Interim Results

3rd Aug 2009 07:00



Embargoed until 0700 3 August 2009

Ultra Electronics Holdings plc

("Ultra" or "the Group")

Interim Results for the Six Months to 30 June 2009

FINANCIAL HIGHLIGHTS

 

	Six months to 30 June 2009	Six months to 30 June 2008	Change
Revenue	£325.5m	£231.9m	+40%
Headline operating profit(1)	£44.3m	£32.5m	+36%
Headline profit before tax(2)	£40.2m	£30.4m	+32%
IFRS profit before tax	£62.9m	£23.2m	+171%
Headline earnings per share(2)	43.4p	32.6p	+33%
Dividend per share	9.6p	8.0p	+20%

(1) before amortisation of intangibles arising on acquisition and profit on disposal of property, plant and equipment net of property-related provisions. IFRS profit from operations £34.6m (2008: £28.7m). See Note 4 for reconciliation.

(2) before amortisation of intangibles arising on acquisition, fair value movements on derivatives, profit on disposal of property, plant and equipment net of property-related provisions and loss on closing out foreign currency hedging contracts. Basic EPS 67.7p (2008: 25.2p). See Note 4 for reconciliation.

 

Douglas Caster, Chief Executive, commented:

"The strong results for the period underline the success of Ultra's strategy of focusing on long-term growth. This is achieved through the continued investment in a portfolio of differentiated products and services which are positioned on a wide range of international platforms and programmes in the defence, security, transport and energy markets. This creates a flywheel effect that ensures continued and consistent progress for Ultra, despite market fluctuations. In the year to date, the Group has invested in new products, in business development and in acquisitions; this has expanded Ultra's spread of specialist capabilities and extended the Group's geographic footprint. 

In summary, Ultra has a track record of driving organic growth, successfully integrating acquisitions, winning new business and executing contracts effectively. The Group operates in high growth market sectors, has a broad portfolio of positions on long-term programmes and is expanding its geographic reach. These factors give the Board confidence in the continuing progress of the Group."

INTERIM MANAGEMENT REPORT

This Interim Management Report ("IMR") has been prepared solely to provide additional information to enable shareholders to assess Ultra's strategies and the potential for those strategies to be fulfilled. It should not be relied upon by any other party or for any other purpose. 

This IMR contains certain forward-looking statements. Such statements are made by the Directors in good faith based on the information available to them at the time of their approval of this report, and they should be treated with caution due to the inherent uncertainties underlying such forward-looking information.

This IMR has been prepared for the Group as a whole and therefore gives greatest emphasis to those matters which are significant to Ultra when viewed as a complete entity.

OVERVIEW

Ultra's strong revenue growth in the period demonstrated the benefit of having a broad portfolio of niche activities, many of which have grown rapidly. Excluding acquisitions, Ultra invested £18.9m in the period to drive future growth, up from £13.6m in the same period in 2008 while achieving an operating margin of 13.6%.

FINANCIAL RESULTS

				Six months ended 30 June 2009 £m		Six months ended 30 June 2008 £m		Growth
Order book
		- Aircraft & Vehicle Systems		213.3		195.1		+9.3%
		- Information & Power Systems		204.7		134.5		+52.2%
		- Tactical & Sonar Systems		349.4		315.6		+10.7%
Total order book					767.4		645.2	+18.9%
Revenue
			- Aircraft & Vehicle Systems	83.7		58.9		+42.1%
			- Information & Power Systems	101.0		66.0		+53.0%
			- Tactical & Sonar Systems	140.8		107.0		+31.6%
Total revenue					325.5		231.9	+40.4%
Headline operating profit
		- Aircraft & Vehicle Systems		10.9		9.3		+17.2%
		- Information & Power Systems		11.5		9.3		+23.7%
		- Tactical & Sonar Systems		21.9		13.9		+57.6%
Total headline operating profit					44.3		32.5	+36.3%
Headline operating margin
	- Aircraft & Vehicle Systems			13.0%		15.8%
	- Information & Power Systems			11.4%		14.1%
	- Tactical & Sonar Systems			15.6%		13.0%
Total headline operating margin					13.6%		14.0%
Interest					(4.1)		(2.1)	+95.2%
Headline profit before tax					40.2		30.4	+32.2%
Operating cash flow					33.3		24.9
Cash conversion*					75%		77%
Net debt* at period-end					68.1		53.7
Bank interest cover					16.7x		19.5x
Headline earnings per share					43.4p		32.6p	+33.1%

Note

operating cash flow* is cash generated by operations, less net capital expenditure, R&D and LTIP share purchases.

cash conversion* is cash generated by operations, less net capital expenditure, R&D and LTIP share purchases as % of profit from operations before amortisation of intangibles arising on acquisition and profit on disposal of property, plant and equipment net of property-related provisions.

net debt* comprises bank overdrafts and loans less cash and cash equivalents.

  

Revenue was 40% higher at £325.5m (2008: £231.9m). Organic growth at constant exchange rates was 10% and favourable currency effects contributed 14%. The remaining 16% growth came from acquisitions reflecting the successful integration of businesses acquired in 2008, most of which were acquired in the second half of the year.

Headline operating profit increased 36% to £44.3m (2008: £32.5m). Organic growth at constant exchange rates was 11% while favourable currency effects contributed 15%.  Acquisitions contributed the remaining 10%.

Net interest payable was 95% higher at £4.1m (2008: £2.1m) reflecting higher borrowings as a result of increased acquisition spending in the twelve months since June 2008.

Headline profit before tax was £40.2m (2008: £30.4m), an increase of 32% and the Group's effective tax rate in the period was 26.5% in the period (2008: 27.1%). Consequently, headline earnings per share increased 33% to 43.4p (2008: 32.6p). 

Operating cash conversion* was 75% (2008: 77%). The Group's customary focus on cash management has resulted in reduced inventory compared to the start of the period. 

Reported profit before tax increased by 171% to £62.9m (2008: £23.2m). Ultra's IFRS profit before tax reflected the combined effects of headline operating profit, foreign exchange (profit of £32.5m), property-related profit of £5.0m and the amortisation of intangibles (loss of £14.7m). As noted in April's Interim Management Statement, the process of matching hedging cover to the expected net inflow of US dollars incurred one off costs of £15.9m which have impacted net debt. Tax relief reduces the net impact on statutory profit after tax to £11.4m (2008: nil). The profit impact of the fair value movement on derivatives was £48.4m (2008: loss of £3.4m). During the period the Group completed the sale of the old site at Rugeley, UK and reviewed the level of its provisions for dilapidations at certain leasehold properties. The net property-related profit was £5.0m (2008: nil). The effect of the amortisation of intangibles arising on acquisition was a loss of £14.7m (2008: loss of £3.8m).

Net debt* at the end of the period was £68.1m compared to £53.7m at the end of June 2008. Total cash expenditure on acquisitions in the twelve month period was £43.5m. The Group's balance sheet remains strong, with net interest payable on borrowings covered approximately 17 times by headline operating profit.

The Group has a revolving credit facility of £200m of which £120m is due for renewal in November 2010. Discussions have started with the syndicate of banks that provide the facility, all of which have indicated a willingness to renew it. It is anticipated that the Group will have agreed its funding position before the year end.

The proposed interim dividend is 9.6p, an increase of 20%, which will be paid on 25 September to shareholders on the register on 21 August 2009.

The order book at the end of the period was £767.4m, an increase of 19% over the value at the same time last year and an increase of 12% at constant currencies. Within this total, firm order cover for the next twelve months trading has been maintained at its customary level of above 60%.

  INVESTING FOR GROWTH

Ultra continued to invest to support its strategy to deliver long-term growth. These investments in the period were in new products and services, in new business development as well as in acquisitions.

The Group continues to invest in the Boeing 787 and Airbus A400M aircraft programmes which will contribute to growth in the medium and long term. The Group also invested in developing the next generation of battlespace communications equipment. In the period Ultra's internal investment to drive future growth totalled £18.9m, up from £13.6m in 2008.

As planned, the rate of acquisition spending slowed from that experienced in 2008. Those acquisitions made last year have been successfully integrated into the Group. Since the start of 2009 Ultra has made three acquisitions; Tisys SA ('Tisys') in France; Avalon Systems Pty Ltd. ('Avalon') in Australia and Xerion Systems Inc. ('Xerion') in the USA. They have enhanced the Group's portfolio of offerings and extended the Group's geographic reach. The total cash consideration in the period for these acquisitions was £13.0m, financed using Ultra's existing facilities. Their contribution to the Group's performance in the first half of 2009 was not material.

Tisys is a specialist airport IT systems business based in Annecy, France, offering software applications, mainly for small airports, that provide revenue management and invoicing, flight information management and display, resource management and departure control. It is part of Airport Systems in the Group's Information & Power Systems division.

Avalon, based in Adelaide, South Australia specialises in electronic warfare sub-systems, engineering consultancy and through-life support for the Australian Defence Force. Ultra's team in Australia working on the design, build and support of the sonar system for the new Australian destroyers will be based at the Avalon site. It is part of Ultra Electronics Australia Pty in the Group's Tactical & Sonar Systems division.

Xerion, based in Rochester, New York makes a range of digital glass-cockpit displays suitable for use in general aviation aircraft. The completion of this small acquisition is subject to US regulatory approval which is expected by the end of August. Xerion will be subsumed into Ultra's Flightline Systems business, also based in Rochester, in the Tactical & Sonar Systems division.

BOARD CHANGES

In the period Paul Dean joined the Group board, succeeding David Jeffcoat as Group Finance Director and Sir Robert Walmsley replaced Andrew Walker as a non-executive director.

OPERATIONAL REVIEW

Aircraft & Vehicle Systems 

Revenue in Aircraft & Vehicle Systems increased by 42% to £83.7m compared to £58.9m in 2008 and headline operating profit increased 17% to £10.9m (2008: £9.3m). The contribution from Dascam, acquired late in 2008, augmented strong organic revenue growth across the division. The order book at the end of the period was £213.3m (2008: £195.1m). Strong demand was sustained in the US for the Group's specialist hand controls for remote weapon stations for armoured vehicles and for the HiPPAG airborne compressor. Funded development continued in the period for Ultra's ice protection system for the F-135 engine for the Joint Strike Fighter and for the UK government's National Resilience Extranet. Two main factors diluted the margin in the division. The first of these was continued investment in the Boeing 787, Airbus A400M and Gulfstream G650 programmes, for which development costs were written off. The focus of the investment for the 787 was the final qualification of the system and in facilities to support production. The main software elements of these programmes have been completed; this contributed to a downturn in the volume of Ultra's development activity for high integrity software. This impacted the operating margin in the division and costs were incurred in adjusting the capacity appropriately. 

Highlights of the division's performance in the period that will underpin continuing growth included:

selection by Sumitomo to supply landing gear and steering control systems for Mitsubishi's new regional jet

agreement with the customers that the resourcing levels should be increased for Ultra's training and consultancy projects in the UAE with the General HQ and the Critical National Infrastructure Agency

selection by Airbus to supply Ultra's innovative solution to provide electrical interconnection to the movable leading edge of the A350XWB aircraft wing

Information & Power Systems

Revenue in Information & Power Systems grew by 53% to £101.0m compared to £66.0m in the first half of 2008 while headline operating profit growth was 24% to £11.5m (2008: £9.3m). The order book at the end of the period had increased by 52% to £204.7m (2008: £134.5m).

Revenue growth was driven by the acquisitions made in 2008 and by good organic growth. This division benefited from increasing sales of nuclear control systems and sensors, increased demand for trackside power equipment and from development funding for real-time command and control and data fusion systems. Information & Power Systems is the division that is most impacted by the current conditions in the commercial sector with reduced demand for airport IT systems, ID card printers and contract manufacturing services. In all areas, the cost base has been adjusted to match demand. Profit growth was also suppressed by delays in the placing of some contracts for highly classified work at ProLogic, acquired in 2008. The approval in June by the US government of a proxy board for ProLogic has now resolved this issue. 

Features of the division's performance in the period that will support continuing growth included:

an initial contract to deliver an upgraded air defence command and control system for the Bahrain Defence Force

selection by Areva to supply specialist, nuclear-qualified sensors for new build reactors in China

selection to supply airport IT integration services at Quito in Ecuador, at Helsinki and at 24 other airports in Finland

Tactical & Sonar Systems

Revenue in Tactical & Sonar Systems increased by 32% to £140.8m (2008: £107.0m) and headline operating profit rose 58% to £21.9m (2008: £13.9m). These results include a contribution from the MISL products, acquired in May 2008, as they successfully entered production. The closing order book was £349.4m (2008: £315.6m).

Many of the Group's specialist activities in the battlespace IT sector are in this division and strong demand, especially from US forces for communications equipment and tactical radio systems, drove the revenue and profit performance in the period. Deliveries of Ultra's advanced anti-submarine warfare equipment products to US and international customers also made a good contribution to growth. There was also a large increase in the sales of the Group's next generation audio communications products for use by firefighters and military users.

Growth in future years will be underpinned as a result of the following events in the period:

contracts to supply sonobuoys to the US Navy and to international customers

selection to participate in a funded study to consider the future procurement strategy for high grade cryptographic equipment to be used by UK government agencies 

the award of contracts to supply the US Navy with a range of acoustic countermeasures for torpedo defence

MARKET CONDITIONS

Expenditure worldwide on defence and security is underpinned by continuing international tensions. Allied reaction to military and terrorist attacks in Afghanistan, Pakistan, India and elsewhere dictates that resources are being redeployed rather than repatriated, thus maintaining the high level of operational usage of equipment and systems.

An increasing proportion of defence and security spending is being spent on electronics which is, therefore, a 'sweet spot' of these budgets. This reflects the enhancement or upgrade in the military effectiveness of platforms that can be achieved by the application of modern electronics and that such improvements are applicable to existing fleets as well as new build platforms. Additionally, modern armed forces rely on many forms of sophisticated electronic communication systems to achieve information superiority. 

Ultra's focus on smart electronic solutions means that the Group is well placed to win further work in the medium term to satisfy these operational requirements. While it is anticipated that the absolute level of expenditure will be squeezed by competing demands for funding in the US and UK, defence budgets will remain sufficiently large to provide Ultra with considerable headroom to support further growth. Elsewhere, in areas where Ultra has recently achieved market presence, such as Turkey, Australia and the Middle East, defence spending continues to rise in real terms. 

In the transport sector, the fundamental driver of long-term growth is the increase in business and leisure travel, especially in those areas of the world with rapidly rising populations. This drives demand for civil aircraft, infrastructure investment in airport IT systems and in mass passenger transit systems - all areas that will benefit Ultra. In the short term there may be cuts in production rates at both Boeing and Airbus despite their long order books though the profit impact on Ultra of these reductions will not be material. Sales of equipment for the Boeing 787, when it enters airline service, will be additive to the Group's performance.

Around the world the strategic need to have secure access to an increased amount of energy from independent sources is driving a higher level of investment in civil nuclear power generation. This investment is in extending the life of existing plant as well as building new reactors. Ultra has niche capabilities in the supply of high integrity control systems and the associated specialist sensors and is therefore well placed to benefit as the market opportunity develops.

RISKS AND UNCERTAINTIES

A number of potential risks and uncertainties exist which could have a material impact on the group's performance over the second half of the year and which could cause actual results to differ materially from expected and historical costs. The directors do not consider that the principal risks and uncertainties have changed since the publication of the Group's annual report for 2008. An explanation of the risks detailed below, and the robust business strategies that Ultra uses to manage and mitigate those risks and uncertainties, can be found on pages 19 to 21 of the annual report which is available for download at www.ultra-electronics.com.

About three-quarters of Ultra's revenue are from the defence sector and there will be pressure on defence budgets. Current projections are, however, that baseline budgets, excluding supplemental funds for continuing operations, will continue to grow in Ultra's main markets. The overall size of defence budgets relative to the Group's revenue ensures that sufficient headroom exists to support Ultra's continuing growth.

There is a risk of programme delays or cancellations but this has historically always been a feature of the Group's markets. Additionally, no single programme represents more than 5% of Ultra's revenue in any year. The cancellation or curtailment of any single programme is therefore unlikely to have a material impact on the Group.

Movements in foreign currency exchange rates result in both transaction and translation effects on the Group's results. Ultra's projected net transaction exposure is mitigated by the use of forward hedging contracts. By their nature, currency translation risks cannot be mitigated.

PROSPECTS

Ultra has a broad portfolio of differentiated offerings specified on an increasing list of international platforms and programmes. This spreads risk and gives resilience to the Group's overall performance. These long-term programme positions have a flywheel effect, providing a solid base on which the Group will continue to grow.

Within Ultra's overall order book, valued at £767m, firm order coverage for the next twelve months' trading for the Group has been maintained at its traditional level of over 60%, thereby giving good visibility of future earnings. 

Ultra has the financial strength to allow a continuing programme of investment to drive further organic and acquisition growth. Internally, the Group is investing in new products and services that can be positioned on long-term programmes. Ultra businesses constantly innovate to provide differentiated products, services and solutions to customers. This market-led innovation and the Group's agility of response to customer requirements provide the competitive edge that allows Ultra to succeed in its markets. Ultra's strong balance sheet can support the purchase of businesses that would further enhance the Group's portfolio and to which ownership by Ultra would add value. Acquisitions can also provide a catalyst for growth in new geographic markets as Ultra broadens its international footprint.

Ultra has a demonstrated ability to drive organic growth, successfully integrate acquisitions, win new business and execute contracts effectively. The Group operates in high growth market sectors, has a broad portfolio of positions on long-term programmes and is expanding its geographic reach. These factors give the Board confidence in the continuing progress of the Group.

- Ends -

Enquiries:

Ultra Electronics Holdings plc 020 8813 4321

Douglas Caster, Chief Executive www.ultra-electronics.com

Paul Dean, Group Finance Director

Susan Ellis, Senior Communications Adviser 07836 522722

Weber Shandwick Financial 020 7067 0700

James White

Further information about Ultra

Ultra Electronics is an internationally successful defence and aerospace company with a long, consistent track record of development and growth. Ultra businesses constantly innovate to create solutions to customer requirements that are different from and better than those of the Group's competitors. The Group has over one hundred distinct market or technology niches within its twenty two businesses. The diversity of niches enables Ultra to contribute to a large number of defence, aerospace and civil platforms and programmes and provides resilience to the Group's financial performance.

Ultra has world-leading positions in many of its niches and, as an independent, non-threatening partner, is able to support all of the main prime contractors with specialist capabilities and solutions. As a result of such positioning, Ultra's systems, equipment or services are often mission-critical to the successful operation of the platform to which they contribute. In turn, this mission-criticality secures Ultra's positions for the long term which underpin the superior financial performance of the Group.

Ultra offers support to its customers through the design, delivery and support phases of a programme. Ultra businesses have a high degree of operational autonomy where the local management teams are empowered to devise and implement competitive strategies that reflect their expertise in their specific niches. 

The Group has a small head office and executive team that provide to the individual businesses the same agile, responsive support that they provide to customers as well as formulating Ultra's overarching, corporate strategy.

Across the Group's three divisions, the major market sectors in which Ultra operates are:

• battlespace IT, summarised as being the systems and equipment that allows coalition commanders to have an integrated, real-time picture of the disposition of friendly and enemy forces that is better than the one available to the enemy. This information superiority underpins rapid decision making which, together with effective command, control and communications, translates into military superiority. The use of battlespace IT is fundamental to the implementation of the military doctrines of 'network-centric warfare' or 'network-enabled capability' that are seen as transformational in the capability to win future battles. Expenditure on battlespace IT equipment therefore continues to represent an increasing share of the total defence budget in the main markets in which Ultra operates.

• sonar systems, expanding Ultra's traditional world-leading airborne anti-submarine warfare capability into broader activities in the underwater battlespace. These include integrated ship and submarine sonar systems, persistent seabed-deployed sensor arrays, torpedo defence and sea mine disposal systems. The fact that over forty countries have, between them, more than four hundred highly capable, stealthy submarines is continuing to focus expenditure in this sector.

• civil and military aircraft equipment, Ultra provides specialist sub-systems and equipment for military and civil aircraft. The main military aircraft programmes on which Ultra equipment is fitted continue to have political support, underpinned by consistent financial commitment. For civil aircraft, record order intake performance by all major aircraft manufacturers underpins increasing build rates for the medium term.

• specialist defence equipment, including power conversion and signature systems for naval ships and submarines. Ultra's specialist capability in high integrity controls for submarine nuclear reactors is included in this sector, for which there is continuing commitment to new platforms and the upgrade of existing boats. Ultra also supplies advanced sub-systems for modern armoured vehicles including those for electrical power management, indirect vision and weapon control. The need for increased mobility and force protection is driving a number of large military vehicle procurements in Ultra's main markets.

• specialist civil systems and equipment, including Ultra's advanced airport IT solutions. Airline passenger growth around the world is driving continuing expansion and upgrade of airport infrastructure. Ultra supplies trackside power equipment for rail transit systems, for which demand continues driven by the need to expand and upgrade rail networks. The UK market for nuclear power generation is expanding and Ultra's offering derived from its equivalent military capability is well positioned to benefit.

		Six months		Six months		Year to
		to 30 June		to 30 June		31 December
		2009		2008		2008
	Note	£'000		£'000		£'000
Continuing operations
Revenue	3	325,486		231,853		515,271
Cost of sales		(237,380)		(172,629)		(373,100)
Gross profit		88,106		59,224		142,171
Other operating income		5,130		2,702		3,444
Distribution costs		(391)		(351)		(1,050)
Administrative expenses		(49,589)		(32,447)		(77,345)
Other operating expenses		(8,818)		(471)		(3,146)
Share of results of associate		134		-		-
Profit from operations	3	34,572		28,657		64,074
Headline operating profit	4	44,298		32,505		77,091
Amortisation of intangible arising on acquisition		(14,730)		(3,848)		(13,017)
Profit on disposal of property, plant and equipment net of property-related provisions		5,004		-		-
Profit from operations		34,572		28,657		64,074
Investment revenue	5	48,637		410		1,229
Finance costs	6	(20,265)		(5,883)		(68,191)
Profit/(loss) before tax		62,944		23,184		(2,888)
Headline profit before tax	4	40,204		30,422		72,198
Amortisation of intangibles arising on acquisition		(14,730)		(3,848)		(13,017)
Profit/(loss) on fair value movements on derivatives		48,390		(3,390)		(62,069)
Profit on disposal of property, plant and equipment net of property-related provisions		5,004		-		-
Loss on closing out foreign currency hedging contracts		(15,924)		-		-
Profit/(loss) before tax		62,944		23,184		(2,888)
Tax	7	(16,817)		(6,028)		4,645
Profit for the period from continuing operations attributable to equity holders of the parent		46,127		17,156		1,757
Earnings per ordinary share (pence)
From continuing operations
Basic	9	67.7		25.2		2.6
Diluted	9	67.5		25.1		2.6

			Six months		Six months		Year to
			to 30 June		To 30 June		31 December
			2009		2008		2008
			£'000		£'000		£'000
Exchange differences on translation of foreign operations			(13,599)		475		28,897
Actuarial losses on defined benefit pension schemes (net of deferred tax)			-		-		(12,585)
Tax on items taken directly to equity (excluding pensions)			-		-		1,709
Profit/(loss) on cash flow hedge			537		(188)		(4,612)
Net (expense)/income recognised directly in equity			(13,062)		287		13,409
Transfer to profit and loss on cash flow hedge			755		81		195
Profit for the period			46,127		17,156		1,757
Total recognised income and expense for the period attributable to equity holders of the parent			33,820		17,524		15,361

	Equity attributable to equity holders of the parent
	Share capital £000	Share premium account £000	Reserve for own shares £000	Hedging and translation reserve £000	Retained earnings £000	Total equity £000
Balance at 1 January 2009	3,407	36,427	(1,974)	22,615	83,594	144,069
Profit for the period	-	-	-	-	46,127	46,127
Exchange differences on translation of foreign operations	-	-	-	(13,599)	-	(13,599)
Profit on cashflow hedge	-	-	-	-	537	537
Transfer from profit and loss
on cash flow hedge	-	-	-	-	755	755
Total comprehensive income for the period	-	-	-	(13,599)	47,419	33,820
Disposal of own shares	-	-	524	-	(524)	-
Equity settled employee share schemes	1	213	-	-	865	1,079
Dividend to shareholders	-	-	-	-	(12,226)	(12,226)
Balance at 30 June 2009	3,408	36,640	(1,450)	9,016	119,128	166,742

	Equity attributable to equity holders of the parent
	Share capital £000	Share premium account £000	Reserve for own shares £000	Hedging and translation reserve £000	Retained earnings £000	Total equity £000
Balance at 1 January 2008	3,394	35,061	(1,972)	(6,282)	111,693	141,894
Profit for the period					17,156	17,156
Exchange differences on translation of foreign operations	-	-	-	475	-	475
Loss on cashflow hedge	-	-	-	-	(188)	(188)
Transfer from profit and loss
on cash flow hedge	-	-	-	-	81	81
Total comprehensive income for the period	-	-	-	475	17,049	17,524
Own shares acquired	-	-	(673)	-	-	(673)
Disposal of own shares	-	-	672	-	(672)	-
Equity settled employee share schemes	6	746	-	-	736	1,488
Dividend to shareholders	-	-	-	-	(9,806)	(9,806)
Balance at 30 June 2008	3,400	35,807	(1,973)	(5,807)	119,000	150,427

	Equity attributable to equity holders of the parent
	Share capital £000	Share premium account £000	Reserve for own shares £000	Hedging and translation reserve £000	Retained earnings £000	Total equity £000
Balance at 1 January 2008	3,394	35,061	(1,972)	(6,282)	111,693	141,894
Profit for the period	-	-	-	-	1,757	1,757
Exchange differences on translation of foreign operations	-	-	-	28,897	-	28,897
Actuarial losses on defined benefit pension schemes (net of tax)	-	-	-	-	(12,585)	(12,585)
Loss on cashflow hedge	-	-	-	-	(4,612)	(4,612)
Transfer from profit and loss on cash flow hedge	-	-	-	-	195	195
Tax relating to components of other comprehensive income (excluding pensions)	-	-	-	-	1,709	1,709
Total comprehensive income for the period	-	-	-	28,897	(13,536)	15,361
Own shares acquired	-	-	(674)	-	-	(674)
Disposal of own shares	-	-	672	-	(672)	-
Equity settled employee share schemes	13	1,366	-	-	1,451	2,830
Dividend to shareholders	-	-	-	-	(15,225)	(15,225)
Deferred tax on share-based payment transactions	-	-	-	-	(117)	(117)
Balance at 31 December 2008	3,407	36,427	(1,974)	22,615	83,594	144,069

		At 30 June		At 30 June		At 31 December
		2009		2008		2008
	Note	£'000		£'000		£'000
Non-current assets
Intangible assets		296,230		228,509		325,683
Property, plant and equipment	10	32,501		26,092		34,916
Interest in associate		1,988		-		2,120
Deferred tax assets		23,198		10,302		28,650
		353,917		264,903		391,369
Current assets
Inventories		46,835		36,062		52,826
Trade and other receivables	11	138,279		99,131		125,661
Cash and cash equivalents		52,449		39,187		43,385
Assets held for sale		-		-		828
		237,563		174,380		222,700
Total assets	3	591,480		439,283		614,069
Current liabilities
Trade and other payables	12	(171,002)		(125,093)		(210,093)
Tax liabilities		(8,946)		(6,106)		(5,055)
Obligations under finance leases		(13)		(84)		(105)
Short-term provisions		(9,741)		(8,946)		(17,224)
		(189,702)		(140,229)		(232,477)
Non-current liabilities
Retirement benefit obligations		(59,934)		(41,076)		(58,761)
Other payables	12	(27,180)		(5,616)		(55,791)
Deferred tax liabilities		(15,345)		(4,532)		(13,654)
Obligations under finance leases		(4)		(41)		(5)
Bank loans		(120,534)		(92,768)		(107,214)
Long-term provisions		(12,039)		(4,594)		(2,098)
		(235,036)		(148,627)		(237,523)
Total liabilities	3	(424,738)		(288,856)		(470,000)
Net assets		166,742		150,427		144,069
Equity
Share capital	13	3,408		3,400		3,407
Share premium account		36,640		35,807		36,427
Own shares		(1,450)		(1,973)		(1,974)
Hedging and translation reserves		9,016		(5,807)		22,615
Retained earnings		119,128		119,000		83,594
Total equity attributable to equity holders of the parent		166,742		150,427		144,069

		Six months		Six months		Year to
		to 30 June		To 30 June		31 December
		2009		2008		2008
	Note	£'000		£'000		£'000
Net cash inflow from operating activities	14	29,332		20,019		69,102
Investing activities
Interest received		247		445		1,229
Purchase of property, plant and equipment		(4,865)		(4,351)		(14,198)
Proceeds from disposal of property, plant and equipment		3,242		1,263		1,231
Expenditure on product development and other intangibles		(1,100)		(2,388)		(1,941)
Acquisition of subsidiary undertakings		(10,902)		(46,029)		(83,845)
Net cash acquired with subsidiary undertakings		843		645		5,007
Net cash used in investing activities		(12,535)		(50,415)		(92,517)
Financing activities
Issue of share capital		214		752		1,379
Purchase of Long-Term Incentive Plan shares		-		(674)		(674)
Dividends paid		(12,226)		(9,806)		(15,225)
Increase in borrowings		22,389		52,028		48,568
Loan syndication costs		-		-		(527)
Repayment of obligations under finance leases		(93)		(11)		(81)
New finance leases		-		-		114
Loss on closing out foreign currency hedging contracts		(15,924)		-		-
Net cash (used in)/from financing activities		(5,640)		42,289		33,554
Net increase in cash and cash equivalents		11,157		11,893		10,139
Cash and cash equivalents at beginning of period		43,385		27,419		27,419
Effect of foreign exchange rate changes		(2,093)		(125)		5,827
Cash and cash equivalents at end of period		52,449		39,187		43,385

1. General information

The information for the year ended 31 December 2008 does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' reported on those accounts: their report was not qualified, did not draw attention to any matters by way of emphasis and did not contain statements under section 237(2) or (3) of the Companies Act 1985. 

These interim Financial Statements, which were approved by the Board of Directors on 31 July 2009, have not been audited or reviewed by the Auditors.

2. Accounting policies

The annual financial statements of Ultra Electronics Holdings plc are prepared in accordance with International Financial Reporting Standards (IFRS). The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting.'

The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest annual audited financial statements, except as described below.

IAS 1 (revised) requires the presentation of a statement of changes in equity as a primary statement, separate from the income statement and statement of comprehensive income. As a result, a condensed consolidated statement of changes in equity has been included in the primary statements, showing changes in each component of equity for each period presented.

The application of IFRS 8 Operating Segments, which was effective for accounting periods beginning on or after 1 January 2009, does not materially change the segmental information disclosures previously provided under IAS 14. 

3. Segment information

	Six months to 30 June 2009						Six months to 30 June 2008
	External revenue £'000		Internal revenue £'000		Total £'000		External revenue £'000		Internal revenue £'000		Total £'000
Revenue
Aircraft & Vehicle Systems	83,698		703		84,401		58,899		1,791		60,690
Information & Power Systems	101,014		1,606		102,620		65,999		4,140		70,139
Tactical & Sonar Systems	140,774		5,898		146,672		106,955		3,331		110,286
Eliminations	-		(8,207)		(8,207)		-		(9,262)		(9,262)
Consolidated revenue	325,486		-		325,486		231,853		-		231,853

		Six months to 30 June 2009		Six months to June 2008		Year to 31 December 2008
		£'000		£'000		£'000
Profit from operations
Aircraft & Vehicle Systems		10,869		9,266		19,727
Information & Power Systems		11,511		9,306		22,188
Tactical & Sonar Systems		21,918		13,933		35,176
Headline operating profit		44,298		32,505		77,091
Amortisation of intangibles arising on acquisition		(14,730)		(3,848)		(13,017)
Profit on disposal of property, plant and equipment net of property-related provisions		5,004		-		-
Profit from operations		34,572		28,657		64,074
Investment revenue		48,637		410		1,229
Finance costs		(20,265)		(5,883)		(68,191)
Profit before tax		62,944		23,184		(2,888)

  3. Segment information (continued) 

		At 30 June 2009		At 30 June 2008		At 31 December 2008
		£'000		£'000		£'000
Total assets by segment
Aircraft & Vehicle Systems		115,999		106,208		105,089
Information & Power Systems		193,313		111,552		200,149
Tactical & Sonar Systems		200,251		166,831		228,541
		509,563		384,591		533,779
Unallocated		81,917		54,692		80,290
Total assets		591,480		439,283		614,069

Unallocated assets represent deferred tax assets, derivatives at fair value and cash and cash equivalents.

		At 30 June 2009		At 30 June 2008		At 31 December 2008
		£'000		£'000		£'000
Total liabilities by segment
Aircraft & Vehicle Systems		46,585		38,278		49,946
Information & Power Systems		65,095		47,344		76,148
Tactical & Sonar Systems		87,100		51,931		86,361
		198,780		137,553		212,455
Unallocated		225,958		151,303		257,545
Total liabilities		424,738		288,856		470,000

Unallocated liabilities represent derivatives at fair value, tax payables, deferred tax liabilities, retirement benefit obligations and bank loans.

	Six months		Six months				Year to
	to 30 June		to 30 June				31 December
	2009		2008				2008
	£'000		£'000				£'000
Revenue by geographical destination
United Kingdom	85,907		86,451				184,845
Continental Europe	29,355		26,332				51,892
Canada	6,402		7,820				15,999
USA	173,412		93,205				225,530
Rest of World	30,410		18,045				37,005
	325,486		231,853				515,271

  4. Additional performance measures

To present the headline profitability of the Group on a consistent basis year-on-year, additional performance indicators have been used. These are calculated as follows:

	Six months		Six months		Year to
	to 30 June		to 30 June		31 December
	2009		2008		2008
	£'000		£'000		£'000
Profit from operations	34,572		28,657		64,074
Amortisation of intangibles arising on acquisition	14,730		3,848		13,017
Profit on disposal of property, plant and equipment net of property-related provisions	(5,004)		-		-
Headline operating profit	44,298		32,505		77,091
Profit/(loss) before tax	62,944		23,184		(2,888)
(Profit)/loss on fair value movements on derivatives	(48,390)		3,390		62,069
Loss on closing out foreign currency hedging contracts	15,924		-		-
Amortisation of intangibles arising on acquisition	14,730		3,848		13,017
Profit on disposal of property, plant and equipment net of property-related provisions	(5,004)		-		-
Headline profit before tax	40,204		30,422		72,198
Cash generated by operations (see note 14)	36,042		31,006		94,579
Purchase of property, plant and equipment	(4,865)		(4,351)		(14,198)
Proceeds on disposal of property, plant and equipment	3,242		1,263		1,231
Expenditure on product development and other intangibles	(1,100)		(2,388)		(1,941)
Purchase of Long-Term Incentive Plan shares	-		(674)		(674)
Operating cash flow	33,319		24,856		78,997

Headline operating profit has been shown before the amortisation of intangible assets arising on acquisitions, which relates to acquired intellectual property, customer relationships and profit in acquired order book. To maintain a consistent presentation of financial performance over the longer term, this charge has been excluded from headline operating profit. In addition headline operating profit is stated before the profit on the disposal of property, plant and equipment net of property-related provisions, which includes the net profit recognised on the disposal of the Armitage Road, Rugeley property and is after deducting a dilapidations provision relating to a number of properties that are approaching their lease expiry dates. Headline profit before tax and headline earnings per share (see note 9) are also presented before these adjustments.

IAS 39 requires the Group to 'fair value' the derivative instruments used to manage Ultra's foreign exchange exposures. This creates volatility in the valuation of the outstanding instruments as exchange rates move over time. This will have minimal impact on profit over the full term of the instruments, but can cause significant volatility on particular balance sheet dates. Following the significant exchange rate movements that occurred in the latter part of 2008, the Group has reviewed its level of hedging cover for the next two years and reduced it to match the expected net inflow of US dollars. In doing so, during the six months ended 30 June 2009, the Group has incurred one-off costs of £15.9m associated with closing out the hedging contracts. These costs do not affect the underlying operating performance of the Group. Ultra is therefore stating headline profit before tax and headline earnings per share (see note 9) before changes in the valuation of its foreign currency derivative instruments and the costs associated with the reduction in the level of hedging cover so that the headline operating performance of the Group can be seen more clearly.

The Group is cash generative and reinvests funds to support the continuing growth of the business. It seeks to use an accurate and appropriate measure of the funds generated internally while sustaining this growth. For this, Ultra uses operating cash flow, rather than cash generated by operations, as its preferred indicator of cash generated and available to cover non-operating expenses such as tax and interest payments. The Group believes that using cash generated by operations, with the exclusion of net expenditure on property, plant and equipment and outflows for capitalised product development and other intangibles, would result in an understatement of the true cash cost of sustaining a growing business.

  5. Investment revenue

	Six months			Six months		Year to
	to 30 June			to 30 June		31 December
		2009		2008		2008
		£'000		£'000		£'000
Bank interest		247		410		1,229
Fair value movement on derivatives		48,390		-		-
		48,637		410		1,229

6. Finance costs

	Six months		Six months		Year to
	to 30 June		to 30 June		31 December
	2009		2008		2008
	£'000		£'000		£'000
Amortisation of finance costs of debt	126		35		114
Interest payable on bank loans and overdrafts	2,011		1,957		4,972
Interest payable on finance leases	2		1		4
Transfers from equity on cash flow hedge	755		81		195
Total borrowing costs	2,894		2,074		5,285
Retirement benefit scheme finance cost	1,447		419		837
Fair value movement on derivatives	-		3,390		62,069
Loss on closing out foreign currency hedging contracts	15,924		-		-
	20,265		5,883		68,191

7. Tax 

	Six months		Six months		Year to
	to 30 June		to 30 June		31 December
	2009		2008		2008
	£'000		£'000		£'000
Current tax
United Kingdom	13,866		3,815		10,100
Overseas	4,808		3,122		7,169
	18,674		6,937		17,269
Deferred tax
United Kingdom	(5,284)		(667)		(12,570)
Overseas	3,427		(242)		(9,344)
	(1,857)		(909)		(21,914)
Total tax charge/(credit)	16,817		6,028		(4,645)

8. Ordinary dividends

	Six months		Six months
	to 30 June		to 30 June
	2009		2008
	£'000		£'000
Final dividend for the year ended 31 December 2008 of 18.0p (2007: 14.5p) per share	12,226		9,806
Proposed interim dividend for the year ended 31 December 2009 of 9.6p (2008: 8.0p) per share	6,523		5,419

The interim 2009 dividend of 9.6 pence per share is proposed to be paid on 25 September 2009 to shareholders on the register at 21 August 2009. It was approved by the Board after 30 June 2009 and has not been included as a liability as at 30 June 2009.

  9. Earnings per share 

	Six months		Six months		Year to
	to 30 June		to 30 June		31 December
	2009		2008		2008
	Pence		pence		pence
From continuing operations
Basic headline (see below)	43.4		32.6		80.1
Diluted headline (see below)	43.2		32.4		79.7
Basic	67.7		25.2		2.6
Diluted	67.5		25.1		2.6

The calculation of the basic, headline and diluted earnings per share is based on the following data:

	Six months		Six months		Year to
	to 30 June		to 30 June		31 December
	2009		2008		2008
	£'000		£'000		£'000
Earnings
Earnings for the purposes of earnings per share being profit for the period from continuing operations	46,127		17,156		1,757
Headline earnings
Profit for the period from continuing operations	46,127		17,156		1,757
(Profit)/loss on fair value movements on derivatives (net of tax)	(34,214)		2,424		43,927
Loss on closing out foreign currency hedging contracts (net of tax)	11,465		-		-
Profit on disposal of property, plant and equipment net of property-related provisions (net of tax)	(3,678)		-		-
Amortisation of intangibles arising on acquisition (net of tax)	9,850		2,610		8,781
Earnings for the purposes of headline earnings per share	29,550		22,190		54,465

The weighted average number of shares is given below:

	Six months			Six months		Year to
	To 30 June			To 30 June		31 December
	2009			2008		2008
Number of shares used for basic EPS		68,147,980		67,983,271		68,007,223
Number of shares deemed to be issued at nil consideration following exercise of share options		209,648		433,690		311,743
Number of shares used for fully diluted EPS		68,357,628		68,416,961		68,318,966

	Six months		Six months		Year to
	To 30 June		To 30 June		31 December
	2009		2008		2008
Headline profit before tax	40,204		30,422		72,198
Tax rate applied for the purposes of headline earnings per share	26.5%		27.1%		24.6%

10. Property, plant and equipment

During the period, the Group spent £4.9m (2008: £4.4m) on the acquisition of property, plant and equipment.

The Group completed the sale of its Armitage Road, Rugeley property during the period recognising a profit of £8.1m on the sale (2008: the Group disposed of property, plant and equipment with a carrying value of £0.6m for proceeds of £1.3m).

  11. Trade and other receivables 

	At 30 June		At 30 June		At 31 December
	2009		2008		2008
	£'000		£'000		£'000
Trade receivables	76,875		62,732		79,897
Provisions against receivables	(1,344)		(550)		(1,908)
Net trade receivables	75,531		62,182		77,989
Amounts due from contract customers	39,746		23,628		27,641
Derivatives at fair value	6,270		5,203		8,255
Prepayments & other receivables	16,732		8,118		11,776
	138,279		99,131		125,661

12. Trade and other payables

	At 30 June		At 30 June		At 31 December
	2009		2008		2008
	£'000		£'000		£'000
Amounts included in current liabilities:
Trade payables	53,601		44,514		61,350
Amounts due to contract customers	36,165		31,274		32,562
Derivatives at fair value	11,532		6,821		38,934
Other payables	69,704		42,484		77,247
	171,002		125,093		210,093
Amounts included in non current liabilities:
Amounts due to contract customers	4,956		-		4,545
Derivatives at fair value	9,667		-		33,927
Other payables	12,557		5,616		17,319
	27,180		5,616		55,791

13. Share capital

36,066 shares, with a nominal value of £1,803 have been allotted in the first six months of 2009 under the terms of the Group's various share option schemes. The aggregate consideration received by the Company was £214,202.

  

14. Cash flow information

	Six months		Six months		Year to
	to 30 June		to 30 June		31 December
	2009		2008		2008
	£'000		£'000		£'000
Profit from operations	34,572		28,657		64,074
Depreciation of property, plant and equipment	4,404		2,874		7,026
Amortisation of intangible assets	16,106		4,379		15,488
Cost of equity settled employee share schemes	865		738		1,295
(Decrease)/increase in post employment benefit obligation	(274)		267		(91)
Profit on disposal of property, plant and equipment net of property-related provisions	(5,004)		(702)		(682)
Loss on revaluation of assets transferred to held for sale	67		-		270
Share of profit of associate	(134)		-		-
Disposal of assets held for sale	761		-		-
(Decrease)/increase in provisions	(94)		275		2,526
Operating cash flow before movements in working capital	51,269		36,488		89,906
Decrease/(increase) in inventories	3,110		7,378		(226)
Increase in receivables	(16,305)		(9,474)		(13,964)
(Decrease)/increase in payables	(2,032)		(3,386)		18,863
Cash generated by operations	36,042		31,006		94,579
Income taxes paid	(3,873)		(8,926)		(20,502)
Interest paid	(2,837)		(2,061)		(4,975)
Net cash inflow from operating activities	29,332		20,019		69,102

Reconciliation of net movement in cash and cash equivalents to movement in net debt

	Six months		Six months		Year to
	to 30 June		to 30 June		31 December
	2009		2008		2008
	£'000		£'000		£'000
Net increase in cash and cash equivalents	11,157		11,893		10,139
Cash inflow from increase in debt and finance leasing	(22,296)		(52,017)		(48,624)
Change in net debt arising from cash flows	(11,139)		(40,124)		(38,485)
Amortisation of finance costs of debt	(123)		(35)		(114)
Loan syndication costs	-		-		527
Finance leases acquired with subsidiary undertakings	-		(82)		-
Translation differences	7,099		778		(11,624)
Movement in net debt in the period	(4,163)		(39,463)		(49,696)
Net debt at start of period	(63,939)		(14,243)		(14,243)
Net debt at end of period	(68,102)		(53,706)		(63,939)
Net debt comprised the following:
	At 30 June  2009		At 30 June 2008		At 31 December 2008
	£'000		£'000		£'000
Cash and cash equivalents	52,449		39,187		43,385
Bank loans	(120,534)		(92,768)		(107,214)
Finance leases	(17)		(125)		(110)
	(68,102)		(53,706)		(63,939)

  15. Acquisitions

On 20 May 2009, the Group acquired the entire share capital of Tisys SA for a cash consideration including costs of £5.0m. Initial provisional fair values for the net assets acquired and details of the purchase consideration are set out below:

	Book value	Revaluations	Fair value
	£'000	£'000	£'000
Intangible assets	-	2,125	2,125
Property, plant and equipment	21	-	21
Net cash	843	-	843
Working capital	290	-	290
Net assets acquired	1,154	2,125	3,279
Goodwill arising on acquisition			1,696
Purchase consideration, including acquisition costs			4,975

The profit contribution from Tisys during the period from date of acquisition to 30 June was not material. The goodwill arising on the acquisition is attributable to the value of synergies arising from the acquisition, the acquiree's assembled workforce and anticipated future profits arising from access to new markets.

If the acquisition of Tisys had been completed on the first day of the financial year, Group revenues for the period would have been approximately £326.1m and Group profit before tax would have been approximately £63.1m.

Fair value adjustment to prior year acquisitions

ProLogic Inc. and Nuclear Sensors & Process Instrumentation were both acquired by the Group during 2008. The fair value of the assets acquired in respect of both of these acquisitions at 31 December 2008 was provisional. During 2009, further fair value adjustments totalling £0.6m have been made in respect of these acquisitions. Goodwill has been retrospectively increased by £0.6m as a result of these adjustments.

16. Going Concern

After making appropriate enquiries, the Board's view is that Ultra has adequate resources to continue in operational existence for the foreseeable future and that the business outlook remains strong. Accordingly, the Group continues to adopt a going concern basis in preparing the accounts. 

17. Other matters

Seasonality

The Group's financial results have not historically been subject to significant seasonal trends.

Post balance sheet events

On 7 July 2009 the group acquired the entire share capital of Avalon Systems Pty Ltd, an Australian company, for a cash consideration of £8.1m.

Related party transactions

There were no significant related party transactions during the period.

RESPONSIBILITY STATEMENT

We confirm that to the best of our knowledge:

these condensed financial statements have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting";

this half year report includes a fair review of the information required by Disclosure and Transparency Rule (DTR) 4.2.7R (indication of important events during the period and description of principal risks and uncertainties for the remainder of the financial year); and

this half year report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

By order of the Board

Douglas Caster  Paul Dean

Chief Executive Group Finance Director

3 August 2009

ENDIR CKDKDPBKDNON

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Related Shares:

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