26th Mar 2014 07:00
Embargoed until 0700 26th March 2014
Ultra Electronics Holdings plc
("Ultra" or "the Group")
Dissemination announcement
Ultra announces the dissemination of its Annual Financial Report for the year ended 31 December 2013. A preliminary announcement of the Group's results was made on 3 March 2014.
The Group's 2013 Annual Financial Report and the Notice of Annual General Meeting 2014 are published today on Ultra's website www.ultra-electronics.com.
These documents will shortly be available for inspection on the National Storage Mechanism (NSM), online at: www.hemscott.com/nsm.do
For the purposes of the dissemination announcement and in compliance with the Disclosure and Transparency Rules, certain components of the annual financial report that were either not included in the preliminary announcement or appeared in a summarised format are provided, in full, on the following pages of this release.
Enquiries:
Ultra Electronics Holdings plc 020 8813 4321
Rakesh Sharma, Chief Executive www.ultra-electronics.com
Mary Waldner, Group Finance Director
Media Enquiries
Susan Ellis, Senior Communications Adviser 07836 522722
James White, MHP Communications 020 3128 8756
Ultra Electronics Holdings plc
("Ultra" or "the Group")
RISKS AND UNCERTAINTIES
Risk | Description | Potential impact | Mitigation |
Cyber attack | There is now substantial evidence that active efforts are being made to penetrate Ultra's secure networks, in order to gain access to classified information, steal intellectual property or disrupt business activity. There is a security and business risk if Ultra fails to secure its systems. | · Reputational damage to Ultra as a highly regarded provider of secure data systems · Loss of business opportunity with removal of government approval to work on classified equipment development and manufacture · Reduced product differentiation with loss of intellectual property · Disruption to business activity as systems are cleansed and restored | · Implementation of a comprehensive Group Information Security Policy and significant further investment in the hardening of all Ultra's IT systems, enforced through internal audit · Development of the Group's ability to monitor systems and detect intrusion attempts will continue through 2014 |
Changing market environment | Ultra's core markets are changing as government budgets come under fiscal pressures, placing significant pressure on sales and orders. Contract awards are more heavily scrutinised and are more dependent on a close understanding of the customer need | · Reduced business opportunity through an inability to respond quickly enough to changes in the market environment, by adapting our offerings and approach · Inability to match the full range of a customer's requirements · Inability to maintain growth in declining defence markets | · Introduction of LAUNCH behaviours (see page 7 of the Annual Report & Accounts 2013) to improve understanding of customer need · Present a capability portfolio which can be applied to meet customer need, complemented by a structure and culture which promotes agility, innovation and speed of response · Develop and strengthen the marketing teams within each business · Collaborate across the full Ultra capability portfolio and/or partner, to present comprehensive solutions which match customer needs |
Sustaining product differentiation | Ultra's product development and innovation does not sustain sufficient differentiation in the market place, compared with commercial-off-the-shelf (COTS) products, or as a result of a disruptive technology, or because of a significant change in customer preference. | · Research and development (R&D) activity does not keep pace with technological development, losing product differentiation compared with competitors · Ultra's portfolio of specialist capabilities is eroded through commoditisation · Business is lost through increasing competition | · Maintain Ultra's cultural focus on understanding customer need and delivering innovation · Based upon comprehensive market and competitor analysis, generate technology and product roadmaps which bring differentiated products to market to meet sales opportunities · Better co-ordinate R&D investment across the Group to avoid duplication and maximise advantage · Employ strategy reviews and game-planning to ensure R&D tracks plans and budgets |
Material legal/regulatory breach | People or process failures lead to a breach of regulatory or legal requirements. | · Damage to reputation · Director disqualification · Damages and fines · Contract debarment | · Culture of accountability and compliance · Ethics Overview Committee · Effective whistle-blowing procedures (EthicsPoint) · Policies and training on material compliance issues |
Business control | Ultra has elected to cede some control of certain businesses (e.g. US Proxy Board and joint enterprises) to enhance market position in key markets. Changes in local regulation, or other cause, leads to an adverse impact on the Group. | · Inability to exercise management control could lead to an adverse impact on the Group | · Ultra works hard to ensure that its joint venture partners and the members of the Group's security and proxy boards accord with the Group's corporate culture and way of doing business · Ultra benefits from the expertise which the members of its JVs and boards bring to the Group · Ensure relationships continue to be mutually beneficial · Monitor the business environment for regulatory or political change · Bring the Proxy Division (SIS) under a US national director with the appropriate clearances |
Pensions | The Group's UK-defined benefit pension scheme deficit becomes a serious liability for the Group. | · Increasing pension liabilities make a material impact on shareholder value | · The Board will remain focused on this key issue and holds formal reviews of the Group's pension strategy annually · Manage the issue through annual accounting and triennial valuation processes, in order to highlight issues to the Board as they emerge · Retain an external pension strategy advisor and hold regular, formal Board strategy reviews |
Execution of contracts | Ultra is bidding for and delivering an increasing number of large and complex contracts. | · Ultra could underestimate the required resource or project complexity and so, make a loss · Ultra could fail to apply the appropriate programme management skills to such large products, impacting on profitability and reputation | · The Group Operating Manual has been updated to enhance the rigour and oversight of major bids · Ultra has conducted rigorous 'lessons learned' processes across recent large programmes · Where the complexity of the programme demands, Ultra will recruit or team to bring in the specialist skills required to manage large projects · Introduction of specific project team based system engineering and project management training · Review of win strategies and bids by experienced executives independent of the bidding business |
Ultra culture | As the Group grows, it fails to manage the organisation in such a manner as to preserve the Ultra culture of innovation, agility and accountability. | · Ultra generates a level of hierarchy and bureaucracy which constrains innovation and entrepreneurship · Ultra loses the key staff which are important to sustaining the portfolio of specialist capabilities and so, loses business | · Sustain a lean head office structure and empower individual businesses to remain autonomous and agile, while encouraging collaboration where appropriate · Develop the organisation structure in a way which preserves the autonomy and agility of the businesses · Reinforce the LEAP and LAUNCH behaviours which embody the Group's culture and select by Lominger criteria · Integrate acquisitions in order to embed Ultra culture and practices · Use surveys (YOURviews and Best Companies) to measure culture and improve |
New markets | Entry into new markets is necessary to maintain growth, but they often have very different, unfamiliar procurement processes and constraints. These are also more likely to require mature products, delivered as packaged capabilities rather than individual products. | · Ultra fails to fully understand the commercial practices and market dynamics of the new regions it is entering, so loses business opportunities while expending resource on presence | · Engage closely with UKTI and Embassies to improve local knowledge · Access consultants, local legal expertise and research to better understand target regions · Use of Regional Marketing Managers · Develop sound regional partnerships in developing markets to meet offset needs, while maintaining product differentiation and profitability · Develop lessons learnt from Turkey, Oman, Australia and brief to the wider Group |
Staff retention | The Group's businesses are capital-light, but specialist knowledge-intensive. Ultra fails to attract, develop and retain people with the required specialist competences. | · Ultra could lose key staff or capabilities, so that the Group cannot fulfil its contractual obligations, or is forced to outsource work, thereby reducing margins | · Continue the Group's strong emphasis on recruiting, retaining and developing high-quality individuals to work in Ultra teams. This is delivered through the annual OSDP (Organisation, Succession and Development Planning) process · Fast-track high-potential candidates and exploit opportunities for secondments and inter-business transfers · Ensure all key staff have a nominated Successor · Ensure poor performance is addressed · Monitor and review salary and benefits surveys · Engage with potential recruits at an early stage, through links with schools and universities and offer apprenticeships, work placements and graduate training |
RELATED PARTY TRANSACTIONS
Remuneration of key management personnel
The remuneration of key management personnel, which includes the Directors of the Group, is set out below in aggregate for each of the categories specified in IAS 24: Related Party Disclosures. Further information about the remuneration of individual Directors is provided in the audited part of the Directors' Remuneration Report on pages 69, 70 and 72 of the Annual Financial Report:
2013 | 2012 | |
£'000 | £'000 | |
Short-term employee benefits | 2,837 | 2,818 |
Post-employment benefits | 395 | 279 |
Share-based payments | 900 | 902 |
4,132 | 3,999 |
Transactions with associate
At 31 December 2013, a loan of £643,200 (2012: £657,000) was due from Al Shaheen Adventure LLC (ASA), the Group's 49% equity-accounted investment.
A small amount of trading also occurs with ASA, in the normal course of business and on an arm's length basis. Balances are settled on normal trade terms and the amounts outstanding at year end were insignificant.
STATEMENT OF GOING CONCERN
Ultra's banking facilities amount to £190m in total, plus a £15m overdraft. They were established in two tranches.
The first tranche comprises £90m of revolving credit, denominated in Sterling, US dollars, Canadian dollars, Australian dollars or Euros. This facility was signed in January 2011 and expires in January 2016. The facility is provided by a group of six banks.
The second tranche provides a further £100m of revolving credit in the same currencies. This was signed in December 2012 with five banks and expires in December 2017. Both facilities have the same covenants.
The Group has a 'shelf' facility with Prudential Investment Management Inc. This agreement gives the Group access to the US private placement market on a bilateral basis. The facility is non-committed but is for up to $195m. At the year-end, $70m of loan notes had been issued, which will mature in 2018 and 2019.
As well as being used to fund acquisitions, the financing facilities are also used for other balance sheet and operational needs, including the funding of day-to-day working capital requirements. The US dollar borrowings also represent natural hedges against assets denominated in that currency. The Group's banking covenants have all been met during the past year with a comfortable margin. The approved Group budget for 2014 and strategic plan for later years give confidence that the Group will continue to meet these covenants. Details of how Ultra manages its liquidity risk can be found in note 23 (Financial Instruments and Financial Risk Management) of the 2013 Annual Report and Accounts
Though global macro-economic conditions remain uncertain, the long-term nature of Ultra's business and its positioning in attractive sectors of its markets, taken together with the Group's forward order book, provide a satisfactory level of confidence in respect of trading in the year to come.
The Directors have a reasonable expectation that Ultra has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt a going concern basis of accounting in preparing the annual financial statements.
DIRECTORS' RESPONSIBILITIES STATEMENT
The responsibility statement below has been prepared in connection with the company's full annual report for the year ending 31 December 2013. Certain parts thereof are not included within this announcement.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on Ultra's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors confirm that to the best of their knowledge, taken as a whole:
· the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of Ultra and the undertakings included in the consolidation;
· the annual report and accounts is fair, balanced and understandable and provides the information necessary for shareholders to assess the Ultra's performance, business model and strategy; and
· the management report, which is incorporated into the Directors' Report, includes a fair review of the development and performance of the business and the position of Ultra and the undertakings included in the consolidation, together with a description of the principal risks and uncertainties that they face.
In accordance with Section 418 of the Companies Act 2006, each Director in office at the date the Directors' Report is approved confirms that:
· so far as the Director is aware, there is no relevant audit information of which Ultra's auditors are unaware; and
· he/she has taken all the steps that he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that Ultra's auditors are aware of that information.
The Annual Report on pages 1 to 77 was approved by the Board of Directors and authorised for issue on 28 February 2014 and signed on behalf of the Board by:
Rakesh Sharma, Chief Executive
Mary Waldner, Group Finance Director
- End -
Further information about Ultra:
Ultra Electronics is an internationally successful defence, security, transport and energy company with a long, consistent track record of development and growth. Ultra businesses constantly innovate to create solutions to customer requirements that are different from and better than those of the Group's competitors. The Group has about one hundred and eighty distinct market or technology niches within its twenty-eight businesses. The diversity of niches enables Ultra to contribute to a large number of platforms and programmes and provides resilience to the Group's financial performance.
Ultra has world-leading positions in many of its niches and, as an independent, non-threatening partner, is able to support all of the main prime contractors with specialist capabilities and solutions. As a result of such positioning, Ultra's systems, equipment or services are often mission-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 underpin the superior financial performance of the Group.
Ultra offers support to its customers through the design, delivery and support phases of a programme. The Group's 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, the major market sectors in which Ultra operates are:
Defence: Ultra supplies advanced electronic and electrical systems and equipment to coalition defence forces around the world. The Group innovates to provide specialist capabilities that are superior to those available to the enemy. By focusing on delivering comparative military advantage, Ultra can gain market share and exploit the headroom for growth that is available in defence budgets worldwide.
Security and cyber: Ultra provides highly differentiated systems and capabilities to the broad security, intelligence and cyber market. Driven by the actions of rogue states, terrorist groups and organised crime, governments worldwide are focusing expenditure preferentially on addressing these threats. Ultra has highly specialised capabilities in secure communications, networks and high-grade cryptographic equipment, key management systems and surveillance and intelligence gathering systems.
Transport: Ultra provides specialist software, systems and equipment for use in mass passenger transport systems. This includes high integrity real-time controls for civil aircraft, advanced IT solutions for modern airports and trackside power equipment for transit rail systems. Demand in these areas, is driven by rising populations in affluent and developing regions of the world.
Energy: Countries around the world are addressing the strategic need to have secure access to increasing amounts of low carbon energy. Ultra has a range of safety critical sensors and controls used in existing and new build nuclear reactors. The Group has innovative portable energy sources powered by readily available propane gas. Ultra also has specialist sensors, derived from defence applications, which are highly effective in the underwater environment at hydrocarbon mapping.
Related Shares:
ULE.L