rakesh sharma chief executive paul dean finance director · ** before cost of acquisitions,...

Rakesh Sharma Chief Executive Paul Dean Finance Director

Ultra Electronics Interim Results 2011 SLIDE 2

© 2011 Ultra Electronics: Proprietary Data

2011 Interim overview

Revenue £m

PBT** £m

EPS** pence

2010 2009 2011

2010 2009 2011

2010 2009 2011

651.0 710.0

343.5

102.7 89.5

52.1

96.4 107.9

54.6

325.5 350.9

47.6 40.2

43.4 50.0

• Resilient performance reflecting the Group’s broad portfolio and customer base

—organic revenue growth at constant currencies of 1% —organic growth of headline operating profit*, at

constant currencies, of 11%

• Continuing reinvestment to drive future growth • Headline operating margin* increased to 16.2% • Robust balance sheet

—net debt of £10m —headroom for further acquisitions

• Record order book exceeds £1bn —includes the largest contract in the Group’s history

• Interim dividend per share increased 10%

* before cost of acquisitions and amortisation of intangibles arising on acquisition

** before cost of acquisitions, amortisation of intangibles arising on acquisition and fair value movements on derivatives



Financial Review



Income statement


** before cost of acquisitions, amortisation of intangibles arising on acquisition and fair value movements on derivatives

£m 2011 H1 2010 H1 Growth Revenue 343.5 350.9 -2.1% Operating profit* 55.8 51.4 +8.6% Operating margin* 16.2% 14.6% Profit before tax** 52.1 47.6 +9.5% Earnings per share** 54.6p 50.0p +9.2% Dividend per share 11.7p 10.6p +10.4%



Revenue & profit progression

Accounting changes -

UAE

2010 Revenue £350.9m

-£12.2m

-£11.8m +£13.0m

+£3.6m 2011

Revenue £343.5m

2010 Headline operating

profit £51.4m

-£2.6m

-£0.8m

+£3.4m

+£0.5m

+£2.3m

+£1.6m 2011 Headline operating

profit £55.8m

Currency translation

Acquisitions

Organic growth

Currency translation

Acquisitions

Currency transaction

Increased R&D costs

Organic growth

Improved margin

Revenue progression

Operating profit progression



Currency effects

US$ into £ +17.9% +£3.6m -£2.6m C$ into £ 0.0% -

Revenue translation impact -£11.8m (-3%)

Profit impact

Total profit impact +£0.8m (+2%)

Transaction Translation

N/A

US$32m @1.58

-5.9%

US$:£ % covered

2011 1.55 100%

2012 1.47 82%

2013 1.54 48%

Future hedge rates

US$24m @1.02

US$ into CAD -1.1% -£0.2m N/A



Balance sheet

Capitalised development costs

£7.4m (2010: £7.5m) P&L

P&L charge £18.8m

(2010: £18.0m)

Development costs amortised

£0.4m (2010: £0.5m)

R&D capitalised £0.3m

(2010: £0.2m)

Customer funded £41.4m

(2010: £46.8m)

R&D cash £60.1m

(2010: £64.5m)

Ultra funded £18.7m (2010: £17.7m)

R&D expensed £18.4m

(2010: £17.5m)

Maintaining investment to underpin growth



Operating cash flow


£m 2011 H1 2010 H1 Operating profit* 55.8 51.4 Depreciation 4.7 4.1

Net tangible capital expenditure (4.3) (1.9) Net intangible capital expenditure (0.4) 0.4

Working capital increase (15.1) (14.6)

Pensions (2.1) 0.1

Associate (1.6) -

Other 0.6 0.8

Operating cash flow 37.6 40.3

Cash conversion

67%

78%



Net debt

£m 2011 H1 2010 H1 Opening net cash/(debt) 17.8 (28.7)

Operating cash flow 37.6 40.3 Interest and tax (20.1) (10.2)

Dividends (16.4) (14.8)

Acquisitions (32.2) (3.7)

Currency 0.2 (2.8)

Other 3.0 2.5

Closing net debt (10.1) (17.4)

Headroom at period end of £159.7m over gross borrowings



Operational Review



Sector Destination

Civil equipment £51.6m 15%

(2010: £46.6m 13%)

Civil aircraft equipment

£23.0m 6% (2010: £22.9m 7%)

Specialist defence

equipment & consultancy £40.4m 12%

(2010: £45.0m 13%)

Military aircraft equipment

£37.0m 11% (2010: £31.1m 9%)

Battlespace IT £123.6m 36% (2010: £143.1m 40%)

Sonar £67.9m 20% (2010: £62.2m 18%)

UK £98.7m 29%

(2010: £86.3m 25%)

North America £170.0m 49% (2010: £186.8m 53%)

Mainland Europe

£26.7m 8% (2010: £30.7m 9%)

Middle East & Asia-Pacific £48.1m 14% (2010: £47.1m 13%)

Revenue



Aircraft & Vehicle Systems PERFORMANCE DRIVERS IN PERIOD

• Increased international sales of Magicard ID card printers

• Reduction in the rate of production of hand controls for remote weapon systems

Performance drivers

• Solid demand for HiPPAG airborne compressors

• Increased demand for specialist high integrity manufacturing services

Financial results 2010 H1 2011 H1

Revenue £89.3m £80.6m -10%

Profit £10.7m £13.4m +25%

Order book £212.7m £214.7m +1%

Operating margin 12.0% 16.6%

23% of Group sales

24% of Group OP Revenue by

sector*

AIRCRAFT & VEHICLE SYSTEMS

*Colour-coded as slide 11



Information & Power Systems PERFORMANCE DRIVERS IN PERIOD

Performance drivers

• Strong demand for specialist sensors and control systems for military and civil nuclear reactors

• Continuing demand for specialist naval electrical power controls

• Higher demand for trackside power equipment

• Reduced demand for Ultra’s traditional ADSI command and control systems


Revenue £106.7m £114.6m +7%

Profit £13.2m £12.8m -3%

Order book £200.6m £449.6m +124%


33% of Group sales


sector*

INFORMATION & POWER SYSTEMS




Tactical & Sonar Systems PERFORMANCE DRIVERS IN PERIOD

Performance drivers

• US defence procurement delays affected:

— tactical radios — network access equipment — sonobuoys

• Higher activity levels on sonar system developments:

― Australia — Netherlands

• Investment in next generation tactical communications equipment


Revenue £154.9m £148.3m -4%

Profit £27.5m £29.6m +8%

Order book £418.8m £368.2m -12%


44% of Group sales


sector*

TACTICAL & SONAR SYSTEMS




Maintaining Ultra’s progress

• Market environment

• Reinvestment to enhance the portfolio

– battlespace IT

• Reaching into adjacent markets

– critical infrastructure protection

• Reaching up the supply chain

– Oman airport IT

• Growth drivers for 2011/12 – existing contracts

• Selected opportunities



Market environment

DEFENCE • US base budget >$500bn • UK budget and procurement process under pressure • Electronics an increasing percentage of budgets • More upgrades, fewer new platforms

SECURITY • Rising demand for security, surveillance and intelligence • Emphasis on cyber warfare and information assurance

TRANSPORT • Increasing aircraft build rates • Infrastructure investment in airports • Upgrades and extensions to mass transit systems

ENERGY • Potential UK ‘electrical energy gap’ • Worldwide concerns about security of energy supply • Life extensions and new build in UK, RoW • High build rate in China

ULTRA’S ADDRESSABLE MARKETS GIVE HEADROOM FOR GROWTH



Reinvestment to enhance the portfolio BATTLESPACE IT

• Consistent reinvestment: >5% of revenue • ‘Customer-pull’, not ‘technology-push’ • Example: responding to operational requirements

Operational requirement Ultra response

• Real-time information to the soldier ‘on-the-move’

• Mesh/ad hoc networks • Adaptive antennae • Cognitive functionality • Satcom ‘reachback’ • Reduced size, weight and power

• Secure and efficient IP-networks • PacketAssure (PAiQ) • Enhanced quality of service • High data compression rates • Ability to use ‘suite B’ encryption

CONSTANT EVOLUTION OF CAPABILITY


Reaching into adjacent markets CRITICAL INFRASTRUCTURE PROTECTION

SENSORS • Intelligent cameras • Magnetic and e-field • Acoustic • Gunshot detection

SYSTEMS • Atlas OPS • National Resilience Extranet • C2DB • Cortez (British Army)

NETWORKS & COMMUNICATIONS • Cryptographic equipment • Mesh networking • ‘Data-over-power’ • Analytics • Hyperspike

ANALYSIS & TRAINING • Threat assessment • Vulnerability assessment • ConOps generation • Operator training


BROAD APPLICABILITY FOR CIVIL AND MILITARY APPLICATIONS

Applications: financial districts, ports, nuclear power stations, defence installations


Reaching up the supply chain OMAN AIRPORT IT

• Master systems integrator for Muscat and Salalah airports

• Scope: airport IT systems, IT networks, communications and security systems

• £200M+ contract with support to follow

• Strong international team – Turner & Townsend – FirstCo – NCR/Cisco – Indra – TESS

• Salalah due to open in 2013; Muscat, in two phases, running to 2015


SIGNIFICANT CONTRACT WIN – WILL POSITION ULTRA FOR

FURTHER LARGE INTERNATIONAL CONTRACTS



Growth drivers for 2011/12

AIRCRAFT & VEHICLE SYSTEMS • Boeing 787 initial sales • LRIP for F-35 JSF • Mitsubishi RJ development • Increasing sales of fuel cells • Scout vehicle system development

INFORMATION & POWER SYSTEMS • Omani airport systems integration contract • RC&I for Royal Navy submarines • Increased sales of nuclear reactor sensors • Electrical power upgrade for Vanguard submarines • Initial sales of UAV tactical communications pod

TACTICAL & SONAR SYSTEMS • ECU-R development • Sales of high capacity radios • Sales of advanced network access equipment

TACTICAL & SONAR SYSTEMS • Development of sonar for Royal Netherlands Navy • Development of advanced ASW sensor systems • Increased sales of Hyperspike®

KNOWN PROGRAMMES WILL DRIVE GROWTH IN 2012



$20m pa

Aircraft & Vehicle Systems SELECTED OPPORTUNITIES

AIRCRAFT & VEHICLE SYSTEMS

• Engine inlet ice protection

•

• Landing gear control system $5m pa Gulfstream G650 production contract

Fuel cells to replace batteries

• Wing ice protection system • Proximity sensor electronics

$140k per aircraft 2011+

•

$180k per aircraft

2011 UAE training and support opportunities – through Al Shaheen

£20m+ 2011 Scout Vehicle

• Ice protection for engine intake and lift fan • HiPPAG for weapons ejection

$20m+ pa

2011+ Armoured vehicle electronic upgrades

Products Estimated Ultra value Estimated date Programme

2011+

2010

•Propane-powered fuel cells

Boeing 787 production contract

Joint Strike Fighter

• Cannon sequencing and control • Turret electronics

• Training and support • ‘Citizenship’ programme

•Cannon sequencing and control •Indirect vision system •Electrical power management

£40m+ Warrior armoured vehicle turret upgrade 2012+



Information & Power Systems SELECTED OPPORTUNITIES

INFORMATION & POWER SYSTEMS


•

• Landing gear control system $5m pa Gulfstream G650 production contract

$20m+ pa

Civil nuclear equipment and sensors

• Integrated communication and data link solution

$20m+ pa

2012+

•

£20m pa

2011 Power system upgrade for Vanguard class submarines

$10m pa 2011+ Battery monitoring for US Army vehicles

• Power-dense electric motor • Solid state electric drive

£6m

2012+

Armoured vehicle electronic upgrades


2012+

2010

• Specialist sensors • Surveys of existing systems • Outline designs

Tactical communications pods for UAVs

Industrial gas turbine start systems

• Battery health monitoring • Power management

• Main static converter

• Data link equipment • Remote re-keying

$10m+ pa Data links for US radar ground stations 2014



Tactical & Sonar Systems SELECTED OPPORTUNITIES

TACTICAL & SONAR SYSTEMS


•

• Submarine acoustic countermeasures for new Turkish submarine

Armoured vehicle electronic upgrades


High capacity tactical radios – export

•

£8m 2011 • Acoustic countermeasures

ASW systems and equipment – US and export sonobuoys $50m pa 2011

• Sonobuoys • Torpedo defence • Underwater acoustics

£30m 2011

ECU programme – installation and integration

• Installation and integration services

$40m 2011+ • High capacity tactical radio systems

• Line-of-sight radios • Communication ‘on-the-move’

$50m

2012+

US Army tactical radio systems

Litening pods for export sales of Eurofighter

• Targeting pod • Support $30m+ 2012+



Summary & Outlook



Summary & outlook

• Resilient performance in the first half

• Strong order book

• Good opportunities remain in defence markets

• Strong and growing range of market positions

• Broad portfolio with focused management

RESILIENT BUSINESS MODEL UNDERPINNING FUTURE PERFORMANCE



Safe Harbour Statement

Ultra Electronics Holdings plc (the ‘Group’) is providing the following cautionary statement. This document contains certain statements that are or may be forward-looking with respect to the financial condition, results or operations and business of the Group. These statements are sometimes, but not always, identified by the words ‘may’, ‘anticipates’, ‘believes’, ‘expects’ or ‘estimates’. By their nature forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. A number of factors exist that could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. These factors include, but are not limited to (i) changes to the current outlook for the world market for defence, security, transport and energy systems, (ii) changes in tax laws and regulations, (iii) the risks associated with the introduction of new products and services, (iv) significant global disturbances such as terrorism or prolonged healthcare concerns, (v) the termination or delay of key contracts, (vi) long-term fluctuations in exchange rates, (vii) regulatory and shareholder approvals, (viii) unanticipated liabilities and (ix) actions of competitors. Subject to the Listing Rules of the UK Listing Authority, Ultra Electronics Holdings plc assumes no responsibility to update any of the forward-looking statements herein.



Appendices


US Defence budget analysis




Guide to the programmes

A400M A new military turboprop transporter aircraft being developed by Airbus Military the development of which is late to an indeterminate degree. ADSI Ultra’s Air Defense System Integrator product, supplied by Advanced Tactical Systems. Air Warfare Destroyer An Australian programme to procure three destroyers. The hulls are a Navantia (Spain) design to be built by the Australian Submarine Corporation. ASIS Ultra’s new, innovative system to detect cracks as they form in the airframe of metal aircraft. Astute The UK’s anti-surface and anti-submarine nuclear-powered class of submarines. Potentially 7 are required. ASW Anti-Submarine Warfare – the task of tracking and avoiding attack by submarines, including modern stealthy diesel-electric versions. Battlespace IT Systems and equipment used to move digital information quickly around the battlespace, so providing information superiority. Boeing 787 “Dreamliner” A new high-efficiency passenger aircraft being developed by Boeing, currently undergoing a highly accelerated flight test programme. Common-use airline check in systems Airport check in booths that can interface with the reservation systems of multiple airlines, thereby giving enhanced operational flexibility. DDG-51 The Arleigh Burke class of destroyers for the US Navy of which a new ‘flight’ of twelve ships is to be built. ECU-R End Cryptographic Unit – Replacement. A programme to replace obsolete crypto equipment with new, software-defined devices. Eurofighter Typhoon The European fighter aircraft ordered by partner countries (UK, Germany, Italy and Spain), Austria and the KSA. F/A-18 E/F The latest “Super Hornet” version of the US Navy Fighter/Attack (F/A-18) aircraft. F-35 Lighting II The Joint Strike Fighter: future joint service fighter for USAF, US Navy, Marine Corps and for the UK RN and others. Future Rapid Effects System (FRES) An aspiration of the British Army for a family of approximately 1,500 armoured fighting vehicles. Name now not in current usage. Global Observer A new US UAV designed to keep a 1,000lb payload at 60,000ft for over a week. Gulfstream G650 A new long range, high speed business jet launched in 2008 and which has allegedly attracted >150 commitments already. HiPPAG Ultra’s HIgh Pressure Pure Air Generator airborne compressor used to supply compressed air for missile cooling and weapons ejection. Hyperspike A frighteningly powerful audio speaker system available in various sizes and powers, either highly directional or omni-directional. JSF See F-35 above. KG40AR A programme to supply cryptographic equipment to the US DoD to replace an obsolete product, the KG40. Litening airborne targeting pod A surveillance and targeting electronics pod designed by Rafael, supplied to RAF Typhoon & Tornado aircraft to give a ground attack capability. Littoral Combat Ship (LCS) A new class of ship for the US Navy optimised to operate in shallow, littoral waters to support force projection. Loitering munition A UAV with a warhead that can loiter for hours in the air before being commanded to attack a specific target. Required by the British Army. LRIP Low Rate Initial Production. Magneto inductive A method of signalling and communication that can operate through air but also through water, sediment, rock and most man-made structures. Mitsubishi RJ A new regional jet aircraft being developed by Mitsubishi. Multi-Static Active A system using a combination of active and passive sonobuoys and advanced signal processing to enhance the ASW capability. National Resilience Extranet A networked communication system for government departments and agencies being developed by Ultra for the Cabinet Office. NH-90 An ASW helicopter being developed for France, Germany, Italy and the Netherlands. Also bought by Norway and Sweden. Nimrod MRA4 An updated ASW aircraft for the UK for which the prime contractor is BAE Systems and of which a few will eventually enter service. P-3 Four-engined turbo-prop aircraft used by the US Navy and others for ASW and other surveillance. P-8A Boeing’s programme to replace the US Navy’s P-3 Orion ASW aircraft with the P-8A Poseidon variant of the 737 aircraft. PacketAssure Ultra’s innovative ‘service delivery manager’ that guarantees message delivery and allows crypto-protection when used on an IP-network. Rolls-Royce Reactor C & I (RC&I) A Control & Instrumentation programme for a replacement nuclear reactor being developed by Rolls-Royce for Royal Navy submarines. Scout The first variant vehicle in the FRES (q.v.) programme, being developed by GD with a turret by LM. Small Diameter Bomb A US programme to equip existing fleets of aircraft with smaller, smart (individually targetted) munitions. Entered service with the USAF in 2006. Successor The planned next-generation Royal Navy submarine to carry the UK’s nuclear deterrent system. Torpedo defence A world-leading Ultra capability to provide soft-kill (UK) or hard-kill (potentially US) torpedo defence for naval vessels. Sold to Turkey. Type 45 Air warfare destroyer. A class of 6 ships is planned by the UK Navy, to be known as the Daring class. HMS Daring has now been commissioned. Virginia submarines New generation, nuclear powered attack submarine for the US Navy. A class of up to 30 boats is planned; build moving to 2 per annum from 2012. Warrior An air-transportable armoured vehicle in service with the UK Army that is to be upgraded to improve its fighting and defensive capabilities. Watchkeeper A UK unmanned air vehicle programme being developed by Thales. Ultra supplies innovative data links.

rakesh sharma chief executive paul dean finance director · ** before cost of acquisitions,...

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