RNS Number : 1523U
Ultra Electronics Holdings PLC
27 March 2019
 

 

                                                              

 

 

                                                                                                                                           27 March 2019

 

 

Ultra Electronics Holdings plc

("Ultra" or "the Group")

 

Dissemination Announcement

 

 

Ultra announces the dissemination of its Annual Financial Report for the year ended 31 December 2018. A preliminary announcement of the Group's results was made on 6 March 2019.

 

The Group's 2018 Annual Financial Report and the Notice of Annual General Meeting 2019 are published today on Ultra's website www.ultra-electronics.com. The Annual General Meeting will be held at 10.00 a.m. on 3 May 2019 at Ultra Electronics, 417 Bridport Road, Greenford, Middlesex, UB6 8UA.

 

These documents will shortly be available for inspection on the National Storage Mechanism (NSM), found online at www.morningstar.co.uk/uk/NSM.

 

In compliance with DTR 6.3.5, the following information is extracted from the 2018 Annual Financial Report and should be read together with Ultra's Final Results announcement issued on 6 March 2019 which can be found at https://www.ultra-electronics.com/investor-centre/results-centre.  Together these constitute the information required to be communicated to the media in unedited full text through a Regulatory Information Service. This information is not a substitute for reading the full 2018 Annual Financial Report.

 

 

- Ends -

 

 

For further information contact:

Ultra Electronics Holdings plc

Cherise Trumper, Assistant Company Secretary                                      +44(0)20 8813 4321

 

 

 


Ultra Electronics Holdings plc

("Ultra" or "the Group")

 

RISKS AND UNCERTAINTIES

 

Risk 1.

Growth

Trend: No significant change

Changes during 2018

Although the defence market has been challenging in recent years, there are strong indications of a return to growth, particularly in the US, as indicated by the Group's strong order book going into 2019. Political and economic circumstances in some of the Group's key markets mean that it is optimistic about organic growth continuing. The Company's focus in the year continued to be on its market-facing segment strategies, improving its planning for future political and economic developments in its key markets, and exploiting the anticipated market upturn. During the year a deep dive into innovation and development was undertaken (see page 42).

Description

Ultra's strategic objective for year-on-year growth requires: the ability to respond to changing market dynamics; the capacity to win new business and deliver successfully against contracted customer requirements; the development of highly differentiated solutions to address customer needs; and the ability to select, execute and integrate acquisitions effectively.

Potential impact of failure:

  Poor investment decisions leading to inadequate returns

•  Reduced business opportunity and loss of reputation, customers, market share, revenue and profit

•  Specialist capabilities eroded through commoditisation

•  Reduction in anticipated acquisition value through overpayment, non-delivery of synergies and/or economies of scale and senior management focus diverted away from delivering "business as usual"

Mitigations (examples):

•  The Group is offsetting challenges in the UK defence market by expanding in targeted overseas regions that exhibit long-term growth characteristics

•  The market-facing segments enable

Ultra to remain competitive and use the capabilities of its businesses to deliver enhanced solutions more effectively to its customers

•  Improving the capacity and capability

of the Group's sales and marketing teams

•  Establishment and implementation of

rigorous gate reviews of risk appetite for major opportunities so that acceptable margin levels and risk tolerances are maintained

•  The Board conducts a rigorous review of acquisition opportunities including commissioning third party market reports and due diligence. Post- acquisition reviews are performed on all acquisitions comprising integration effectiveness, operational performance compared to expectation and lessons learned

•  A working group reporting to the

Executive Team has been established to evaluate the impact of recent geo- political events on Ultra

•  The recommendations from the deep

dive into innovation and development will be implemented

 

 

Risk 2.

Delivering change

Trend: No significant change

Changes during 2018

The S3 programme was completed in 2018 having broadly achieved the savings target of £20m but these savings were delivered principally through restructuring, onerous lease provisions and indirect procurement in the UK, and so there are still significant opportunities here. In 2019 change will be dominated by investment in ERP (as was the case in 2018) and IT networks which represents a higher risk, as is normal for ERP programmes. New actions have been identified to mitigate these risks.

Description

Effective delivery of major change programmes with minimal effect on business as usual is a key component of Ultra's continual drive for operational improvement

Potential impact of failure:

•  Expected benefits of change not realised

•  Significant increase in change programme costs

•  Senior management distraction from business as usual

•  Reduction in employee morale

•  Disruption of business performance

Mitigations (examples):

•  An Executive Team sponsor is allocated to all major change programmes

•  Experienced personnel have been recruited to operate the shared services

 

Risk 3.

People and culture

Trend: No significant change

Changes during 2018

Ultra's culture and how it is reflected across its businesses has been the subject of discussion at both the Board and Executive levels, throughout

2018. Talent and succession planning remained a focus for the Executive Team and the Board in 2018. The recruitment of a new Chief HR Officer in November 2018 enabled the Executive Team and the Board to increase this focus further. In 2019 work will be undertaken to consider employee engagement and promote diversity

Description

Preserving Ultra's culture and attracting, developing and retaining the

right people who have relevant domain expertise and who embrace

Ultra's culture is critical to the Group's strategic objectives.

Potential impact of failure:

• Not recruiting and retaining the right employees in the right roles would result in Ultra being unable to fulfil its contractual obligations and would lead to operational inefficiencies and loss of productivity

•  Potential loss of future growth opportunities

•  Staff morale could be impaired resulting in a rise in employee-related issues (e.g. grievances and sickness)

•  Potential legal, regulatory and employee rights breaches

Mitigations (examples):

•  Ultra continues to engage in a number of initiatives with local schools, colleges and universities to gain access to the best people for its apprenticeship and graduate

recruitment programmes. This enables Ultra to grow a broad range of skills and capabilities and to remain successful at innovating to meet customers' needs

•  Ultra's people and their development

are fundamental to Group success. Employee development needs form part of performance and development reviews and are aligned to employees' specific needs

 

•  Measure Employee engagement and morale through engagement surveys. The leadership team use the survey to address any areas of concern so that Ultra's people remain engaged and committed

•  Talent and succession planning has

been, and will continue to be, a focus for the Board

•  The annual Organisation, Succession &

Development Plan (OSDP) results in high-potential employees being identified and their development monitored

 

Risk 4.

Information management and security

Trend: No significant change

Changes during 2018

The CORVID Protect and Ultra approach to security continues to provide a high level of assurance. The global increase in the incidence and sophistication of cyber security crime means this risk continues to be a priority for the Company. A review of all systems was undertaken in light of the GDPR legislation and new processes are now being embedded.

Description

The incidence and sophistication of cyber security crime continues to rise.

The effective management and protection of information and Ultra's IT systems is necessary to prevent the loss of data and the disruption of operations

Potential impact of failure:

•  Reduced product differentiation caused by loss of intellectual property

•  Reputational damage to Ultra as a highly regarded provider

of secure data systems

•  Loss of business opportunity with removal of government approval to work on classified programmes

•  Disruption of business activity as systems are cleansed

and restored

Mitigations (examples):

•  The Group's information security is provided through its continued investment in Ultra's Cyber Protection Group (part of CORVID Protect). It provides Group-wide monitoring, incident response and continued enhancement of Ultra's IT systems and processes

•  The Board is kept updated on how

CORVID Protect secures Ultra's network, including protecting Ultra from phishing attacks

•  Intellectual property is addressed in the bid and contract management process and protected through information security

•  Security clearance processes are in place

for all employees

•  Established physical security processes are implemented at all sites

•  Cyber insurance has been evaluated

as a risk mitigation over the course of the year.

 

Risk 5.

Supply chain

Trend: Slight increase

Changes during 2018

A procurement strategy and SMART objectives are being developed and an assessment of the impact of Brexit has been undertaken. The Brexit risk has meant the supply chain risk has slightly increased.

 

Description

The Group relies upon suppliers and subcontractors to deliver upon its customer commitments. Ultra's supply chain needs to be efficient to maintain margins and to be compliant with legislation.

The Group's manufacturing facilities are exposed to natural catastrophe risks and the Group is exposed to social, economic, regulatory and political conditions in the countries in which it operates.

Potential impact of failure:

• Failure to deliver against customer commitments • Reduced profit margins and increased contractual disputes and litigation

• Loss of reputation and investor confidence.

Mitigations (examples):

•  Building ongoing partnerships with strategic suppliers and managing major supplier risks and issues

(including single source arrangements) through the bid management and contract management policies

•  Establishment of regional

procurement councils to target the optimisation of Ultra's supply chain for Direct Procurement

•  Evaluation of Brexit risk has identified

supply chain as the key area of risk. More detail is included on page 35

•  The Board's commitment to compliance with the Modern Slavery Act 2015 is contained in the Anti-Slavery and Human Trafficking Statement (www.ultra-electronics.com/ investors/ anti-slavery-and-human-trafficking- policy.aspx)

•  Business continuity and disaster

recovery plans are in place

•  The Group has business interruption, property damage, professional

indemnity and product liability insurance

 

Risk 6.

Governance and internal controls

Trend: Slight increase

Changes during 2018

A new Chief Executive Officer joined the Company in June 2018 and as a result, the roles of Chief Executive Officer and Chair of the Board were separated again bringing Ultra back into line with the expectations of the Code. As further described on page 52, the The Board undertook a Governance workshop during the year with actions being identified to make improvements to processes. The Board determined that there had been a slight increase in this risk, however, this is expected to reduce as we continue to review and refresh our governance processes and policies following the corporate governance workshop and implement changes necessary as a result of new Corporate Governance Code and statutory reporting requirements during 2019.

Description

Maintaining corporate governance standards as well as an effective risk

management and internal control system is critical to supporting the delivery of the Group's strategy.

Potential impact of failure:

•  Significant financial loss (e.g. fraud, theft, material errors)

•  Loss of reputation and investor confidence

•  Loss of business opportunity with removal of government approval to work on classified programmes

Mitigations (examples):

•  The Group Operating Manual and Risk Management Framework provides clear instructions on the Group's internal governance and controls

•  The businesses provide year-end

disclosures on the effectiveness of their accounting and internal control systems

 

•  Internal Audit conducts an audit of the

Group's internal control system

 

The terms of reference for the Board and committees are reviewed and updated annually.

 

Risk 7.

Pensions

Trend: No significant change

Changes during 2018

The pension scheme has continued to increase the hedging of its liabilities. There is no change to this risk.

Description

The Group's UK defined benefit pension scheme needs to be managed

to ensure it does not become a serious liability for the Group. There are a number of factors including investment returns, long-term interest rate and price inflation expectations, and anticipated members' longevity that can increase the liabilities of the scheme.

Potential impact of failure:

•  Any increase in the deficit may require additional cash contributions and thereby reduce the available cash for the Group

Mitigations (examples):

•  Annual accounting and triennial pension valuations are in place and any issues that may arise are highlighted to the Board

•  The Pension Trustees and the

Company actively consider pension

risk reduction activities such as liability matching, dynamic de-risking,

pension increase exchange and retirement transfer options

 

•  The Pension Trustees and the Company agreed to increased hedging of the scheme's liabilities

•  The Board undertakes regular Pension

Strategy Reviews

•  Long term scheme funding targets have been agreed

 

Risk 8.

Legislation/regulation

Trend: No significant change

Changes during 2018

The Company continues to take compliance very seriously and the Board and Executive Team strive to reinforce an ethical culture. For example, all employees are required to undertake anti-bribery training on an annual basis and updated agents' policies are now in place. GDPR processes are being transferred from a change programme to "business as usual".

Description

The Group operates in a highly regulated environment across many jurisdictions and is subject to regulatory and legislative requirements. There is a risk that the Group may not always be in complete compliance with laws, regulations or permits.

 

Export restrictions could become more arduous and factors outside of Ultra's control could result in the Group being unable to obtain or maintain necessary export licences.

Potential impact of failure:

•  Failure to comply with legislation and regulations could result in fines and penalties and/or the debarment of the Group from government contracts

•  Reduced access to export markets could have a material

adverse effect on the Group's future revenue and profit

•  Loss of reputation and investor confidence

Mitigations (examples):

•  The Group Operating Manual is well established and policies and procedures are regularly updated to reflect changing legislative and regulatory requirements

•  Regular compliance training is

undertaken as part of Ultra's commitment to an ethical culture and individual businesses provide compliance statements as part of monthly business performance reporting

•  The Ethics Overview Committee provides independent advice and scrutiny of Ultra's business activity. It provides assurance to the Board that the Group's undertakings are transparent and conducted ethically within the legislative environment

•  Employees have access to a Group-

wide confidential hotline to report anonymously any concerns they may have about possible improprieties and other compliance issues

•  The Board receives regular updates and

presentations on the Company's legal and regulatory requirements.

 

Risk 9.

Health, safety and environment (HS&E)

Trend: No significant change

Changes during 2018

The Board has zero appetite for HS&E reportable incidents. The number of lost time accidents increased slightly however reportable accidents reduced slightly

Description

Ensuring high standards of health and safety of employees and visitors and maintaining commitment to minimise the environmental impact of activities is of paramount importance to the Company.

Potential impact of failure:

•  Incidents may occur which could result in harm to employees and visitors, the temporary shutdown of facilities or other business disruption

•  The Group may be exposed to regulatory action and

financial loss

•  Loss of reputation and investor confidence

Mitigations (examples):

•  The Board has zero appetite for HS&E risk and the Group's leadership is committed to ensuring that this remains a top priority. Any material incidents are reported to the Board along with a correction or mitigation plan

•  The Board undertakes an annual review of HS&E and the Executive Team reviews HS&E on a quarterly basis. Each business conducts an annual HS&E self-assessment in addition to a biannual external audit

 

 

 


RELATED PARTY TRANSACTIONS

 

Remuneration of key management personnel

 

The remuneration of key management personnel, which includes the Directors of the Group, is set out below in aggregate for each of the categories specified in IAS 24: Related Party Disclosures. Further information about the remuneration of individual Directors is provided in the audited part of the Directors' Remuneration Report on pages 62−77.

 


2018

£,000

2017

£'000

Short-term employee benefits

3,301

3,428

Post-employment benefits

277

425

Share-based payments

3,761

2,592


7,339

6,445

 

 

Statement of going concern

 

The Directors have a reasonable expectation that the Group has adequate resources for a period of at least 12 months from the date of approval of the financial statements and have therefore assessed that the going concern basis of accounting is appropriate in preparing the financial statements and that there are no material uncertainties to disclose.

 

Ultra's net debt at 31 December 2018 was £157.4m (2017: £74.5m). The Group's committed banking facilities amount to £526.4m in total, together with a £5.0m and $10.0m overdraft. The Group's revolving credit facility of £300m is denominated in Sterling, US Dollars, Canadian Dollars, Australian Dollars or Euros. The facility is provided by a group of six international banks and has a committed maturity to November 2023, and may be extended to November 2024 subject to lender consent. The facility agreement permits an additional £150m "accordion" which is uncommitted and subject to lender consent and can be used in certain acquisition scenarios. The Group holds $165m of term loan which was established in May 2015; $40m is repayable on 31 March 2019, $40m on 30 June 2019 and the remainder on 1 August 2019. The Group also has loan notes in issue to Pricoa which totalled £50m (with an expiry date of October 2025) and $60m (with an expiry date of 25 January 2019) at 31 December 2018 (2017: $70m). Agreement was reached with Pricoa in September 2018 to issue new loan notes of $70m. These were issued on 25 January 2019. This debt will expire in January 2026 and January 2029.

 

As well as being used to fund acquisitions, the financing facilities are also used for other balance sheet and operational needs, including the funding of day-to-day working capital requirements. The US Dollar borrowings also represent natural hedges against assets denominated in that currency. Details of how Ultra manages its liquidity risk can be found in note 22 - Financial Instruments and Financial Risk Management.

 

Though global macro-economic conditions remain uncertain, and there continues to be uncertainty over the future UK landscape due to Brexit (detail on the potential risks to the Group associated with this are set out on pages 35 and 38), the long-term nature of Ultra's business and its positioning in attractive sectors of its markets, taken together with the Group's forward order book, provide a satisfactory level of confidence in respect of trading in the year to come.

 

Directors' responsibilities statement

 

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

 

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors are required to prepare the Group financial statements in accordance with IFRSs as adopted by the European Union and Article 4 of the International Accounting Standards Regulation (IAS) and have elected to prepare the Company's financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law) including FRS 101. Under company law, the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs and of the profit or loss of the Company, as well as the undertakings included in the consolidation for that period.

 

In preparing the Company's financial statements, the Directors are required to:

 

•  Select suitable accounting policies and then apply them consistently.

•  Make judgements and accounting estimates that are reasonable and prudent.

•  State whether applicable UK Accounting Standards have been followed subject to any material departures disclosed and explained in the financial statements.

•  Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

 

In preparing the Group financial statements, International Accounting Standard 1 requires that Directors:

 

•  Properly select and apply accounting policies.

•  Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information.

• Provide additional disclosures, when compliance with the specific requirements in IFRS are insufficient, to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance.

•  Make an assessment of the Company's ability to continue as a going concern.

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group's website (www.ultra- electronics.com). Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

We confirm that, to the best of our knowledge, taken as a whole:

•  The financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole.

•  The Strategic Report includes a fair review of the development and

performance of the business and the position of the Company and the undertakings included in the consolidation, together with a description of the principal risks and uncertainties that they face.

•  The Annual Report and financial statements, taken as a whole, are fair,

balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

 

The Annual Report (including the Strategic Report on pages 3-43 and this Directors' Responsibilities Statement) was approved by the Board on 6 March 2019 and signed on its behalf by:

 

LOUISE RUPPEL

General Counsel and Company Secretary

 

 

Further information about Ultra:

 

Ultra Electronics is a group of businesses which manage a portfolio of specialist capabilities, generating highly differentiated solutions and products in the defence & aerospace, security & cyber, transport and energy markets by applying electronic and software technologies in demanding and critical environments to meet customer needs.

 

Ultra has world-leading positions in many of its specialist capabilities and, as an independent, non-threatening partner, is able to support multiple prime contractors in each of its sectors. 

 

Ultra's systems, equipment or services are often mission or safety-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 underpins the 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 flat structure and small head office and executive team that provide to the individual businesses the same agile, responsive support that the businesses provide to their customers. In addition this team formulates Ultra's overarching, corporate strategy.

 

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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