In Ultra, risk is assessed and managed at processes that are in place to maintain the and RFI. These businesses augment Ultra’s the most appropriate level of the business. high standards of governance that the existing specialist capabilities in Those risks that are identified as strategic in Board requires of Ultra. Further detail about communications, cyber & security and nature are elevated to the Board where how the Board provides effective leadership power markets, all of which have been they are subjected to formal scrutiny to on these matters can be found in the identified as future growth areas. sustainability section on pages 38 to 39 Group financials ensure that the appropriate mitigations are 5. Another core element of Ultra’s strategy is in place. In addition to assessing specific and the governance section, starting on continued investment in the development risks, the Board will also regularly assess page 44 of this report. of new, differentiated offerings, particularly and confirm the status of the overall I should like to finish by thanking, on where the Group’s specialist domain business, with a focus on the Group’s behalf of the Board, all of Ultra’s employees knowledge provides competitive competitive strategies, business for their continued hard work, engagement advantage.