22nd Jun 2005 07:00
Ultra Electronics Holdings PLC22 June 2005 Embargoed until 0700 22 June 2005 Ultra Electronics Holdings plc ("Ultra" or "the Group") FINANCIAL RESULTS TO 31 DECEMBER 2004 RESTATED FOR INTERNATIONAL FINANCIAL REPORTING STANDARDS Ultra is preparing for the adoption of International Financial ReportingStandards ("IFRS") as its accounting basis for the year ending 31 December 2005.As part of this transition, Ultra is presenting today its audited financialresults for the year ended 31 December 2004, restated under IFRS. This pressrelease provides a reconciliation between the key financial statements preparedunder UK Generally Accepted Accounting Practice ("UK GAAP") and as preparedunder IFRS. Divisional revenues and operating profits for the year ended 31December 2004, restated under IFRS, are also provided. The main changes to Ultra's reported financial information from the adoption ofIFRS are as a result of the: •Recognition of foreign currency denominated sales at prevailing spot exchange rates, rather than at an average rate based upon forward foreign exchange contracts previously taken out for the period in question •Capitalisation of certain development expenditure that is judged to have created long-term economic benefit •Inclusion of a fair value charge in relation to employee share options and the directors' Long Term Incentive Plan ("LTIP") scheme •Requirement not to amortise goodwill arising from acquisitions •Recognition of deferred tax liabilities on a different basis, and •Recognition of all employee benefit-related assets and obligations, notably pensions For the year ended 31 December 2004 the impact of IFRS is to reduce turnover by£8.9m to £310.7m, to increase profit before tax by £6.3m to £40.1m and to reduceshareholders' funds by £16.7m to £64.4m. Ultra has elected to apply International Accounting Standard ("IAS") 32"Financial Instruments: Disclosure and Presentation" and IAS 39 "FinancialInstruments: Recognition and Measurement" prospectively from 1 January 2005.Consequently the relevant comparative financial information for 2004 does notreflect the impact of these standards and is accounted for on a UK GAAP basis. Ultra will report its interim financial results for the six months to 30 June2005 under IFRS on Monday 1 August 2005. These results will show the impact ofIAS 32 and IAS 39 for the first time. - Ends - Enquiries:Ultra Electronics Holdings plc 020 8813 4321Douglas Caster, Chief Executive www.ultra-electronics.comDavid Jeffcoat, Finance Director [email protected] Weber Shandwick Square Mile 020 7067 0700Susan Ellis / Susanne Walker 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 2,800 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; tactical data links; cryptographic equipment; active,passive and multi-static sonobuoys; sonobuoy receivers and processors;distributed surveillance sensor arrays; ship's sonar systems; acousticcountermeasure systems and ship's torpedo defence systems. Embargoed until 0700 22 June 2005 Ultra Electronics Holdings plc ("Ultra" or "the Group") FINANCIAL RESULTS TO 31 DECEMBER 2004 RESTATED FOR INTERNATIONAL FINANCIAL REPORTING STANDARDS CONTENTS PART I Introduction Basis of preparation Relevant differences between UK GAAP and IFRS IAS32 and IAS39: Financial Instruments PART II Restated audited preliminary comparative IFRS financial information- Consolidated income statement for the year ended 31 December 2004- Consolidated balance sheet as at 31 December 2004- Consolidated cash flow statement for the year ended 31 December 2004- Consolidated statement of recognised income and expense for the year ended 31 December 2004 Notes to the restated financial information prepared in accordance with IFRS Significant accounting policies under IFRS Independent auditors' report to the Board of Directors of Ultra ElectronicsHoldings plc on the preliminary comparative IFRS financial information. PART I INTRODUCTION With effect from 1 January 2005, Ultra Electronics Holdings plc ("the Group" or"Ultra") is required to prepare its consolidated financial statements inaccordance with International Financial Reporting Standards ("IFRS").Comparative information for 2004, originally presented in accordance with UKGenerally Accepted Accounting Practice ("UK GAAP"), must be restated inaccordance with IFRS. The first results to be prepared on an IFRS basis will becontained in the Group's 2005 interim results announcement to be published on 1August 2005. The purpose of this document is to: a. explain the basis on which Ultra has effected the transition to IFRS; b. identify the significant differences between IFRS and UK GAAP that are relevant to Ultra; c. show the impact of restatement in accordance with IFRS on the Group's previously reported results and financial position under UK GAAP; and d. set out the Group's significant accounting policies under IFRS. Part II of this document includes the Group's consolidated income statement,consolidated balance sheet and the consolidated cash flow statement as at 31December 2004 restated in accordance with IFRS. The primary financial statements contained in this document have been presentedin accordance with IAS 1 "Presentation of Financial Statements" and IAS 7 "CashFlow Statements". It is possible that the format and presentation of the primaryfinancial statements will change in the event that further guidance is issued bythe International Accounting Standards Board ("IASB"). The financial information in Part II has been audited by Deloitte & Touche LLPand their opinion is set out in Part II. An accompanying presentation to investors is now available together with thisdocument on the Company's website, www.ultra-electronics.com. BASIS OF PREPARATION The financial information presented in this document has been prepared on thebasis of all IFRS including International Accounting Standards ("IAS") andinterpretations issued by the IASB and its committees, and as interpreted by anyregulatory bodies applicable to the Group. These are subject to ongoingamendment by the IASB and subsequent endorsement by the European Commission andare therefore subject to possible change. As a result, information containedwithin this release will require updating for any subsequent amendment to IFRSrequired for first time adoption or those new standards that the Group may electto adopt early. In preparing this financial information, the Group has assumed that the EuropeanCommission will endorse the amendment to IAS 19 "Employee Benefits - ActuarialGains and Losses, Group Plans and Disclosures". The Group is required to apply IFRS applicable as at 31 December 2005retrospectively to determine its restated financial position as at 1 January2004 (the transition date). However, under IFRS 1 "First time adoption of IFRS"there are certain exemptions to this general principle that the Group hasadopted as follows: Business combinations Ultra has elected not to apply IFRS 3 "Business Combinations" to business combinations that took place before 1 January 2004. As a result the carrying amount of goodwill recognised as an asset under UK GAAP was brought forward unadjusted as the cost of goodwill recognised under IFRS as at 1 January 2004 (£90.3 million). Share based payments Ultra has applied IFRS 2 "Share based Payment" retrospectively only to equity-settled awards that had not vested as at 1 January 2005 and were granted on or after 7 November 2002. Financial instruments Ultra has elected to apply IAS 32 "Financial Instruments: Disclosure and Presentation" and IAS 39 "Financial Instruments: Recognition and Measurement" prospectively from 1 January 2005. Consequently, the relevant comparative information for 2004 does not reflect the impact of these standards and is accounted for on a UK GAAP basis. The impact of adopting IAS 32 and IAS 39 from 1 January 2005 is considered further on page 6. Cumulative foreign currency translation differences Ultra has elected to deem the cumulative difference on the retranslation into sterling of the Group's net investment in foreign operations to be £nil as at 1 January 2004. As a result, in the event of the subsequent disposal of a foreign operation, any gain or loss on disposal will only include cumulative translation differences arising on or after 1 January 2004. In accordance with IFRS 1, the Directors have not revised estimates requiredunder IFRS that were also required under UK GAAP as at 1 January 2004 and 31December 2004, and, in addition, where estimates were not required under UKGAAP, they have been based on information known at that time, and not onsubsequent events. RELEVANT DIFFERENCES BETWEEN UK GAAP AND IFRS Goodwill IFRS 3 "Business Combinations" requires that goodwill is not amortised. Insteadit is subject to an annual impairment review. As the Group has elected not toapply IFRS 3 retrospectively to business combinations prior to the openingbalance sheet date under IFRS, the UK GAAP goodwill balance at 1 January 2004(£90.3 million) has been included in the opening IFRS consolidated balance sheetand will no longer be amortised. Goodwill amortisation charged under UK GAAP during 2004 was £5.9 million andthis amount is reversed in the income statement under IFRS. Under UK GAAP, the Group recognised provisional goodwill of £19.6 million on theacquisition of DNE Systems Inc. in 2004. Under IFRS the Group has recognisedprovisional goodwill of £14.4 million, and has allocated £4.2 million toidentifiable intangible assets, and £1.0 million to foreign currencytranslation. The goodwill of £1.5 million arising on the acquisition of Videcomhas not changed. In summary, the adjustments to the carrying value of goodwill were as follows: £000-------------------------------------------------------------------------------- Carrying value of goodwill under UK GAAP as at 31 December 2004 106,766Reversal of amortisation charge recognised under UK GAAP in 2004 5,898Acquisitions - allocation to acquired intangible assets (4,179)Foreign currency translation (1,066)-------------------------------------------------------------------------------- Carrying value of goodwill under IFRS as at 31 December 2004 107,419-------------------------------------------------------------------------------- IFRS 1 requires that an impairment review of goodwill be conducted in accordancewith IAS 36 "Impairment of Assets" at the date of transition irrespective ofwhether an indication exists that goodwill may be impaired. No impairments werenecessary as at 1 January 2004 following the review carried out in accordancewith this standard. Development costs Under UK GAAP, company funded development costs could either be capitalised orwritten off in the period in which they were incurred. Ultra typically wrote-offthese costs in the period in which they were incurred. Under IFRS, all researchcosts and most development costs will be written off in the period in which theyare incurred. However, development costs associated with new or substantiallyimproved products must be capitalised from the time at which the developmentproject satisfies the conditions specified within IAS 38 "Intangible Assets". Certain expenditures on internal product development meet all the criteria ofIAS 38 and have therefore been capitalised. Development costs capitalised areamortised on a straight-line basis over their useful economic lives. The impactarising from this charge is summarised as follows: At Year Ended 1 January 31 December 2004 2004 £000 £000 Income statementCapitalisation of development expenditure 1,919Amortisation of intangible asset (377) ---------- 1,542 ==========Net assetsIntangible asset - cost 1,617 4,127Intangible asset - accumulated amortisation (403) (765) ----------- ---------- 1,214 3,362 =========== ========== Business combinations Under UK GAAP, the difference between the consideration paid for an acquisitionand the fair value of the net assets acquired is recognised as goodwill. IFRS 3requires that the intangible assets of an acquired business are recognisedseparately from goodwill and then amortised over their useful life. Accordingly, as a result of the acquisition of DNE during 2004 the Group hasreclassified intangible assets of £4.2m out of goodwill arising on theacquisition. This represents £0.6 million of capitalised development costs and£3.6 million of acquired intellectual property. Under the transition rules, theGroup is not required to identify any acquired intangible assets foracquisitions prior to 2004. Foreign currency Under UK GAAP, foreign exchange transactions can be translated at the rate ofexchange in a related forward exchange contract. Under IFRS, this is notpermissible unless IAS 39 hedging criteria are met. In previous years, Ultra hastranslated all US dollar, Canadian dollar and Euro transactions at an averagerate based on forward foreign currency contracts previously taken out for thatyear. Ultra's monetary assets and liabilities are revalued at the forwardcontract rate at each period-end. These transactions have now been restated toreflect the IAS 21 "The Effects of Changes in Foreign Exchange Rates" accountingtreatment, which is to translate at the rate of exchange ruling at the date ofeach transaction and revaluing monetary assets and liabilities to the spot ratesprevailing at the end of the period. As a result sales in 2004 have reduced by £8.9 million, operating profit hasreduced by £1.0 million, and net assets have reduced by £1.7 million. Theoperating profit impact would have been reduced if Ultra had adopted IAS 39 in2004, as the corresponding foreign exchange contracts would have been revaluedat year end. Ultra had foreign currency cash balances translated at the forward contract rateas noted above. Under IFRS, these balances are translated at the year end spotrate. This has had the result of reducing cash balances by £0.9 million, andhence net debt has increased from £23.2 million to £24.1 million at 31 December2004. Share based payments Under UK GAAP, Ultra recognised no profit and loss charge in respect of theGroup's employee share schemes as the exercise prices for such schemes were setat the market price prevailing on the date of issue. The Long-Term IncentivePlan schemes required Ultra to purchase shares on the open market to settlecertain share awards. These purchases were amortised over the three year vestingperiod. Under IFRS, the cost of the employee share and Long-Term Incentive Plan schemesis based on the fair value of the awards that must be assessed using anoption-pricing model. Generally, the fair value of the award is expensed on astraight-line basis over the vesting period. Adjustments are made to reflectexpected and actual forfeitures during the vesting period due to a failure tosatisfy either service conditions or failure to achieve EPS growth relative toUltra's peer group. As a result of these changes, the cost of the employee and Long-Term IncentivePlan share schemes recognised during 2004 has decreased by a net £0.1 million.This reflects the requirement to value all options granted after 7 November2002. Long-Term Incentive Plan shares purchased prior to this date werepreviously amortised on cost. These amortisation charges have been re-creditedto reserves. Post-employment benefits Under UK GAAP, Ultra accounted for post-employment benefits under SSAP 24"Accounting for pension costs", whereby the cost of providing defined benefitpensions and post-retirement healthcare benefits was charged against operatingprofit on a systematic basis with surpluses and deficits arising being amortisedover the expected average remaining service lives of participating employees. Under IFRS, the cost of defined benefit plans is recognised over the averageremaining service lives of the participating employees, but the cost recognisedin each period is dependent on the change during the period in the recogniseddefined benefit liability or asset. Generally, therefore, the cost recognisedunder IFRS will tend to be more volatile than it would have been under UK GAAP. The Group's opening IFRS balance sheet as at 1 January 2004 reflects the assetsand liabilities of the Group's defined benefit schemes, totalling a netliability of £20.4 million. In 2004, additional finance charges of £0.5 millionwere charged, whilst a £0.1 million adjustment to operating service cost wasmade. The net deficit (including a deferred tax asset of £12.1 million)increased by £7.7 million to £28.1 million at the end of 2004. The net impact toreserves was a reduction of £27.5 million. Proposed dividends Under UK GAAP, proposed dividends were recognised as a liability in the periodto which they related. Under IFRS, dividends are recognised as a liability inthe period in which they are declared. Net assets at 31 December 2004 increaseby £6.2 million, representing the reversal of the accrual for the final ordinarydividend proposed in respect of 2004. Deferred tax Under UK GAAP, deferred tax was provided on timing differences between theaccounting and taxable profit (an income statement approach). Under IFRS,deferred tax is provided on temporary differences between the book carryingvalue and the tax base of assets and liabilities (a balance sheet approach). IAS 12 requires deferred tax to be provided in respect of the Group'sliabilities under its post employment benefit arrangements and on other employeebenefits such as share option schemes. The tax impact of these and other IFRSadjustments is quantified in the relevant section of this release, wherematerial. The most significant deferred tax adjustments other than post employmentbenefits (see above) relate to the carrying value of goodwill compared to thetax written down value in the US and Canada, where goodwill is tax deductible. An additional net deferred tax liability of £1.3 million was recognised at 31December 2004 as a result of the IFRS adjustments. Of this, £0.8 million wascharged to 2004 profit and loss and £0.2 million was charged to equity in 2004.The balance of £0.3 million represents the deferred tax adjustment as at 1January 2004. Cumulative foreign translation differenceUnder UK GAAP, cumulative foreign currency translation differences arising onthe retranslation into sterling of the Group's net investment in foreignoperations were recognised in reserves. Under IFRS, cumulative foreign currencytranslation differences must be recognised as a separate component of equity andshould be taken into account in calculating the gain or loss on the disposal ofa foreign operation. As permitted under IFRS 1, Ultra has elected to deem cumulative translationdifferences to be £nil on 1 January 2004. IAS 32 AND IAS 39: FINANCIAL INSTRUMENTS As permitted under IFRS 1, Ultra has elected to apply IAS 32 and IAS 39prospectively from 1 January 2005. As a result, the relevant comparativeinformation for 2004 does not reflect the impact of these standards and isaccounted for on a UK GAAP basis. Ultra uses derivative contracts to manage economic exposure to movements ininterest rates and currency exchange rates. Under UK GAAP, such derivative contracts are not recognised as assets andliabilities on the balance sheet and gains or losses arising on them are notrecognised until the hedged transaction has itself been recognised in thefinancial statements. Under IFRS, such derivative contracts must be recognised as assets andliabilities on the balance sheet measured at their fair values. Changes in theirfair values must be recognised in the income statement and this is likely tocause volatility in situations where the carrying value of the hedged item isnot adjusted to reflect fair value changes arising from the hedged risk. Undercertain conditions specified within IAS 39, hedge accounting may be used tomitigate income statement volatility. Ultra plans to continue to manage exposures using hedging instruments thatprovide the appropriate economic outcome. Our policy will be to apply hedgeaccounting to hedging relationships where it is both permissible under IAS 39and practical to do so, but transactions that may be effective hedges ineconomic terms may not always qualify for hedge accounting under IAS 39. Where it is not permissible to apply hedge accounting to translation hedgingrelationships, the impact on the income statement will be included within netfinance costs. It will not be possible to estimate the effect on the Group'sresults until the end of each period when the fair value of the relevant hedginginstruments at the balance sheet date is known. PART II RESTATED AUDITED PRELIMINARY COMPARATIVE IFRS FINANCIAL INFORMATION CONSOLIDATED INCOME STATEMENT PREPARED IN ACCORDANCE WITH IFRS Events after Share Post - BalanceFor the year ended UK GAAP Intangible based employment Foreign Deferred Sheet Restated 31 December 2004 IFRS Goodwill assets payments benefits currency tax date under format IFRS 3 IAS 38 IFRS 2 IAS 19 IAS 21 IAS 12 IAS10 IFRS £000 £000 £000 £000 £000 £000 £000 £000 £000 Continuing operationsRevenue 319,669 (8,927) 310,742Cost of sales (235,017) 1,542 3,848 (229,627) --------------------------------------------------------------------------------------------------Gross profit 84,652 - 1,542 - - (5,079) - - 81,115 Other operating income 3,828 3,828Distribution costs (824) 47 (777)Administrative expenses (46,985) 5,898 100 158 230 (40,599)Other operating expenses (273) (273) --------------------------------------------------------------------------------------------------Profit from operations 36,570 5,898 1,542 100 158 (974) - - 43,294 Investment income 157 157Finance costs (2,942) (529) 109 (3,362) --------------------------------------------------------------------------------------------------Profit before tax 33,785 5,898 1,542 100 (371) (865) - - 40,089Tax on profit on ordinary activities (10,308) 145 (3) (772) (10,938) --------------------------------------------------------------------------------------------------Profit for the year from continuing operations 23,477 5,898 1,542 100 (226) (868) (772) - 29,151 Ordinary dividends (9,246) 715 (8,531) --------------------------------------------------------------------------------------------------Profit for the year attributable to equity shareholders 14,231 5,898 1,542 100 (226) (868) (772) 715 20,620 ================================================================================================== Earnings per shareFrom continuing operationsBasic 35.2 43.7 ======== ========Diluted 35.0 43.4 ======== ======== CONSOLIDATED BALANCE SHEET PREPARED IN ACCORDANCE WITH IFRS Events after Share Post - Balance Cumulative UK GAAP Intangible based employment Foreign Deferred Sheet translation RestatedAs at IFRS Goodwill assets payments benefits currency tax date differences under31 December 2004 format IFRS 3 IAS 38 IFRS 2 IAS 19 IAS 21 IAS 12 IAS10 IAS 21 IFRS £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 Non-current assetsIntangible assets 107,281 683 6,909 (30) 114,843Property,plant and equipment 20,213 20,213Deferred tax assets 1,768 12,111 121 14,000 ----------------------------------------------------------------------------------------------------- 129,262 683 6,909 - 12,111 (30) 121 - - 149,056 -----------------------------------------------------------------------------------------------------Current assetsInventories 17,510 (555) 16,955Trade and other receivables 68,758 14 (420) 68,352Cash and cash equivalents 24,975 (915) 24,060 ----------------------------------------------------------------------------------------------------- 111,243 - - - 14 (1,890) - - - 109,367 -----------------------------------------------------------------------------------------------------Total assets 240,505 683 6,909 - 12,125 (1,920) 121 - - 258,423 =====================================================================================================Current liabilitiesTrade and other payables (90,801) (50) 198 6,157 (84,496)Tax liabilities (8,030) (8,030)Obligations under finance leases (21) (21)Bank overdrafts and loans (48,104) (48,104)Short-term provisions (3,164) (3,164) ----------------------------------------------------------------------------------------------------- (150,120) - - - (50) 198 - 6,157 - (143,815) =====================================================================================================Non-current liabilitiesRetirement benefit obligation - (40,219) (40,219)Other payables (1,784) 669 (1,115)Deferred tax liabilities - (1,406) (1,406)Obligations under finance leases (10) (10)Long-term provisions (7,472) (7,472) ----------------------------------------------------------------------------------------------------- (9,266) - - - (39,550) - (1,406) - - (50,222) -----------------------------------------------------------------------------------------------------Total liabilities (159,386) - - - (39,600) 198 (1,406) 6,157 - (194,037) -----------------------------------------------------------------------------------------------------Net assets 81,119 683 6,909 - (27,475) (1,722) (1,285) 6,157 - 64,386 ===================================================================================================== CONSOLIDATED BALANCE SHEET PREPARED IN ACCORDANCE WITH IFRS - continued Events after Share Post - Balance Cumulative UK GAAP Intangible based employment Foreign Deferred Sheet translation RestatedAs at IFRS Goodwill assets payments benefits currency tax date differences under31 December 2004 format IFRS 3 IAS 38 IFRS 2 IAS 19 IAS 21 IAS 12 IAS10 IAS 21 IFRS £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 EquityShare capital 3,345 3,345Share premium account 30,306 30,306Own shares (1,325) (1,482) (2,807)Hedging and translation reserves - (1,098) (1,098)Retained earnings 48,793 683 6,909 1,482 (27,475) (1,722) (1,285) 6,157 1,098 34,640 -----------------------------------------------------------------------------------------------------Total equity attributable to equity holders of the parent 81,119 683 6,909 - (27,475) (1,722) (1,285) 6,157 - 64,386 ===================================================================================================== CONSOLIDATED CASH FLOW STATEMENT RESTATED IN ACCORDANCE WITH IFRS Share Post - For the year ended UK GAAP Intangible based employment Foreign Restated 31 December 2004 IFRS Goodwill assets payments benefits currency under format IFRS 3 IAS 38 IFRS 2 IAS 19 IAS 21 IFRS £000 £000 £000 £000 £000 £000 £000 Net cash from operating activities 42,202 - 1,919 - - - 44,121 Investing activities Interest received 157 157Purchases of property, plant and equipment (5,246) (5,246)Proceeds on disposal of property, plant and equipment 3 3Expenditure on product development - (1,919) (1,919) Acquisition of subsidiary undertaking (23,288) (23,288) --------------------------------------------------------------------------------------------------Net cash used in investing activities (28,374) - (1,919) - - - (30,293) --------------------------------------------------------------------------------------------------Financing activities Issue of share capital 2,237 2,237Purchase of Long-Term Incentive Plan shares (1,124) (1,124)Dividends paid (8,531) (8,531)Repayments of borrowings (1,400) (1,400)Repayments of obligations under finance leases (3) (3) --------------------------------------------------------------------------------------------------Net cash used in financing activities (8,821) - - - - - (8,821) --------------------------------------------------------------------------------------------------Net increase in cash and cash equivalents 5,007 - - - - - 5,007 Cash and cash equivalents at beginning of period 19,047 (1,003) 18,044 Effect of foreign exchange rate changes 921 88 1,009 --------------------------------------------------------------------------------------------------Cash and cash equivalents at end of period 24,975 - - - - (915) 24,060 ================================================================================================== CONSOLIDATED CASH FLOW STATEMENT RESTATED IN ACCORDANCE WITH IFRS - continued Share Post - For the year ended UK GAAP Intangible based employment Foreign Restated 31 December 2004 IFRS Goodwill assets payments benefits currency under format IFRS 3 IAS 38 IFRS 2 IAS 19 IAS 21 IFRS £000 £000 £000 £000 £000 £000 £000 Reconciliation of net increase in cash to movement in net debtNet increase in cash and cash equivalents 5,007 5,007Cash outflow from decrease in debt and lease financing 1,403 1,403 --------------------------------------------------------------------------------------------------Change in net debt arising from cash flows 6,410 - - - - - 6,410Finance leases acquired with subsidiary undertaking (19) (19)Translation difference 784 88 872 --------------------------------------------------------------------------------------------------Movement in net debt in the year 7,175 - - - - 88 7,263Net debt at start of year (30,335) (1,003) (31,338) --------------------------------------------------------------------------------------------------Net debt at end of year (23,160) - - - - (915) (24,075) ================================================================================================== NOTES TO THE CASH FLOW STATEMENT Profit from operations 36,570 5,898 1,542 100 158 (974) 43,294Adjustments for:Amortisation of goodwill 5,898 (5,898) -Depreciation of property, plant and equipment 5,069 5,069Amortisation of intangible assets 45 377 422Amortisation of LTIP awards 900 (900) -Cost of equity settled employee share schemes - 797 797Reduction in post employment benefit obligations - (55) (55)Loss on disposal of property, plant and equipment 58 58Increase in provisions 2,849 2,849 --------------------------------------------------------------------------------------------------Operating cash flows before movements in working capital 51,389 - 1,919 (3) 103 (974) 52,434Increase in inventories (882) 358 (524)Increase in receivables (2,932) (596) (3,528)Increase in payables 5,722 3 (103) 1,212 6,834 --------------------------------------------------------------------------------------------------Cash generated by operations 53,297 - 1,919 - - - 55,216Income taxes paid (8,317) (8,317)Interest paid (2,778) (2,778) --------------------------------------------------------------------------------------------------Net cash from operating activities 42,202 - 1,919 - - - 44,121 ================================================================================================== CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE RESTATED IN ACCORDANCE WITH IFRS For the year ended 31 December 2004 UK GAAP Restated IFRS IFRS under format adjustments IFRS £000 £000 £000 Exchange differences on translation of foreign operations 196 (1,293) (1,097)Actuarial losses on defined benefit pension schemes - (7,492) (7,492)Tax on items taken directly to equity - 95 95 --------- --------- ---------Net income/(losses) recognised directly in equity 196 (8,690) (8,494) Profit for the period 23,477 5,674 29,151 --------- --------- ---------Total recognised income and expense for the period attributable to equity holders of the parent 23,673 (3,016) 20,657 ========= ========= ========= NOTES TO THE FINANCIAL INFORMATION RESTATED IN ACCORDANCE WITH IFRS Segment information Revenue UK GAAP Adjustment IFRS £000 £000 £000 Aircraft & Vehicle Systems 81,943 (5,350) 76,593 Information & Power Systems 115,635 (1,946) 113,689 Tactical & Sonar Systems 122,091 (1,631) 120,460 ------------ ------------ ----------- 319,669 (8,927) 310,742 ============ ============ =========== Profit from operations UK GAAP Adjustment IFRS £000 £000 £000 Aircraft & Vehicle Systems 14,694 173 14,867 Information & Power Systems 14,764 274 15,038 Tactical & Sonar Systems 13,010 379 13,389 Goodwill amortisation (5,898) 5,898 - ------------ ------------ ----------- 36,570 6,724 43,294 ============ ============ =========== SIGNIFICANT ACCOUNTING POLICIES UNDER IFRS Basis of preparation The consolidated financial information has been prepared on the basis ofInternational Financial Reporting Standards ("IFRS") and with those parts of theCompanies Act 1985 that are applicable to companies reporting under IFRS. Ultra adopted IFRS with a transition date of 1 January 2004. Comparative figuresfor the year ended 31 December 2004 and the Group's balance sheet as at 31December 2004 that were previously reported in accordance with accountingprinciples generally accepted in the United Kingdom ("UK GAAP") have beenrestated to comply with IFRS, with the exception of IAS 32 "FinancialInstruments: Disclosure and Presentation" and IAS 39 "Financial Instruments:Recognition and Measurement" which will be applied prospectively from 1 January2005. IFRS 1 "First-time Adoption of IFRS" allows certain exemptions from theretrospective application of IFRS prior to 1 January 2004. Where theseexemptions have been used, they are explained under the relevant headings below. The consolidated financial information has been prepared under the historicalcost convention. Basis of consolidation The consolidated financial information includes the results, cash flows andassets and liabilities of Ultra Electronics Holdings plc ("the Company") and itssubsidiaries (together, "the Group"). Control is achieved where the Company has the power to govern the financial andoperating policies of an investee entity so as to obtain benefits from itsactivities. On acquisition, the assets and liabilities and contingent liabilities of asubsidiary are measured at their fair values at the date of acquisition. Anyexcess of the cost of acquisition over the fair values of the identifiable netassets acquired is recognised as goodwill. Any deficiency of the cost ofacquisition below the fair values of the identifiable net assets acquired iscredited to profit and loss in the period of acquisition. The results of subsidiaries acquired during the year are included in theconsolidated income statement from the effective date of acquisition. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. Goodwill Goodwill arising on consolidation represents the excess of the cost ofacquisition over the Group's interest in the fair value of the identifiableassets and liabilities of a subsidiary. Goodwill is recognised as an asset andreviewed for impairment at least annually. Any impairment is recognisedimmediately in profit or loss and is not subsequently reversed. Goodwill arising on acquisitions before the date of transition to IFRSs has beenretained at the previous UK GAAP amounts subject to being tested for impairmentat that date. Goodwill written off to reserves under UK GAAP prior to 1998 hasnot been reinstated and will not be included in determining any subsequentprofit or loss on disposal. Revenue recognition Revenue is measured at the fair value of the consideration received orreceivable and represents amounts receivable for goods and services provided inthe normal course of business, net of discounts, VAT and other sales relatedtaxes. Sales of goods are normally recognised when goods are delivered and titlehas passed. Long-term contracts Where the outcome of a long-term contract can be estimated reliably, revenue andcosts are recognised by reference to the stage of completion of the contractactivity at the balance sheet date. This is normally measured by the proportionthat contract costs incurred for work performed to date bear to the estimatedtotal contract costs, except where this would not be representative of the stageof completion. Variations in contract work, claims and incentive payments areincluded to the extent that they have been agreed with the customer. Where the outcome of a long-term contract cannot be estimated reliably, contractrevenue is recognised to the extent of contract costs incurred that it isprobable will be recoverable. Contract costs are recognised as expenses in theperiod in which they are incurred. When it is probable that total contract costs will exceed total contractrevenue, the expected loss is recognised as an expense immediately. Foreign currency Transactions denominated in foreign currencies are recorded in the localcurrency at the actual exchange rates at the date of the transactions. Monetaryassets and liabilities denominated in foreign currencies at the balance sheetdate are reported at the rates of exchange prevailing at that date. Any gain orloss arising from a change in exchange rates subsequent to the date of thetransaction is included as an exchange gain or loss in the profit and lossaccount. The trading results and cash flows of overseas undertakings are translated intosterling using the average rates of exchange during the relevant financialperiod. The balance sheets of overseas subsidiary undertakings are translatedinto sterling at the rates ruling at the year-end. Exchange differences arisingfrom the re-translation of the opening balance sheets and results are classifiedas equity and transferred to the Group's translation reserve. Goodwill and fair value adjustments on the acquisition of foreign entities aretreated as assets and liabilities of the foreign entity and translated at theclosing rate. The Group has elected to treat goodwill and fair value adjustmentsarising on acquisitions before the date of transition to IFRSs as sterlingdenominated assets and liabilities. Government grants Government grants are recognised in the profit and loss account so as to matchthem with the expenditure towards which they are intended to contribute, to theextent that the conditions for receipt have been met and there is reasonableassurance that the grant will be received. Retirement benefit costs The Group provides pensions to its employees and Directors through definedbenefit and defined contribution pension schemes. The schemes are funded andtheir assets are held independently of the Group by trustees. For defined benefit retirement schemes, the cost of providing benefits isdetermined using the Projected Unit Credit Method, with actuarial valuationsbeing carried out at each balance sheet date. The actuarial gains and losses arerecognised outside profit or loss and presented in the statement of recognisedincome and expense. Past service cost is recognised immediately to the extent that the benefits arealready vested, and otherwise is amortised on a straight-line basis over theaverage period until the benefits become vested. The retirement benefit obligation recognised in the balance sheet represents thepresent value of the defined benefit obligation as adjusted for unrecognisedpast service cost, and as reduced by the fair value of scheme assets. Research and development Expenditure on research activities is recognised as an expense in the period inwhich it is incurred. Any internally generated intangible asset arising from development activities isrecognised only if an asset is created that can be identified, it is probablethat the asset created will generate future economic benefit and the developmentcost of the asset can be measured reliably. Internally generated assets are amortised on a straight-line basis over theiruseful lives. Where no internally-generated intangible asset can be recognised,development expenditure is recognised as an expense in the period in which it isincurred. Other intangible assets Costs associated with producing or maintaining computer software programmes forsale are recognised as an expense as incurred. Costs that are directlyassociated with the development of identifiable and unique software productscontrolled by the Group, that will generate economic benefits exceeding costsbeyond one year and that can be measured reliably, are recognised as intangibleassets. Capitalised software development expenditure is stated at cost lessaccumulated amortisation and impairment losses. Amortisation is provided on astraight-line basis over their useful lives. Patents and trademarks are stated at historical cost. Patents and trademarkshave definite useful lives and are carried at cost less accumulated amortisationand impairment losses. Intangible assets arising from a business combination whose fair value can bereliably measured are separated from goodwill and amortised on a straight linebasis over their remaining useful lives. Impairment At each balance sheet date, the Group reviews the carrying amounts of itstangible and intangible assets to determine whether there is any indication thatthose assets have suffered an impairment loss. If any such indication exists,the recoverable amount of the asset is estimated in order to determine theextent of the impairment loss. Where the asset does not generate cash flows thatare independent from other assets, the Group estimates the recoverable amount ofthe cash generating unit to which the asset belongs. An intangible asset with anindefinite useful life is tested for impairment annually and whenever there isan indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value inuse. In assessing the value in use, the estimated future cash flows arediscounted to their present value. If the recoverable amount of an asset isestimated to be less than its carrying amount, the carrying amount of the assetis reduced to its recoverable amount. An impairment loss is recognised as anexpense immediately. Where an impairment loss subsequently reverses, the carrying amount of the assetis increased to the revised estimate of its recoverable amount, but so that theincreased carrying amount does not exceed the carrying amount that would havebeen determined had no impairment loss been recognised for the asset in prioryears. A reversal of an impairment loss is recognised as income immediately. Property plant and equipment Property, plant and equipment are shown at original historical cost, net ofdepreciation and any provision for impairment. Depreciation is provided at rates calculated to write off the cost, lessestimated residual value, of each asset on a straight-line basis over itsexpected useful life as follows: Freehold buildings 40 to 50 years------------------------------------------------------------------Short leasehold improvements over remaining period of lease------------------------------------------------------------------Plant and machinery 3 to 20 years------------------------------------------------------------------Freehold land is not depreciated Assets held under finance leases are depreciated over their expected usefullives on the same basis as owned assets or, where shorter, over the term of therelevant lease. Leases Leases are classified as finance leases whenever the terms of the lease transfersubstantially all the risks and rewards of ownership to the lessee. All otherleases are classified as operating leases. Assets held under finance leases are recognised as assets of the Group at theirfair value or, if lower, at the present value of the minimum lease payments,each determined at the inception of the lease. The corresponding liability tothe lessor is included in the balance sheet as a finance lease obligation. Leasepayments are apportioned between finance charges and reduction of the leaseobligation so as to achieve a constant rate of interest on the remaining balanceof the liability. Finance charges are charged directly against income. Operating lease rentals are charged to income on a straight-line basis over theterm of the relevant lease. Inventories Inventories are valued at the lower of cost (determined on a first-in, first-outbasis and including an appropriate proportion of overheads) and net realisablevalue, less payments on account. Provision is made for any obsolete, slow movingor defective items. Cash and cash equivalents Cash and cash equivalents comprise cash in-hand and bank overdrafts, where thereis right of set off. Bank overdrafts are presented as current liabilities to theextent that there is no right of offset with cash balances. Share-based payments The Group has applied the requirements of IFRS 2 "Share-based payment". Inaccordance with the transitional provisions, IFRS 2 has been applied to allgrants of equity instruments after 7 November 2002 that were unvested as of 1January 2005. The Group issues equity settled share-based payments to certain employees.Equity settled share-based payments are measured at fair value at the date ofgrant. The fair value determined at the grant date is expensed on astraight-line basis over the vesting period, based on the Group's estimate ofshares that will eventually vest. Fair value is measured by use of an optionpricing model. Provisions Provision is made for the anticipated cost of repair and rectification ofproducts under warranty, based on known exposures and historical occurrences.Provisions for restructuring costs are recognised when the Group has a detailedformal plan for the restructuring that has been communicated to affectedparties. Taxation The tax expense represents the sum of the current tax payable and deferred tax. The current tax payable is based on taxable profit for the year. Taxable profitdiffers from net profit as reported in the income statement because it excludesitems of income or expense that are taxable or deductible in other years and itfurther excludes items that are never taxable or deductible. The Group'sliability for current tax is calculated using tax rates that have been enactedor substantively enacted by the balance sheet date.Related Shares:
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