27th Feb 2006 07:01
Ultra Electronics Holdings PLC27 February 2006 Embargoed until 07.00 27 February 2006 Ultra Electronics Holdings plc ("Ultra" or "the Group") Preliminary Audited Results for the Year Ended 31 December 2005 FINANCIAL HIGHLIGHTS Year ended Year ended Change 31 December 31 December 2005 2004 Revenue £342.4m £310.7m +10%Operating profit(1) £51.1m £43.3m +18%Profit before tax(2) £47.4m £40.1m +18%Earnings per share(2) 50.7p 43.7p +16%Dividend per share - final 10.7p 9.2p +16% - total 15.9p 13.8p +15% (1) before amortisation of intangibles arising on aquisition. IFRS profit from operations £47.8m (2004: £43.3m).(2) before amortisation of intangibles arising on aquisition and loss on derivative financial instruments. IFRS profit before tax £40.7m (2004: £40.1m). Basic EPS 43.9p (2004: 43.7p).(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 aquisition. • Strong sales and profit growth - performance boosted by battlespace IT, airport IT and torpedo countermeasure systems - part year contributions from 2005 acquisitions and full-year benefit of 2004 acquisitions • Operating margin(1) increased to 15%, with continuing efficiency improvements and cost control • Operating cash conversion(3) of 105%, giving five-year average of 114% • Investment strategy continues to underpin strong performance - £24.6m invested in existing businesses to position for future programmes - £36.6m invested in complementary acquisitions to strengthen position in civil aerospace and homeland security markets • Important contracts secured during 2005, supporting the further growth of the Group • Order book grew by 27% to £501m, a significant increase during the year and maintaining high visibility of future earnings Douglas Caster, Chief Executive, commented:"2005 has continued Ultra's long track record of success and some significantcontracts were won in the year. The Group is positioned in high growth marketsectors worldwide. With Ultra's proven ability to win new business and toexecute contracts effectively, the Board has confidence in the continuingprogress of the Group in 2006." 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 Square Mile 020 7067 0700Susan Ellis / Louise Robson Ultra Electronics Holdings plc ("Ultra" or "the Group") Preliminary Audited Results for the Year Ended 31 December 2005 Ultra made excellent progress in 2005, achieving high growth in revenue andprofits. The Group's performance was helped by recent investments to enhance itsbattlespace IT, airport IT systems and torpedo countermeasures capabilities.Contributions were made by the acquisitions completed in 2004 and the twofurther acquisitions made during 2005, which strengthened Ultra's position inthe civil aerospace and homeland security markets. Important contracts weresecured during 2005, including positions on new programmes that will supportfurther growth of the Group. Financial Review Year ended 31 Year ended 31 Growth December 2005 December 2004 £m £m_____________________________________________________________________________________Order book - Aircraft & Vehicle Systems 133.8 72.3 85.1% - Information & Power Systems 127.9 122.1 4.7% - Tactical & Sonar Systems 239.0 201.0 18.9%Total order book 500.7 395.4 26.6% Revenue - Aircraft & Vehicle Systems 84.4 76.6 10.2% - Information & Power Systems 117.3 113.7 3.1% - Tactical & Sonar Systems 140.7 120.4 16.9%Total revenue 342.4 310.7 10.2% Organic growth 6.1% Operating profit(1) - Aircraft & vehicle Systems 15.9 14.9 7.1% - Information & Power Systems 18.1 15.0 20.3% - Tactical & Sonar Systems 17.1 13.4 27.8%Total operating profit(1) 51.1 43.3 18.1% Interest (3.7) (3.2) 15.4% Profit before tax(2) 47.4 40.1 18.4% Operating margin(1) - Aircraft & Vehicle Systems 18.9% 19.4% - Information & Power Systems 15.4% 13.2% - Tactical & Sonar Systems 12.2% 11.1%Total operating margin(1) 14.9% 13.9% Operating cash flow(3) 53.8 46.9Cash conversion(4) 105% 108%Net debt(5) at year-end 34.3 24.1Bank interest cover 18.6x 16.2xEarnings per share(2) 50.7p 43.7p 15.8% The strong performance of the Group was aided by high sales of tactical datalink systems to the US armed forces, increased deliveries of battlespace ITequipment for military vehicles, airport IT systems and torpedo countermeasures.There was an increase in the Group's operating margin(1) to 14.9% (2004: 13.9%),reflecting continuing improvements in efficiency and a constant focus on costcontrol. This resulted in operating profit(1) growth of 18%, despite the £5.2mnegative impact of weaker hedged exchange rates for US$ sales made by Ultra'sbusinesses in the UK and Canada. Headline profit before tax(2) increased by 18% to £47.4m (2004: £40.1m) butstatutory profit before tax rose by 2% to £40.7m (2004: £40.1m). This lattergrowth was substantially lower due to higher amortisation of acquiredintangibles (2005: £3.3m, 2004: nil) and a loss of £3.4m on financialinstruments, not recognised in the previous year. The trend in both of theseitems was mainly attributable to the transition to International FinancialReporting Standards. The effective tax rate for the year was 27.7%, compared to 27.2% in 2004. The conversion of operating profit(1) to operating cash flow(3) in the year was105%. Over the last five years, the Group's average cash conversion(4) has been114%, reflecting the high quality of Ultra's earnings. Net debt(5) at the year-end increased by just £10.2m to £34.3m (2004: £24.1m),after funding an investment of £61.2m in the year. Of this, a total of £36.6mafter expenses was spent on acquisitions, with £24.6m (2004: £20.7m) spent onresearch and development, capital expenditure and new business development. This£24.6m investment of Ultra's funds was supplemented by customer-funded productdevelopment activity. In 2005, this amounted to £60.6m (2004: £54.9m) and so, intotal, over 20% of Ultra's activity is new product development. Bank interest cost was covered 18.6 times by operating profit(1). Ultra had net current assets at the year end of £21.4m compared with net currentliabilities of £34.4m at the end of 2004. This improvement reflects therenegotiation during the year of the Group's banking facilities. With renewalfalling due within 2005, bank borrowings were treated as short-term liabilitiesin the 2004 results. At the end of 2005 the Group's order book was valued at the record level of£501m, an increase of 27% over the position at the same time last year. Thisimpressive order book achievement maintains historic levels of firm order coverfor the coming year and reflects Ultra's success in winning substantialpositions on new programmes. DividendThe proposed final dividend is 10.7p, bringing the total dividend for the yearto 15.9p (2004: 13.8p). This represents an annual increase of 15%, with thedividend being covered 3.2 times by earnings per share(2). If approved, thedividend will be paid on 5 May 2006 to shareholders on the register on 18 April2006. (1) before amortisation of intangibles arising on acquisition. (2) before amortisation of intangibles arising on acquisition and loss on derivative financial instruments. (3) cash generated by operations, less net capital expenditure, R&D and LTIP share purchases. (4) 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) bank overdrafts and loans less cash and cash equivalents. 2005 Acquisitions In 2005, the Group made two acquisitions, Horizon Aerospace in March andAudiopack Technologies in July. The total cash consideration for acquisitionswas £36.6m including expenses, financed using Ultra's banking facilities. Horizon, now fully integrated into Ultra's Flightline Systems business inRochester, New York, USA, supplies and supports a broad range of cockpitinstruments for military and civil aircraft. The range includes mechanical,electro-mechanical, digital and analogue-digital instruments. These products areused on many aircraft such as the Boeing 737 and 777 and complement Flightline'sexisting range of specialist sonobuoy receivers and electro-mechanicalgyroscopes. Flightline Systems is part of Ultra's Tactical & Sonar Systemsdivision. Audiopack strengthens Ultra's communications capability within the military andhomeland security markets and is now also part of the Tactical & Sonar Systemsdivision. Based in Cleveland, Ohio, USA, Audiopack's main activity is developingand manufacturing rugged voice communications equipment for personnel wearingprotective clothing, gas masks and breathing apparatus. The products aresupplied mainly to the military and homeland security sectors together with'first responders' such as the fire, medical and police services. Ultra willbenefit by being able to offer elements of its battlespace IT product range tothis market sector for command and control purposes. Review of Operations Aircraft & Vehicle Systems Aircraft & Vehicle Systems comprises five businesses in the UK and US thatsupply advanced technology products and software for military aircraft, landvehicles and civil aerospace markets. Revenue increased by 10% to £84.4m (2004: £76.6m). Operating profit(1) grew by7% to £15.9m (2004: £14.9m) giving an operating margin(1) of 18.9% (2004:19.4%). The continued buoyancy of the civil aerospace market drove sales growth ofUltra's cabin quietening equipment for the Bombardier Q Series turbopropaircraft and landing gear control computers to Airbus. Development activity onthe wing ice protection and door and landing gear proximity sensing systems forthe Boeing 787 aircraft progressed to plan, with the increased investment fundedby Ultra reducing margins slightly in the division. Sales of these systemsshould commence in 2007 ahead of the 787 entering service in 2008. An important achievement in the year was the selection of Ultra to supply anoise cancellation system for the main cargo cabin of the Airbus A400M militarytransport aircraft and a separate contract to supply specialised landing gearequipment. Airbus currently has 192 orders for the A400M, with the firstaircraft due to enter service in 2009. This new programme for Ultra contributedsignificantly to the order book growth in 2005. Sales of Ultra's HiPPAG missile cooling compressor for the US Navy's F/A-18 E/FSuper Hornet aircraft rose in 2005 but the rate of production for theEurofighter Typhoon aircraft was reduced in order to realign HiPPAG deliveriesto the aircraft programme. Following a number of successful trials in the US ofBoeing's Small Diameter Bomb system, Ultra was awarded the first low-rateinitial production contracts for the munitions ejection variant of HiPPAG. Thedevelopment of HiPPAG for the munitions ejection role on the F-35 Joint StrikeFighter aircraft also proceeded to plan. In the UK, deliveries of cockpit controls, indicators and landing gear controlequipment for the first tranche of the Eurofighter Typhoon aircraft continuedduring 2005 and additional orders for this equipment were secured for the secondtranche of 236 aircraft, for which the delivery period extends out to 2012. Production deliveries commenced to BAE Systems of the indirect vision system forthe British Army's Engineer Tank System and crew controls equipment for theTerrier combat engineering vehicle, making a significant contribution to thedivision's growth. Ultra teamed with CTAI, a joint venture between BAE Systemsand GIAT, to position for a competition to upgrade the British Army's Warriorarmoured fighting vehicle. Information & Power Systems Information & Power Systems consists of seven businesses that supply informationmanagement and power products for defence, commercial and airport applicationsworldwide. Revenue in the division increased by 3% to £117.3m (2004: £113.7m). Operatingprofit(1) increased by 20% to £18.1m (2004: £15.0m), giving an operating margin(1) of 15.4% (2004: 13.2%). Revenue growth was impacted by the decline of the track-side rail power supplyactivity for Network Rail that peaked in 2004. However, this reduction was morethan compensated for by the growth in battlespace IT equipment and the continuedsuccess of Ultra's ADSI data link processor and situational awareness system inthe US. Multi-year programmes to adapt ADSI for all four services of the USarmed forces and separately for systems to support peace keeping operations inIraq have contributed considerably to the growth of the division. Ultra's airport IT systems business achieved an excellent performance, whichalso contributed to the division's progress. There was increased activity on theIT infrastructure of BAA's Terminal 5 at London Heathrow airport as the projecttransitioned from design to implementation. In September, Ultra secured thecontract to supply IT integration services to Shanghai's Pudong InternationalAirport, building on Ultra's success at Terminal 5 and the market positiongained through the acquisition of Videcom in 2004. Shanghai will be a worldclass reference site for Ultra in the rapidly-growing Asia-Pacific airportmarket. Ultra's dominance of airline baggage reconciliation systems continued with theon-time commissioning of the system that serves all of the internationalairports in New Zealand. Ultra's managed baggage reconciliation services,provided at Heathrow, in Australia and in the US, continue to operatesuccessfully and are providing the expected revenue growth and return oninvestment. The highest priority planned procurement programme for the British Army is theFuture Rapid Effects System ("FRES") comprising a family of armoured vehicles,incorporating a significant amount of battlespace IT, to cover a wide range ofcombat and support roles. By teaming with Lockheed Martin, one of the twocompeting prime contractors, Ultra has secured a sub-contract to lead theelectronic architecture technology demonstrator programme that will define theteam's battlespace IT infrastructure for FRES. Development activity for the replacement control system for the nuclear reactorspowering the Royal Navy's submarines progressed satisfactorily to plan and thecomplex central control consoles for the Astute submarine were also delivered. Acontract was secured to upgrade and support the equipment that enables thecontrol and firing of weapons from the torpedo tubes of the Royal Navy'sTrafalgar and Vanguard Class submarines. Tactical & Sonar Systems Tactical & Sonar Systems, with the addition of Audiopack and the integration ofHorizon into Flightline Systems, comprises eight businesses in the UK and NorthAmerica that supply communications and underwater equipment to homeland securityand military users worldwide. Revenue in the division increased to £140.8m from £120.5m in 2004, a rise of 17%of which 7% was organic. Operating profit(1) increased 28% to £17.1m (2004:£13.4m), giving an operating margin(1) of 12.2% (2004: 11.1%). The new variant of the US Navy's passive sonobuoy was successfully introduced inthe second half of 2005, providing better performance at reduced cost. Overallhowever, the level of sonobuoy sales was broadly unchanged for the third year ina row. In both the US and UK, funded development work proceeded on the nextgeneration of sonobuoy systems that will improve the ability to detect small,extremely quiet, diesel-electric submarines able to operate in shallow, coastalwaters. Significant orders for Ultra's specialist sonobuoy telemetry receivers were wonduring the year securing long term positions on a number of new anti-submarinewarfare (ASW) aircraft programmes, including the Boeing P-8A aircraft beingdeveloped to replace the US Navy's ageing P-3 Orions and the Turkish Navy'sATR-72 ASW platform. In addition, the latest helicopter versions of Ultra'ssonobuoy receiver were selected for the Cyclone maritime helicopter programme inCanada and the MH-60R Seahawk in the US. Sales were boosted by the on-time delivery of a further six ship-sets of theGroup's Surface Ship Torpedo Defence system to the Royal Navy, with three ofthese systems installed on ships and at sea by the year-end. In the UnitedStates the torpedo defence technology demonstrator programme secured in 2004made excellent progress and successful trials have now been conducted againstreal weapons. The Group also benefited from increased sales of submarine-launched torpedo countermeasures for the US Navy and for international customers. During the year, development of the bow sonar for the Royal Navy's Type 45 destroyer made satisfactory progress and the first system was nearing completion by year-end. The Group was awarded a contract for the Royal Navy's mine disposal programmeafter teaming with Atlas Electronik in Germany. The system is an adaptation ofan existing design that Ultra will supply and then support from within the UK. Sales of battlespace IT equipment once again contributed to the growth of thisdivision, with particular success achieved in international markets. Ultra madefurther deliveries of high capacity radios to the US Army's communicationsinfrastructure programme and for its Patriot missile defence system. Radiosystems, upgraded to provide improved data transmission capacity, were also soldto the South Korean and Canadian armed forces. Following several years of investment and market positioning, during which Ultradesigned what is planned to be the NATO standard for the radio control links forunmanned air vehicles (UAVs), Ultra won a contract to supply such equipment forthe British Army's Watchkeeper UAV programme. This is another new growth nichefor Ultra which, with its associated encryption equipment, will aid the furthergrowth of the Group. Outlook In Ultra's main defence markets worldwide, budgets continue to rise. Withinthese budgets, expenditure is increasing on battlespace IT systems and equipmentto provide better situational awareness, quicker command and control and thesynchronisation of military effects with much improved accuracy. Funds are beingspent on equipping modern armed forces to allow the rapid deployment of light,mobile troops and to enable the exploitation of superior intelligence of themilitary situation through the use of battlespace IT. Ultra has pursued astrategy that has positioned the Group to benefit from these trends andconstantly seeks opportunities to offer new products and services to meet suchcustomer requirements. The recent UK Government Defence Industrial Strategy document confirmed that afuture priority for the MoD will be to upgrade existing platforms with smartercapabilities through the integration of enhanced electronic solutions. Thereport also confirmed the MoD's reliance on the private sector for innovativesolutions and through-life support. The MoD is open to solutions from overseassuppliers but will require technology transfer to the UK in order to maintainoperational sovereignty for its armed forces. Consequently, Ultra's marketposition, together with its expertise in international teaming, positions theGroup to continue to play a significant role in fulfilling the MoD's objectives. In the US, the recently published Quadrennial Defense Review ("QDR") emphasisesthe need to combat the asymmetric terrorist threat. Additionally, the QDRsupports the simultaneous maintenance of a US, worldwide capability to wage amajor conflict against a near-peer opponent. As a consequence, there will be acontinuing focus of expenditure on battlespace IT solutions, especially advancedsurveillance and command and control systems. The US will continue to seekdominance in the air, land and maritime domains through the continueddevelopment of smart capability. In the civil markets, aerospace remains buoyant and healthy demand continuesboth for sales of original equipment and for aftermarket support equipment.Development programmes for new aircraft types provide Ultra with opportunitiesto win positions for its innovative solutions. The growth in passenger airtravel is strong, increasing demand for new infrastructure including airport ITsystems. Ultra's currency hedging policy protected the Group against the worst effects ofthe weak US dollar at the beginning of 2005. The effective average hedgedexchange rates for sterling and Canadian dollars were US $1.73 (2004: $1.50) and$0.75 (2004: $0.72) respectively for 2005. However weaker hedged rates willapply in 2006, more notably this time in Canada. Overall profits are expected tobe reduced by approximately £3m due to currency transaction effects. Thisreduction is built into management's profit expectations for 2006. As the significance of Ultra's North American businesses continues to grow, afurther increase in the effective tax rate is probable. It is likely that therate will increase to more than 28.0%, compared to 27.7% in 2005. Ultra's performance in 2005 built on its long track record of continuousprogress and the Group enters 2006 with a strong balance sheet and a recordorder book. Ultra has the headroom to make further acquisitions that willenhance and complement the Group's range of niche activities and to invest torespond to market demands. The record order book of £501m represents asignificant increase in the year and provides Ultra with its customary level ofearnings visibility. It reflects the Group's strong positions on existingplatforms as well as its success in winning positions on new programmes. Despitethe growth of Ultra, it remains true that no single programme contributes morethan 5% of sales in a year, thereby underpinning the robustness of the Group'sperformance. Current market conditions, coupled with Ultra's proven ability to win newbusiness and to execute contracts effectively, give the Board confidence in thecontinuing progress of the Group in 2006. 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 Square Mile 020 7067 0700Susan Ellis / Louise Robson 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 2005 Consolidated Income Statement 2005 2004 Note £000 £000_______________________________________________________________________________________Continuing operationsRevenue 1 342,410 310,742Cost of sales (250,160) (229,627)_______________________________________________________________________________________Gross Profit 92,250 81,115 Other operating income 4,805 3,828Distribution costs (825) (777)Administrative expenses (48,393) (40,599)Other operating expenses - (273)_______________________________________________________________________________________Profit from operations 47,837 43,294 Investment revenue 3 553 157Finance costs 4 (7,688) (3,362)_______________________________________________________________________________________Profit before tax 1 40,702 40,089Tax 5 (11,292) (10,938)_______________________________________________________________________________________Profit for the year from continuing operations attributable to equity holders of the parent 29,410 29,151_______________________________________________________________________________________ Earnings per ordinary share (pence)From continuing operations - Basic 43.9 43.7 - Diluted 43.5 43.4 Ultra Electronics Holdings plc Preliminary Audited Results for the Year Ended 31 December 2005 Consolidated Balance Sheet 2005 2004 Note £000 £000_______________________________________________________________________________________ Non-current assetsIntangible assets 150,494 114,843Property, plant and equipment 22,844 20,213Deferred tax assets 17,301 14,000_______________________________________________________________________________________ 190,639 149,056_______________________________________________________________________________________ Current assetsInventories 7 25,937 22,557Trade and other receivables 8 74,412 68,352Cash and cash equivalents 40,193 24,060_______________________________________________________________________________________ 140,542 114,969_______________________________________________________________________________________Total assets 331,181 264,025_______________________________________________________________________________________Current liabilitiesTrade and other payables 9 (104,009) (90,098)Tax liabilities (8,089) (8,030)Obligations under finance leases (36) (21)Bank overdrafts and loans - (48,104)Short-term provisions 10 (7,028) (3,164)_______________________________________________________________________________________ (119,162) (149,417)_______________________________________________________________________________________Non-current liabilitiesRetirement benefit obligations (46,576) (40,219)Other payables 9 (930) (1,115)Deferred tax liabilities (1,149) (1,406)Obligations under finance leases (67) (10)Bank overdrafts and loans (74,367) -Long-term provisions 10 (3,874) (7,472)_______________________________________________________________________________________ (126,963) (50,222)_______________________________________________________________________________________Total liabilities (246,125) (199,639)_______________________________________________________________________________________Net assets 85,056 64,386_______________________________________________________________________________________ Capital and reservesShare capital 3,361 3,345Share premium account 31,679 30,306Own shares (2,641) (2,807)Hedging and translation reserves (990) (1,098)Retained earnings 53,647 34,640_______________________________________________________________________________________Total equity 85,056 64,386_______________________________________________________________________________________ Ultra Electronics Holdings plc Preliminary Audited Results for the Year Ended 31 December 2005 Consolidated Cash Flow Statement Note 2005 2004 £000 £000_______________________________________________________________________________________ Net cash from operating activities 12 48,217 44,121 Investing activitiesInterest received 549 157Purchase of property, plant and equipment (7,311) (5,246)Proceeds of disposal of property, plant and equipment 100 3 Expenditure on product development and other intangibles (2,909) (1,919)Acquisition of subsidiary undertakings (net of cash acquired) (36,610) (23,288)_______________________________________________________________________________________ Net cash used in investing activities (46,181) (30,293)_______________________________________________________________________________________ Financing activitiesIssue of share capital 1,389 2,237Purchase of Long-Term Incentive Plan shares (596) (1,124)Dividends paid (9,567) (8,531)Increase/(repayments) of borrowings 21,747 (1,400)Repayments of obligations under finance leases (20) (3)New finance leases 92 -_______________________________________________________________________________________ Net cash used in financing activities 13,045 (8,821)_______________________________________________________________________________________ Net increase in cash and cash equivalents 15,081 5,007Cash and cash equivalents at beginning of year 24,060 18,044Effect of foreign exchange rate changes 1,052 1,009_______________________________________________________________________________________ Cash and cash equivalents at end of year 40,193 24,060_______________________________________________________________________________________ Ultra Electronics Holdings plc Preliminary Audited Results for the Year Ended 31 December 2005 Consolidated Statement of Recognised Income and Expense 2005 2004 £000 £000_______________________________________________________________________________________ Exchange differences on translation of foreign operations 108 (1,098)Fair value of derivatives at 1 January 2005 2,268 -Actuarial losses on defined benefit pension schemes (3,580) (7,492)Loss on cash flow hedge (144) -Tax on items taken directly to equity (522) 95_______________________________________________________________________________________Net expense recognised directly in equity (1,870) (8,495) Profit for the year 29,410 29,151_______________________________________________________________________________________Total recognised income and expense for the year 27,540 20,656_______________________________________________________________________________________ Notes: 1. Segmental analysis (a) Revenue by division 2005 2004 External Internal Total External Internal Total revenue revenue revenue revenue £000 £000 £000 £000 £000 £000______________________________________________________________________________________________Aircraft & Vehicle Systems 84,370 982 85,352 76,593 1,072 77,665Information & Power Systems 117,268 7,632 124,900 113,689 3,116 116,805Tactical & Sonar Systems 140,772 8,035 148,807 120,460 11,719 132,179Eliminations - (16,649) (16,649) - (15,907) (15,907)______________________________________________________________________________________________ Consolidated revenue 342,410 - 342,410 310,742 - 310,742______________________________________________________________________________________________ (b) Profit by division 2005 2004 £000 £000___________________________________________________________________________________ Aircraft & Vehicle Systems 15,923 14,867Information & Power Systems 18,094 15,038Tactical & Sonar Systems 17,117 13,389___________________________________________________________________________________ 51,134 43,294Amortisation of intangibles arising on acquisition* (3,297) -___________________________________________________________________________________Profit from operations 47,837 43,294Investment revenue 553 157Finance costs (7,688) (3,362)___________________________________________________________________________________Profit before tax 40,702 40,089___________________________________________________________________________________ * All of the charge relating to the amortisation of intangibles arising on acquisition relates to Tactical & Sonar Systems. (c) Capital expenditure, additions to intangibles, depreciation and amortisation by division Capital expenditure and Depreciation and additions to intangibles amortisation 2005 2004 2005 2004 £000 £000 £000 £000___________________________________________________________________________________Aircraft & Vehicle Systems 2,177 1,860 1,208 1,121Information & Power Systems 4,420 2,711 3,233 2,186Tactical & Sonar Systems 3,623 2,593 7,141 2,184___________________________________________________________________________________Total 10,220 7,164 11,582 5,491___________________________________________________________________________________ The 2005 depreciation and amortisation expense includes £5,450,000 ofamortisation charges (2004: £422,000) and £6,132,000 of property, plant andequipment depreciation charges (2004: £5,069,000). The increase in theamortisation charge results from the amortisation of intangible assets arisingon the acquisition of the aircraft instrument business of Horizon Aerospace LLC(Horizon) and Audiopack Technologies Inc (Audiopack). These intangible assets(principally intellectual property, customer relationships and profit in openingorder book) had a fair value at acquisition of £28,100,000. Both Horizon andAudiopack are included within Tactical & Sonar Systems. (d) Total assets by segment 2005 2004 £000 £000___________________________________________________________________________________Aircraft & Vehicle Systems 67,144 64,222Information & Power Systems 64,439 62,162Tactical & Sonar Systems 141,441 99,580___________________________________________________________________________________ 273,024 225,964Unallocated 58,157 38,061___________________________________________________________________________________Total assets 331,181 264,025___________________________________________________________________________________ Unallocated assets represent deferred tax assets, derivatives at fair value andcash and cash equivalents. (e) Total liabilities by segment 2005 2004 £000 £000___________________________________________________________________________________Aircraft & Vehicle Systems (25,454) (22,671)Information & Power Systems (38,528) (41,833)Tactical & Sonar Systems (49,985) (37,377)___________________________________________________________________________________ (113,967) (101,881)Unallocated (132,158) (97,758)___________________________________________________________________________________Total assets (246,125) (199,639)___________________________________________________________________________________ Unallocated liabilities represent derivatives at fair value, tax creditors,retirement benefit obligation and bank loans and overdrafts. (f) Revenue by destination 2005 2004 £000 £000___________________________________________________________________________________United Kingdom 132,603 132,138Continental Europe 38,938 32,948North America 145,338 109,345Rest of the World 25,531 36,311___________________________________________________________________________________ 342,410 310,742___________________________________________________________________________________ (g) Other information (by geographic location) Additions to Property, Plant & Equipment and intangible assets Total assets (excluding acquisitions) 2005 2004 2005 2004 £000 £000 £000 £000_________________________________________________________________________________United Kingdom 131,336 128,349 6,430 4,626North America 141,688 97,615 3,790 2,538_________________________________________________________________________________ 273,024 225,964 10,220 7,164_________________________________________________________________________________ 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: 2005 2004 £000 £000 ___________________________________________________________________________________Profit from operations 47,837 43,294Add: Amortisation of intangibles arising on acquisition 3,297 -___________________________________________________________________________________Operating profit (adjusted) (a) 51,134 43,294___________________________________________________________________________________Profit before tax 40,702 40,089Add: IAS 39 loss arising on derivatives 3,436 -Add: Amortisation of intangibles arising on acquisition 3,297 -___________________________________________________________________________________Profit before tax (adjusted) (b) 47,435 40,089___________________________________________________________________________________Cash generated by operations 64,499 55,216Purchase of property, plant and equipment (7,311) (5,246)Proceeds on disposal of property, plant and equipment 100 3Expenditure on product development and other intangibles (2,909) (1,919)Purchase of Long-Term Incentive Plan shares (596) (1,124)___________________________________________________________________________________Operating cash flow (adjusted) (c) 53,783 46,930___________________________________________________________________________________ Operating profit at (a) in the table above has been shown before theamortisation of intangible assets arising on acquisitions, which relates toacquired intellectual property, customer relationships and profit in acquiredorder book. Under UK GAAP this charge would have formed part of the amortisationof goodwill, which was also excluded from headline operating profit. Since theremainder of goodwill is no longer amortised, this charge has been excluded forconsistency. Profit before tax as shown at (b) in the above table and adjustedearnings per share are also presented before the amortisation of intangibleassets 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 profit before tax ((b) in the above table) and adjustedearnings per share before changes in the valuation of these instruments so thatthe underlying operating performance of the 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 (c), rather than cash generated by operations, as itspreferred indicator of cash generated and available to cover non-operatingexpenses such as tax and interest payments. The Group believes that using cashgenerated by operations, with the exclusion of net expenditure in property,plant and equipment and outflows for capitalised product development and otherintangibles, would result in an understatement of the true cash cost ofsustaining a growing business. 3. Investment revenue 2005 2004 £000 £000_________________________________________________________________________________Interest revenue 553 157_________________________________________________________________________________ 553 157_________________________________________________________________________________ 4. Finance costs 2005 2004 £000 £000_________________________________________________________________________________Amortisation of finance costs of debt 137 130Interest payable on bank loans and overdrafts 3,164 2,700Interest payable on finance leases 2 3_________________________________________________________________________________Total borrowing costs 3,303 2,833IAS 39 loss arising on derivatives 3,436 -Retirement benefit scheme finance charges 949 529_________________________________________________________________________________ 7,688 3,362_________________________________________________________________________________ 5. Tax 2005 2004 £000 £000_________________________________________________________________________________Current taxUnited Kingdom 7,254 6,970Overseas 5,805 4,071_________________________________________________________________________________Deferred taxUnited Kingdom and Overseas (1,767) (103)_________________________________________________________________________________Total tax charge 11,292 10,938_________________________________________________________________________________ 6. Dividends 2005 2004 £000 £000_________________________________________________________________________________Final dividend for the year ended 31 December 2004 of 9.2p (2003:8.2p) per share 6,078 5,462 Interim dividend for the year ended 31 December 2005 of 5.2p (2004:4.6p) per share 3,489 3,069_________________________________________________________________________________ 9,567 8,531_________________________________________________________________________________ Proposed final dividend for the year ended 31 December 2005 of 10.7p (2004:9.2p) per share 7,134 6,078_________________________________________________________________________________ The 2005 proposed final dividend was approved by the Board after 31 December2005 and has therefore not been included as a liability as at 31 December 2005. 7. Inventories 2005 2004 £000 £000_________________________________________________________________________________Raw materials and consumables 17,578 11,491Work in progress 6,376 8,836Finished goods and goods for resale 1,983 2,230_________________________________________________________________________________ 25,937 22,557_________________________________________________________________________________ 8. Trade and other receivables 2005 2004 £000 £000_________________________________________________________________________________Trade receivables 47,052 40,482Amounts due from contract customers 23,026 23,978Derivatives at fair value 663 -Other receivables 1,885 2,125Prepayments and accrued income 1,786 1,767_________________________________________________________________________________ 74,412 68,352 9. Trade and other payables Amounts included in current liabilities 2005 2004 £000 £000_________________________________________________________________________________Trade payables 27,797 25,215Amounts due to contract customers 32,745 23,096Derivatives at fair value 1,977 -Other payables 11,712 11,419Accruals and deferred income 29,778 30,368_________________________________________________________________________________ 104,009 90,098_________________________________________________________________________________ Amounts included in non current liabilities 2005 2004 £000 £000Other payables 223 364Accruals and deferred income 707 751_________________________________________________________________________________ 930 1,115_________________________________________________________________________________ 10. Provisions Warranties Contract related Total provisions £000 £000 £000_________________________________________________________________________________At 1 January 2005 8,462 2,174 10,636Additional provision 1,044 1,024 2,068Utilisation of provision (1,475) (1,102) (2,577)Acquisition of subsidiary undertaking 269 192 461Exchange differences 120 194 314_________________________________________________________________________________At 31 December 2005 8,420 2,482 10,902_________________________________________________________________________________ Included in current liabilities 5,966 1,062 7,028Included in non current liabilities 2,454 1,420 3,874_________________________________________________________________________________ 8,420 2,482 10,902_________________________________________________________________________________ 11. Retirement benefit schemes The amount included in the balance sheet arising from the Group's obligation inrespect of its defined benefit schemes is as follows: 2005 2004 £000 £000_________________________________________________________________________________Fair value of scheme assets 99.8 76.1Present value of scheme liabilities (146.4) (116.3) Scheme deficit (46.6) (40.2)Related deferred tax asset 14.0 12.1_________________________________________________________________________________ Net pension liability (32.6) (28.1)_________________________________________________________________________________ 12. Cash flow information 2005 2004 £000 £000_________________________________________________________________________________ Profit from operations 47,837 43,294Adjustments for:Depreciation of property, plant and equipment 6,132 5,069Amortisation of intangible assets 5,450 422Cost of equity settled employee share schemes 1,212 797Increase/(decrease) in post employment benefit obligation 120 (55)(Profit)/loss on disposal of property, plant and equipment (4) 58(Decrease)/increase in provisions (366) 2,849_________________________________________________________________________________ Operating cash flows before movements in working capital 60,381 52,434 Increase in inventories (1,643) (524)Increase in receivables (1,313) (3,528)Increase in payables 7,074 6,834_________________________________________________________________________________ Cash generated by operations 64,499 55,216 Income taxes paid (13,001) (8,317)Interest paid (3,281) (2,778)_________________________________________________________________________________ Net cash from operating activities 48,217 44,121_________________________________________________________________________________ Reconciliation of net movement in cash and cash equivalents to movements in net debt 2005 2004 £000 £000_________________________________________________________________________________ Net increase in cash and cash equivalents 15,081 5,007Cash(inflow)/outflow from (increase)/decrease in debt and finance leasing (21,727) 1,403__________________________________________________________________________________________________________________________________________________________________ Change in net debt arising from cash flows (6,646) 6,410Amortisation of finance costs of debt (137) -Finance leases acquired with subsidiary undertakings - (19)Finance leases (92) -Translation differences (3,327) 872_________________________________________________________________________________ Movement in net debt in the year (10,202) 7,263Net debt at start of year (24,075) (31,338)_________________________________________________________________________________ Net debt at end of year (34,277) (24,075)_________________________________________________________________________________ Net debt comprised the following: 2005 2004 £000 £000_________________________________________________________________________________ Cash and cash equivalents 40,193 24,060Bank overdrafts and loans included in current liabilities - (48,104)Bank overdrafts and loans included in non current liabilities (74,367) -Obligations under finance leases included in current liabilities (36) (21)Obligations under finance leases included in non-current liabilities (67) (10)_________________________________________________________________________________ (34,277) (24,075)_________________________________________________________________________________ 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 2001 2002 2003 2004 2005 £m £m £m £m £m_________________________________________________________________________________ RevenueAircraft & Vehicle Systems 78.4 76.4 79.9 76.6 84.3Information & Power Systems 74.4 82.9 95.5 113.7 117.3Tactical & Sonar Systems 86.7 101.1 109.0 120.4 140.8_________________________________________________________________________________ Total revenue 239.5 260.4 284.4 310.7 342.4_________________________________________________________________________________ Profit from operations (1)Aircraft & Vehicle Systems 13.0 12.5 13.9 14.9 15.9Information & Power Systems 7.6 11.0 11.0 15.0 18.1Tactical & Sonar Systems 11.1 10.0 12.6 13.4 17.1_________________________________________________________________________________ Total profit from operations 31.7 33.5 37.5 43.3 51.1 Margin (1) 13.2% 12.8% 13.2% 13.9% 14.9%_________________________________________________________________________________ Profit before tax 27.1 29.9 34.4 40.1 40.7Profit after tax 16.3 17.9 20.4 29.2 29.4_________________________________________________________________________________ Operating cash flow (2) 35.2 38.7 48.3 46.9 53.8Free cash before dividends, acquisitions and financing (3) 21.8 28.0 35.7 36.0 38.1_________________________________________________________________________________ Net debt at year-end (4) (40.6) (39.3) (30.3) (24.1) (34.3) Headline earnings per share (p)(5) 30.5 33.2 38.2 43.7 50.7Dividends per share (p) 10.4 11.2 12.3 12.8 14.4_________________________________________________________________________________Average employee numbers 2,376 2,395 2,505 2,678 2,880_________________________________________________________________________________ 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 loss on derivative financial instruments. 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 2005 or 2004, but is derived from those accounts. Statutory accounts for 2004, prepared under UK GAAP, have been delivered to the Registrar of Companies and those for 2005, prepared in accordance with IFRS, 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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