26th Feb 2007 07:02
Ultra Electronics Holdings PLC26 February 2007 Embargoed until 07.00 26 February 2007 Ultra Electronics Holdings plc ("Ultra" or "the Group") Preliminary Audited Results for the Year Ended 31 December 2006 FINANCIAL HIGHLIGHTS Year ended Year ended Change 31 December 31 December 2006 2005 Revenue £377.0m £342.4m 10%Operating profit(1) £57.5m £51.1m 13%Headline profit before tax(2) £54.9m £47.4m 16%Earnings per share(2) 58.4p 50.7p 15%Dividend per share - final 12.6p 10.7p 18% - total 18.5p 15.9p 16% • Strong revenue and profit growth - buoyant conditions in civil aerospace and development work on Joint Strike Fighter drove revenue growth in Aircraft & Vehicle Systems - strong growth of airport and battlespace IT systems boosted revenue and margins in Information & Power Systems - Tactical & Sonar Systems benefited from increasing sales of underwater battlespace systems and equipment in addition to battlespace IT systems • Operating margin(1) increased to 15.3%, despite currency impact • Operating cash conversion(3) of 98% achieved, giving five-year average of 110% • Investment continues in new aerospace programmes to underpin medium-term growth • Important contracts secured during 2006, supporting the further growth of the Group • Order book grew by 17% to £584m, maintaining high visibility of future earnings Douglas Caster, Chief Executive, commented:"Ultra has again demonstrated solid growth in revenue and profits. The broadspread of Ultra's specialist activities in different market sectors, its strongorder book and its position on so many new international programmes give anexcellent basis for continued progress. With a strong balance sheet, highquality of earnings and a clear strategy, Ultra has excellent opportunities togrow both by acquisition, at appropriate prices, and organically so as tostrengthen its market niches. Combined with healthy market conditions, thesefactors give the Board confidence of further progress in 2007." Enquiries: Ultra Electronics Holdings plc (27.02.06) 020 7067 0700Douglas Caster, Chief Executive Thereafter 020 8813 4321David Jeffcoat, Finance Director www.ultra-electronics.com Weber Shandwick Financial 020 7067 0700Susan Ellis / Louise Robson (1) before amortisation of intangibles arising on acquisition. IFRS profit from operations £53.9m (2005: £47.8m).(2) before amortisation of intangibles arising on acquisition and fair value movement on derivatives. IFRS profit before tax £55.0m (2005: £40.7m). Basic EPS 58.8p (2005: 43.9p).(3) 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. Financial Review Year ended 31 Year ended 31 Growth December 2006 December 2005 £m £mOrder book - Aircraft & Vehicle Systems 176.9 133.8 32.2%- Information & Power Systems 110.2 127.9 (13.8%)- Tactical & Sonar Systems 296.5 239.0 24.1%--------------------------------------------------------------------------------Total order book 583.6 500.7 16.6%--------------------------------------------------------------------------------Revenue- Aircraft & Vehicle Systems 93.9 84.4 11.3%- Information & Power Systems 120.5 117.3 2.7%- Tactical & Sonar Systems 162.6 140.7 15.6%--------------------------------------------------------------------------------Total revenue 377.0 342.4 10.1%--------------------------------------------------------------------------------Organic growth 9.9% Operating profit(1)- Aircraft & Vehicle Systems 13.2 15.9 (17.0%)- Information & Power Systems 19.3 18.1 6.6%- Tactical & Sonar Systems 25.0 17.1 46.2%--------------------------------------------------------------------------------Total operating profit(1) 57.5 51.1 12.5%--------------------------------------------------------------------------------Net interest payable (2.6) (3.7) (29.7%)--------------------------------------------------------------------------------Headline profit before tax(2) 54.9 47.4 15.8%--------------------------------------------------------------------------------Operating margin(1)- Aircraft & Vehicle Systems 14.1% 18.8%- Information & Power Systems 16.0% 15.4%- Tactical & Sonar Systems 15.4% 12.2%--------------------------------------------------------------------------------Total operating margin(1) 15.3% 14.9%--------------------------------------------------------------------------------Operating cash flow(3) 56.5 53.8--------------------------------------------------------------------------------Cash conversion(4) 98% 105%--------------------------------------------------------------------------------Net debt(5) at year-end 7.2 34.3--------------------------------------------------------------------------------Bank interest cover 21.6x 18.6x--------------------------------------------------------------------------------Earnings per share(2) 58.4p 50.7p 15.2% The robust growth that Ultra has demonstrated in recent years continued, leadingto a strong revenue and profits performance in 2006. As in previous reportingperiods, demand for battlespace IT products and airport IT systems werenoteworthy drivers of growth. In addition, increased sales of underwaterbattlespace systems and equipment contributed to the strong performance.Investment in a range of new programmes continued, helping to underpinmedium-term growth, and two further acquisitions were made in the period whichenhance the Group's wide range of offerings in growing niche sectors. Ultra's continuing success in winning new business on a broad range ofinternational programmes resulted in a record order book of £584m at theyear-end. Revenue was 10% higher at £377.0m, compared to £342.4m for 2005 • of this growth, 9% was organic at constant currencies • acquisitions contributed 2% growth • currency translation reduced growth by 1% Operating profit* increased 13% to £57.5m (2005: £51.1m) • operating margin* increased to 15.3% (2005: 14.9%) • at constant currencies operating profit* growth was 22% The conversion of operating profit* to operating cash flow* in the year was 98%.Over the last five years, the Group's average cash conversion* has been 110%,reflecting the high quality of Ultra's earnings. Net debt* at the year-end was £7.2m (2005: £34.3m), after funding an investmentof £35.4m in the year. Of this, a total of £7.8m after expenses was spent onacquisitions, with £27.6m (2005: £24.6m) spent on research and development,capital expenditure and new business development. This £35.4m investment ofUltra's funds was supplemented by customer-funded product development activity.In 2006, this amounted to £69.4m (2005: £60.6m) and so, in total, over 18% ofUltra's activity is new product and business development. Net interest payable was 30% lower at £2.6m (2005: £3.7m) due mainly to lowerborrowings through the year. Fair value movement on derivatives and amortisationof intangibles arising on acquisition were a net gain of £0.1m (2005: net lossof £6.7m) resulting in a 35% increase in profit before tax to £55.0m (2005:£40.7m). With an effective tax rate in 2006 of 28.0% (2005: 27.7%), profit aftertax rose by 35% to £39.6m (2005: £29.4m). Earnings per share* rose 15% to 58.4p(2005: 50.7p) DividendThe proposed final dividend is 12.6p, bringing the total dividend for the yearto 18.5p (2005: 15.9p). This represents an annual increase of 16%, with thedividend being covered 3.2 times by earnings per share*. If approved, thedividend will be paid on 4 May 2007 to shareholders on the register on 13 April2007. 2006 Acquisitions In 2006, the Group made two acquisitions, Polyflex Aerospace Ltd ("Polyflex") inJanuary and Winfrith Safety Systems ("Winfrith") in July. The total cashconsideration for acquisitions was £7.8m including expenses, financed usingUltra's banking facilities. Polyflex designs, manufactures and provides in-service support for high pressurepneumatic products for a wide variety of aerospace and defence applications. Thebusiness has been subsumed into Precision Air Systems within the Aircraft &Vehicle Systems division and has broadened the Group's range of innovativecomponents and sub-systems for high integrity defence and aerospace programmes. Winfrith supplies specialist sensors and associated cables for use withinnuclear reactors. The products have both civil and military applications andcomplement Ultra's existing reactor control and instrumentation system designactivity. Winfrith is now part of the Group's Command & Control Systems businessin the Information & Power Systems division. Review of Operations Aircraft & Vehicle Systems Revenue increased by 11% to £93.9m (2005: £84.4m) while operating profit* was17% lower at £13.2m (2005: £15.9m), giving an operating margin* of 14.1% (2005:18.8%). The value of the order book at the period-end was £176.9m (2005:£133.8m), the increase mainly reflecting the contract for HiPPAG airbornecompressors for the second production tranche of Typhoon aircraft. Revenue growth was driven by the continuing buoyant conditions in the civilaerospace market. Orders for Boeing's new 787 ("B787") aircraft have been strongand Ultra's investment in this aircraft, developing the Wing Ice Protectionsystem ("WIPS") and proximity sensor electronics, continued as planned. Ultraalso saw initial development sales on the US Joint Strike Fighter programmewhere the Group is developing an ice protection system for the main engine ofthe aircraft. Following the acquisition of Polyflex, the division won a numberof contracts from new customers for its range of specialist high pressurepneumatic products. Operating profits* reflected adverse currency effects and, as expected, thecontinuing B787 investment. At this early stage in the programme, developmentsales for the Joint Strike Fighter were taken at no margin. Highlights of the division's performance in the year that will underpincontinuing growth in future years included: • continuing progress on the European A400M military transport aircraft programme for which Ultra is developing five high value systems • a contract to undertake design activity relating to the ice protection equipment applicable to the lift fan on the short take-off and landing variant of the US Joint Strike Fighter aircraft • Ultra supported the initiative to improve the protection provided to UK troops in Iraq and started, late in the year, the supply of indirect vision systems for use on the recently procured Mastiff vehicles. These vision systems were adaptations of those originally developed for the British Army's Trojan and Titan vehicles Information & Power Systems Revenue in the period grew 3% to £120.5m compared to £117.3m in the prior year,while operating profit* improved 7% to £19.3m (2005: £18.1m), giving adivisional operating margin* of 16.0% (2005: 15.4%). The order book at the end ofthe period was £110.2m (2005: £127.9m), the reduction reflecting the timing ofcontract awards. The predicted reduction in demand for Ultra's transit system electrical powerequipment partially offset the revenue growth elsewhere in the division. TheGroup did win, however, the first contracts for trackside power units awarded byNetwork Rail since the end of its major southern region power upgrade programme.The high growth in airport and battlespace IT systems were the principal driversof revenue growth. Airport Systems benefited from higher activity levels atHeathrow's Terminal 5 as well as a full year's sales contribution from the NewZealand baggage reconciliation system. Revenue was also higher on the Group's ITintegration contract at Shanghai airport. Ultra continued to experience strongdemand for its ADSI(R) local situational awareness systems. In particular, saleswere made in the US for an air defence airspace management programme throughwhich local commanders in current operations are being provided with an enhancedpicture of activity in their local airspace. Following the acquisition ofWinfrith, the division won small but important initial contracts from BritishEnergy in the period. The improvement in the operating margin* was aided by good progress on thereactor control and instrumentation contract for Rolls-Royce as well as thereturn to profitability of the division's transit power activities following therestructuring in 2005. New contract wins in the year that will underpin the division's performance in2007 and beyond included: • selection at Dublin and Luton airports for common-use check-in systems and at Minneapolis St Paul to provide an integrated suite of airport IT applications • the award of a land mine countermeasures contract for the British Army • a contract to supply shore-based electrical power conversion equipment for the submarine base at Faslane, Scotland Tactical & Sonar Systems Revenue in the division increased by 16% to £162.6m from £140.7m and operatingprofit* increased 46% to £25.0m (2005: £17.1m). Operating margin* improved to15.4% (2005: 12.2%). The closing order book value was £296.5m (2005: £239.0m).This reflected the strong demand for the division's battlespace IT products. The strong revenue growth in the division reflected continuing demand forbattlespace IT equipment, especially the repair, upgrade and replacement ofproducts used in current operations in Iraq and Afghanistan. This resulted instrong sales of tactical radio and network communication systems. There was alsoan initial contribution from the sale of airborne targeting pods for use on RAFTyphoon and Tornado aircraft. In addition, 2006 saw significant sales ofunderwater battlespace systems and equipment including increased deliveries ofsonobuoys in the US and torpedo defence systems, ship sonars and sea minedisposal systems for the Royal Navy. The division also benefited from a fullyear's contribution from Audiopack, acquired in 2005. Operating profit* was increased by the successful completion of the productionphase of the UK torpedo defence programme. The profitability of the division wasfurther boosted by higher sales of sonobuoy telemetry receivers and benefitedfrom the completion of older, multi-year contracts for these products. Theoperating profit* of this division was also enhanced by a significantcontribution from Horizon Aerospace, acquired in 2005. Highlights of the division's performance in the year that will underpincontinuing growth in 2007 and beyond included: • successful, rapid functional upgrade and initial deliveries of Litening airborne targeting pods for Typhoon and Tornado aircraft • selection in the UK to lead the capability demonstration phase of a new loitering munition programme • successful trials of Ultra's PacketAssure product providing guaranteed quality of service with high-grade cryptographic security on military Internet-based communication networks. This is an innovative world first • successful trials with the US Navy of Ultra's surface ship torpedo defence capability, sharing technology with the UK programme and demonstrating effective protection against multiple incoming threats of different types Outlook The Group's broad mix of activities enables it to exploit its niche marketpositions and contribute its differentiated technologies to a wide range ofprogrammes. Ultra's spread of businesses across North America and the UK enablesit to address specific national requirements where a sovereign operationalcapability must be maintained. Further, the Group's structure enables it tooperate in a flexible and agile way. Ultra's businesses are encouragedconstantly to pursue product and process innovation and this places Ultra in astrong position to provide differentiated products, services and solutions tomeet customer requirements. Expenditure is increasing on the repair, upgrade or replacement of equipmentused in current military operations. This is continuing to exert pressure ondefence budgets: however, the absolute level of defence expenditure is stillrising. Electronic solutions to provide 'smarter' equipment continue to attracta significant and rising proportion of these budgets. Ultra is well placed against this market background and has ample headroom togrow as the focus for expenditure continues to be on battlespace IT andequipment to support mobility and expeditionary operations. Strong growth in demand for civil aircraft is being driven by the increasingaffordability of air travel, especially in those areas of the world where rapidpopulation growth is combined with rising disposable incomes. Competitivepressures will focus demand on fuel-efficient aircraft that are morecost-effective and less damaging to the environment. This increasing demand forair travel also encourages continuing investment in enhanced airportinfrastructure. The Group entered 2007 with a record order book of £584m, an increase of 17%over the position at the same time last year. This maintains historic levels offirm order cover for the coming year and reflects Ultra's success in winning newbusiness on a broad range of international programmes. With its robust balance sheet, Ultra continues to invest both through internaldevelopments and through acquisition. The Group pursues good quality businessesthat can be acquired at sensible multiples and to which Ultra's ownership addsvalue. Investments such as the WIPS for the B787 continue to be attractive asthey allow Ultra to work closely with its customers to develop tailoredsolutions. The Group's decision to invest in the B787 programme is validated byBoeing having received 435 firm orders for the aircraft by the end of 2006. Ultra has a broad range of products and services and has a successful trackrecord of winning positions on a wide range of international programmes.Combined with healthy market conditions, this gives the Board confidence offurther progress in 2007. - Ends - Enquiries: Ultra Electronics Holdings plc (27.02.06) 020 7067 0700Douglas Caster, Chief Executive Thereafter 020 8813 4321David Jeffcoat, Finance Director www.ultra-electronics.com Weber Shandwick Financial 020 7067 0700Susan Ellis / Louise Robson Footnote*(1) operating profit and operating margin are before amortisation of intangibles arising on acquisition.(2) headline profit before tax and earnings per share are before amortisation of intangibles arising on acquisition and fair value movement on derivatives.(3) operating cash flow is cash generated by operations, less net capital expenditure, R&D and LTIP share purchases.(4) 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.(5) net debt comprises bank overdrafts and loans less cash and cash equivalents. Notes to editors: Ultra Electronics is a group of specialist businesses designing, manufacturingand supporting electronic and electromechanical systems, sub-systems andproducts for defence, security and aerospace applications worldwide. Ultra, which employs 3,000 people in the UK and North America, focuses on highintegrity sensing, control, communication and display systems with an emphasison integrated information technology solutions. The Group concentrates onobtaining a technological edge in niche markets, with many of its products andtechnologies being market leaders in their field. Ultra's products and services are used on aircraft, ships, submarines, armouredvehicles, surveillance systems, airports and transport systems around the world.Ultra also plays an important role in supporting prime contractors byundertaking specialist system and sub-system integration using the combinedexpertise of the Group businesses. Ultra is organised into three divisions as follows: Aircraft & Vehicle Systems including miniature airborne compressors; highintegrity software and systems; aircraft system electronics; aircraft cockpitindicators; aircraft noise and vibration control systems; airframe protectionsystems, armoured vehicle electronic information and control systems; human/computer interface equipment and shared working environment solutions. Information & Power Systems including command and control systems equipment;weapons interfacing electronics; radar tracking; electro optical tracking;surveillance systems; naval data processing and distribution; airport andairline information management systems; ID card systems; naval power conversion;signature management of naval vessels; transit system power conversion andcontrol. Tactical & Sonar Systems including secure tactical line-of-sight radio systems,multiplexers and switches; voice communication systems; tactical data links;cryptographic equipment; active, passive and multi-static sonobuoys; sonobuoyreceivers and processors; distributed surveillance sensor arrays; ship's sonarsystems; acoustic countermeasure systems and ship's torpedo defence systems. Ultra Electronics Holdings plc Preliminary Audited Results for the Year Ended 31 December 2006 Consolidated Income Statement 2006 2005 Note £000 £000 Continuing operationsRevenue 1 377,040 342,410Cost of sales (274,466) (250,160)----------------------------------------------------------------------------------Gross Profit 102,574 92,250 Other operating income 1,505 4,805Distribution costs (810) (825)Administrative expenses (48,569) (48,393)Other operating expenses (753) -----------------------------------------------------------------------------------Profit from operations 53,947 47,837 Investment revenue 3 4,939 553Finance costs 4 (3,874) (7,688)----------------------------------------------------------------------------------Profit before tax 1 55,012 40,702Tax 5 (15,404) (11,292)----------------------------------------------------------------------------------Profit for the year from continuing operations attributable to equity holders of the parent 39,608 29,410---------------------------------------------------------------------------------- Earnings per ordinary share (pence)From continuing operations - Basic 58.8 43.9 - Diluted 58.3 43.5 Ultra Electronics Holdings plc Preliminary Audited Results for the Year Ended 31 December 2006 Consolidated Balance Sheet 2006 2005 Note £000 £000 Non-current assetsIntangible assets 149,758 150,494Property, plant and equipment 20,814 22,844Deferred tax assets 11,223 17,301---------------------------------------------------------------------------------- 181,795 190,639---------------------------------------------------------------------------------- Current assetsInventories 7 29,198 25,937Trade and other receivables 8 83,599 74,412Cash and cash equivalents 25,628 40,193---------------------------------------------------------------------------------- 138,425 140,542----------------------------------------------------------------------------------Total assets 320,220 331,181----------------------------------------------------------------------------------Current liabilitiesTrade and other payables 9 (110,235) (104,009)Tax liabilities (7,387) (8,089)Obligations under finance leases (22) (36)Short-term provisions 10 (10,459) (7,028)---------------------------------------------------------------------------------- (128,103) (119,162)----------------------------------------------------------------------------------Non-current liabilitiesRetirement benefit obligations (35,143) (46,576)Other payables 9 (1,158) (930)Deferred tax liabilities (2,830) (1,149)Obligations under finance leases (48) (67)Bank overdrafts and loans (32,722) (74,367)Long-term provisions 10 (2,825) (3,874)---------------------------------------------------------------------------------- (74,726) (126,963)----------------------------------------------------------------------------------Total liabilities (202,829) (246,125)----------------------------------------------------------------------------------Net assets 117,391 85,056---------------------------------------------------------------------------------- EquityShare capital 3,378 3,361Share premium account 33,180 31,679Own shares (2,692) (2,641)Hedging and translation reserves (4,837) (990)Retained earnings 88,362 53,647----------------------------------------------------------------------------------Total equity 117,391 85,056---------------------------------------------------------------------------------- Ultra Electronics Holdings plc Preliminary Audited Results for the Year Ended 31 December 2006 Consolidated Cash Flow Statement Note 2006 2005 £000 £000 Net cash from operating activities 12 49,550 48,217 Investing activitiesInterest received 1,216 549Purchase of property, plant and equipment (4,759) (7,311)Proceeds from disposal of property, plant and equipment 34 100Expenditure on product development and other intangibles (4,676) (2,909)Acquisition of subsidiary undertakings (net of cash acquired) (7,799) (36,610)----------------------------------------------------------------------------------Net cash used in investing activities (15,984) (46,181)---------------------------------------------------------------------------------- Financing activitiesIssue of share capital 1,518 1,389Purchase of Long-Term Incentive Plan shares (513) (596)Dividends paid (11,102) (9,567)(Repayment) / increase of borrowings (36,315) 21,747Repayments of obligations under finance leases (33) (20)New finance leases - 92----------------------------------------------------------------------------------Net cash (used in) / from financing activities (46,445) 13,045---------------------------------------------------------------------------------- Net (decrease) / increase in cash and cash equivalents (12,879) 15,081Cash and cash equivalents at beginning of year 40,193 24,060Effect of foreign exchange rate changes (1,686) 1,052----------------------------------------------------------------------------------Cash and cash equivalents at end of year 25,628 40,193---------------------------------------------------------------------------------- Ultra Electronics Holdings plc Preliminary Audited Results for the Year Ended 31 December 2006 Consolidated Statement of Total Recognised Income and Expense 2006 2005 £000 £000 Exchange differences on translation of foreign operations (3,847) 108Fair value of derivatives at 1 January 2005 - 2,268Actuarial gains / (losses) on defined benefit pension schemes net of deferred tax and exchange rate movements 7,827 (3,580)Profit / (loss) on cash flow hedge 226 (144)Tax on items taken directly to equity (1,923) (522)----------------------------------------------------------------------------------Net income / (expense) recognised directly in equity 2,283 (1,870)Transfer to profit and loss on cash flow hedges (28) -Profit for the year 39,608 29,410----------------------------------------------------------------------------------Total recognised income and expense for the year 41,863 27,540---------------------------------------------------------------------------------- Notes: 1. Segmental analysis (a) Revenue by division 2006 2005 External Internal Total External Internal Total revenue revenue revenue revenue £000 £000 £000 £000 £000 £000Aircraft & VehicleSystems 93,907 3,423 97,330 84,370 982 85,352Information &Power Systems 120,517 8,964 129,481 117,268 7,632 124,900Tactical &Sonar Systems 162,616 11,813 174,429 140,772 8,035 148,807Eliminations - (24,200) (24,200) - (16,649) (16,649)----------------------------------------------------------------------------------Consolidated revenue 377,040 - 377,040 342,410 - 342,410---------------------------------------------------------------------------------- (b) Profit by division 2006 2005 £000 £000 Aircraft & Vehicle Systems 13,190 15,923Information & Power Systems 19,333 18,094Tactical & Sonar Systems 24,986 17,117---------------------------------------------------------------------------------- 57,509 51,134Amortisation of intangibles arising on acquisition (see 1.(c)) (3,562) (3,297)----------------------------------------------------------------------------------Profit from operations 53,947 47,837Investment revenue 4,939 553Finance costs (3,874) (7,688)----------------------------------------------------------------------------------Profit before tax 55,012 40,702---------------------------------------------------------------------------------- (c) Amortisation of intangibles arising on acquisition 2006 2005 £000 £000 Aircraft & Vehicle Systems (505) -Information & Power Systems (174) -Tactical & Sonar Systems (2,883) (3,297)---------------------------------------------------------------------------------- (3,562) (3,297)---------------------------------------------------------------------------------- (d) Capital expenditure, additions to intangibles, depreciation and amortisation Capital expenditure and additions to intangibles Depreciation and (excluding goodwill) amortisation 2006 2005 2006 2005 £000 £000 £000 £000 Aircraft & Vehicle Systems 4,301 2,177 3,419 1,208Information & Power Systems 2,142 4,420 2,930 3,233Tactical & Sonar Systems 2,992 3,623 5,439 7,141----------------------------------------------------------------------------------Total 9,435 10,220 11,788 11,582----------------------------------------------------------------------------------The 2006 depreciation and amortisation expense includes £6,258,000 of amortisation charges (2005: £5,450,000) and £5,530,000 of property, plant and equipment depreciation charges (2005: £6,132,000). (e) Total assets by division 2006 2005 £000 £000 Aircraft & Vehicle Systems 80,857 67,144Information & Power Systems 68,656 64,439Tactical & Sonar Systems 129,684 141,441---------------------------------------------------------------------------------- 279,197 273,024Unallocated 41,023 58,157----------------------------------------------------------------------------------Total assets 320,220 331,181---------------------------------------------------------------------------------- Unallocated assets represent deferred tax assets, derivatives at fair value andcash and cash equivalents. (f) Total liabilities by division 2006 2005 £000 £000 Aircraft & Vehicle Systems (36,032) (25,454)Information & Power Systems (40,296) (38,528)Tactical & Sonar Systems (46,792) (49,987)---------------------------------------------------------------------------------- (123,120) (113,969)Unallocated (79,709) (132,156)----------------------------------------------------------------------------------Total liabilities (202,829) (246,125)---------------------------------------------------------------------------------- Unallocated liabilities represent derivatives at fair value, tax payables,retirement benefit obligations and bank loans and overdrafts. (g) Revenue by destination 2006 2005 £000 £000 United Kingdom 150,645 132,603Continental Europe 35,700 38,938North America 160,528 145,338Rest of the World 30,167 25,531---------------------------------------------------------------------------------- 377,040 342,410---------------------------------------------------------------------------------- (h) Other information (by geographic location) Total assets Additions to property, plant & equipment and intangible assets (excluding acquisitions) 2006 2005 2006 2005 £000 £000 £000 £000 United Kingdom 146,564 131,336 5,811 6,430North America 132,633 141,688 3,624 3,790---------------------------------------------------------------------------------- 279,197 273,024 9,435 10,220---------------------------------------------------------------------------------- 2. Additional performance measures To present the underlying profitability of the Group on a consistent basis yearon year, additional performance indicators have been used. These are calculatedas follows: 2006 2005 £000 £000 Profit from operations 53,947 47,837Add: Amortisation of intangibles arising on acquisition 3,562 3,297----------------------------------------------------------------------------------Operating profit (adjusted) (a) 57,509 51,134---------------------------------------------------------------------------------- Profit before tax 55,012 40,702(Profit)/ loss on fair value movements on derivatives (3,659) 3,436Amortisation of intangibles arising on acquisition 3,562 3,297----------------------------------------------------------------------------------Headline profit before tax (b) 54,915 47,435---------------------------------------------------------------------------------- Cash generated by operations 66,414 64,499Purchase of property, plant and equipment (4,759) (7,311)Proceeds on disposal of property, plant and equipment 34 100Expenditure on product development and other intangibles (4,676) (2,909)Purchase of Long-Term Incentive Plan shares (513) (596)----------------------------------------------------------------------------------Operating cash flow (adjusted) (c) 56,500 53,783---------------------------------------------------------------------------------- Operating profit at (a) above has been shown before the amortisation ofintangible assets arising on acquisitions, which relates to acquiredintellectual property, customer relationships and profit in acquired order book.Under UK GAAP this charge would have formed part of the amortisation ofgoodwill, which was also excluded from headline operating profit. Since theremainder of goodwill is no longer amortised, this charge has been excluded forconsistency. Headline profit before tax as shown at (b) in the above table andadjusted earnings per share are also presented before the amortisation ofintangible assets arising on acquisition. IAS 39 requires the Group to 'fair value' the derivative instruments used tomanage Ultra's foreign exchange exposures. This creates volatility in thevaluation of the outstanding instruments as exchange rates move over time. Thiswill have minimal impact on profit over the full term of the instruments, butcan cause significant volatility on particular balance sheet dates. Ultra istherefore stating headline profit before tax((b) in the above table) and adjusted earnings per share before changes in thevaluation of these instruments so that the underlying operating performance ofthe Group can more clearly be seen. The Group is cash generative and reinvests funds to support the continuinggrowth of the business. It seeks to use an accurate and appropriate measure ofthe funds generated internally while sustaining this growth. For this, Ultrauses operating cash flow (adjusted) (c), rather than cash generated byoperations, as its preferred indicator of cash generated and available to covernon-operating expenses such as tax and interest payments. The Group believesthat using cash generated by operations, with the exclusion of net expenditurein property, plant and equipment and outflows for capitalised productdevelopment and other intangibles, would result in an understatement of the truecash cost of sustaining a growing business. 3. Investment revenue 2006 2005 £000 £000 Bank interest 1,216 553Fair value movement on derivatives 3,659 -Retirement benefit scheme finance income 64 ----------------------------------------------------------------------------------- 4,939 553---------------------------------------------------------------------------------- 4. Finance costs 2006 2005 £000 £000 Amortisation of finance costs of debt 55 137Interest payable on bank loans and overdrafts 3,845 3,164Interest payable on finance leases 2 2Transfers from equity on cash flow hedges (28) -----------------------------------------------------------------------------------Total borrowing costs 3,874 3,303Fair value movement on derivatives - 3,436Retirement benefit scheme finance cost - 949---------------------------------------------------------------------------------- 3,874 7,688---------------------------------------------------------------------------------- 5. Tax 2006 2005 £000 £000 Current taxUnited Kingdom 7,812 7,254Overseas 5,190 5,805---------------------------------------------------------------------------------- 13,002 13,059Deferred tax United Kingdom 1,118 (2,105)Overseas 1,284 338---------------------------------------------------------------------------------- 2,402 (1,767)----------------------------------------------------------------------------------Total 15,404 11,292---------------------------------------------------------------------------------- 6. Dividends 2006 2005 £000 £000 Final dividend for the year ended 31 December 2005 of 10.7p (2004:9.2p) per share 7,150 6,078 Interim dividend for the year ended 31 December 2006 of 5.9p (2005:5.2p) per share 3,952 3,489---------------------------------------------------------------------------------- 11,102 9,567---------------------------------------------------------------------------------- Proposed final dividend for the year ended 31 December2006 of 12.6p (2005:10.7p) per share 8,324 7,150---------------------------------------------------------------------------------- The 2006 proposed final dividend was approved by the Board after 31 December2006 and has therefore not been included as a liability as at 31 December 2006. 7. Inventories 2006 2005 £000 £000 Raw materials and consumables 18,029 17,578Work in progress 9,323 6,376Finished goods and goods for resale 1,846 1,983---------------------------------------------------------------------------------- 29,198 25,937---------------------------------------------------------------------------------- 8. Trade and other receivables 2006 2005 £000 £000 Trade receivables 52,783 47,813Provisions against receivables (640) (761)----------------------------------------------------------------------------------Net trade receivables 52,143 47,052Amounts due from contract customers 23,072 23,026Derivatives at fair value 4,172 663Other receivables 1,876 1,885Prepayments and accrued income 2,336 1,786---------------------------------------------------------------------------------- 83,599 74,412---------------------------------------------------------------------------------- 9. Trade and other payables Amounts included in current liabilities 2006 2005 £000 £000 Trade payables 37,868 27,797Amounts due to contract customers 29,176 32,745Derivatives at fair value 1,627 1,975Other payables 12,830 11,712Accruals and deferred income 28,734 29,780---------------------------------------------------------------------------------- 110,235 104,009---------------------------------------------------------------------------------- Amounts included in non current liabilities: 2006 2005 £000 £000 Other payables 541 223Accruals and deferred income 617 707---------------------------------------------------------------------------------- 1,158 930---------------------------------------------------------------------------------- 10. Provisions Contract related Warranties provisions Total £000 £000 £000 At 1 January 2006 8,420 2,482 10,902Additional provisions 935 5,265 6,200Utilisation of provisions (1,302) (2,122) (3,424)Exchange differences (154) (240) (394)----------------------------------------------------------------------------------At 31 December 2006 7,899 5,385 13,284---------------------------------------------------------------------------------- Included in current liabilities 6,014 4,445 10,459Included in non current liabilities 1,885 940 2,825---------------------------------------------------------------------------------- 7,899 5,385 13,284---------------------------------------------------------------------------------- 11. Retirement benefit schemes The amount included in the balance sheet arising from the Group's obligation inrespect of its defined benefit retirement schemes is as follows: 2006 2005 £000 £000 Fair value of scheme assets 119.7 99.8Present value of scheme liabilities (154.8) (146.4)----------------------------------------------------------------------------------Scheme deficit (35.1) (46.6)Related deferred tax asset 10.5 14.0----------------------------------------------------------------------------------Net pension liability (24.6) (32.6)---------------------------------------------------------------------------------- 12. Cash flow information 2006 2005 £000 £000 Profit from operations 53,947 47,837Adjustments for:Depreciation of property, plant and equipment 5,530 6,132Amortisation of intangible assets 6,258 5,450Cost of equity settled employee share schemes 648 1,212(Decrease) / increase in post employment benefit obligation (259) 120Loss / (profit) on disposal of property, plant and equipment 21 (4)Increase / (decrease) in provisions 2,553 (366)----------------------------------------------------------------------------------Operating cash flows before movements in working capital 68,698 60,381Increase in inventories (3,419) (1,643)Increase in receivables (6,929) (1,313)Increase in payables 8,064 7,074----------------------------------------------------------------------------------Cash generated by operations 66,414 64,499 Income taxes paid (13,032) (13,001)Interest paid (3,832) (3,281)----------------------------------------------------------------------------------Net cash from operating activities 49,550 48,217---------------------------------------------------------------------------------- Reconciliation of net movement in cash and cash equivalents to movements in net debt 2006 2005 £000 £000 Net (decrease)/increase in cash and cash equivalents (12,879) 15,081Cash outflow/(inflow) from decrease/(increase) in debt and finance leasing 36,348 (21,727)---------------------------------------------------------------------------------- Change in net debt arising from cash flows 23,469 (6,646)Amortisation of finance costs of debt (55) (137)Finance leases - (92)Translation differences 3,699 (3,327)----------------------------------------------------------------------------------Movement in net debt in the year 27,113 (10,202)Net debt at start of year (34,277) (24,075)----------------------------------------------------------------------------------Net debt at end of year (7,164) (34,277)---------------------------------------------------------------------------------- Net debt comprised the following: 2006 2005 £000 £000 Cash and cash equivalents 25,628 40,193Bank overdrafts and loans (32,722) (74,367)Obligations under finance leases included in current liabilities (22) (36)Obligations under finance leases included in non - current liabilities (48) (67)---------------------------------------------------------------------------------- (7,164) (34,277)---------------------------------------------------------------------------------- Cash and cash equivalents comprise cash at bank and other short-term highlyliquid investments with a maturity of three months or less. 13. Five year review UK GAAP IFRS Restated Restated 2002 2003 2004 2005 2006 £m £m £m £m £m RevenueAircraft & Vehicle Systems 76.4 79.9 76.6 84.4 93.9Information & Power Systems 82.9 95.5 113.7 117.3 120.5Tactical & Sonar Systems 101.1 109.0 120.4 140.7 162.6----------------------------------------------------------------------------------Total revenue 260.4 284.4 310.7 342.4 377.0---------------------------------------------------------------------------------- Profit from operations (1)Aircraft & Vehicle Systems 12.5 13.9 14.9 15.9 13.2Information & Power Systems 11.0 11.0 15.0 18.1 19.3Tactical & Sonar Systems 10.0 12.6 13.4 17.1 25.0----------------------------------------------------------------------------------Total profit from operations 33.5 37.5 43.3 51.1 57.5 Margin (1) 12.8% 13.2% 13.9% 14.9% 15.3%---------------------------------------------------------------------------------- Profit before tax 29.9 34.4 40.1 40.7 55.0Profit after tax 17.9 20.4 29.2 29.4 39.6---------------------------------------------------------------------------------- Operating cash flow (2) 38.7 48.3 46.9 53.8 56.5Free cash before dividends, acquisitions and financing (3) 28.0 35.7 36.0 38.1 40.9Net debt at year-end (4) (39.3) (30.3) (24.1) (34.3) (7.2)---------------------------------------------------------------------------------- Headline earnings per share (p) (5) 33.2 38.2 43.7 50.7 58.4 Dividends per share (p) 11.2 12.3 12.8 14.4 16.6----------------------------------------------------------------------------------Average employee numbers 2,395 2,505 2,678 2,880 2,989---------------------------------------------------------------------------------- Notes:1. Before amortisation of goodwill and amortisation of intangibles arising on acquisition.2. Cash generated by operations, less net capital expenditure, R&D and LTIP share purchases.3. Free cash flow before dividends, acquisitions and financing has been adjusted to include the purchase of long-term incentive plan shares, which are included in financing activities.4. Bank overdrafts and loans less cash and cash equivalents.5. Before goodwill amortisation and amortisation of intangibles arising on acquisition and fair value movement on derivatives. 14. The financial information set out above, prepared in accordance with IFRS, does not constitute the Company's statutory accounts for the years ended 31 December 2006 or 2005, but is derived from those accounts. Statutory accounts for 2005 have been delivered to the Registrar of Companies and those for 2006 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under s237 (2) or (3) Companies Act 1985. 15. Copies of the annual report will be sent to shareholders in due course and will also be available from the Company's registered office at 417 Bridport Road, Greenford, Middlesex, UB6 8UA. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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