26th Mar 2013 07:00
Embargoed until 0700 26th March 2013
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 2012. A preliminary announcement of the Group's results was made on 4 March 2013.
The Group's 2012 Annual Financial Report and the Notice of Annual General Meeting 2013 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
Paul Dean, 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 | ·; Ultra has comprehensively reviewed policy, governance and accountability for the management of the cyber-attack risk ·; This has resulted in a new Group Information Security Policy and a significant further investment in the hardening of all Ultra's IT systems ·; Development of the Group's ability to monitor systems and detect intrusion attempts will continue through 2013 |
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's 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 | ·; Continue to target areas of preferential customer spend ·; Operate a wide-ranging portfolio of specialist capabilities, complemented by a structure and culture that promotes agility, innovation and speed of response ·; Develop and strengthen the marketing teams within each business ·; Introduce LAUNCH behaviours, see page 36 (of the Annual Financial Report), to improve understanding of customer need ·; Collaborate across the full Ultra portfolio and/or partner to present comprehensive solutions that 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 that 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 |
Market access | 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 that the members of its JVs and boards bring to the Group ·; Ensure that the relationship continues to be mutually beneficial |
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 focussed 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 |
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 and independent scrutiny of bids at Executive Team level has been initiated ·; 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 |
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 that constrains innovation and entrepreneurship ·; Ultra loses the key staff that are important to sustaining the portfolio of specialist capabilities and so loses business | ·; Sustain a lean head office structure and empower individual businesses that are of a size to remain agile, while encouraging collaboration where appropriate ·; Reinforce the LEAP behaviours that embody the Group's culture ·; Introduce the LAUNCH behaviours to improve customer understanding ·; Manage acquisitions in order to embed Ultra culture and practices over existing behaviours |
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 fully to understand the commercial practices and market dynamics with the new regions it is entering, so loses business opportunities while expending resource on presence | ·; Outside its core markets, Ultra will focus its regional marketing attention on the Middle East, Australia, Turkey, India and Brazil ·; Engage closely with UKTI and Embassies to improve local knowledge ·; Access institutional consultants and research to better understand target regions ·; Introduce Regional Marketing Managers in target regions to identify and calibrate opportunities across the full breadth of the Group's portfolio of capabilities, and maintain an 'in region' presence ·; Develop sound regional partnerships in developing markets to meet offset needs while maintaining product differentiation and profitability |
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, and 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 ·; Maintain Ultra's consistently high levels of retention for key staff ·; Fast track high potential candidates, and exploit opportunities for secondments and inter-business transfers ·; Ensure all key staff have a nominated successor so the impact, if someone does leave the business, is reduced ·; Ensure poor performance is addressed |
Industry restructuring - vertical integration | Major primes in Ultra's sectors could integrate vertically (organically or by acquisition), so undermining the Group's market position. | ·; A sudden removal of key market segments resulting in a loss of business • Greater competition for suitable acquisitions | ·; Continue to operate in specific market niches which play to Ultra's strengths ·; Continue to innovate and differentiate the offering ·; Ensure the Group executes contracts well and constantly meets its commitments, thereby reducing the incentive for customers to attempt to emulate the Group's specialist expertise and capabilities ·; Maintain close relationships with all potential primes ·; Champion the benefits of competition with end customers |
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 65 and 66 of the Annual Financial Report:
2012 | 2011 | |
£'000 | £'000 | |
Short-term employee benefits | 2,818 | 4,193 |
Post-employment benefits | 279 | 309 |
Share-based payments | 902 | 1,635 |
3,999 | 6,137 |
Transactions with associate
At 31 December 2012, a loan of £657,000 (2011: £1,289,000) 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 also has a "shelf" facility in place with Prudential Investment Management Inc. This agreement effectively gave the Group access to the US private placement market on a bilateral basis. The facility is non-committed but is for up to $150m. At the year-end, $70m of loan notes had been issued, with maturity dates in 2018 and 2019.
As well as being used to fund acquisitions, the borrowing 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 2013 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, on page 90 of the Annual Financial Report.
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 provides 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.
RESPONSIBILITY STATEMENT OF THE DIRECTORS ON THE ANNUAL REPORT
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.
We confirm that to the best of our knowledge:
• 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 the Company and the undertakings included in the consolidation taken as a whole;
• we consider the annual report and accounts to be fair, balanced and understandable and to provide the information necessary for shareholders to assess the Company'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 the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
By order of the Board,
R. Sharma, Chief Executive
P. Dean, Finance Director
1 March 2013
- 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.
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