Ultra Electronics Holdings plc Annual Report 2014

← All annual reports

FY2014 Annual Report · Ultra Electronics Holdings plc

Loading PDF…

Ultra Electronics Holdings plc
Annual Report and Accounts 2014

positioned for growth…

through portfolio strength…

focused on customer need

l
t
r
a

E
e
c
t
r
o
n
i
c
s
H
o
d
n
g
s
p
l
c
A
n
n
u
a
l

R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
1
4

2
1
1
3
5
2

2
4
2
1
)
0
(

4
4
+

s
e
t
a

i
c
o
s
s
A

T
A
H

n
g

i
s
e
D

Registered Office:
Ultra Electronics Holdings plc
417 Bridport Road
Greenford
Middlesex UB6 8UA
England
Tel: +44 (0) 20 8813 4321
Fax: +44 (0) 20 8813 4322
www.ultra-electronics.com
information@ultra-electronics.com

Ultra Electronics Holdings plc
Annual Report and Accounts 2014

Financial highlights

Business addresses

Underlying earnings per share*

1. Introduction

7
1
0
.
0

7
3
1
.
7

7
6
0
.
8

7
4
5
.
2

7
1
3
.
7

123.1p
>

KPI

-3.1%
(2013: 127.1p)

1
2
5
.
5

1
2
7
.
1

1
2
3
.
1

1
2
1
.
1

1
0
8
.
5

Dividend per share

Underlying proﬁt before tax*

4
4
.
3

4
2
.
2

4
0
.
0

3
8
.
53
4
.
6

£112.0m
>

KPI

1
1
6
.
5

1
1
6
.
8

1
1
2
.
0

1
0
5
.
2

Revenue

£713.7m
>

KPI

-4.2%
(2013: £745.2m)

44.3p
>

+5.0%
(2013: 42.2p)

-4.1%
(2013: £116.8m)

Sustainability

3. Governance

Board of Directors

Underlying operating proﬁt*

Group order book

£118.1m
>

1
2
1
.
7

1
2
1
.
8

1
2
1
.
7

1
1
8
.
1

1
1
0
.
0

£787.3m
>

9
5
0
.
38
1
7
.
9

9
0
5
.
0

7
8
1
.
2

7
8
7
.
3

-3.0%
(2013: £121.7m)

+0.8%
(2013: £781.2m)

IFRS operating proﬁt

£39.5m
>

9
8
.
88
9
.
6

8
8
.
3

-31.1%
(2013: £57.4m)

5
7
.
4

3
9
.
5

Dividend
The proposed ﬁnal dividend is 31.3p,
bringing the total dividend for the year to
44.3p (2013: 42.2p). This represents an
annual increase of 5.0%, with the dividend
being covered 2.8 times (2013: 3.0 times)
by underlying earnings per share. If approved
at the Annual General Meeting, the dividend
will be paid on 6 May 2015 to shareholders
on the register on 10 April 2015.

KPI

= Key Performance Indicator, see pages 24-25 for details

Cautionary statement
This document contains forward-looking statements
which are subject to risk factors associated with,
amongst other things, the economic and business
circumstances occurring from time to time in the
countries and sectors in which the Group operates.
It is believed that the expectations reflected in these
statements are reasonable, but they may be affected by a
wide range of variables which could cause actual results
to differ materially from those currently anticipated.

*see footnote on page 132

119

126

127

130

131

Aircraft & Vehicle Systems
Al Shaheen (49%)
PO Box 128630
Abu Dhabi
United Arab Emirates
Tel: +971 2 813 744
www.alsa.ae

CEMS
Waverley House
Hampshire Road
Weymouth, Dorset DT4 9XD
England
Tel: +44 (0) 1305 767100
www.ultra-cems.com

Controls
417 Bridport Road
Greenford, Middlesex UB6 8UA
England
Tel: +44 (0) 20 8813 4444
www.ultra-controls.com

ID
Waverley House
Hampshire Road
Weymouth, Dorset DT4 9XD
England
Tel: +44 (0) 1305 767100
www.ultra-identity.com

Precision Air & Land Systems
Arle Court
Cheltenham, Gloucestershire GL51 6PN
England
Tel: +44 (0) 1242 221166
www.ultra-pals.com

Information & Power Systems
INFRASTRUCTURE & POWER
Airport Systems
The Oaks
Crewe Road
Wythenshawe, Manchester M23 9SS
England
Tel: +44 (0) 161 946 3600
www.ultra-as.com

Tactical & Sonar Systems
NAVAL SYSTEMS
3 Phoenix Inc.
14585 Avion Parkway #200
Chantilly
Virginia 20151
USA
Tel: +1 703 956 6480
www.ultra-3pi.com

AMI
5500 South State Street
Ann Arbor, Michigan 48108
USA
Tel: +1 734 302 7632
www.ultra-ami.com

Avalon Systems
12 Douglas Drive
Technology Park
Mawson Lakes, Adelaide
South Australia 5095
Australia
Tel: +61 (0) 8 8169 1200
www.ultra-avalon.com
www.ultra-electronics.com.au

Command & Control Systems
Knaves Beech Business Centre
Loudwater, High Wycombe
Buckinghamshire HP10 9UT
England
Tel: +44 (0) 1628 530000
www.ultra-ccs.com

Flightline Systems
7625 Omnitech Place
Victor, New York 14564-9795
USA
Tel: +1 585 924 4000
www.ultra-fei.com

Maritime Systems
40 Atlantic Street
Dartmouth, Nova Scotia B2Y 4N2
Canada
Tel: +1 902 466 7491
www.ultra-ms.com

Ocean Systems
115 Bay State Drive
Braintree, Massachusetts 02184-5203
USA
Tel: +1 781 848 3400
www.ultra-os.com

Sonar Systems
419 Bridport Road
Greenford, Middlesex UB6 8UA
England
Tel: +44 (0) 20 8813 4567
www.ultra-sonar.com

USSI
4868 East Park 30 Drive
Columbia City, Indiana 46725-8861
USA
Tel: +1 260 248 3500
www.ultra-ussi.com

EMS Development Corporation
95 Horseblock Road, Unit 2
Yaphank, New York 11980
USA
Tel: +1 631 345 6200
www.ultra-ems.com

Ithra (70%)
PO Box 1162
PC111, Almattar CPO
Al Seeb, Muscat
Sultanate of Oman
Tel: +968 2 434 3500
www.ultra-as.com

Measurement Systems Inc.
50 Barnes Park North
Suite 102
Wallingford, Connecticut 06492
USA
Tel: +1 203 949 3500
www.ultra-msi.com

Nuclear Control Systems
Innovation House
Lancaster Road
Ferndown Industrial Estate
Wimborne, Dorset BH21 7SQ
England
Tel: +44 (0) 1202 850450
www.ultra-ncs.com

Nuclear Sensors &
Process Instrumentation
707 Jeffrey Way
PO Box 300
Round Rock, Texas 78680-0300
USA
Tel: +1 512 434 2800
www.ultra-nspi.com

PMES
Towers Business Park
Wheelhouse Road
Rugeley, Staffordshire WS15 1UZ
England
Tel: +44 (0) 1889 503300
www.ultra-pmes.com

SECURE INTELLIGENCE SYSTEMS
Advanced Tactical Systems
4101 Smith School Road
Building IV, Suite 100
Austin, Texas 78744
USA
Tel: +1 512 327 6795
www.ultra-ats.com

ProLogic
9400 Innovation Drive
Manassas, Virginia 20110
USA
Tel: +1 703 335 6986
www.ultra-prologic.com

SOTECH
12011 Guilford Road
Suite 111
Annapolis Junction, Maryland 20701
USA
Tel: +1 301 470 7015
www.ultra-sotech.com

Group at a glance

2. Strategic report

Chief Executive’s review
Rakesh Sharma, Chief Executive

Business model

Strategic objectives

Cluster strategies

Key Performance Indicators

Financial review
Mary Waldner, Group Finance Director

Aircraft & Vehicle Systems

Information & Power Systems

Tactical & Sonar Systems

Risk management

Making a difference

Developing Ultra’s people

Chairman’s statement
Douglas Caster, Chairman

Corporate Governance Report

Audit Committee Report

Remuneration Report

Directors’ Report

Executives and advisors

4. Group ﬁnancials

Independent auditor’s report

Group highlights

Consolidated income statement

Consolidated statement of
comprehensive income

Consolidated balance sheet

Consolidated cash ﬂow statement

Consolidated statement of changes
in equity

Notes to accounts

Statement of accounting policies in
respect of the Group’s consolidated
ﬁnancial statements

5. Company ﬁnancials
Company balance sheet

Notes to accounts

Statement of accounting policies
for the Company accounts

6. Five-year review
Five-year review

For more information:
www.ultra-electronics.com/
investors/irhome.php

Ultra Electronics Holdings plc
Annual Report and Accounts 2014

TACTICAL SYSTEMS
3eTI
9715 Key West Avenue
Suite 500
Rockville, Maryland 20850
USA
Tel: +1 301 670 6779
www.ultra-3eti.com

AEP Networks
Knaves Beech Business Centre
Loudwater, High Wycombe
Buckinghamshire HP10 9UT
England
Tel: +44 (0) 1628 642600
www.ultra-aep.com

Communication &
Integrated Systems
419 Bridport Road
Greenford, Middlesex UB6 8UA
England
Tel: +44 (0) 20 8813 4567
www.ultra-cis.com

Forensic Technology inc.
5757 Cavendish Blvd.
Suite 200
Cote St-Luc, Québec H4W 2W8
Canada
Tel: +1 514 4894 247
www.ultra-forensictechnology.com

GigaSat
GigaSat Building
Tring Business Centre
Icknield Way
Tring, Hertfordshire HP23 4JX
England
Tel: +44 (0) 1442 892000
www.ultra-gigasat.com

Surveillance & Security Systems
316 Botley Road
Burridge
Southampton, SO31 1BQ
England
Tel: +44 (0) 1489 557 373
www.ultra-sss.com

TCS
5990 Côte de Liesse
Montreal, Québec H4T 1V7
Canada
Tel: +1 514 855 6363
www.ultra-tcs.com

Photography
TEAM IMAGES ON PAGES 30 TO 35,
BOARD OF DIRECTORS AND THROUGHOUT:
Molyneux Associates

PLATFORMS/END APPLICATIONS COURTESY OF:
Airbus, BAE Systems, EDF Energy and US DoD

Ultra Electronics Holdings plc 01
Annual Report and Accounts 2014

Introduction
What is Ultra?

The Ultra Electronics Group manages 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’s strategic framework

Objective

Delivered
through…

Underpinned
by…

Market position

Our business model

page 08 >

page 03

Our 4 strategies

page 12 >

to outperform the
market in terms of
annual increases in
shareholder return

Portfolio strength,
focused on customer need

World class performance

page 14 >

page 24 >

Sustainability

Our people

page 42 >

page 40 >

Our culture

page 43 >

Good governance

page 50 >

The strategic framework, pictured above, is focused on ensuring that Ultra meets its prime objective. This is achieved through
obtaining market position based on the strategies for growth as described on pages 12 and 13, allied with the business model described
on pages 8 to 11. The strength of Ultra’s broad portfolio of capability is described on pages 14 to 23 and the Group’s commitment to
performance is detailed on pages 24 to 35. The key to delivering a sustainable business is Ultra’s people and the values and behaviours
embodied within Ultra’s culture, described on pages 40 to 49. Good corporate governance is at the heart of Ultra’s compliance
framework and is described on pages 50 and 61.

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

02 Ultra Electronics Holdings plc
Annual Report and Accounts 2014

Group at a glance
How Ultra operates

Ultra delivers and reports its performance through three divisions:
Aircraft & Vehicle Systems, Information & Power Systems and
Tactical & Sonar Systems. Ultra’s divisions deliver specialist
capabilities to the DEFENCE & AEROSPACE, SECURITY & CYBER,
TRANSPORT and ENERGY markets. Increasingly Ultra considers its
portfolio of capabilities under eight cluster headings, discussed on
pages 14 to 23.

% of Group revenue

% of Group profit

(cid:1) Aircraft & Vehicle Systems

(cid:1) Information & Power Systems

(cid:1) Tactical & Sonar Systems

Aircraft & Vehicle Systems
Revenue
£140.3m
2013: £140.9m†

KPI>

-0.4%

Underlying operating profit*
£24.6m
2013: £34.8m†

KPI>

-29.3%

Information & Power Systems
Revenue
£204.0m
2013: £276.8m†

-26.3%

KPI>

Tactical & Sonar Systems
Revenue
£369.4m
2013: £327.5m†

KPI>

+12.8%

Underlying operating profit*
£29.2m
2013: £37.3m†

KPI>

-21.7%

Underlying operating profit*
£64.3m
2013: £49.6m†

KPI>

+29.6%

Order book
£160.2m
2013: £163.8m†

-2.2%

Order book
£175.9m
2013: £275.3m†

-36.1%

Order book
£451.2m
2013: £342.1m†

+31.9%

Number of employees
1,023
Capabilities
Ultra specialises in high integrity, safety-
critical, real-time control systems for
aircraft and vehicle applications. These
include wing and engine ice protection,
power distribution and control equipment
and noise and vibration cancellation
systems. The Group also supplies advanced
human-machine interfaces and systems.
Ultra provides innovative small power
sources, including miniature pneumatic
systems and multi-fuel UAV engines.

Number of employees
1,440
Capabilities
Ultra supplies advanced command and
control systems for battlespace
visualisation, surveillance systems and air
defence. The Group provides: perimeter
security solutions for critical infrastructure;
crisis response planning and management
software; secure networks. Ultra’s high-
integrity sensors and control systems are
used for civil and military nuclear reactors
and a range of specialist, solid-state
electrical power systems which are used for
naval vessels and mass transit. Ultra is a
major integrator of airport and airline
management & information systems.

Number of employees
2,324
Capabilities
Ultra supplies advanced cyber security
solutions, high-capacity communication
systems, satellite communication equipment
and tactical surveillance equipment to
support network-enabled warfare. Specialist
areas include data links, encryption for
information assurance and electronic
warfare. The Group also supplies leading
technology and systems to ships, submarines
and maritime patrol aircraft to meet the
challenges of the maritime battlespace,
including naval combat management, anti-
submarine warfare and torpedo defence.
Ultra has developed a range of powerful
acoustic hailing devices.

Read more on pages 12-13

Dividend per share

Underlying earnings per share*

44.3p
>

+5.0%
(2013: 42.2p)

4
4
.
3

4
2
.
2

4
0
.
0

3
8
.
53
4
.
6

123.1p
KPI>

1
2
5
.
5

1
2
7
.
1

1
2
3
.
1

1
2
1
.
1

1
0
8
.
5

-3.1%
(2013: 127.1p)

Operational highlights
Features of the Group’s accomplishments
in the year which will underpin future
performance included:

• The award of a £27m contract for the
Royal Navy’s Sonar 2050 Technology
Refresh (S2050TR) Programme. Under
this contract, which will be executed over
the next 10 years, the Group will deliver
and support new hull mounted sonars
for the Royal Navy’s eight Type-23
frigates. The S2050 Technology Refresh
programme will deliver, to the Royal
Navy, a world-leading sonar capability
providing persistent surveillance against
submarine and torpedo threats, at a
signiﬁcantly lower through-life cost.
• The award of a £12.9m contract from
EDF Energy for the manufacture and
support of nuclear reactor
instrumentation. Under this contract
Ultra will manufacture and support
safety-critical nuclear reactor
instrumentation for use in EDF Energy’s
current UK nuclear power stations. This
is the second contract to beneﬁt from
Ultra’s recent investment in a state-of-
the-art nuclear instrumentation
manufacturing facility and further
cements EDF Energy’s and Ultra’s
relationship.

• The award of a contract by Airbus to

design, develop, supply and support an
electrical Ground Door Opening system
(eGDO) for its new A350 family of
aircraft. The eGDO system comprises a
set of electrical actuators, sensors and
fuselage-mounted control and indication
panels which allows airline ground
maintenance crews to open the landing
gear doors to access the landing gear
bay. Based on anticipated sales of the
aircraft, this contract is expected to be
worth in excess of £60m revenue to Ultra
over the life of the programme.

Ultra’s business model
Ultra’s prime objective continues to be to
outperform the market in terms of annual
increases in shareholder value, by delivering
above-average increases in earnings and by
communicating effectively with
shareholders and the ﬁnancial community.
The strategic framework, page 1, is
focused on ensuring that Ultra meets its
prime objective. This is achieved through
the strategies for growth, which are
described on pages 12 and 13, allied with
the business model described on pages 8
to 11. A key enabling component of Ultra’s
business model is the Group’s culture and
values, which are further detailed on pages
40 to 46.

The Group will continue to differentiate
itself from its competitors through its
technical innovation and high standards of
ethical business conduct. Underpinning this
cultural drive is a strong policy on ethics
and business conduct which is mandatory
for all employees across the entire Group.
Ultra educates its employees on anti-
bribery and corruption policies, including
gifts and hospitality practices. In the period,
Ultra decided not to pursue business in
areas where it was not satisﬁed that its
ethical standards would be maintained.

Executing against the growth strategies,
shown right, requires consistent
management focus and drive. Ultra’s
management team has to balance dealing
with the particularly challenging short-term
market conditions, whilst also ensuring that
it is fully addressing the need to continue
to position the Group for medium- and
long-term growth. The members of the
Executive Team understand through
experience, what makes Ultra different and
how to focus the Group’s businesses on
maintaining competitive advantage in the
various specialist market sectors in which
Ultra operates.

*see footnote on page 132

06 Ultra Electronics Holdings plc
Annual Report and Accounts 2014

Positioned for growth
Chief Executive’s review (continued)

Positioning for growth
The acquisitions we have made this year
have added signiﬁcant capabilities, market
access and a critical mass to the Group.
They have assisted us to take the next step
in developing our business model, re-
aligning how we face the market. Ultra’s
broad portfolio of capabilities has been
positioned into eight clusters, each facing
a speciﬁc end market. This gives a
framework around which the Group can
more effectively apply its resources and
exploit the domain expertise and
technologies in its businesses that face the
same end markets. This framework allows
Ultra to address opportunities with more
complete offerings, whilst maintaining the
agility of a lower tier supplier. As a result
the Group can target opportunities in
speciﬁc markets without losing the
autonomy of its individual businesses. The
cluster approach also enables Ultra to take
an enhanced view of the capabilities in
each cluster and so better manage and
prioritise the Group’s investments against
speciﬁc end markets. The Group’s
operational performance and delivery will
continue to be via three divisions.

Ultra’s track record of delivering
above average shareholder (pence)

Ultra Electronics Holdings plc
FTSE all share price index
FTSE 100 price index
FTSE all share aerospace/defence

KPI

2500

2000

1500

1000

500

KPI

= Key Performance Indicator, see pages 24-25 for details

*Command & Control, Intelligence Surveillance and Reconnaissance

Ultra’s eight strategic clusters
are as follow:

Underwater warfare

Maritime

Land

Aerospace

C2ISR*

Communications

Nuclear

Infrastructure

Full details on Ultra’s eight clusters
can be found on pages 14-23 >

The Group constantly strives to broaden its
customer base and widen its geographic
footprint. This not only provides growth,
but increases the robustness of the
business model. Ultra has made the
strategic decision to prioritise a number of
regions and sectors with higher growth.
The Group recognises that new markets
and geographic sectors take time to enter
and so these activities are carried out in a
measured and controlled manner, with due
consideration of risk. As Ultra continues to
address larger projects and grow its proﬁle
in new geographical regions it will be
necessary to implement improved project
management and contract management
skills. Ultra, as an independent, non-
threatening partner, is able to support all
of the main prime contractors and local
industry partners. The Group is therefore
well positioned to bring its specialised
equipment, systems and services to new
long-term platforms and programmes in
new markets and regions. Further details
on Ultra’s robust business model can be
found on pages 8 to 11.

Ultra Electronics Holdings plc 07
Annual Report and Accounts 2014

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

Portfolio strength
To increase the breadth of the Group’s
portfolio of capabilities, Ultra continues to
invest over 5% of revenue on internal
development to generate new
differentiated offerings. These offerings are
aimed at niche market sectors where
customers preferentially focus their
expenditure. These investment activities
are led by the businesses and are robustly
reviewed by the Executive Team and the
Board. In parallel, Ultra continues to invest
in acquisitions, which bring complementary
world-leading niche capabilities and
market access to the Group’s portfolio.

In February 2014, the Group acquired
3 Phoenix Inc, a US business which is a
leading supplier of specialist sonar, radar,
intelligence, surveillance and
reconnaissance products and solutions.
The company has a 10 year track record of
delivering critical real-time sensor and
processing systems, primarily to the US
Navy, but also to commercial customers.
3 Phoenix is now part of Ultra’s Tactical &
Sonar Systems division.

In May 2014, Ultra acquired two
companies, Forensic Technologies (FT) and
ICE. FT provides automated ﬁrearm
ballistics identiﬁcation and forensic analysis
systems to law enforcement agencies in
over 65 countries. FT is currently developing
a number of document security and
analytic products based on its existing
capabilities and areas of expertise. FT has
been integrated into Ultra’s Tactical &
Sonar Systems division.

ICE designs, develops, manufactures and
supports aerospace products including,
motor control electronics, electrothermal
ice protection controllers, pneumatic valve
controls and engine control interface units.
ICE customers include Parker Hanniﬁn
Corporation, Cessna Aircraft Company and
Meggitt. ICE has been integrated into
Ultra’s Controls business within the
Group’s Aircraft & Vehicle Systems division.

In June 2014, the Group acquired Lab
Impex Systems (LIS). LIS is a developer and
supplier of radiation measurement
solutions and services for use within the
nuclear industry. LIS provides systems
engineering, installation and support of
full environmental radiation monitoring
systems, including alpha, beta, gamma
radiation and associated safety systems.
The business has been integrated into
Ultra’s Nuclear Control Systems business
within Ultra’s Information & Power
Systems division.

Customer needs
Ultra continues to adapt its behaviours to
maintain its agility and commitment to
meeting customer needs. To support this,
the Group has made good progress in
implementing market facing initiatives
which help it gain a better understanding
of customers’ real needs. These improve its
ability to offer differentiated and
comprehensive solutions in areas of
preferential spend across all its market
sectors. Ultra’s key behaviours LEAP and
LAUNCH also help to position the Group’s
portfolio of capabilities into end market
facing clusters. (More information on these
behaviours can be found on page 43).

Oman Airport IT contract
The termination of the Oman Airport IT
contract in February 2015 has had an effect
on the Group’s 2014 performance, with
revenue on the programme being limited
to that reported at the half year 30 June
2014. The substantive reasons given in the
notice of termination are related to Ithra
not meeting contractual milestones and
Ithra’s assessment is that the termination
is unjustiﬁed, wrongful and unlawful. Ultra
is in discussions with its legal and claims
advisers regarding the termination and
recovery of Ithra’s costs and claims. It has
been considered prudent to take an
exceptional and non-underlying provision
in the year to December 2014 in respect of
the Contract. The provision, which totals
£47m, includes the write off of the debt
owed on the Contract, termination costs
and other liabilities.

Summary
Performance for 2015 will beneﬁt from
acquisitions made in 2014 and from foreign
exchange translation at current rates.
However, set against the current market
backdrop of uncertainty over the timing and
feasibility of proposed US DoD budgets,
together with election activity in both the
US and UK, overall Ultra expects 2015
performance to be broadly stable. We will
continue to balance investment for future
growth with focus on efﬁciencies and
managing our costs to support proﬁtability.

Looking further ahead our optimism
improves as market growth drivers present
revenue opportunities for our businesses
and the expected pace of order book
execution ticks up as a result of recent
contract awards. Further growth is
expected as the Group identiﬁes and
completes acquisitions. Internally, following
on from our cost management actions, we
are launching a group-wide initiative to
standardise our systems and some of our
processes. This will enable us to go beyond
individual businesses efﬁciencies, whilst
retaining Ultra’s critical success factors of
autonomy and agility. The Board
acknowledges the short-term headwinds
but judges that the actions being taken
should enable the Group to achieve an
improved performance from 2016.

I would like to ﬁnish by thanking all of
Ultra’s employees for their continued hard
work, dedication and enthusiasm. The
ability to implement Ultra’s strategies
successfully is entirely reliant upon the
engagement, commitment and passion of
the Group’s employees. I am conﬁdent that
Ultra is well placed to execute successfully
the strategies and plans to ensure that
growth continues in the future.

Rakesh Sharma
Chief Executive

08 Ultra Electronics Holdings plc
Annual Report and Accounts 2014

Positioned for growth
Business model

Ultra’s business model is centred around the Group’s
three core strengths: people, capabilities and customer reach.

• C o n t i n uous investment

• D o main expertise
• E n gaged people
• C ulture (LEAP)
• E nabled by autonomy

Ultra’s
people

Page 09 >

s
e

•

e
x

•
C
u
s
t

o
m

•
C
o
m
m

•
U
n
d
e

Ultra’s
customer
reach
Page 10 >

e
r

t
(

s
t
o

er need

t
i
l
i

b
a
p
a
c
t

ecialis

Ultra’s
capabilities

Page 09 >

e
c
n
a

• B r o a d portfolio of sp
o r p orate agility & govern
o sitio n in the supply chain
• U ltra’s innovation

• C
• P

Value generation

• Value for the customer
• Innovative solutions
• Through-life support
• Sustaining value
• Balancing risk

Page 11 >

• Continuous inves t m e n t

The Group will continue
to differentiate itself from its
competitors by:
Technical innovation across its
broad portfolio of capabilities
Ultra focuses on developing innovative,
highly-differentiated solutions which are
delivered in close collaboration with
customers, partners and suppliers.

Commitment to deliver
Ultra has built a reputation for meeting its
commitments. This reputation is not only
based on businesses meeting their
obligations, but also by establishing a
culture within the Group, that is based on
this principle. Ultra believes that this
reputation is one of its defining and most
valuable characteristics. Behaving in this
way fosters long-term relationships.
The endeavours of its
exceptional employees
Ultra would not be able to deliver value to
customers without the innovative and
entrepreneurial spirit of its staff. The broad

range of skills and capabilities held by the
Group’s employees are why Ultra is successful
in innovating to meet customer needs.
The ability to develop long-term value-
adding relationships with customers
Ultra businesses are expected to maximise
their relationships with customers for the
long-term, through a close understanding
of customer needs, leading to sustained
on-time delivery of high-quality products
and services. This creates a shared
dependency from the customers’
perspective and encourages a long-term
strategic relationship.

Ultra Electronics Holdings plc 09
Annual Report and Accounts 2014

Ultra’s people
Ultra believes that the right
people, who embrace and
sustain Ultra’s culture, and
who have the domain expertise,
are its most important asset
in successfully enabling the
Group to deliver value to
its stakeholders.

More about Ultra’s people
and its culture can be found
on pages 42-46

Ultra’s capabilities
Ultra’s broad portfolio
of specialist capabilities
The Group has a broad portfolio
of specialist capabilities which
deliver highly-differentiated
solutions focused on the
following market sectors:
DEFENCE & AEROSPACE,
SECURITY & CYBER,
TRANSPORT and ENERGY.
The Group is seeking constantly to
increase the number of specialist
capabilities in its market niches and to
increase the number of long-term
platforms and programmes on which
Ultra’s specialist capabilities are specified.

The expansive spread of specialist
capability areas mapped onto so many
platforms and programmes:
• provide resilience to Ultra’s financial

performance

• reduce the Group’s risk profile; and

• drive the Group’s growth

Ultra’s innovation
The Group has a strategy to invest
continuously to strengthen its capabilities
across its specialist niche markets. Ultra’s
deep understanding of the users’ domain,
its enduring customer relationships and its
outward-facing nature, inform the Group’s
investment decisions.

Ultra businesses innovate constantly to
create solutions (often through highly
specialised disruptive technological
innovation) to customer requirements
which are different from, and better than,
those of the Group’s competitors.

See cluster capability chart
on pages 14-15

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

Product and business development
spend as a percentage of 2014 revenue

Funded by:
(cid:1) Group

(cid:1) Customer

5.8%

16.2%

Ultra has consistently invested over 5%
of its revenue in innovation, new products
and business development. In addition,
over 15% of Group revenue is customer-
funded product development. In total
therefore, over 20% of revenue spend is
focused on augmenting the portfolio of
capabilities and programme positions
which underpin further growth.

Corporate agility
A key differentiator for Ultra is the agility
which businesses in the Group exhibit in
their dealings with customers.

The Board provides effective leadership
and direction in delivering the key
corporate objective of reliable and
consistent growth in shareholder value. At
the operational level, the Executive Team
has responsibility for running the Group
and for delivery of strategy, financial
performance and team development.

Ultra’s individual businesses have a high
degree of operational autonomy, so that
they provide the exceptionally agile and
responsive support to customers and
partners, normally associated with a
smaller business. These benefits of
customer focus and agility are augmented
by the access to wider and complementary
technologies and expertise which lie
elsewhere in the Group (collaborative
autonomy) or with partners and by Ultra’s
strong financial position.

BOARD

RESPONSIBLE FOR:

LEADERSHIP – doing the right thing
GROWTH IN SHAREHOLDER VALUE
REVIEWING GROUP STRATEGY
RISK MANAGEMENT
STANDARDS OF ETHICS
AND BEHAVIOURS

EXEC TEAM

RESPONSIBLE FOR:

MANAGEMENT – doing things right
DEVELOPING GROUP STRATEGY
FINANCIAL PERFORMANCE
TEAM DEVELOPMENT

28
AUTONOMOUS
BUSINESSES

RESPONSIBLE FOR:

MANAGING THE INDIVIDUAL BUSINESS
DEVELOPING AND IMPLEMENTING
COMPETITIVE STRATEGIES
WINNING AND EXECUTING BUSINESS
DEVELOPING PEOPLE
WORKING IN PARTNERSHIP

A key differentiator
for Ultra is the agility
which businesses in
the Group exhibit in
their dealings with
customers.

10 Ultra Electronics Holdings plc
Annual Report and Accounts 2014

Positioned for growth
Business model (continued)

Tier 1

Tier 2

Tier 3

Tier 4

Position in the supply chain
Ultra has no strategic aim to be a tier 1,
top-level platform provider. The Group is
therefore, non-threatening to the tier 1
prime contractors such as BAE Systems or
Boeing and counts them amongst its key
customers. They can rely on Ultra to
provide the specialist capabilities at which
the Group is expert. Ultra concentrates on
tiers 2, 3 and 4, rather than aiming to be
a tier 1 platform provider.

Ultra’s customer reach
Understanding the customer need
Ultra is continually evolving its
approach to match the markets
in which the Group operates.
This evolution is in response to:
• changing customer demands

• anticipating the direction of travel of

the markets

• the Group striving to be the first to bring

new solutions to market

In its specialist capability areas, Ultra’s
understanding of the:
• customers’ domains

• demanding operational environments

• projected capability gaps which
customers would like addressed

is a key differentiator for the Group.
In short, Ultra’s understanding of the
customers’ need allows it to get to the
heart of the customer’s requirements and
develop effective and innovative solutions.

Tier 1

Platform provider

Responsible for being the prime contractor of the
platform in question, examples being a naval
vessel or a terminal at an airport.

Tier 2

Sub-system integrator Responsible for integrating equipment or

Tier 3

Equipment supplier

Tier 4

Component supplier

components which will make up a functional
element of the platform. Examples of system
integration which Ultra has completed include
integrated sonar systems and wing ice
protection systems.

Ultra has a large presence at this level of the
supply chain, supplying equipment such as
data links, cryptographic equipment and large
electrical transformers.

Ultra also provides a broad range of smaller
components onto many programmes worldwide,
including sensors for measuring the performance
of a nuclear reactor and joysticks to control UAVs.

tier 3 detailed interfaces and so is able
to manage the risk inherent in system
integration activities.

Flexible Partnerships
Ultra has an established ability to partner
and team (internally and externally) to
offer the best of breed technologies which
best meets customers’ requirements. The
Group is agnostic as to the source of
technology which is required to deliver
solutions. Where proven technology that
meets customers’ requirements exists
outside the Group, Ultra is happy to form
external teaming partnerships to access it.
Ultra sees these teaming arrangements as
a source of competitive advantage,
allowing Ultra to deliver differentiated
solutions which meet customer needs
efficiently, with lower development risk. It
is important that these teaming
arrangements are of benefit to all parties –
by working together, the team members
are able to win opportunities which would
not be possible in isolation.

Ultra’s specialist capabilities are mainly at
tiers 3 and 4, supplying equipment and
components to support tier 1 and 2 systems
and programmes. The Group does undertake
tier 2 system integration, but does this
mainly when integrating its own tier 3
offerings. Ultra therefore, understands the

Strategic Clusters
The Group increasingly considers its
capabilities under 8 cluster headings that
describe common end markets. This allows
Ultra to better develop and apply its
domain expertise, capabilities and technical
synergies in common end markets.

More detail on clusters can be
found on pages 14-23

Customer engagement
Ultra’s LAUNCH is a behaviour which the
Group has developed to facilitate customer
engagement and relationship building.

LAUNCH is a way for Ultra’s businesses to
generate long-term customer relationships
which leads to a better pipeline of
opportunities and so ultimately, enables
growth. LAUNCH is aligned with the
Group’s approach to systems engineering
and project management.

This approach ensures Ultra understands
the real needs of its customers which
encourages a long-term strategic
relationship where Ultra’s businesses
become part of the customers’ extended
enterprises, to mutual benefit.

For further information about
LAUNCH see page 43

Ultra’s value generation
Ultra’s strengths of customer
reach, people and capabilities
combine to enable Ultra to
generate and sustain value.
Ultra value for the customers
Ultra generates value by applying
electronic and software technologies in
demanding and critical environments to
provide highly-differentiated solutions to
meet customers’ needs.

Ultra businesses innovate constantly to
create solutions to customer requirements
which are different from, and better than,
those of the Group’s competitors, as
perceived by the customer.

Solutions
By applying these differentiated solutions
to a wide range of international platforms
and programmes, Ultra has built an
exceptionally broad portfolio of specialist
capability areas. Where the Group has a
number of complementary capabilities, it
can also combine these to offer more
comprehensive solutions. In other words,
Ultra’s products, capabilities and the
associated domain expertise uniquely
position the Group to be able to meet
more complex sub-system and system
requirements. The Group remains
committed to its strategy of continued
investment in its portfolio of innovative and
differentiated specialist capabilities, to
ensure that the business is well-positioned
to meet future market demand.

Support
Ultra offers support to customers of its
products and systems through the design,
delivery and in-service phases of a
programme. Ultra’s deep understanding of
its specialist capability areas and the users’
environment is a key factor in supplying
innovative solutions to ensure the
capabilities are delivered and sustained
in-service and meet the customers’
through-life needs.

Sustaining value
In order for Ultra’s business model to
deliver success over the long-term, it must
be sustainable and it must manage any
inherent risk well.

The Group pursues four
parallel strategies for growth
which are explained more fully
on pages 12-13

Economic
Ultra’s governance structure ensures that all
of its businesses are well-managed, control
costs and are cash-generative. This allows
the Group to self-fund acquisitions which
deliver positions in new markets or
additional niche capabilities. Since the
Group’s formation, Ultra has maintained a
balance between organic and acquisition
growth, having integrated 55 acquisitions
since 1993.

For more information on Ultra’s
structure, go to the governance
section on pages 60-61

Social
Ultra understands that the long-term
success of the Group will be enhanced
through continuous focus on value
creation for all its stakeholders. The Group
encourages its businesses to support their
local communities as well as discharging
their responsibilities to contribute to the
broader social well-being.

Environmental
Ultra recognises that it is important, both
for its employees and the communities in
which it operates, that effective measures
are in place to minimise the environmental
impact of its activities, as this will help to
secure the long-term future of the Group.
Ultra has committed to substantial
investments in manufacturing facilities
which will, in addition to improving
productivity, offer increased efficiencies
and reduce energy consumption.

To read how Ultra is making a
difference, see pages 40- 41

Ultra businesses
innovate constantly
to create solutions
to customer
requirements which
are different from,
and better than,
those of the Group’s
competitors, as
perceived by the
customer.

Ultra Electronics Holdings plc 11
Annual Report and Accounts 2014

Reducing risk to maintain value
Ultra’s business model supports a stable
and well-balanced business, with the aim
of reducing risk and maintaining the
generation of value.

Ultra’s strategy is to constantly broaden its
portfolio of products and services which
are positioned on a large number of
international platforms and programmes in
the Defence & Aerospace, Security & Cyber,
Transport and Energy markets.

Ultra has an increasingly broad customer
base worldwide, with sales outside the UK
now representing over 65% of Group
revenue. Ultra is repositioning itself
constantly, into growth sectors and areas of
preferential spend, within its main markets.

The above factors, together with Ultra’s
market agility and organisational flexibility,
generate further robustness and resilience
in the Group’s financial profile and
mitigate risk.

More detail on Ultra’s
approach to risk management
and specific risks can be found
on pages 36-39

Ultra’s Governance
Good Governance is crucial to ensuring
that Ultra is well managed and can
deliver its strategic priorities. The
Group’s core management processes
address four main areas. These are:
• Compliance
• Strategy
• Financial performance
• Developing people
The Board has delegated some of its
power to three committees and to the
Chief Executive.

Further detail on how Ultra is governed
and the roles of the Board, the key
Committees and the Executive Team
can be found on pages 50- 64 >

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

12 Ultra Electronics Holdings plc
Annual Report and Accounts 2014

Positioned for growth
Ultra’s 4 strategies for growth

Ultra's objective is to add long-term shareholder value, as measured by market capitalisation and the
Group’s ranking in the FTSE index, more rapidly than other companies to outperform the market. This
will be facilitated by an above-average rate of revenue growth. Ultra constantly strives to increase its
share of the high-growth sectors of the markets in which it has positioned itself. The four main strategic
objectives which support this target growth are:

Increase the Group’s portfolio of specialist capability areas
Ultra concentrates on providing its customers with capabilities and systems, using the Group’s electronic and software
solutions for niche markets in defence & aerospace, security & cyber, transport and energy. Within these market sectors,
Ultra focuses on developing specialist capabilities which provide differentiated solutions to customers’ requirements,
often in demanding and critical environments.

Increase the number of long-term platforms and programmes
on which Ultra’s specialist capabilities are speciﬁed
Ultra positions these specialist capabilities on a long list of international platforms and programmes. This breadth of
platform and programme coverage creates a ﬂywheel effect which drives Ultra’s performance year after year, despite
market ﬂuctuations. Ultra is positioned on very many such platforms and programmes.

Broaden the Group’s customer base
Ultra’s independence allows it to sell its wide portfolio of specialist capabilities to a broad range of customers around
the world. Ultra supplies to a wide range of different project ofﬁces, integrated project teams and platform teams
within its customers, the largest of which include; US DoD, UK MoD, Rolls-Royce, BAE Systems, Lockheed Martin,
Raytheon and Boeing.

Widen Ultra’s geographic footprint
Ultra has pursued a strategy of gaining access to the two largest addressable defence budgets in the world. Despite the
recent budget reductions, the US still spends more on defence each year than the rest of the nations combined. The
majority of Ultra’s acquisitions have been in North America and the point has now been reached where the Group has a
transatlantic capability and derives more of its revenue from the US and Canada than it does from the UK. Ultra’s
revenue from the Middle East and Asia Paciﬁc regions is capable of expansion. The Group’s growing presence in Australia
and other regions indicates Ultra’s intent in this regard.

Ultra Electronics Holdings plc 13
Annual Report and Accounts 2014

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

2014 progress against strategy

Strategy in action

Ultra added 12 new
specialist capability areas
to its portfolio.

the Group’s specialist
capabilities were speciﬁed
on 12 new platforms and
programmes.

The acquisition of Forensic Technology, 3 Phoenix Inc, Lab Impex
and ICE have added considerably to Ultra’s broad portfolio of
specialist capabilities, including:
• automated ﬁrearm ballistics identiﬁcation

• specialist sonar, radar, intelligence, surveillance and

reconnaissance products

• aerospace electrothermal ice protection controllers

• full environmental radiation monitoring systems

In the year Ultra’s businesses won new positions on a number of
long-term platforms and programmes including: Gulfstream G500
and G600 aircraft; Airbus A350; Royal New Zealand Navy ANZAC
frigate; US Navy aircraft carriers and submarines; UK Royal Navy
surface ships and submarines; unmanned aircraft programmes in
the Middle-East; communication programmes in the Middle-East
and Africa; and various law enforcement agencies.

Ultra won signiﬁcant*
business with
3 new customers.

The most signiﬁcant new customer last year was the United States
Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF). Ultra
provides ATF with support and services relating to the National
Integrated Ballistic Information Network.

the Group was successful in
58 countries outside of the
Group’s core markets**.

Ultra’s Sonar Systems business was awarded a contract for
the provision of its Sea Sentor Surface Ship Torpedo Defence
system to be used for New Zealand’s ANZAC Frigate Systems
Upgrade programme.

*Equivalent to 1% or greater of revenue

**Core markets are defined as Australia, Canada, UK and USA

14 Ultra Electronics Holdings plc
Annual Report and Accounts 2014

Portfolio strength meeting customer need
Cluster strategies

Ultra has introduced eight clusters to provide a framework within
which the Group can more effectively utilise its portfolio of
capabilities and target opportunities in speciﬁc markets without
losing the autonomy of its individual businesses.

Cluster deﬁnition

Underwater warfare

Capabilities related to the underwater warfare covering military, paramilitary and civil domains. This includes ASW receivers
mounted on aircraft, surface ship mounted sonars, towed arrays, submarine communications and acoustic countermeasures.

Maritime

Land

Capabilities related to operating, controlling, supporting and maintaining maritime (surface, sub-surface) military platforms,
both manned and unmanned.

Capabilities related to operating, controlling, supporting and maintaining land military platforms, both manned and
unmanned. Note that for the purpose of the cluster definition the individual soldier is considered military platform.

Aerospace

Capabilities related to design, manufacture and support of operating, controlling, supporting and maintaining aerospace
related platforms, both defence and civil, manned and unmanned.

C2ISR

Capabilities related to C2, surveillance, intelligence, security and reconnaissance, covering military, paramilitary and civil domains
(e.g from targeting pods through to critical national infrastructure). The underwater sensor capabilities are located in UWW cluster.

Communications

Capabilities related to secure (and unsecure) communication and information exchange including voice, data and video.
This cluster includes all communications system.

Nuclear

Capabilities relating to all things nuclear, covering both civil energy, national radiation monitoring systems through defence
to radiation monitoring on tactical platforms.

Infrastructure

Capabilities related to airport and airline information systems, rail transit power conversion and control, as well as non-nuclear
civil energy related capabilities.

Ultra’s Cyber capabilities sit primarily in C2ISR and Communications, but run across all 8 clusters

Cluster definition
Ultra’s broad portfolio of
capabilities has been brigaded
into groupings of eight clusters
as detailed above. This better
allows the Group to exploit its
domain expertise and the
synergies between the
technologies in its businesses
that face the same end markets.

Why clusters?
Having obtained a critical mass of
capabilities across a broad portfolio, Ultra
is now taking the next step in developing
its business model; the transition to
clusters. Clusters are the natural evolution
of Ultra’s business model, supporting a
shift from individual products to allow
more complex offerings. This cluster based
approach will establish a framework that
aligns resources (e.g. marketing analysis,
R&D, marketing and sales effort) to greater
effect across each end market facing
cluster. This in turn supports the
development of coherent strategies against
particular end markets, based upon collective
market research and opportunity capture.

The cluster approach provides the Group
with improved analysis at an appropriate
level of fidelity. This allows Ultra to better
manage and prioritise the Group’s
investments, including R&D alignment and
acquisition strategy.

Ultra Electronics Holdings plc 15
Annual Report and Accounts 2014

DEFENCE & AEROSPACE
56%

SECURITY & CYBER
25%

TRANSPORT & ENERGY
19%

Defence

60.2%

Civil

39.8%

2014 revenue (%)

19.6%

9.6%

2.6%

16.4%

22.6%

15.3%

5.7%

8.2%

Cluster strategies
The Divisional strategies will be replaced
with eight tightly focused and more
coherent Cluster strategies. These will
better guide activities within the Group
and inform the development of the
Group’s capability portfolio. The strategies
of the individual businesses will inform
and be nested inside a cluster strategy,
which in turn is nested inside the overall
Group strategy.

How the clusters operate
Autonomy remains crucial to Ultra’s
culture, allowing the Group to remain
agile, and to generate and deliver highly
differentiated, and often disruptive, niche
technological solutions to the market
place. The majority of business activity in
Ultra will continue to reflect this autonomy.
The cluster framework will provide the
Group with greater efficiency in
coordination. This cluster approach will
also ensure that Ultra’s skills and resources
are better aligned to lever the collective
strength of its broad portfolio of
capabilities to compete for larger
opportunities, beyond the ability of a
single business.

During 2015 it is the intent to
re-structure the divisions to reflect the
cluster construct and to report against
the new divisions at the end of 2015.

More information about each cluster
can be found on pages 16-23 >

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

16 Ultra Electronics Holdings plc
Annual Report and Accounts 2014

Portfolio strength meeting customer need
Underwater Warfare

Ultra’s world-leading domain knowledge, acoustic technical expertise
and ability to provide leading technology Anti-Submarine Warfare
(ASW) performance through rapidly delivered, scalable, affordable
and reliable solutions means that it is well positioned to exploit this
growing market.

Market overview
The proliferation of the modern submarine
threat is driving increased opportunity in
the underwater warfare market. Submarines
are strategic assets, fulfilling a range of
roles from intelligence gathering to area
denial operations. The growth in the
number of submarine platforms, coupled
with the increasingly capable Russian
submarine force and the growing threats
in the Middle- and Far-East, is seen to be
challenging the traditional western
underwater technological superiority.
Investment in ASW is growing rapidly as
nations react to counter these threats.

Global financial pressures coupled with
increased capital platform costs mean that
nations can typically no longer afford
platforms dedicated to a specific role.
Instead, they are generally moving to use of
more, smaller multi-role platforms, of
frigate or off-shore patrol vessel size. As a
result, ASW solutions now need to be
modular with reduced footprints to fit on
these smaller vessels. Other key factors in
this growing ASW market are the desire for
short to no development times, requiring
investment in advance of contract awards.
Ultra has positioned itself well in both of
these areas, with continued investment in
ASW technologies including multi static
active systems and sonobuoys for use with
Unmanned Aerial Vehicles (UAV). A key
export market driver is the increasing
requirement for indigenous technology
transfer to overseas customers, another
area where Ultra has strong pedigree with
recent export contracts.

Ultra’s portfolio strength
Ultra’s CORE capabilities include:
• Full understanding of acoustic

performance in the maritime domain

• Multi-Static Active processing
• Acoustic countermeasure techniques

for torpedo defence

• Recognised integrator for complex
acoustic systems both towed and
hull mounted

• Design and cost effective

manufacturing of acoustic
components and systems

Strategy in action
In August, Ultra’s joint venture with
Sparton Corporation, ERAPSCO, was
awarded a contract worth $166m
for the manufacture of sonobuoys
for the US Navy. The contract award is
the base year award of a five year
indefinite delivery indefinite quantity
(IDIQ) contract that has a ceiling value
of $810m.

Revenue by cluster
Underwater
Warfare

19.6%

Market outlook
The US continues its strategic rebalancing
towards Asia (the “pivot to the Pacific”).
As a result, despite the wider US
Government funding pressures, ASW and
submarines remain areas of preferential
spend with increased budget allocation.
Further US spend is anticipated in acoustic
system upgrades for ships and torpedoes.
Ultra’s recent acquisition of 3 Phoenix
reinforces the Group’s position in the US,
in particular with torpedo warning systems
and small arrays. More broadly in the
addressable Asia-Pacific market, spend
related to ASW systems, including towed
torpedo defence solutions, is projected to
rise to almost £0.5bn. India intends to
award three major ASW related
programmes totalling in excess of £100m
over the next five years. Ultra is well
placed to address these needs based on
its integrated sonar system and surface
ship torpedo defence system technologies,
both of which have enabled recent
contract wins in the UK and New Zealand.
More broadly the Group’s leading airborne
ASW technologies and continued
investment is positioning Ultra well for the
emergent UK, and wider, maritime patrol
aircraft requirements.

Ultra Electronics Holdings plc 17
Annual Report and Accounts 2014

Maritime systems

Combining open architectures and niche electronic solutions, Ultra
provides affordable, reliable solutions to meet customer needs in
power and electronics for maritime platforms.

Revenue by cluster
Maritime
systems

Ultra’s portfolio strength
Ultra’s CORE capabilities include:
• Customised command and control

systems for smaller ships

• Weapons interfaces that meet

safety standards

• Stable positioning for precise
Electro-Optic (EO) tracking on
moving platforms

• Power conversion and control

management

• Platform signature management
• Specialist motor drives and power

converters

• Degaussing systems
• Finite element modelling and post

processing design/optimisation studies

• Full service signature management

system supplier

• Electro-optic digital video with

increased data rates

• Unique thermal management of

militarised drives

Market overview
In Ultra’s established defence markets
customers are now generally looking to
re-establish balanced force presence and
intervention capabilities without the risk
exposure of a forced land footprint. As
such, after a decade of land based
operations, the focus on spending has now
moved towards maritime, air and Special
Forces. Ever present budget pressures
mean new build maritime programmes
have generally reduced either in number or
scale. As a result, existing platforms are
typically now being extended beyond their
original service lives and customers are
seeking more cost effective ways of
increasing the capabilities of their navies.
Consequently the demand for
system/sensor upgrades and technology
insertion programmes on existing hulls is
growing, particularly for navies in
emerging nations. For the export market in
general, new build maritime platform
programmes are often dominated by the
industrial politics of the nation concerned,
especially if they have indigenous
capabilities. As a result technology transfer
is an increasingly important factor enabling
business in the export market.

Strategy in action
In April, Ultra’s CCS business was
awarded a contract for the design
and supply of a glide path camera
system for the UK’s Queen Elizabeth
class aircraft carriers. This will be fully
integrated with the electro-optic
system also being supplied by Ultra.

9.6%

Market outlook
The power products segment in the US
market remains stable with Virginia Class
Submarine (VCS) production funding well
protected. Longer term growth
opportunities for Ultra specialist power
products will come with the Ohio
Replacement Program (ORP), projected to
provide 12 new hulls beginning in 2021.
Use of common subsystems with VCS will
help lower the cost growth risk that
currently exists on ORP. The US Navy is
investing in technical refresh of Arleigh
Burke-class guided missile destroyers (DDG-
51), Ohio class submarines, landing platform
dock (LPD-17) and replenishment naval
vessel (T-AKE class) which provides further
opportunities for growth of the Group’s
advanced power management products.

With the protection of maritime resources
rising in importance in areas such as the
South China Sea, there are increasing
requirements for submarines with extended
patrol times. The advent of air independent
propulsion capability is expected to increase
demand for power conversion and
degaussing products. Incumbent positions
on the UK Successor submarine
development programme will enable high
probability of production follow on for;
main static converters, electric cruise
propulsion and signature management.
Clean Power requirements of DoD and
aerospace specifications will continue to
drive the need for Ultra’s specialty
components highlighted by power filters
and multi-phase transformers. The Group’s
specialist signature management capabilities
will see growth opportunities in the next
five years through the US Navy’s Ohio
Replacement Program, replacement new
fleet oilers (TAO-X) and DDG-51 upgrades.
There is also increased focus on electric field
signature management due to the growing
awareness of influence mine threat.

More broadly the continuing demand for
surface platform system and sensor
upgrades plays well to Ultra’s strengths in
naval combat systems and electro-optics
and the Group’s pedigree in partnering
with local industry.

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

18 Ultra Electronics Holdings plc
Annual Report and Accounts 2014

Portfolio strength meeting customer need
Land systems

With defined open architectures and niche electronic solutions,
Ultra has a growing position in the provision of innovative,
affordable and reliable solutions to meet customer needs in power
and electronics for the land environment.

Revenue by cluster
Land systems

Ultra’s portfolio strength
Ultra’s CORE capabilities include:
• Power Systems
• Information Systems
• Control Systems
• Mission Systems
• Electronic Architectures
• Soldier Systems
• Operating Base Solutions

Market overview
In general the focus of military forces is to
reset away from the “hold and build”
operations of the last decade, back to
building more balanced and full spectrum
capable forces. This has seen a shift in
spending away from the Land sector,
which has resulted in a reduction in the
number of new land vehicle programmes
in Ultra’s established markets. Instead there
has been a significant growth in the
number of major capability enhancements
and life extension programmes for land
platforms. This plays to Ultra’s strengths in
electronic vehicle architectures. Land
platforms are now increasingly complex,
with multiple sensors, weapons and
communication systems. These complex
electronics are driving increased electrical
generation capacity and management
within the platform.

Strategy in action
In July, Ultra’s CCS business was
awarded a contract to supply 20
light-weight servo controlled turrets
to be fitted to the Thales Rapid Ranger
air defence system as part of an
integrated air defence system, known
as Forceshield, being supplied to the
Indonesian Ministry of Defence.

2.6%

Market Outlook
In the UK and European markets the
reduction in the number of new vehicle
programmes has been partially offset by a
significant increase in the number of
platform life-extension and technical
insertion programmes. Further, there are
also upgrade programmes, as a number of
platforms procured to meet urgent
operational requirements over the last
decade of operations, are now being
absorbed back into core service. Ultra as a
provider of specialist capabilities is well
positioned to be able to support such
upgrade programmes. In the UK, the
Group has teamed with Morgan Advanced
Materials to provide the through-life
support of the UK Mastiff platforms. In the
US, despite the budgetary pressures which
led to the cancellation of several large new
vehicle programmes, the DoD has funds for
a number of platform upgrade
programmes, which offer opportunities for
Ultra given the Group’s electronic
architecture capabilities. More broadly, the
export market place is growing with a
number of prospective new vehicle and
upgrade programmes being initiated. This
includes the established markets of India
and Australia and the emerging markets in
the Middle East and Far East. In the Middle-
East, Ultra is working in partnership with an
indigenous platform provider to support
the upgrade of the existing vehicle fleet.
Combined, these potential programmes
offer significant opportunities and volumes.

Military forces are beginning to look
how they can integrate soldiers and their
associated systems into the wider land
battlespace. Ultra is actively exploring
opportunities with a number of customers
regarding how it can apply its advanced
power management technologies to
the soldier.

Ultra Electronics Holdings plc 19
Annual Report and Accounts 2014

Aerospace

Across the civil and military aerospace sectors, demand for innovative
technologies to reduce cost, improve efficiency and increase safety
play well to Ultra’s established strengths in controls systems and
niche aviation technologies, allowing inclusion in a growing number
of positions on long-term aerospace programmes.

Revenue by cluster
Aerospace

16.4%

Ultra’s portfolio strength
Ultra’s CORE capabilities include:
• Ice Protection and Detection
• Position Sensing and Control
• Active Noise & Vibration Control
• Health & Usage Monitoring
• Fuel System Solutions
• Ground Handling Equipment
• Pilot Controls
• Data and Power Transfer
• Stores and Gas Management

Market overview
Commercial aerospace remains a vibrant
sector with predictions of growth in core
markets of 4.8% per year. Large aircraft
manufacturers are buoyed by record order
backlogs that exceed 10,000 aircraft. This
growth in platform numbers is driven by
the demand for new aircraft in the
developing markets of Asia and South
America. The more established markets are
demanding new aircraft that offer
increased fuel efficiency and cost savings,
through use of innovative, lighter, smaller
and less power-hungry sub-systems, as well
as meeting the new regulatory
requirements. The military aerospace
market continues to see growth driven
predominantly by the production ramp up
of the existing major military aircraft
programmes. There are few new military
aircraft programmes, with the market
focused on technical insertion and
capability upgrades of existing airframes.
This is driving growth in the demand for
pneumatic stores ejection.

Strategy in action
In 2014, Ultra’s Controls business was
selected to supply electronic equipment,
including the landing gear and steering
control computers, on the newly
announced Gulfstream G500 and G600
aircraft. Based on forecast sales of these
aircraft Ultra anticipates that this will
generate revenue in excess of £45 million
over a multi-year contract.

Market Outlook
In the civil aerospace sector, the twin aisle
market continues to grow and remains
dominated by Airbus and Boeing. Ultra
provides specialist wing ice protection
systems to the Boeing 787 and has recently
secured a contract to provide electrical
Ground Door Opening systems (eGDO) to
Airbus for its new A350 family of aircraft.
The single aisle market is also in growth,
but is seeing new entrants from the
emerging nations bidding for market share.
The regional aircraft market remains
crowded with competition from state
owned companies vying for national and
export orders. Investment in the business
jet market is focused on larger aircraft,
where Ultra has recently secured business
on the new Gulfstream aircraft. This has
resulted in a downturn across light and
medium aircraft, which instead is seeing
growth in airframe updates and refresh. In
the rotary wing market, growth drivers are
the emergency services, and oil and gas
users. Key requirements in this market are
minimising platform through-life costs. In
the military aerospace sector, the fixed
wing combat aircraft market will be
dominated for the next 20 years by the
projected sales of the F-35. Existing fixed
wing combat aircraft are still vying for
export orders in an increasingly competitive
sector. Ultra provides numerous products
and systems, including precision
pneumatics (HiPPAG) and human machine
interface systems, to a number of aircraft
in this sector including F-35, Typhoon and
F-18. The air transport market is seeing a
number of competitors looking to fill the
niches left by C-17 and C-130. In this
sector Ultra has secured positions on the
Embraer KC-390 and on the Airbus
A400M. Although the UAV market
previously saw high demands, this was
driven by operational needs which are now
waning, and overall the UAV market
remains immature. Whilst there are a
number of UAV technology demonstrator
programmes, the real challenge in this
sector remains the safety case to support
successful airspace integration.

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

20 Ultra Electronics Holdings plc
Annual Report and Accounts 2014

Portfolio strength meeting customer need
C2ISR*

As a trusted supplier of innovative surveillance and security
solutions to government and commercial customers, Ultra is
well positioned to exploit this growing market.

Revenue by cluster
C2ISR

Ultra’s portfolio strength
Ultra’s CORE capabilities include:
• Coastal and port surveillance
• Land and border surveillance
• Covert surveillance solutions
• Command and control systems
• Situational awareness
• Communications surveillance
• Airborne surveillance and targeting
• Forensic analysis

Strategy in action
In July Ultra’s Communication &
Integrated Systems business was
awarded a contract extension worth
£64.4m for the in-service support of
the UK MoD’s Litening Pods. This
support will enable the provision of
advanced targeting and reconnaissance
capability for the Royal Air Force’s
Eurofighter Typhoon and Tornado fleets.

Market overview
Budgets for security remain ring-fenced or
are growing substantially in the face of
terrorism, organised crime and drug
trafficking. Border security and critical
national infrastructure protection
opportunities are rising. This is driving the
increased market requirement for
surveillance and security solutions,
particularly in the Asia-Pacific, Central
American and Middle-East markets. The
market is seeing a growing demand for
interoperable and mobile networks that
deliver a single integrated picture showing
timely situational awareness. With a
growing number of devices capable of
collecting sensor data operating across
multiple communications networks,
integrated surveillance systems are now
increasing in complexity and scale.
Solutions need to be tailored to customer
need, comprehensive and be able to draw
upon “best of breed”, established and
clearly differentiated technologies.
Manpower pressures are resulting in
increased automation and a growing
dependency on technology based
solutions, particularly for surveillance tasks.
The reliance on air power as the principle
mechanism for early or urgent delivery of
military effect is driving the demand for
airborne intelligence, surveillance, target
acquisition and reconnaissance
(ISTAR).There has been a significant
growth in the use of unmanned air
vehicles and the associated intelligence,
surveillance and reconnaissance payloads.
The challenge remains the timely and
secure dissemination of such data, typically
video, around the battlespace.

22.6%

Market Outlook
In the civil security market, coastal and
port surveillance is expected to see limited
growth in the West whilst spending
elsewhere is expected to continue. The
land and border surveillance market will
continue to grow driven by geo-political
tensions, immigration control, smuggling
and trafficking. Identity and forensic
analysis is driving the increased need for
interoperability and information sharing
across law enforcement agencies nationally
and internationally. Ultra’s recent
acquisition of Forensic Technologies adds
greatly to the Group’s market access to this
sector. The protection of critical national
infrastructure (facility/enclaves surveillance)
is a growing market as governments begin
to counter the vulnerabilities through
increasing adoption of video surveillance
and wireless technologies. Ultra’s advanced
cyber security, communications and
surveillance capabilities mean that it is well
positioned in this sector. The
communications and intelligence
surveillance market continues to see
demand, but remains politically sensitive
following the Snowden leaks.

In the defence market, recent and current
operations and experience will result in an
increased demand for precision strike,
reduced collateral damage and extended
stand-off ranges. Emerging doctrine places
more emphasis on intelligence and
surveillance assets together with the ability
to fuse or correlate these data streams into
a single real-time integrated picture that
can be disseminated down to the lowest
level. This is driving the growth in real-time
ISTAR (for both manned and unmanned
platforms) and the connectivity between
assets in the battlespace. Ultra’s leading
data fusion, situational awareness and
visualisation systems play well to this
growing need. In the land environment

there is a drive to replace ‘boots on
the ground’ with technology
wherever possible, especially for
covert surveillance.

*Command & Control, Intelligence Surveillance and Reconnaissance

Ultra Electronics Holdings plc 21
Annual Report and Accounts 2014

Communications

Ultra is well positioned as one of the most trusted and respected
providers of secure communication systems in the world offering
advanced, interoperable solutions that are scalable and low risk.

Revenue by cluster
Communications

Market overview
The military and security communications
market is seeing a greater demand for
interoperability, mobility and rapid
deployment solutions, alongside an
increased desire for smaller, faster, easier-
to-use technology that is less complex to
configure. This is translating into the
gradual modernisation of legacy equipment
and systems. The customers’ desire to
maintain interoperability throughout these
modernisation programmes is resulting in
smaller evolutionary changes as opposed to
step changes. This evolutionary approach
allows customers to exploit commercial and
modified commercial off the shelf
technology. In particular, the shift towards
using software defined solutions that
enable fast cycle upgrades to capability,
and the use of open and commercial
standards. The other key factor driving the
market in the exploitation of COTS
technology is the reduced funding that
military customers now have to develop
bespoke solutions. Globally there is a
growing reliance on machine to machine
(M2M) communications, especially in key
industrial and critical national
infrastructure. There is now a considerably
increased awareness of the vulnerabilities
of such systems and the market now
recognises the need for solutions to secure
M2M communications and industrial
control systems.

Ultra’s portfolio strength
Ultra’s CORE capabilities include:
• Encryption solutions
• Data link systems
• High performance, high reliability

radio and wireless systems
• Secure voice, video and data
communication platforms

• Secure wireless mesh networking
• Fixed, mobile and transportable

satellite earth stations

• Secure video communications
• Secure M2M communication for

SCADA /ICS

• Secure low power communications

for wireless sensor networks

• Airborne communication exchange
• Personal protective gear

communications

• Acoustic hailing devices
• ‘Through the earth’ communications

Strategy in action
In December Ultra’s TCS business
was awarded a first export contract for
its innovative ORION X500-G radio in
support of a large customer in the
Middle-East and Africa region.
The Ultra ORION solution will be
used as the communications
backbone for this countrywide
sensor and surveillance network.

15.3%

Market outlook
In general, the demand to deliver secure
voice, data and video communications is
increasing. This is driving the requirement
for faster performance using lower cost
platforms. More specifically, the data link
market is seeing an increased demand for
secure full motion video and C2 data links
to deliver real time situational awareness to
the smallest platforms at the tactical edge.
Ultra’s broad range of advanced data link
and communication and airborne gateways
solutions are strengths in this sector. This in
turn is driving the demand for high
performance radios and the demand for
more bandwidth and broader connectivity
(gateway) solutions. Ultra’s Orion multi-
mission radio has performed well in trials
with customers and means that the Group
is well positioned to deliver the next
generation of radios. The satellite earth
station market continues to be focused on
smaller, more portable and mobile
solutions that deliver higher bandwidth X
and Ka band solutions. Looking at the
encryption market, there is a general move
from link to IP based cryptographic
solutions. This is coupled with the move
from paper based key to electronic key
distribution and management systems.
Ultra, with its proven next generation of
end cryptographic products and strong
position in both UK and US cryptographic
programmes, allied to the Group’s proven
electronic key distribution and
management solutions, is well positioned
in this sector.

Overall, the secure low power
communication market is experiencing a
considerable increase through the growing
prevalence of connected devices. In this
sector Ultra is able to build on its reputation
as a trusted supplier of wireless network
solutions. Finally, the secure M2M
communications market is growing to
match the growing awareness of the threat
to unsecured industrial control systems.
Ultra’s proven certified security solutions
which are tailored to meet critical national
infrastructure and industrial needs position
the Group well in this sector.

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

22 Ultra Electronics Holdings plc
Annual Report and Accounts 2014

Portfolio strength meeting customer need
Nuclear

Through its established relationships with OEMs*, the domain
knowledge of its Suitably Qualified and Experienced Personnel
(SQEP), and its broad range of qualified safety systems and sensors,
Ultra is well positioned to support the growing market in the
licensing, delivery and safe operation of reactors and associated
systems via a full ‘defence in depth’ approach to reactor operations
and safety.

Revenue by cluster
Nuclear

5.7%

Market overview
There are over 430 commercial nuclear
power reactors operating in 31 countries.
They provide over 11% of the world’s
electricity as continuous, reliable base-load
power and remain an important part of the
low carbon energy mix. In addition 56
countries operate about 240 civil research
reactors, with many of these in developing
countries. Globally there are over 70 new
reactors under construction. Many of the
new builds are proceeding within emerging
economies and in those countries where
there is substantial state backing. The
emphasis in established western markets
has however largely shifted to a shorter
term focus on safety system upgrades, life
extensions and emergency management
and plant sustainment programmes. In
addition to this the UK has recently
received approval from the European
Commission to proceed with a new
commercial model it has pioneered in
support of new nuclear build ambitions.
The nuclear market is generally very
conservative and supported through large
multinational organisations, however there
remain several complex niches served by
smaller specialist companies. It is a highly
regulated market, with high barriers to
entry, and as such is dominated by a
number of well-established global players.
The qualification of sensors and products
across multiple standards and platforms is
extremely expensive and offers further
barriers to entry once established.

Market Outlook
Although the nuclear market is a long
cycle one, with plants taking several years
to come to completion, the outlook is
positive. Much of the current global fleet
of plants will need life extensions and
upgrades. These plants are largely older
analogue Instrumentation and Control
(I&C) designs, with the biggest market by
far being the US. The new build, digital,
I&C market which is currently dominated
by China, India and Russia, is of a similar
order of magnitude. Ultra has invested
significantly in new facilities for the test,
development and manufacture of sensors.
This has shown its value through enabling
recent contracts wins with EDF for the
provision of specialist sensors. The Group
currently provides equipment to 186
reactors across 16 countries, plus another
31 reactors currently under construction.
Furthermore the Group is uniquely
qualified on 8 new types (as well as many
legacy plants), meaning that it is well
positioned for the future.

The Fukushima accident has prompted
further growth in the nuclear emergency
management market, where there has been
a global reassessment of post-accident
response and support needs. Plant safety is
now increasingly reliant on secure data, and
as such cyber security is now a key part of
meeting the formal safety requirements.
Security concerns around proliferation and
the threat of terrorism are also driving the
growth in new deployable security and
surveillance systems for nuclear plants and
enhanced border security. Ultra’s domain
knowledge, through its suitably qualified
and experienced personnel (SQEP), coupled
with its extensive security and surveillance
capabilities (as described in C2ISR cluster on
page 20), position Ultra well in this sector.

Ultra’s portfolio strength
Ultra’s CORE capabilities include:
• 50+ years of experience and SQEP

development in the delivery of critical
measurements within international
nuclear regulatory frameworks

• Nuclear safety systems and qualified

sensors across multiple platforms and
standards

• Suppliers of reactor I&C to 186

reactors in 16 countries

• UK design authority for neutron
flux detectors. State of the art
manufacturing facility to support
Gen IV designs

• Extensive range of qualified and

proven-in-use radiation detection
systems in both civil and military
applications

• Nuclear emergency management
systems and operational support
proven-in-use

• Supplier of reactor instrumentation
and control to every RN submarine
platform. Experience can be applied
to new civil designs

Strategy in action
In July 2014 Ultra Electronics NCS
business secured a four year
infrastructure services contract from the
UK Met Office for the Government’s
national Radioactive Incident
Monitoring Network (RIMNET).

*Original Equipment Manufacturer

Ultra Electronics Holdings plc 23
Annual Report and Accounts 2014

Infrastructure

Ultra is a trusted international provider and integrator of critical
systems and software to operate and secure today and tomorrow’s
transport and energy infrastructure.

Revenue by cluster
Infrastructure

Ultra’s portfolio strength
Ultra’s CORE capabilities include:
• Broad suite of integrated

infrastructure offerings spanning
Airports, Rail and Energy
• Reputation for functionality

and capability

• Flexible delivery models; outstanding

service reputation

• Integration capability & domain

expertise at both technology and
programme levels

• Growing credibility at national and

regional government levels

• Secure localised network

communications for measurement
and control

Market overview
Transportation, including airport systems
and rail remains an area of strong
investment world-wide. The increase in
global air traffic and national prestige
projects is driving investment in airport
infrastructure. Rail infrastructure, globally,
is growing even more rapidly as a key
commercial and national enabler in both
established and emerging economies. In
established economies infrastructure
investment is focused on upgrading
existing capabilities and driving economic
recovery. In emerging economies, such
investment is being used to secure growth
and build national capacity.

Increasing global demand for energy has
led to the power generation, power
distribution, secure power management
and renewables markets also witnessing
increased investment, although these
markets generally face specific regional
regulatory and economic nuances.

Competition in the Airport IT market is
growing with many previously niche
products becoming commoditised. Allied
to this, competition for major projects is
increasingly fierce.

Strategy in action
In 2014, Ultra was awarded a contract
by John F. Kennedy International
Airport Terminal One to implement
UltraAPEX, the Airport Performance
EXpert. This will support in delivering
operational performance enhancing
business intelligence to all the
terminal stakeholders.

8.2%

Market Outlook
In the airport sector, the market for Airport
Master Systems Integration is experiencing
significant growth, especially in the demand
for tier 2 airports. This is particularly so in
the Middle East, Asia and South America
where there are number of capital projects.
The Airport & Airline Information
Management market is forecast to see
investment grow, although many of the
operational systems are now becoming
commoditised. There is increasing
polarisation between global commoditised
offerings and those with more localised
niche expertise, so Ultra will focus on the
ability to provide comprehensive solutions
over individual products. In light of the
termination of the Oman IT contract and
the loss of the Abu Dhabi Mid-Field
Terminal opportunity, Ultra has reviewed its
airport IT activities in the Middle-East.
Whilst the Group expects to continue to
do business in the region, and sees
opportunities for new contracts, there may
be some challenges in the short term.

The Rail Transit Power Conversion &
Control market is anticipated to see
significant growth. However, with the
exception of the Rail Control sector, the
market is becoming increasingly price-
sensitive. In the Power Management &
Renewables sector, the growing need for
compact, power dense solutions plays to
Ultra capabilities with energy storage and
fast switching both being key drivers for
growth. The Secure Energy Management
sector is forecast to see substantial
investment, particularly in areas related to
secure monitoring, analysis and control.
Although the Smart Grid market is
growing, it is likely to remain fragmented
until the appropriate regulatory
frameworks are established. However
Ultra’s broader secure communication and
data portfolio stands it in a good position.

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

24 Ultra Electronics Holdings plc
Annual Report and Accounts 2014

World class performance
KPIs charting growth

The indicators shown below have been identiﬁed by the Board as
giving the best overall indication of the Group’s long-term success in
improving its FTSE ranking by outperforming the market.

KPI 1

Revenue growth

-4.2%

2013:
-2%
2012:
4%

KPI 2

Underlying proﬁt before
tax growth

KPI 3

Growth in underlying
earnings per share
over a three-year period

KPI 4

Operating cash conversion

-4.1%

2013:
+0.3%
2012:
0%

+1%

2013:
+5%
2012:
9%

70%

2013:
65%
2012:
74%

Description
Growth in total Group revenue
compared to the prior year,
providing a quantiﬁed indication of
the rate at which the Group’s
business activity is expanding.

Description
Growth in Group underlying proﬁt
before tax* compared to the prior
year, conﬁrming that additional
revenue is being gained without
proﬁt margins being compromised
or that proﬁts from new acquisitions
are not being diluted.

Description
Annual growth in underlying
earnings per share* calculated over
a rolling three-year period,
indicating progress towards the
Board’s primary objective.

Description
Net cash from operating activities,
less net purchases of property, plant
and equipment, less expenditure on
product development and LTIP
purchases, expressed as a
percentage of underlying operating
proﬁt*. Operating cash conversion*
is a simple yet reliable measure of
cash generation, which represents
the major element of the Group’s
short-term incentive bonus scheme.

Comment
Revenue declined by 4.2% to
£713.7m, a decrease of £31.5m.
The organic revenue decline was
10.1%, including 4% relating to
the Oman Airport IT contract.
Following termination of the
contract on 9 February 2015,
cumulative contract revenue has
been held to £114m, as reported
for the half year to 30 June 2014.
As a result the reduction in revenue
relating to Oman is £30m.
Excluding the Oman contract,
revenue would be in line with the
previous year.

Comment
Underlying proﬁt before tax was
£112.0m (2013: £116.8m). This
contributed to an underlying
operating margin of 16.5%
(2013: 16.3%). There was no
underlying proﬁt recognised on
the Oman contract in 2014, however
an exceptional non-underlying
charge of £47m relating to the
contract termination has been
recognised in the 2014 reported
operating proﬁt, comprising a bad
debt provision of £37m and
termination cost provisions of £10m.

Comment
Headline earnings per share in the
year were 123.1p (2013: 127.1p), a
decrease of 3.1%. A ﬁnal dividend
of 31.1p (2013: 29.5p) is proposed.
If this is approved at the Annual
General Meeting, this will give a full
year dividend of 44.3p (2013:
42.2p) and will be covered 2.8
times by proﬁts.

Comment
Underlying operating cash ﬂow*
was £83.1m and the ratio of cash to
underlying operating proﬁt was
70%. This represented an increase
from the £79.0m (65% conversion)
recorded in 2013, due predominantly
to the phasing of working capital
movements. The cash to operating
proﬁt ratio over a rolling ﬁve-year
period is 83%.

*see footnote on page 132

Ultra Electronics Holdings plc 25
Annual Report and Accounts 2014

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

KPI 5

KPI 6

Total shareholder return

Interest cover

+8%per annum

20times

2013:
+14%per annum
2012:
+6%per annum

2013:
25 times
2012:
23times

Description
Annual total shareholder return
(capital growth plus dividends paid,
assuming dividends reinvested) over
a rolling ﬁve-year period.

Description
The ratio of underlying operating
proﬁt to ﬁnance costs associated
with borrowings, as a reliable
indicator of balance sheet strength.

Comment
Annual total shareholder return
over the 5 year period from 2010
to 2014 is 8%.

Comment
Ultra continues to generate
signiﬁcant cover to meet its
interest payments.

KPI 7

YOURviews employee
engagement survey
benchmark for all businesses

81%

2013:
81%
2012:
81%

Description
Ultra’s internal employee satisfaction
survey, YOURviews, provides an
employee engagement rating for
each individual business within Ultra
and is completed every 1-2 years.
Answers to various questions are
combined to give the overall
employee engagement scores.

Comment
The high level of employee
engagement has been maintained
in 2014. Drawing on best practice
examples, businesses develop an
action plan to ensure that employee
engagement continues to rise
against both internal and relevant
external benchmarks.

Non-ﬁnancial performance indicators
Ultra’s four strategies for growth are described on pages 12 and 13 of this report. Performance indicators relating to the Group’s success
in these four dimensions are shown on those pages. The Group’s right people are its most important asset. Performance indicators that
relate to the recruitment, retention and development of Ultra’s staff are included on page 46 of this report.

26 Ultra Electronics Holdings plc
Annual Report and Accounts 2014

World class performance
Financial review

…the Group’s businesses sustained their focus on costs, delivering an
underlying operating margin of 16.5%.

Ultra continues
to invest in research
and development
to support future
opportunities…
Mary Waldner
Group Finance Director

Ultra’s 2014 results
The order book at the end of 2014 was
£787.3m compared to £781.2m in the prior
year, despite a £96.9m reduction relating to
the removal of the Oman contract from the
2014 order book. Excluding Oman, order
intake of £760.0m in the period (2013:
£630.0m) led to underlying order book
growth of 7.2% with additional growth
from acquisitions of 6.8% and a foreign
exchange beneﬁt of 1.1%.

Revenue
The revenue of £713.7m represented a
decline of 4.2%, or £31.5m from the prior
year (2013: £745.2m). The contribution
from acquisitions was offset by the
negative impact of foreign exchange on
translation of overseas revenues and an
organic decline of 10.1%, 4% of which
related to the Oman Airport IT contract.
Following termination of the contract on
9 February 2015, cumulative contract
revenue is £114m, of which £12m was
recognised in the ﬁrst half of 2014,
compared with £42m during 2013.

With approximately 50% of revenues sold
in US dollars, Ultra was impacted by an
increase in the US dollar rate to 1.65 (2013:
1.56) which reduced revenues by 3%.

Acquisitions contributed 9% to revenue,
primarily reﬂecting the impact of 3 Phoenix,
and Forensic Technologies together with
Lab Impex Systems and ICE acquired during
2014 as well as contributions from Varisys
and Wood & Douglas which were
purchased in 2013.

Excluding the impact of Oman, the organic
revenue decline of 6% comprised reductions
across all three divisions.

*see footnote on page 132

Ultra Electronics Holdings plc 27
Annual Report and Accounts 2014

Underlying proﬁt before tax*

Revenue

£112.0m 1
KPI>

0
5
.
2

1
1
6
.
5

1
1
6
.
8

1
1
2
.
0

£713.7m
KPI>

7
1
0
.
0

7
3
1
.
7

7
6
0
.
8

7
4
5
.
2

7
1
3
.
7

-4.1%
(2013: £116.8m)

-4.2%
(2013: £745.2m)

Underlying proﬁt before tax

Amortisation of intangibles arising on acquisition

Net interest charge on deﬁned beneﬁt pensions

(Loss)/proﬁt on fair value movements on derivatives

Adjustments to contingent consideration net of acquisition costs

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

2014
£m

112.0

(28.8)

(3.6)

(7.2)

4.5

(1.2)

(46.9)

(7.3)

21.5

2013
£m

116.8

(29.1)

(3.4)

1.5

9.0

(1.3)

(44.2)

49.3

Acquisitions contributed an additional
£9.5m to proﬁt, primarily in Tactical &
Sonar Systems, reﬂecting the acquisitions
of 3 Phoenix and Forensic Technology
during 2014.

Ultra continues to invest in research and
development to support future
opportunities; this investment, at £41.2m,
represented 5.8% of group turnover.

Interest and proﬁt before tax*
Net ﬁnancing charges*, excluding the
unwinding of discounts on provisions, fair
value movement on derivatives and the net
interest charge on deﬁned beneﬁt
pensions, were £6.1m (2013: £4.9m). The
increase reﬂected higher debt balances as a
result of the acquisitions during the year,
partially offset by the impact of lower rates
following the renewal of the revolving
credit facility in July 2014. The interest on
bank debt was covered 20 times (2013: 25
times) by underlying operating proﬁt*.

Underlying proﬁt before tax was £112.0m
(2013: £116.8m).

Unwinding of discount on provisions

Oman contract termination charge

Impairment of goodwill

Reported proﬁt before tax

Operating proﬁt and margins*
Underlying operating proﬁt* was £118.1m
(2013: £121.7m). Acquisition growth
contributed 7.8% which was offset by a
negative foreign exchange impact of 2.2%
and an organic decline of 8.6%. The
Group’s businesses maintained their focus
on restructuring their cost bases which
sustained an underlying operating margin
of 16.5% (2013: 16.3%).

Following the securing of a number of new
orders to develop products for the
aerospace sector, Aircraft & Vehicle Systems
margins have been impacted by increased
R&D investment and lower margins during
the engineering phases of projects. The
prior year comparator also included the
high margin urgent operational
requirement, which, contributed to the
decline in margin to 17.5%. In Information
& Power Systems, the decline in sales
resulted in an overall decline in gross
margins, however the divisional margin
increased to 14.3% due both to overhead
cost savings and the reduced contribution
from the lower margin Oman Airport IT
contract. In Tactical & Sonar Systems,
proﬁts and margin rose reﬂecting increased
volume and margins on sonobuoys
together with the positive impact of the
prior year restructuring at Ultra’s TCS radio
business. There were also overhead cost
savings across the division.

In Aircraft & Vehicle Systems, there were
increases in sales of specialist ice
protection systems and in revenue from
the Airbus A400M cargo handling system.
However these were offset by the impact
of the award and delivery of an £8m
urgent operational requirement in the ﬁrst
half of 2013.
As well as the impact of the Oman
termination, Information and Power
Systems is the division most impacted by
delays in the US defence and security
contract placement process with reduced
demand for both law enforcement and
security products, particularly legal
intercept, and also communication systems.

There was also a reduction in revenue
from our rail power management business
and from nuclear reactor control and
instrumentation sales in the UK although
this was partially offset by increased
revenues from nuclear temperature sensors
in the US and from the Virginia Class
submarine programme.

In Tactical & Sonar Systems, revenue from
US and international Anti-Submarine
Warfare (ASW) was strong, and there was
an increase in sales on international
command and control programmes. In
addition the two larger acquisitions made
in 2014, 3 Phoenix and Forensic Technology
have been integrated into this division.
However these positive impacts were
partially offset by reduced sales of Litening
Pods, and fewer radio spares sales together
with the impact of US budget cuts and
contract delays.

28 Ultra Electronics Holdings plc
Annual Report and Accounts 2014

World class performance
Financial review (continued)

83%

the cash to operating proﬁt
ratio over a ﬁve-year rolling
period is 83%

IFRS proﬁt before tax
Ultra’s IFRS proﬁt before tax reduced from
£49.3m (2013) to £21.5m. An exceptional
non-underlying charge of £47m relating to
the Oman Airport IT contract has been
recognised in Proﬁt before tax. Proﬁt before
tax also includes a £7.3m charge reﬂecting
the impairment of the acquired goodwill
relating to Ultra’s minority shareholding in
the Al Shaheen joint venture, following a
review of our activities in the Middle East.
The prior year included the impairment of
the acquired goodwill relating to ProLogic.

The £4.5m of acquisition related adjustments
included the release of an £8.4m provision
relating to the GigaSat earn out agreement
for which the 2014 target was not met

Tax, EPS and dividends
The underlying tax rate* reduced to 23.2%
(2013: 24.3%) due to a combination of
lower UK rates and the release of
provisions, following the close of certain
tax enquiries around the world.

Underlying earnings per share* were
123.1p (2013: 127.1p), a decrease of
3.1%. A ﬁnal dividend of 31.1p (2013:
29.5p) is proposed. If this is approved at
the Annual General Meeting, this will give
a full-year dividend of 44.3p (2013: 42.2p)
and will be covered 2.8 times.

Operating cash ﬂow
Underlying operating cash ﬂow* was £83.1m
and the ratio of cash to underlying operating
proﬁt was 70%. This represented an increase
from the £79.0m (65% conversion) recorded
in 2013, due predominantly to the phasing
of working capital movements. The cash to
operating proﬁt ratio over a rolling ﬁve-
year period is 83%.

Capital expenditure on property, plant
and equipment was £8.4m, compared to
£13.9m in the previous year which
included investment in the Neutron Flux
Detector at Wimborne and the Cyber
facility. Expenditure in 2014 included
replacement of equipment across a
number of businesses.

*see footnote on page 132

Capital expenditure on intangible assets
(not acquired through acquisitions) was
£9.3m (2013: £7.7m), with the majority
relating to commercial aerospace and
investment to support the next generation
multi-mission radio. There was also
investment in ERP systems for our US
businesses. Amortisation of the same asset
class was £3.4m (2013: £2.9m).

There was a net inﬂow of working capital
of £12.2m, compared to an outﬂow of
£32.4m in 2013. There was an outﬂow of
inventories of £4.4m (2013: £4.2m) across
a range of businesses, notably in the
Group’s aerospace businesses, to support
customer requirements. The inﬂow for
receivables of £74.0m (2013: £43.1m
outﬂow) and an outﬂow of payables of
£57.3m (2013: £14.9m inﬂow) includes
the write-off of balances in Oman,
following the termination of the Airport IT
project. Excluding the impact of Oman,
debtors reduced by £18.8m reﬂecting the
expected unwind of the prior year position,
however creditors increased by £19.2m
partially reﬂecting the unwind of a number
of long term advanced payments.

Non-operating cash ﬂow
With underlying operating cash ﬂow* of
£83.1m (2013: £79.0m), the Group funded
various non-operating items with net debt
increasing to £129.5m (2013: £42.2m). The
main non-operating items were:

• cash tax of £22.9m (2013: £25.6m)

• acquisition spend of £107.5m (2013:

£24.7m) including acquisition fees and
other acquisition related payments, with
the majority of the spend in respect of the
four acquisitions completed in the year

• dividend payments of £29.7m, (2013:

£28.1m)

Treasury and balance sheet matters
Effect of acquisitions
The four acquisitions made in the year,
3 Phoenix, Forensic Technologies, ICE and
Lab Impex Systems were made at a total
purchase consideration of £112.5m,
including related acquisition fees of £2.2m
The purchase consideration includes cash
acquired of £6.7m. In addition £1.7m was
spent on prior year acquisitions and fees.

Banking facilities
Ultra’s current banking facilities amount to
£300m in total, together with a £15m
overdraft. They are provided by a small club
of banks, led by the Royal Bank of
Scotland, and comprise two tranches. The
ﬁrst tranche is a £100m revolving credit
facility, which can be drawn down in any
major currency and is due to expire in
December 2017. The second tranche
provides a further £200m of revolving
credit, was signed in July 2014 and is due
to expire in December 2019. This second
tranche follows the renewal of the £90m
facility which was due to expire in 2016,
but was reﬁnanced early to ensure
continuity of funding and to take
advantage of improved interest terms. Both
facilities have the same covenants.

The Group also has a ‘shelf’ facility with
Prudential Investment Management Inc
(‘Pricoa’). This agreement effectively gives
the Group access to the US private
placement market on a bilateral basis. The
facility is non-committed, but is for up to
$195m. At 31 December 2014, $70m of
loan notes had been issued, which will
mature in 2018 and 2019. By using the
Pricoa facility, Ultra has been able to
extend the term proﬁle of its debt at a
competitive rate.

As well as being used to fund acquisitions,
the ﬁnancing facilities are also used for
other balance sheet and operational needs,
including funding day-to-day working
capital requirements. The US dollar
borrowings also represent natural hedges
against assets denominated in that currency.

At the year-end, the total borrowings
drawn from the revolving facilities were
£122.0m (2013: £27.0m), giving headroom
of £178.0m (2013: £163.0m) in addition to
the £15m overdraft. £44.8m (2013:
£42.4m) of Pricoa loan notes had been
issued. The Group also held £41.3m of
cash, which was held for working capital
purposes and to fund acquisitions.

The Group’s balance sheet remains strong,
with net debt/EBITDA of 1.0 and net interest
payable on borrowings covered around 20
times by underlying operating proﬁt.

Ultra Electronics Holdings plc 29
Annual Report and Accounts 2014

100%

Foreign exchange risks: 100%
of expected exposure for 2015
is covered

The majority of sales made by Ultra’s
businesses are made in local currency, thus
avoiding any transaction risk. However, this
risk does arise when businesses make sales
and purchases which are denominated in
foreign currencies, most often in US dollars.
To reduce the potential volatility, Ultra
attempts to source, in US dollars, a high
proportion of the product sold in US
dollars. For the remaining net expense, the
Group’s policy is to hedge forward the
foreign currency trading exposure in order
to increase certainty. The expected ﬂows
are reviewed on a regular basis and
additional layers of cover are taken out so
that, for 2015, 100% of the expected
exposure is covered, reducing to 80% of
the exposure for 2016 and 36% for 2017.
Exposure to other currencies is hedged as it
arises on speciﬁc contracts.

Mary Waldner
Group Finance Director

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

Interest rate management
Much of the Group’s current ﬁnancing has
been taken on to fund acquisitions in North
America. To reduce the risks associated
with interest rate ﬂuctuations and the
associated volatility in reported earnings,
Ultra has issued a total of $70m of ﬁxed-
rate, seven-year, notes to Pricoa.
Consequently, the Group has extended the
term proﬁle of its debt and has also ﬁxed a
substantial proportion of its interest for the
same seven-year period. The amount of
ﬁxed-term debt and the associated interest
rate policy is kept under regular review.

Pensions
Ultra offers company-funded retirement
beneﬁts to all employees in its major
countries of operation. Many UK staff with
longer service still participate in the Ultra
Electronics Limited deﬁned beneﬁt scheme,
which was closed to new entrants in 2003.
This is a contributory scheme in which the
company makes the largest element of the
payments, which are topped up by
employee contributions. The scheme was
actuarially assessed, using the projected
unit method at 31 December 2014, when
the net scheme deﬁcit, calculated in
accordance with IAS19, was £68.6m,
compared to £68.2m in 2013. The present
value of the liabilities rose by £36.3m in
2014, mainly because of the lower
discount rate, driven by the lower yield on
corporate bonds. The increase in the
scheme liabilities was offset by a £35.8m
increase in the value of the scheme assets.

There was a full actuarial assessment
carried out as of April 2013, the result of
which was a funding deﬁcit relating to past
service of £99.8m before tax, representing
an increase of £36.2m from the previous
funding deﬁcit. Following the completion
of the assessment, Ultra reached
agreement with the pension scheme
trustee board to eliminate the deﬁcit
through additional deﬁcit payments over a
10.5 year period; £8.0m in 2014, rising to
£8.5m in 2015 and £9.0m per annum for
the following 8.5 years. The next valuation
will take place as of April 2016.

The scheme has a statement of investment
principles which includes a speciﬁc
declaration on socially responsible
investment. This is delegated to the
investment managers. Pension
management and governance is
undertaken by the pension trustees on
behalf of the members. The trustees
include both company-nominated and
employee-elected representatives.

All staff who have joined Ultra in the UK
since the deﬁned beneﬁt scheme was
closed in 2003, have been invited to
become members of the Ultra Electronics
Group Personal Pension Plan and since
April 2011, the Ultra Electronics Group
Flexible Retirement Plan. Under the terms
of this deﬁned contribution scheme,
company payments are supplemented by
contributions from employees.

Certain employees at TCS in Canada
participate in a deﬁned beneﬁt scheme.
This scheme is closed to new employees
and had an IAS19 net deﬁcit of £0.9m at
the end of the year (2013: £0.6m). Regular
payments continue to be made, with both
company and employees making
contributions, so as to maintain a
satisfactory funding position. The Group’s
remaining Canadian employees participate
in a number of deﬁned contribution
pension plans. In the US, Ultra offers a
deﬁned contribution 401(k) retirement
beneﬁt plan to all full-time employees.
Under this plan, Ultra provides participating
and contributing employees with matching
contributions, subject to plan and US
Internal Revenue Service limitations.

Certain employees at the Swiss subsidiary
of Forensic Tecnology, acquired during
2014, participate in a deﬁned beneﬁt
pension scheme. The scheme had an IAS19
net deﬁcit of £0.2m at 31 December 2014.

Foreign exchange risks
Ultra’s results are affected by both the
translation and transaction effects of
foreign currency movements. By their
nature, currency translation risks cannot be
mitigated, but the transaction position is
actively managed.

30 Ultra Electronics Holdings plc
Annual Report and Accounts 2014

World class performance
Aircraft & Vehicle Systems

In October 2014, Ultra’s Controls business was awarded a contract by Airbus to design, develop,
supply and support an electrical Ground Door Opening system (eGDO) for its new A350 family of
aircraft. The eGDO system comprises a set of electrical actuators, sensors and fuselage-mounted
control and indication panels which allows airline ground maintenance crews to open the landing
gear doors to access the landing gear bay. Based on anticipated sales of the aircraft, this contract
is expected to be worth in excess of £60m revenue to Ultra over the life of the programme.

Revenue

Profit*

Order book

£140.3m

-0.4%

£24.6m

-29.3%

£160.2m

-2.2%

*see footnote on page 132

Strategy in action
In May 2014, Ultra’s Precision Air & Land Systems business was awarded a contract
by Airbus for the development of safety critical hardware and software for the cargo
handling system on the A400M tactical airlifter. Over the life of the programme this
could be worth in excess of £36m.

Revenues from the division’s aerospace
businesses increased with further sales
of specialist ice protection systems, and
from the Airbus A400M cargo handling
system. However 2013’s comparisons
include the award and delivery of an
£8m Urgent Operational Requirement
for EW radios at higher than average
margins and there were lower sales in
the year of accessories and spares.

Following the securing of a number of new
orders to develop products for the
aerospace sector, the divisional proﬁt has
been affected by increased R&D investment
and lower margins in the engineering
phases of certain projects including
Embraer KC390 and MRJ. This was partially
offset by the impact of overhead savings.
The acquisitions of Varisys, during the ﬁrst
half of 2013 and ICE Corporation during
the ﬁrst half of 2014, provided a positive
contribution to both revenue and proﬁts
whilst foreign exchange partially offset this.
The resulting divisional margin was 17.5%
(2013: 24.7%).

1 Alan Elford, Project Leader
2 Conrad Myers, Manufacturing Engineer
3 Temoch Rodriguez, Senior Circuit Design Engineer
4 Chris Wright, Principal Mechanical Engineer

5 Rob Nelson, Marketing Manager
6 David Ashworth, Principal Systems Engineer
7 Michael Gricks, Senior Design Engineer
8 Phil Woodward, Programme Manager

Ultra Electronics Holdings plc 31
Annual Report and Accounts 2014

Features of the division’s
performance in the year
that will underpin future
performance included:

• Selection by Airbus to design,

develop, supply and support an
electrical ground door opening
system (eGDO) for its new A350
family of aircraft.

• Contract award from Airbus for a

series of high integrity, safety critical
modules on the Airbus A400M
transport aircraft.

• Contract award from Gulfstream to
provide the landing gear control
computer, the steering control
computer and the electric main entry
door control computer on the newly
announced G500 and G600 aircraft.

Read more on pages 12-13

The change in the order book reﬂects
increased orders for commercial aerospace
products and services, offset by the trading
of the Airbus NIM6 and Lockheed Martin
Warrior contracts.

This division operates
in the following clusters:

Aerospace

Land

C2ISR

Full details on pages 18, 19 and 20 >

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

32 Ultra Electronics Holdings plc
Annual Report and Accounts 2014

World class performance
Information & Power Systems

In June 2014, Ultra’s NCS business was awarded a £12.9m contract from EDF Energy for the
manufacture and support of nuclear reactor instrumentation. Under this contract Ultra will manufacture
and support safety-critical nuclear reactor instrumentation for use in EDF Energy’s current UK nuclear
power stations. This is the second contract to beneﬁt from Ultra’s recent investment in a state-of-the-art
nuclear instrumentation manufacturing facility and further cements EDF Energy’s and Ultra’s relationship.

Revenue

Profit*

Order book

£204.0m

-26.3%

£29.2m

-21.7%

£175.9m

-36.1%

*see footnote on page 132

Ultra Electronics Holdings plc 33
Annual Report and Accounts 2014

Features of the division’s
performance in the year
that will underpin future
performance included:

• Award of a further contract by EDF
worth £12.9m for the supply and
support of specialist instrumentation
for use in the current UK nuclear
power stations.

• Award of a multi-year contract,

totalling over US$21m, from General
Dynamics Electric Boat Corporation
for the production of naval computer
controlled power supply systems.

• Contract award worth £8.4 million
for the provision of main-static
converters for Royal Navy submarines.

Strategy in action
In June 2014, Ultra’s EMS business was awarded a multi-year contract totalling over
US$21m from General Dynamics Electric Boat Corporation. The contract is for the
production of naval computer controlled power supply systems with deliveries over
the next five years.

Sales from the Oman Airport IT
programme during the ﬁrst half of
the year were down reﬂecting the
prolongation of the overall contract.
Following notice of the termination
of the programme we have taken a
prudent approach in the year,
recognising only £12m revenue in the
ﬁrst half of the year, and no proﬁt. In
2013, the division’s results included
£42m of revenue and £4m underlying
operating proﬁt from Oman.

This division is the one most impacted by
delays in the US defence and security
contract placement process with reduced
demand for both high margin law
enforcement and security products,
particularly legal intercept, and also
communication systems.

There was also a reduction in revenue from
our rail power management business
recognising the maturity of the commuter
power market as the focus in the UK moves
on to high speed rail. Our nuclear business
in the UK was impacted by reductions in
reactor control and instrumentation revenue
following the Heysham reactor partial
shutdown and the extended decision
making process on Hinckley Point C. This
was partially offset by increased revenues
from nuclear temperature sensors in the US
and also from sales into the Virginia Class
submarine programme.

Although the acquisition of Lab Impex
Systems contributed to the divisional
revenues and proﬁts, this was offset by
the negative effect of foreign exchange
across the division.

4/5

8/9

1 Laura Salkeld, Project Engineer
2 Ian Sandey, Tool Maker
3 Danny Cataldo, Welder
4 Martin Shaw, Nucleonics Specialist
5 Kevin Roberts, Physicist

6 John Pauette, Programme Manager
7 Chris Laidler, Field Support Test Engineer
8 Giles Hall, Programme Manager
9 Paul Kent, Technical Lead
10 Andy Russell, Director (Sensors and

Radiation Monitoring)

Read more on pages 12-13

Proﬁts declined in the division as a result
of these factors. However the cost savings
implemented during the period and the
reduction in the dilutive effect of the Oman
Airport IT contract resulted in a slightly
increased divisional margin of 14.3%.

The order book change reﬂected the
removal of the Oman Airport IT contract,
but beneﬁted from a major contract award
from EDF Energy and the acquisition of
Lab Impex Systems.

This division operates
in the following clusters:

Infrastructure

Maritime

Nuclear

Land

C2ISR

Full details on pages 17, 18,
20, 22 and 23

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

34 Ultra Electronics Holdings plc
Annual Report and Accounts 2014

World class performance
Tactical & Sonar Systems

In December 2014 Ultra’s Sonar Systems business was awarded a £27m contract for the Royal
Navy’s Sonar 2050 Technology Refresh (S2050TR) Programme. Under this contract, which will be
executed over the next 10 years, the Group will deliver and support new hull mounted sonars for
the Royal Navy’s eight Type-23 frigates. The S2050 Technology Refresh programme will deliver
to the Royal Navy a world-leading sonar capability providing persistent surveillance against
submarine and torpedo threats, at a significantly lower through-life cost.

Revenue

Profit*

Order book

£369.4m

+12.8%

£64.3m

+29.6%

£451.2m

+31.9%

*see footnote on page 132

Ultra Electronics Holdings plc 35
Annual Report and Accounts 2014

Features of the division’s
performance in the year
that will underpin future
performance included:

• A contract extension of £64.4m for
the in-service support of the UK
MoD’s Litening Pods.

• The award of a £27m contract for the
Royal Navy’s Sonar 2050 Technology
Refresh (S2050TR) Programme for the
Royal Navy’s eight Type-23 frigates.

• Order worth $166m awarded to

Ultra’s joint venture, ERAPSCO, for
the manufacture of the full range of
sonobuoys for the US Navy.

Strategy in action
In May 2013, Ultra’s 3 Phoenix business was awarded three contracts totalling over
US$21m from the US Navy. The scope of these contracts includes work packages for
torpedo warning systems, submarine towed anti-submarine warfare arrays and radar
command and control software.

Revenue from US and international
Anti-Submarine Warfare (ASW) was
strong, and there was an increase in
sales on international command and
control programmes. This increase was
partially offset by reduced sales of
Litening Pods, and fewer radios spares
sales together with the impact of US
budget uncertainty and contract
delays. The two larger acquisitions
made in 2014, 3 Phoenix and Forensic
Technology have been integrated into
this division.

Proﬁt rose by 29.6% reﬂecting increased
volume and margins on sonobuoys
together with savings from the prior year
restructuring at Ultra’s TCS radio business.
Further beneﬁt was derived from overhead
cost savings across the division.

The acquisitions also made a signiﬁcant
contribution to proﬁt, although this was
partially offset by the impact of foreign
exchange translation. As a result divisional
margin rose to 17.4%.

The order book increase included the ﬁrst
year’s order from the IDIQ sonobuoy award
from the US Navy, as well as the Litening
Pod CLS extension. This was supplemented
by the acquisitions of 3 Phoenix and
Forensic Technologies and by the effect of
foreign exchange.

2/3

6/7

10/11

1 Chief Engineer, Engineering Lead
2 Marketing and Communications Assistant
3 Principal Analyst
4 Assistant Chief Engineer, Software Lead
5 Human Resources Business Partner
6 Senior Software Engineer

7 Graduate Software Engineer
8 Senior Design Engineer
9 Senior Software Engineer
10 Head of Programmes
11 Principal Analyst

Read more on pages 12-13

This division operates
in the following clusters:

Underwater warfare

Aerospace

C2ISR

Maritime

Communications

Full details on pages 16, 17,
19, 20 and 21

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

36 Ultra Electronics Holdings plc
Annual Report and Accounts 2014

2014 risk management
Managing risk

Risks are identiﬁed, collated, assessed and managed at the most
appropriate level of the business (Board, Executive or Business level).
Risks are reviewed regularly to ensure judgments and assumptions
are unchanged, that appropriate mitigations are in place and that
emerging risks are captured.

Ultra encourages its businesses to challenge the market through innovation and to
exhibit audacity. Proﬁtable growth is not achieved without considered risk, so review of
business activity and the management of resultant risk has become an integral part of
Ultra’s processes. Risks are considered and managed as business decisions are made,
then collated so that the Group’s collective exposure is well understood and controlled.

This table illustrates the business activities which are routinely reviewed.
The table is illustrative, not exhaustive:

Business activity

Typical review points

Strategy (competitive)

Vision; market analysis; competitor analysis; differentiation;
innovation roadmap; teaming plans

Strategy (corporate)

Objectives; culture; strategic moves; acquisition strategy;
available ﬁnancing

Acquisitions

Bids

Specialist capabilities; customers and programmes; synergies;
ﬁnancial performance; ﬁnancial projections

Plan-to-win, customer understanding; maturity of solution;
competitive position; embedded risk (technical and engineering);
resources available; cash proﬁle; contract conditions

y
b
d
e
w
e
i
v
e
R

d
r
a
o
B

m
a
e
t

e
v
i
t
u
c
e
x
E

n
o
i
s
i
v
i
D

s
s
e
n
i
s
u
B

p
u
o
r
g
r
e
e
p

a
n
r
e
t
n

t
i
d
u
a

a
n
r
e
t
n

Contract execution

Progress against plan and milestones; costs incurred/to
complete/at completion; risk register

Business performance

Orders, sales, proﬁt and cash; month, year-to-date, forecasts;
variances to budget and forecast; marketing pursuits; projects
under development; compliance matrix

Team development

Business processes

Organisation review; succession planning; training plans; management
and team development activities; performance vs. potential review

Quality systems; segregation of duties; disaster recovery; health,
safety & environmental management; IT penetration testing

Regulatory and compliance

Compliance with: local laws and regulations, export regulations,
security requirements

Risk management of cyber

Status of the Group’s cyber security protection capability against
known and anticipated threats

Annually, businesses identify risks to the successful delivery of their strategic plan and
these are reviewed at the divisional level. Risks which are corporate in nature or which
span Ultra businesses, are elevated to the Executive Team for management. Resulting
strategic risks are assessed and reviewed at Board level.

reviewed as normal practice

major only, in accordance
with delegated authorities

by exception

Ultra Electronics Holdings plc 37
Annual Report and Accounts 2014

Risk 1. Cyber-attack

Description
Active efforts are being made to penetrate
Ultra’s networks, in order to gain access to
classiﬁed information, steal intellectual
property or disrupt business activity. There
is a security and business risk if Ultra fails
to secure its systems.

• Probability – High
• Trend – Decreasing

Potential impact

Mitigation

• 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
equipment development and manufacture

• Internal Audit and ‘spot checks’ to ensure
compliance with the Group Information
Security Policy

• Development of policy for classiﬁcation of

Group information assets

• Reduced product differentiation with loss of

• Investment in the hardening of Ultra’s

intellectual property

IT systems

• Disruption to business activity as systems are

• Implementation of monitoring by the Ultra

cleansed and restored

Cyber Protection Group will continue into 2015

Risk 2. Changing market environment

Description
Ultra’s core markets are changing as
government budgets come under ﬁscal
strain, placing signiﬁcant pressure on sales
and orders. Contract awards are more
heavily scrutinised and are more
dependent upon a close understanding
of the customer’s need.

Potential impact
• Reduced business opportunity through

an inability to respond quickly enough to
changes in the market environment by
adapting our offerings and approach

• Inability to match the full range of a

customer’s requirements

• Inability to maintain growth in declining

defence market

• Probability – High
• Trend – Increasing

Mitigation
• Embed LAUNCH behaviours to improve

understanding of customer need

• Collaborate across the full Ultra capability

portfolio and/or partner to present
comprehensive solutions that match customer
needs, complemented by a structure and
culture that promotes agility, innovation and
speed of response

• Develop and strengthen the marketing teams

within each business

Risk 3. Execution of major contracts

• Probability – Medium
• Trend – Unchanged

Description
Ultra is bidding for and delivering
an increasing number of large and
complex contracts.

Potential impact
• Ultra could underestimate the required resource

Mitigation
• The Group Operating Manual has been

or project complexity and so make a loss

• Ultra could fail to apply the appropriate
programme management skills to such
large products, impacting on proﬁtability
and reputation

updated to enhance the rigour and oversight
of major bids

• ‘Lessons learned’ exercise to be conducted on

Oman and a ‘major integration projects
manual’ to be developed as corporate memory

• Ultra could need to provide for additional

• Ultra will recruit or team to bring in the

costs incurred until the end of the programme
(some years)

specialist skills required to manage large projects

• Introduction of project-team-based system

engineering and project management training
courses

• Review and approval of win strategies and

bids will be conducted by the Executive team
and other senior managers independent of the
businesses or technologies involved

• More prudent proﬁt taking to be enforced

ahead of acceptance milestones

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

38 Ultra Electronics Holdings plc
Annual Report and Accounts 2014

2014 risk management
Managing risk (continued)

Risk 4. Pensions

Description
The Group’s UK deﬁned beneﬁt pension
scheme deﬁcit becomes a serious liability
for the Group.

Potential impact
• Increasing pension liabilities make a material

impact on shareholder value

• Probability – Medium
• Trend – Unchanged

Mitigation
• Retain Board focus on this key issue and hold

formal reviews of the Group’s pension strategy
annually

• Manage the issue through annual accounting
and triennial valuation processes, in order to
highlight issues to the Board as they emerge

• Retain Towers Watson as Group pension strategy
advisors and hold formal Board strategy reviews

• Probability – Low
• Trend – Unchanged

Risk 5. Business control

Description
Ultra has elected to cede some control of
certain businesses (e.g. US Proxy Board and
joint enterprises) to enhance market
position in key markets. Changes in local
regulation, or other cause, leads to an
adverse impact on the Group.

Risk 6. Currency Fluctuations

Description
Currency exchange rate ﬂuctuations
impact adversely on Ultra’s business
performance.

Potential impact
• Inability to exercise management control could

Mitigation
• Ultra works hard to ensure that its joint

lead to an adverse impact on the Group

venture partners and the members of the
Group’s security and proxy boards accord with
the Group’s corporate culture and way of
doing business

• Ultra beneﬁts from the expertise which the

members of its JVs and boards bring to the Group

• Ensure relationships continue to be mutually

beneﬁcial

• Monitor the business environment for regulatory

or political change

• Bring the Proxy Division (SIS) under a US

national director with the appropriate clearances

• Probability – Medium
• Trend – Unchanged

Potential impact
• Ultra’s revenue and earnings could be adversely
impacted by the weakening of a currency in
which it generates sales

• The impact of foreign exchange could either be
through translation of the balance sheets and
proﬁts of foreign operations, or the impacts of
UK businesses transacting in a foreign currency

Mitigation
• The translation impact cannot be mitigated

however the Group Finance Director ensures that
analysts and investors are aware of the impacts

• Transaction impacts are mitigated through the

Treasury policy of hedging forecast cashﬂows, and
where possible through ensuring that contracts
provide protection against exchange movements,
and cost and revenue currencies are matched

Risk 7. Major geopolitical crisis

Description
Ultra is increasingly operating in regions
of the world that are at risk of political
upheaval or untoward national event.

Potential impact
• A major regional event impacts on the ability of
Ultra to deliver a signiﬁcant contract, leading to
unrecoverable revenue loss

• A political change within an established regional
market substantially removes Ultra’s ability to
operate successfully

• Probability – Medium
• Trend – Increasing

Mitigation
• Maintain an effective regional understanding

through good regional contacts and
partnerships, particularly through UK embassies
and UK/US defence and security agencies

• Develop positions across different regions

to avoid singularity of risk

• Maintain awareness through research to raise

awareness and understanding of emerging crisis
and potential risk

• Consider regional risks during bid approval

Ultra Electronics Holdings plc 39
Annual Report and Accounts 2014

Risk 8. Sustaining product differentiation

• Probability – High
• Trend – Increasing

Description
Ultra’s product development and
innovation does not sustain sufﬁcient
differentiation in the market place,
compared with commercial off the shelf
(COTS) products, or as a result of a
disruptive technology, or because of a
signiﬁcant change in customer preference.

Potential impact
• Research and Development (R&D) activity
does not keep pace with technological
development, losing product differentiation
compared with competitors

• Ultra’s portfolio of specialist capabilities is

eroded through commoditisation

Mitigation
• Maintain Ultra’s cultural focus on understanding

customer need and delivering innovation

• Based upon comprehensive market and

competitor analysis, generate technology and
product roadmaps that bring differentiated
products to market to meet sales opportunities

• Business is lost through increasing competition

• Better co-ordinate R&D investment across the

Risk 9. Material legal/regulatory breach

Description
People or process failures lead to a breach
of regulatory or legal requirements.

Potential impact
• Damage to reputation

• Director disqualiﬁcation

• Damages and ﬁnes

• Contract debarment

Risk 10. Staff retention

Description
The Group’s businesses are capital-light,
but specialist knowledge-intensive. Ultra
fails to attract, develop and retain people
with the required specialist competences.

Potential impact
• Ultra could lose key staff or capabilities, so
that the Group cannot fulﬁll its contractual
obligations, or is forced to outsource work,
thereby reducing margins

Group to avoid duplication and maximise
advantage

• Employ strategy reviews and game-planning

to ensure R&D tracks plans and budgets

• Team externally to gain access to technology

• Probability – Low
• Trend – Unchanged

Mitigation
• Culture of accountability and compliance

• Ethics Overview Committee

• Effective whistle-blowing procedures

(EthicsPoint)

• Policies and training on material compliance

issues

• Probability – Low
• Trend – Medium

Mitigation
• Continue the Group’s strong emphasis on

recruiting, retaining and developing high-quality
individuals to work in Ultra teams. This is
delivered through the annual OSDP
(Organisation, Succession and Development
Planning) process

• Fast-track high-potential candidates and exploit

opportunities for secondments and inter-business
transfers

• Ensure all key staff have a nominated successor

• Ensure poor performance is addressed

• Monitor and review salary and beneﬁts surveys

• Engage with potential recruits at an early stage,
through links with schools and universities and
offer apprenticeships, work placements and
graduate training

Further details on how Ultra
manages risk can be found on
page 58 in the Governance section

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

40 Ultra Electronics Holdings plc
Annual Report and Accounts 2014

Sustainability

Making a difference
Ultra recognises that the success
and sustainability of the business is
enhanced by positive relationships
with our stakeholders and continues
to focus on value creation for ALL its
stakeholders: local communities,
shareholders, customers, employees,
the environment and suppliers

For more about securing the talent
pipeline, see page 44

*STEM (Science, Technology, Engineering & Maths)

In the Community:
Ultra’s businesses continue to be active
in local communities to create positive
links by engaging with local people and
local issues. Many businesses have
formed special relationships with
education establishments in the
surrounding communities; offering work
placements and visits to businesses as
part of AS level courses; providing
interview practice sessions, supporting
lessons, careers events and school
science fairs. Ultra also takes part in the
broader dialogue on STEM* education
at a national level and offers Arkwright
scholarships, a scholarship which
sponsors students looking for a career in
engineering through their A-level
education. Ensuring a long term supply
of talent to the business is essential and
Ultra dedicates itself to developing the
talent pipeline in schools and higher
education institutions. Each operating
business has its own locally-managed
charitable budget, which it directs to
maintain and grow connections with its
local community. Fundraising and
voluntary work in the local community
or at a national level is something the
Group is keen to encourage and actively
supports employees who undertake in
voluntary activities. Some noteworthy
examples in 2014 include:

• Forensic Technology, runs a “CSI for
a day” initiative in local schools with
the goal of giving back to local
communities. Employees teach the
science behind forensic sciences, the
students then apply their learning to a
ﬁctional situation in order to identify
the guilty party. The winning team is
rewarded with book scholarships if
they continue their education.

• Ultra is sponsoring a new WWI

exhibition at Bletchley Park, Milton
Keynes. The Bletchley Park site played
a signiﬁcant role during the Second
World War and this sponsorship will
help to generate more visitors and
also help to educate those who visit.

• Ultra’s Maritime Systems business

operates its own community working
group choosing one main charity
to focus on each year as well as
helping various other organisations.
This year they chose the local charity
Feeding Others of Dartmouth
(F.O.O.D) and undertook many
fundraising activities and an employee
volunteering programme to provide
support to the charity.

Ultra Electronics Holdings plc 41
Annual Report and Accounts 2014

…the Environment:
Ultra is committed to implementing and
enforcing effective measures to minimise
the environmental impact of its activities.
Following on from the pilot programme,
launched last year, with the Carbon Trust,
Ultra has assessed a further site in 2014.
Site assessments look at the environmental
impact of the operating businesses. At
both its Loudwater and Weymouth sites
opportunities have been identiﬁed to
reduce the environmental impact while
identifying material cost-savings which will
beneﬁt shareholders. Both sites have begun
to implement the recommendations
including; replacing all light bulbs and
sensors with LED technology and updating
insulation and pipework. The Loudwater
site is also beginning the review process for
some larger projects such as a new heating
system and more efﬁcient ventilation and
heat recovery. The Carbon Trust will
continue to audit other sites during 2015.

Ultra continues to be committed to
investing in manufacturing facilities to offer
increased efﬁciencies and reduce energy
consumption, while improving productivity
across the business. The Group also looks
for its suppliers to reduce their
environmental impact. At Ultra’s Maritime
Systems business cardboard packaging
from suppliers has been eliminated from
some assembly lines through the use of
reusable, collapsible packaging. Additionally
this report has been printed on a carbon
neutral printer.

Sponsored university students

Arkwright Scholars

US data

Employees

Undergraduate interns

New graduates

Employees working on
graduate-level degrees

2,457

1,660

for, to promote access to all. The Group also
works with SEPnet to provide summer work
placements to students to help advance and
sustain physics as a strategically important
subject for the UK economy.

SUCCESS STORIES
• A school work experience student

returned to Ultra for paid vacation work,
was sponsored through their university
degree, completed their undergraduate
placement year and has begun work as a
graduate for the Group

• One former Ultra Arkwright Scholar has

been sponsored through university and is
expecting to graduate with a ﬁrst class
degree in 2015 when it is hoped he will
join Ultra in a full-time role

INSTITUTIONS
Ultra businesses worldwide have a variety
of links with their local business forums and
chamber of commerce members, helping
to encourage STEM* activities. Ultra’s
businesses are members of Engineering UK,
Cyber Challenge UK and other bodies
which research and develop new ways to
attract people into engineering careers, as
well as helping to forecast future trends in
the sector.

Ultra actively
invests in and
supports the
training and
development of
its employees.

Training and development
Ultra actively invests in and supports the
training and development of its employees.
Each business is responsible for identifying
the training needs of its employees and
managing its own training budget.
Employee performance and development
reviews are held annually, at a minimum,
and are used to identify the development
needs of individuals. Ultra has invested in
its Learning Academy, which is an online
portal, available to all of the Group’s
businesses to support training.

Speciﬁc training programmes are provided
for individuals as necessary. Many of these
are courses tailored to the speciﬁc
requirements of Ultra and the trainers have
an intimate knowledge of how the Group
operates across all of its businesses. These
training events include programmes on
leadership and management, along with
workshops on Ultra’s successful competitive
strategy, strategic selling, programme
management and systems engineering.

In 2014 Ultra’s Controls business set up
the ‘Ultra Controls Academy’(cid:0)which is an
inter-departmental initiative to formalise
and structure internal training courses.
Supporting drives to achieve best in class
performance and be continually recognised
as a world-class design and manufacturing
facility. Controls has brought teaching
practices in-house to create a more focused
and relevant training environment.
Additionally it can be expanded for all
future needs, as well as, be made available
to other businesses.

Ultra Electronics Holdings plc 45
Annual Report and Accounts 2014

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

Businesses also look for further opportunities
to develop training outside of their training
budget. For example, Ultra’s fuel cell
business has received a $29,000 training
grant from the Michigan Skilled Trades
Training Fund. The fund is designed to
provide funding to companies who are
looking to enhance the existing skill-sets of
their workforce and the business will use
the funds to pay for Six Sigma Green Belt
certiﬁcation, soldering and wire harness
certiﬁed instructor training, and
programming and reporting training on
their ERP system.

Ultra’s businesses have developed
corporate partnerships with engineering
institutions, including the Institution of
Engineering and Technology, in order to
support and encourage employees to
pursue professional recognition (in the
form of CEng, IEng, or EngTech status) for
both their current and previous work and
academic achievements. To give students
access to real-life current work challenges,
and to enable Ultra employees to develop
their management and leadership skills,
there are opportunities to participate in
national schemes, such as the Engineering
Education Scheme (run by the Engineering
Development Trust) and competitions
promoting STEM* careers.

Engineering education

Case study
Local students teamed up with
graduate engineers from Ultra’s
Precision Air & Land Systems business
to design a man-worn health
monitoring system for professional
soldiers. The system monitors health
aspects that the team deemed to be
the most important to the soldier. The
inspiration behind the project came
from the news about 3 soldiers who
died whilst undertaking a training
mission in the Brecon Beacons from
dehydration in a record heat wave in
the summer of 2013.

The team developed a comprehensive
list of the medical parameters and
identiﬁed technologies which could
help measure these key items. Research
varied from the assessment of existing
products to evaluating entirely new
approaches, particularly in the area of
water intake measurement which was a
key issue for the project. The team
went on to identify sensors for many of
the key measurements and to specify
suitable technologies. Supported by
Ultra engineers the students were able
to build a ﬁnal prototype of the body
worn equipment and programme the
monitoring interface.

The value of the system to Ultra
Precision Air & Land Systems has been
clearly demonstrated and the Head of
Advanced Technology Tony White, has
proposed submitting the system design
as a bid for funding from the Centre of
Defence Enterprise.

*STEM (Science, Technology, Engineering & Maths)

46 Ultra Electronics Holdings plc
Annual Report and Accounts 2014

Sustainability (continued)
Developing Ultra’s people

Retention of
‘high-performers’

100

9
5
%

9
7
%

9
8
%

Internal appointments at ExecutiveTeam,
Divisional and MD/President level (%)

100

8
1
%

8
0
%

7
5
%

7
1
%

6
0
%

*STEM (Science, Technology, Engineering & Maths)

Succession planning and retention
Each of Ultra’s businesses prepares an
annual ‘Organisation, Succession and
Development Plan’(cid:0)to ensure that Ultra has
the right people in the right place in the
organisation. The plan assesses individuals
against their performance in their current
role and their potential to perform a larger
role in the short or longer term.

Assessments are recorded in Ultra’s Talent &
Succession system and give a performance
versus potential rating for each employee.
The system is used by businesses to ensure
a supply of suitable talent is available when
required and recognises that any role within
Ultra may become more challenging as the
business grows. The performance
categories consist of ‘exceed’, ‘meet’,
‘partially meet’ or ‘does not meet’ the
standard performance level. Equal attention
is given to enhancing the performance and
retention of those who meet and exceed
standard performance levels and to
addressing the challenges of the people
who fall into the ‘partially meet’(cid:0)or ‘does
not meet’ categories. Where an individual is
not meeting the standard performance level
it often means that they need to be placed
in a role more suited to their talents, and in
which they can start to perform to the
required standards, It does not always mean
that those individuals must leave Ultra.

Ultra has a high retention rate of those
individuals in the businesses’ senior
management teams, who continually meet
or exceed expectations in terms of their
performance, or who are high-potential
and still developing in their new role. The
Group is able to create its next generation
of business leaders, through developing
and retaining those employees identiﬁed as
having high potential who will be able to
take up the challenge of continuing the
growth and expansion of Ultra.

Ultra has been able to appoint a high
proportion of its leaders at Board, divisional
and business level through internal
promotion. This is because the succession
planning element of the process aims to
ensure that there are always suitable
successors for all the management team
roles across each business and for other
senior level roles.

As well as the people listed as successors,
each business also identiﬁes people with
high potential. The combined list represents
Ultra’s ‘high-potential’ talent pool and is
used regularly to ﬁnd the right people to ﬁll
internal vacancies, via the Group’s Talent &
Succession system. Ultra businesses attend
graduate and undergraduate fairs, utilising
current graduates as the Group’s
ambassadors. Attendance has seen
applications for graduate schemes increase,
and this in turn helps to ensure that there is
a future supply of engineers for the Group.
In a typical year, Ultra recruits over 600 new
employees and acquisitions bring additional
new people into the Ultra family.

Each of Ultra’s
businesses prepares an
annual organisation,
succession and
development plan(cid:0)
to ensure that Ultra
has the right people
in the right place
in the organisation.

For the Nomination Committee’s
work on succession planning see
page 42-45

Ultra Electronics Holdings plc 47
Annual Report and Accounts 2014

Sustainability (continued)
Corporate and Social Responsibility

Ultra believes that a successful and sustainable business is built
on more than just ﬁnancial results. Ultra has built a reputation for
meeting its commitments and a consistent track record of development
and growth. This reputation is based on Ultra’s businesses meeting
their obligations and the manner in which they do so.

Ultra is committed to maintaining high
standards of business ethics as part of
being a responsible business. The Group
strives to uphold the rights of its employees
and create an honest and transparent
business both internally and externally. The
Group’s corporate responsibility initiatives
are focused in the following key areas:

Human rights
The Group recognises and respects the
rights of not only its employees but all
stakeholders and communities that it
encounters. As such, Ultra adheres to all
relevant government guidelines, designed
to ensure that its products are not
incorporated into weapons or other
equipment used for the purposes of
terrorism, internal repression or the abuse
of human rights as instructed by the UN
Guiding Principles on Business and Human
Rights. Ultra’s Board requires that the Group
should, at all times, be a responsible
corporate citizen and, as such, the Group
complies with all applicable legislation in
the countries in which it operates.

Ethical business conduct
Ultra is committed to ethical business
conduct.

MEETING LEGAL AND ETHICAL STANDARDS
Ultra requires all employees, businesses and
third parties, who act on Ultra’s behalf, to
comply fully with its Policy Statement on
Ethics and Business Conduct and with the
applicable laws and regulations of the
countries in which it does business.

Ultra is committed to operating in
accordance with all legislative requirements,
including those pertaining to anti-bribery
and corruption practices, relevant national
export control regulations and competition
and anti-trust laws.

Ultra has a corporate ethics code, which
encompasses a gifts and hospitality policy.
All Ultra businesses are required to report on
compliance with the corporate ethics code
monthly. In addition, the Board reviews
compliance with the code twice a year.

The Ethics Code can be found in Ultra’s
Policy Statement on Ethics and Business
Conduct and its policies on anti-corruption
and bribery, competition compliance and
gifts and corporate hospitality. All of these
policies can be found on the Group website.
www.ultra-electronics.com/about-
us/corporate-responibility.aspx

PROVIDING GUIDANCE AND
TRAINING TO EMPLOYEES
The Group continues to strengthen
its policies, processes and training to
ensure employees have the clear guidance
they need in identifying and managing
ethical matters.

EthicsPoint is a Group-wide independent,
conﬁdential web-and telephone-based
hotline, which enables all employees to
anonymously report concerns about possible
improprieties and other compliance issues.
This is known as the Ultra Electronics
Employee Helpline.

All reports registered through EthicsPoint are
reviewed and responded to in a timely and
appropriate manner. The responsibility for
handling reports rests with Ultra’s senior,
independent Non-Executive Director (other
than US security-related issues which are
routed through the directors of the Special
Security Arrangement Board or Proxy Board).
No retaliatory action is taken against
employees for making reports in good faith
through EthicsPoint. Any employee found to
be in breach of the Policy Statement on
Ethics and Business Conduct is subject to
appropriate disciplinary action.

INDEPENDENT ETHICS
OVERVIEW COMMITTEE
The Ethics Overview Committee was formed
with the remit to provide independent advice
and scrutiny of Ultra’s business activity,
providing assurance that the Group’s current
and planned undertakings are conducted in
a manner consistent with the legislative
environment and are transparent. The
Committee comprises six permanent
members, three of whom, including the
Chairman, are independent.

To maintain the highest degree of
impartiality, the independent members of
the Committee are self-selecting with the
appointment of the Chairman exclusively
within the remit of the independent
members. The Committee meets quarterly
and provides assurance that Ultra’s
business is being conducted in line with
the Group’s policies, processes and
relevant legislation. It does this through
discussions with senior managers, receiving
reports and visiting Ultra’s businesses. The
Committee undertakes a formal review of
business activities during these reviews and
the independent members provide advice
and guidance on the appropriateness of
target markets and customers and on
potential teaming partners. The
Committee also considers the reports that
come through the EthicsPoint helpline.

Diversity and inclusion
These values are embedded into the
organisation to ensure a business which is
truly representative of the environment in
which it operates. It is essential that all
employees feel fairly treated and are not
discriminated against in any way. To enable
this, Ultra complies with all applicable
employment rights and legislation in the
countries in which it operates. The Group is
strongly committed to maintaining a work
environment which provides equal
opportunities for all employees, regardless
of nationality, gender, ethnic background,
sexual orientation, religious beliefs, marital
status, disability or age. This is exempliﬁed
by the formation of the Diversity working
group, a Head Ofﬁce initiative lead by Mary
Waldner, Ultra’s Group Finance Director to
ensure diversity and inclusion is
championed amongst all of the businesses.

Ultra uses rigorous recruiting practices to
ensure the best candidate is selected, based
on objective requirements and assessments.
Ultra monitors gender and age diversity.

See Diversity charts overleaf

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

48 Ultra Electronics Holdings plc
Annual Report and Accounts 2014

Sustainability (continued)
Corporate and Social Responsibility

Diversity
Board of Directors

Diversity
Senior management

Diversity
All of Ultra Electronics

(cid:1) Female

(cid:1) Male

14%

86%

(cid:1) Female

(cid:1) Male

11%

89%

(cid:1) Female

(cid:1) Male

27%

73%

The Board reviews each business’s
annual report on health and safety
performance, which they are required to
submit, along with the result of the health
and safety audits.

The reportable/recordable accident rate has
decreased over recent years and is shown
in ﬁgure 1. Lost time accident data per
200,000 hours has been recorded for the
whole Group since 2010 and is shown in
ﬁgure 2.

The reportable/recordable accident rate
per employee for 2014, fell from 0.77%
to 0.51%.

Figure 1 Reportable/recordable
accidents per employee (%)

1.5

1.2

0.9

0.6

0.3

0.0

1
.
3
0
%

1
.
1
4
%

1
.
0
6
%

0
.
7
7
%

0
.
5
1
%

Figure 2 Lost time accidents
per 200,000 hours

0.60

0.50

0.40

0.30

0.20

0.10

0
.
5
5

0
.
5
6

0
.
3
4

0
.
4
5

0
.
2
7

Disabled employees
Applications for employment by disabled
people are always fully considered, bearing
in mind the aptitudes of the applicant
concerned. In the event of members of
staff becoming disabled, every effort is
made to ensure that their employment with
the Group continues and that appropriate
training is arranged. It is the policy of the
Group that the training, career
development and promotion of disabled
people should, as far as possible, be
identical to that of other employees.

Health and safety
The safety and well-being of the Group’s
employees and visitors is a key priority for
Ultra. A healthy, committed workforce,
working in a safe environment, is necessary
to achieve superior business results. The
businesses manage a wide range of safety
risks, ranging from ofﬁce employees,
manufacturing employees and employees
providing services at customer sites,
including military bases and platforms. The
Group is committed to upholding and
improving health and safety across the
whole business and engaging in
continuous safety improvement activities.

The safety of the products and services
provided to users and customers is also of
importance to Ultra. Each individual
business ensures the appropriate legal and
ethical levels of safety are met across a
product’s life cycle, with particular
emphasis on the manufacturing, in-service
and disposal phases.

All Ultra operating business’s are required
to have a written health and safety policy,
which is to be upheld at all times.
Managing Directors and Presidents are
responsible for health and safety within
their business and for providing adequate
resource to meet the requirements of the
health and safety policy. Compliance is
assessed through independent external
audits which take place bi-annually. The
Chief Executive is the Board member with
overall health and safety responsibility.

Environment
Ultra is committed to putting effective
measures in place to minimise the
environmental impact of its activities. This
is important both for its employees and the
communities in which it operates, as it will
help to secure the long-term future of the
Group. These measures include both the
operational business environment
and the products and services which the
Group provides.

PRODUCTS
Environmental considerations are taken
into account throughout a product’s life
cycle, from concept through to disposal;
each individual business ensures its
practices and processes consider this.
Businesses work with their suppliers to
reduce the impact of their products and to
maximise the use of environmentally-
acceptable components. Ultra ensures the
full co-operation of all employees to
minimise environmental impact and
maximise the conservation of materials.

OPERATIONAL
The Managing Directors and Presidents
of the operating businesses are
responsible for the implementation of
the environmental policy and the Chief
Executive is the main Board member
with overall environmental responsibility.
Where it is appropriate, individual
businesses have ISO14001 accreditation.

Ultra’s formal environmental policy
addresses compliance with environmental
legislation, conformity with standards for
air, waste disposal and noise, the
economical use of materials and the
establishment of appropriate environmental
performance standards. Progress is
monitored through annual reporting and a
bi-annual external audit process, the most
recent of which took place in 2014.

Each site plans and manages compliance
with environmental requirements and the
processes for the storage, handling and
disposal of hazardous or pollutant materials
are reviewed on a continuous basis. Ultra
has caused no contamination of land in
2014, continuing the excellent track record
of the previous ﬁve years.

Ultra Electronics Holdings plc 49
Annual Report and Accounts 2014

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

In addition,there were no environmental
incidents reported in the year.

In the UK, businesses are encouraged and
incentivised to reduce the net amount of
waste they produce. Ultra measures and
reports on its packaging waste annually
and this is shown in Figure 3.

The Group is working hard to address
energy conservation and emissions. Energy
consumption is measured annually and the
data compared with previous years.

As part of the Carbon Reduction
Commitment (CRC) programme Ultra, in
the UK, is registered with the Environment
Agency. The Group’s compliance emissions
reported for 2013/14 were 8,424t CO2.
Historic performance data is shown in
ﬁgure 4.

Ultra’s data for 2013/14 is available on the
Environment Agency’s website.

Figure 3 Packaging Waste
(t/£m sales) in UK Businesses

0.250

0.200

0.150

0.100

0.050

0.000

0
.
1
9
2

0
.
1
6
5

0
.
1
6
0

0
.
1
6
4

0
.
1
5
5

Greenhouse gas emissions
Ultra is committed to the systematic
reduction of greenhouse gas emissions. In
compliance with the 2013 Greenhouse Gas
Emissions Regulations, Ultra has collected
and consolidated information on carbon
dioxide (CO2) emissions from across its
portfolio of 27 businesses; 2013 was the
ﬁrst year this was undertaken and serves as
the baseline year.

s
e
a
s

m
£

/
s
e
n
n
o
t

2
O
C

a
t
o
T

Figure 4 Total tonnes of CO2
emitted (t/£m sales)

)
s
e
n
n
o
t

2
O
C

(

s
n
o
i
s
s
i

m
e
C
R
C

a
t
o
T

9000

8000

7000

6000

5000

4000

3000

2000

1000

2011/12

2012/13

2013/14

6510

17.2

8208

23.6

8424

21.9

Total tonnes of CO2 emitted
by all Ultra businesses

(cid:1) Total tCO2
(scope 1)

(cid:1) Total tCO2
(scope 2)

23%

77%

Methodology
In 2014, each UK business reported on the
appropriate greenhouse gas metrics. These
metrics were aggregated to produce the
ﬁgures reported below to which standard
DEFRA conversion factors were applied.

Energy Savings Opportunity Scheme
The Energy Savings Opportunity Scheme
(ESOS) is a new piece of legislation
introduced by the UK Government which
applies to Ultra. The scheme is run by the
Environment Agency (like CRC) and its
focus is to reduce the demand for energy.
The ﬁrst qualiﬁcation phase ends on 31
December 2014 with reporting required in
2015. An initial piece of work has been
launched which will lead to compliance.

Additional environmental initiatives
In 2013, in addition to tracking its carbon
emissions, Ultra partnered with the Carbon
Trust to conduct a holistic Energy Review of
Ultra’s Command & Control Systems (CCS)
business, headquartered in Loudwater, UK.
Following on from this pilot programme
the Carbon Trust has assessed a further
site, in Weymouth (CEMS), in 2014. Both
sites have begun to implement the
recommendations including; replacing all
light and sensors with LED technology and
repairing and updating insulation and
pipework. Loudwater are also beginning
the review process from some larger
projects such as a new heating system and
more efﬁcient ventilation and heat
recovery. The Carbon Trust will continue
onto other UK sites throughout 2015.

Ultra’s Greenhouse gas emissions
– tonnes of CO2 (tCO2)

Total tCO2 emitted by all Ultra businesses
Total tCO2 from Ultra’s business activities (scope 1)
Total tCO2 purchased by Ultra (scope 2)
Ultra’s annual emissions in relation to Ultra’s business
activities shown as tCO2 per £m of revenue

20,992

4,769

16,223

29.41

Sharon Harris
Company Secretary & General Counsel

50 Ultra Electronics Holdings plc
Annual Report and Accounts 2014

Governance
Board of Directors

Douglas Caster
Chairman

Rakesh Sharma
Chief Executive

Mary Waldner
Finance Director

Time with Ultra:
21 years 2 months

Time in position:
3 years 8 months

Time with Ultra:
21 years 2 months

Time in position:
3 years 8 months

Time with Ultra:
1 year 6 months

Time in position:
1 years 6 months

Mark Anderson
Group Marketing Director

Chris Bailey*
Non-Executive Director

Martin Broadhurst*
Non-Executive Director

Time with Ultra:
3 years 7 months

Time in position:
2 years 8 months

Time in position:
9 years 11 months

Time in position:
2 years 5 months

Sir Robert Walmsley*
Non-Executive Director

Sharon Harris
Company Secretary & General Counsel

Time in position:
5 years 11 months

Time with Ultra:
3 years 1 month

Time in position:
2 years 8 months

Executive Director

Non-Executive Director

Company Secretary & General Counsel

*Audit, Remuneration and Nominations Committee member
*NOTE: All details correct as at 31 December 2014

Ultra Electronics Holdings plc 51
Annual Report and Accounts 2014

3. Mary Waldner MA FCMA
Mary has a broad range of experience in a
variety of sectors and an excellent track record
of delivery throughout a number of senior
ﬁnancial roles with major public limited companies.

After graduating from Oxford University with
an MA in Physics, Mary started her career at
Coopers & Lybrand Management Consultancy
Services, before working for Vauxhall Motors
Ltd. From 1998 to 2008, she held a number of
senior roles at British Airways plc, including
Financial Controller (Commercial) and Manager,
Corporate Planning and Reporting. Following
this, she then moved to 3i Group plc, where she
was Group Financial Controller. In 2011, Mary
joined QinetiQ Group plc as Director, Group
Finance. She joined Ultra Electronics as Group
Finance Director and was appointed to the
Board in July 2013.

6. Martin Broadhurst OBE MA C.Dir FIoD FRAeS
Martin has a wealth of valuable experience in
the defence and aerospace markets, having run
a large engineering organisation within the
sector for ﬁfteen years. He has demonstrable
expertise and skill in growing international
business and in expanding capabilities.

Martin Broadhurst was appointed to the Ultra
Board in July 2012. He joined Marshall
Aerospace as a management trainee in 1975
and, following a number of roles with the
company, including Production Director and
Director of Programmes, was appointed as Chief
Executive in February 1996. During his time as
Chief Executive, he served on the Group
Holdings Board and was Chairman of a number
of subsidiary companies.

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

1. Douglas Caster CBE BSc MIET
Douglas is a highly-experienced engineer and
manager of electronics businesses. He has a long
track record of driving growth through effective
acquisition and superior ﬁnancial performance in
the companies he has led.

Douglas Caster started his career as an electronics
design engineer with the Racal Electronics Group
in 1975, before moving to Schlumberger in 1986
and then to Dowty as Engineering Director of
Sonar & Communication Systems in 1988. In
1992, he became Managing Director of that
business and, after participating in the
management buy-out which formed Ultra
Electronics, joined the Board in October 1993. In
April 2000, he was promoted to the position of
Managing Director of Ultra’s Information
& Power Systems division. In April 2004, he was
appointed Chief Operating Ofﬁcer and became
Chief Executive in April 2005. He was appointed
deputy Chairman in April 2010 and became
Chairman of Ultra in April 2011.

4. Mark Anderson CB BSc
Mark brings a broad customer perspective,
operational experience from recent conﬂicts and
collaboration with close allies. His oversight of
Ultra’s strategic process will beneﬁt from this broad
understanding of the customer need.

Mark Anderson joined the Royal Navy in 1974 as
a weapon system engineer, before switching
career path to achieve both nuclear submarine
and ship command. His MoD staff appointments
include policy roles in two Strategic Defence
Reviews and equipment customer responsibility
for all underwater programmes. He has worked
closely with the US throughout his career,
including sensitive roles within the US Joint Staff.
Promoted to Rear Admiral, he commanded all
Fleet Operations and headed the UK submarine
service up to the end of his 36 years’ service in
June 2011. He then joined Ultra in a divisional
strategy role, before being selected to join the
Board in April 2012.

7. Sir Robert Walmsley KCB, FREng
Sir Robert brings to Ultra’s Board, solid experience
in the defence, security, energy and transport
sectors. He has a deep knowledge of all of Ultra’s
main geographic markets and a substantial
experience of government procurement.

Sir Robert was most recently Chief of Defence
Procurement at the UK Ministry of Defence
(MoD), a post which he held from 1996 until his
retirement from public service in 2003. Prior to his
MoD appointment, Sir Robert had a distinguished
career in the Royal Navy, where he rose to the
rank of Vice Admiral in 1994 and served for two
years as Controller of the Navy. Sir Robert
Walmsley is a Non-Executive Director of Cohort
plc and of the General Dynamics Corporation. He
was appointed to the Board in January 2009.

2. Rakesh Sharma BSc EMBA MInstP CPhys
Rakesh has managed businesses and divisions
across the full range of Ultra’s wide portfolio,
with consistent success in driving growth in the
Group. Combining business and technical
insight, he ensures Ultra businesses maintain a
competitive advantage in the Group’s specialist
market sectors, while delivering superior
ﬁnancial performance.

Rakesh Sharma started his career as an radio
systems engineer at Marconi in 1983, before
moving to Dowty as Chief Engineer of Sonar
& Communication Systems in 1989. He was
appointed Marketing Director of that business
in 1993, when Ultra Electronics was formed.
From 1997 to 1999, he worked in the US as
Ultra’s Operations Director, North America. After
returning to the UK, he was Managing Director
of PMES and then of Sonar & Communication
Systems, before taking his ﬁrst divisional role in
2005 as Managing Director, Tactical & Sonar
Systems. In 2008, he moved to run the Group’s
Information & Power Systems division, before
being appointed Chief Operating Ofﬁcer in
January 2010. He was appointed to the Board
in April 2010 and became Chief Executive in
April 2011.

5. Chris Bailey FCA MCT
Chris is a highly-experienced, former large plc
Finance Director, who brings valuable specialist
and general management expertise to Ultra’s
Board. He has knowledge and expertise in the
organisation of operations in all of Ultra’s main
geographic markets.

Chris Bailey was appointed to the Board in
January 2005. He was Group Finance Director of
Aggregate Industries plc until 2004. Before this,
he was the Finance Director of the precursor
companies of Aggregate Industries from 1984
until its formation in 1997. He is a Fellow of the
Institute of Chartered Accountants of England &
Wales and is also a Member of the Association of
Corporate Treasurers.

8. Sharon Harris LLB
Sharon brings corporate legal expertise
to the Board role, together with plc experience
in corporate governance, with a strong
knowledge of the management and protection
of intellectual property.

Sharon Harris graduated from Kings College,
London with a Law degree. She started her
career at Norton Rose and has international plc
experience gained in the FMCG, pharmaceutical,
media and electronics sectors. She joined Ultra in
November 2011 and was appointed Company
Secretary in April 2012.

52 Ultra Electronics Holdings plc
Corporate Governance Report

Governance
Chairman’s governance statement

As the Directors
review the strategy
and carry out their
other duties, it is
my role as Chairman
to lead the Board
effectively. To my
mind, good
governance is at
the heart of that.

Douglas Caster CBE
Chairman

Ultra Electronics Holdings plc 53
Corporate Governance Report (continued)

Dear shareholder,
One of the key responsibilities of
a board of directors is to agree
its company’s strategy. As the
Chief Executive outlines in his
Review on pages 4 to 7, and as
we seek to demonstrate
throughout this Annual Report,
Ultra has a very clear strategic
path. Despite sustained pressures
on government budgets, at
home and abroad, Ultra’s
strategy, reinforced by its guiding
principles, culture and approach
to good corporate governance,
ensures Ultra remains a strong,
sustainable business.

Good governance
As the Directors review the strategy and
carry out their other duties, it is my role as
Chairman to lead the Board effectively. To
my mind, good governance is at the heart
of that. In order for you to see clearly how
we achieve that, we have provided a
corporate governance overview on pages
54 to 61. We also brieﬂy describe how this
structure supports the delivery of our
business strategy. You can ﬁnd more detail
in the full Corporate Governance Report.
On pages 36 to 39, we have also provided
an overview of the principal risks that might
prevent us from achieving the full potential
of our strategy. On page 58 we explain how
those risks are actively managed.

Board changes
During the year, the Board was engaged in
recruiting a Non-Executive Director. Details
of the process we followed are set out on
page 57. Mr John Hirst CBE joined the
Board on the 1 January 2015 and will seek
election at the 2015 Annual General
Meeting. John’s strong industry experience
and his understanding of the role risk
management plays in strategic decision-
making, combined with his knowledge of
regulatory and governance issues, will
further strengthen the Board’s governance
processes. A summary of John’s
biographical details is on page 57.

As was reported in the 2013 Annual Report
and Accounts, having served for over ten
years as a Non-Executive Director, Chris
Bailey will resign at the 2015 Annual General
Meeting. He will hand over the Chair of the
Audit Committee to John Hirst and Chair of
the Nomination Committee to Douglas
Caster. Sir Robert Walmsley has agreed to
take the role of the Senior Independent
Director following Chris’ retirement. On
behalf of the Board, I would like to thank
Chris for his excellent service in these roles
and wish him well in his retirement. In
November 2014, Martin Broadhurst became
Chair of the Remuneration Committee.

Appreciation
Before closing, and on behalf of the Board,
I want to thank the employees of Ultra
whose efforts helped us achieve so much in
what has been a difﬁcult year. I want to
express my appreciation to Rakesh and all
the members of the Executive Team for the
leadership they have shown. Finally, I would
like to thank all my fellow Directors for the
contribution they have made to our
discussions throughout a busy 2014.

Douglas Caster CBE
Chairman
27 February 2015

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

54 Ultra Electronics Holdings plc
Corporate Governance Report

Governance
Corporate Governance Report

Compliance statement
Throughout the financial year ended
31 December 2014, the Board considers that it
and the Company have complied with the
provisions set out in the September 2012
edition of the UK Corporate Governance Code
(the Code). The Code is issued by the Financial
Reporting Council and is publicly available on
their website (www.frc.org.uk). This corporate
governance section of the Annual Report &
Accounts describes how we have applied the
main principles of the Code.

Role of the Board
The role of the Board is to provide effective
leadership and direction in delivering the key
corporate objective of reliable and consistent
growth in shareholder value. The Executive
Directors set the Group strategy which is subject
to challenge before final agreement by the full
Board. The Board also ensures that adequate
controls are in place, including calibrating risk
appetite and maintaining oversight of Ultra’s risk
management processes. The Board receives
regular compliance reports. The Board
encourages the Group’s businesses to behave
ethically and properly at all times and engenders
a culture of fairness to customers, suppliers and
employees. It is the function of the Group’s
management, through the Chief Executive and
his Executive Team, to run the operations of the
Group. During 2014 there were changes to the
Executive Team structure. Details on this can be
found on page 55.

The Board is responsible for major investment
decisions such as acquisitions and the allocation
of the Group’s R&D expenditure to major new
projects. To this end, in addition to the ten
scheduled Board meetings, the Board held
seven unscheduled Board meetings in the year.
The Board conducts regular reviews of the
major projects being undertaken by the
operating businesses.

A summary of some of the Board’s key
responsibilities and activities is set out opposite
and the full range of Board responsibilities are
detailed in the document entitled ‘Matters
reserved for the Board’ which is available from
the Investors’ section of the Group website.

Board matters

At every Board meeting standing agenda items include:

• The Chief Executive’s Report which covers the Group’s operational performance, particular
performance issues in each Division, the overall outlook for the Group including health and
safety performance

• The Group Finance Director’s Report which covers financial forecasts for the half and full year,
and reviews of: financial performance; banking covenants; and analysts’ views of the Group,
major shareholdings and major share buyers and sellers

• Major project reports

• Group Marketing Director’s Report

• Human Resources Report

• Review of current acquisition activity and approval of any offers for proposed acquisitions

• A business presentation by a Managing Director/President

Other important topics which are covered on a routine basis during the year are:

• Approval of annual and interim financial statements and accompanying regulatory announcements

• Review and approval of the annual budget

• Approval of the Group’s dividend policy, the payment of the interim dividend and the

recommendation of the final dividend

• Receiving reports from the Board’s Committees, including recommendations from the Audit
Committee in respect of: the effectiveness of the Company’s risk management and internal
control statement; the adoption of the going concern statement; impairment; and the
reappointment of the Auditors and the subsequent agreement to such recommendations

• Review and approval of major capital investment projects and bids

• A full day Board meeting devoted wholly to the review of the five-year strategic plan and
principal risks, with presentations given by the Executive Team and discussions held on
significant matters identified in the proposed plan. Actions from this meeting are followed up in
subsequent Board meetings

• Six-monthly reviews of Compliance Reports prepared by Divisional Managing Directors and

Presidents which summarise the Governance Compliance Report submitted each month by the
business MDs and Presidents

• Annual reviews of health & safety and environmental reports summarising the position across

all Group businesses

• Approval of any changes to the rules of operation of the Group’s employee share plans

• Effectiveness of internal controls

• Review of the risk register and the Group’s insurance programme

• Post acquisition reviews

• Tax planning

• Board evaluation

• Consideration of Non-Executive Directors’ fees

• Review of the terms of reference of the main Board and the Board Committees

• Corporate governance updates

Other significant matters addressed by the Board in 2014 included:

• Group organisation (further details are set out on page 14)

• Cyber protection

• Extension of time and cost for the Oman Airport IT contract (further details are set out on page 63)

• The Group’s corporate structure and operations in China and Hong Kong

• Audit tendering – (further details are set out on page 64)

• Refinancing

Ultra Electronics Holdings plc 55
Corporate Governance Report (continued)

How does the way we are governed support the delivery of our strategy?
Good Governance is crucial to ensuring we are well managed and can deliver our strategic priorities.

The Board

Chairman: Douglas Caster; Senior Independent Director: Chris Bailey

All the Directors are collectively responsible for the success of Ultra. In addition, the Non-Executive Directors are responsible for exercising independent
and objective judgement and for scrutinising and challenging management.

The Board is responsible for approving our strategy and policies, for oversight of risk and corporate governance, and for ensuring expected returns on
investment are made from leveraging our portfolio strength. The Board is accountable to our shareholders for the proper conduct of the business and
our long-term success. It represents the interests of all stakeholders.

The Board has delegated some of its powers to three Committees (see below) and the Chief Executive (see below).

Members of the Board and their biographies are shown on pages 50 to 51.

Nomination Committee

Audit Committee

Remuneration Committee

Chairman: Chris Bailey

Chairman: Martin Broadhurst

Talented people are critical to the delivery of
the Group’s strategy. The Nomination
Committee’s role is to keep under review the
structure, size and composition of the Board;
to recommend appointments to the Board and
its Committees and to consider succession
planning to Board positions.

To deliver the Group’s strategy we must have
sound financial and non-financial controls. The
Audit Committee is responsible for reviewing
our financial reporting, internal controls, risk
management and our relationship with our
external auditor.

We seek to reward senior management
competitively, to enable Ultra to recruit,
motivate and retain executives of high calibre
whilst avoiding making excessive remuneration
payments. The Remuneration Committee is
responsible for ensuring the remuneration of
Executive Directors and senior managers is
aligned with corporate strategy and objectives
along with the interests of shareholders.

Further details on page 60.

Chief Executive: Rakesh Sharma

The Executive Team comprises:
Chief Executive; Group Finance Director; Group Marketing Director; Chief Operating Officer;
Group Human Resources Director and Company Secretary & General Counsel

The Executive Team is the body through which the Chief Executive exercises the authority delegated to him by the Board. It considers major business
issues and makes recommendations to the Chief Executive, and typically also reviews those matters which are to be submitted to the Board for its
consideration. The Chief Executive is responsible for establishing and chairing the Executive Team.

Ultra is committed to ethical business conduct. In this regard, the Group has the beneﬁt of an independent Ethics Overview Committee.

Ethics Overview Committee

Three independent members:
David Shattock (Chairman); Martin Bell; Major General (retired) Tim Cross

Three Ultra members:
Chief Executive; Company Secretary & General Counsel; Managing Director Aircraft & Vehicle Systems division

Further details about the Ethics Overview Committee are on page 47.

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

56 Ultra Electronics Holdings plc
Corporate Governance Report (continued)

Governance (continued)
Corporate Governance Report

Product demonstrations and site tours take place. This
gives the Non-Executive Directors a good practical insight
into operating businesses. The Non-Executive Directors
also conduct individual visits to businesses.

Board meetings
Comprehensive briefing papers are circulated to
the Directors in advance of each Board meeting to
enable an informed debate to take place at Board
meetings. Acquisition opportunities are presented
to the Board by the appropriate Divisional
Managing Director or President. This enables a full
discussion of the merits and risks of any
acquisition proposal to take place at an early
stage. Other significant matters that require
formal Board approval which are routinely
presented by the appropriate business include
major bids, updates on key strategic initiatives and
major capital and private venture development
expenditure proposals. The Executive Team as a
whole meets the Board annually to present the
proposed Strategic Plan for the next five years.
This is then debated with the Directors, changes
agreed and a final plan is approved.

The scheduled Board meetings are rotated around
the sites of the operating businesses. During
2014, the Board visited seven operating
businesses in the UK. The Board held one of the
meetings at its joint venture subsidiary (Ultra
Electronics in collaboration with Oman Investment
Corporation LLC) in Oman, following a tour of the
Salalah and Muscat airport developments.

During Board meetings at Ultra’s operating units,
presentations detailing recent performance, key
opportunities and future forecasts are given by
the senior managers of the host business.
Product demonstrations and site tours also take
place. This gives the Non-Executive Directors a
good practical insight into the operating
businesses. The Non-Executive Directors will also
conduct individual visits to businesses.

Meeting attendance 2014
The table below shows attendance by Directors
at the Board and Committee meetings. To the
extent Directors were unable to attend meetings,
because unscheduled meetings were called at

short notice or because of prior commitments,
they received and read papers for consideration
at the meeting, relayed their comments in
advance and, where necessary, followed up with
the Chairman on the decisions made.

Actual
(inclusive of unscheduled
Board meetings )

Chairman
Douglas Caster

Chief Executive
Rakesh Sharma

Executive Directors
Mark Anderson1
Mary Waldner

Non-Executive Directors
Chris Bailey 2
Martin Broadhurst
Sir Robert Walmsley

15
17

16
17
17

Main Board

Audit Committee

Remuneration Committee

Nomination Committee

Maximum
possible

Actual

Maximum
possible

Actual

Maximum
possible

Actual

Maximum
possible

17
17

17
17
17

4*
4*

4
4
4

4*
4*

4
4
4

-
-

4
4
4

-
-

4
4
4

-
1

2
2
2

-
1

2
2
2

1 Mark Anderson was unable to attend one scheduled Board meeting in February 2014 and one unscheduled Board meeting in April 2014.
2 Chris Bailey was unable to attend one unscheduled Board meeting in October 2014.

*By invitation

Ultra Electronics Holdings plc 57
Corporate Governance Report (continued)

Board composition

Board tenure and independence

(cid:0) Chairman

(cid:0) Executive Directors 3

(cid:0) Non-Exec. Directors 3

In 2014, Chris Bailey, Non-Executive Director,
stepped down as the Chair of the
Remuneration Committee and was replaced
by Martin Broadhurst.

Throughout 2014, the Board structure was in
line with the Code.

Diversity
Ultra continues to follow its overriding policy of
appointing the best person for a particular role,
regardless of sex, race, nationality, disability, sexual
orientation, age, marital status, religion or beliefs.
The Board contends that a board composed of
the right balance of skills, experience and diversity
of views is best placed to support a company in its
strategic objectives. The Board has considered in
detail the requirements of the Code regarding
gender diversity. In selecting the best person for
a role, the Board gives active consideration to the
benefits of diversity, including gender diversity.
However, setting diversity target aspirations,
especially by specific dates, can distort the
selection process and conflict with its preferred,
diversity-aware ‘best person for the role’
approach. How the Board addressed diversity in
its selection process for a Non-Executive Director is
set out on page 60. You can read more about
the Company’s initiatives to improve diversity
across the Group, including information on the
gender split across the Board, Executive Team
and the Company as a whole, in the sustainability
sections of our Strategic Report on page 47.

Board skills and experience
The Board has a balance of skills, understanding,
perspectives and experience relevant to the
Group’s activities. The Board collectively
possesses a deep understanding of the Group’s
core defence, security, transport and energy
markets. This is complemented by its members’
experience and expertise in other industries and
disciplines including procurement, accountancy,
financial management and growing international
businesses. This range of skills and experience
informs the Board’s decision-making and enables
it to provide effective leadership.

The particular skills and experience that each
Director brings to the Board are described in
their biographical details on pages 50 and 51.

The Company has a policy whereby Executive
Directors, but not the Chief Executive, may
accept one appointment as a Non-Executive
Director in another listed company. Executive
Directors are permitted to retain any fees from
such external appointments.

Chairman
Douglas Caster

Non-Executive Directors
Chris Bailey

Martin Broadhurst

Sir Robert Walmsley

Executive Directors
Rakesh Sharma

Mary Waldner

Mark Anderson

Tenure years

Independence

Experience on
other plc boards

2.5

1.5

Yes

Yes*

Yes

*In February 2014, Douglas Caster joined the board of Morgan Advanced Materials plc as a

Non-Executive Director. This appointment has had no impact on his role as Chairman.

Board roles
There is a clear division of responsibilities
between the Chairman, the Chief Executive and
the Senior Independent Director, such that no
one individual has unfettered powers of decision
making. This formal division of responsibilities
has been agreed by the Board and is summarised
in a table which can be found on the Investors’
section of the Group’s website.

Non-Executive Directors
Chris Bailey, Sir Robert Walmsley and Martin
Broadhurst are the Group’s independent
Non-Executive Directors. Chris has served on the
Board for over 10 years and will retire as
Non-Executive Director at the Annual General
Meeting in 2015, therefore the Board determines
that he is independent. John Hirst became a Non-
Executive Director effective on 1 January 2015.
The Board considers the Non-Executive Directors
to be independent. In assessing independence,
the Board considers that they are independent of
management and free from business and other
relationships which could interfere with the
exercise of independent judgment, now and in
the future. The Chairman has considered the
Non-Executive Directors’ performance in the year
and has determined them to be effective and to
have demonstrated commitment to their roles.
The Board believes that any shareholdings of the
Chairman and Non-Executive Directors serve to
align their interests with those of all shareholders.

The key role of the Non-Executive Directors,
along with the Chairman, is to provide an
appropriate level of challenge and constructive
criticism to the plans of the Executive Directors.
The Non-Executive Directors met without the
Chairman or Executive Directors being present
during the year to discuss aspects relating to the
Board and the Company and appropriate
feedback was given.

On behalf of the Company, the Non-Executive
Directors are active in developing relationships at
a senior level with the Company’s key suppliers,
customers and business partners.

Insurance
The Group maintains an appropriate level of
Directors and Officers Liability insurance cover in
respect of legal action against its Directors.

Board appointments – the process
In making appointments to the Board, the
Board, through the Nomination Committee, is
careful to identify the skills, knowledge and
experience needed for each role and to
complement the existing skills mix provided by
other Board members. The process followed by
the Nomination Committee in appointing
Directors is described on page 60. To ensure
selection from the widest possible talent pool, it
is the Company’s normal practice to engage the
services of independent, external search
consultants in recruiting new Directors.

Welcome to John Hirst
Mr John Hirst CBE joined the Board on the
1 January 2015 and will seek election at the
2015 Annual General Meeting. John is a
Chartered Accountant and an experienced
leader of large global private and public
sector organisations. He was Chief Executive
Officer of electronics distributor, Premier Farnell,
and Chief Executive of the UK Met Office. He
has served for ten years as a Non-Executive
Director of Hammerson, where he was also
Chairman of the Audit Committee and is a
Non-Executive Director of Marsh Ltd.

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

58 Ultra Electronics Holdings plc
Corporate Governance Report (continued)

Governance (continued)
Corporate Governance Report

Directors’ induction and training
All new appointments to the Board receive a
comprehensive induction to the Group covering
the Group’s strategy, the products and services of
the Group’s businesses, the key markets in which
the businesses operate, the key risks which the
Group faces (together with the actions and plans
which are in place to mitigate against these),
corporate and organisational structure, financing
principles and legal and regulatory issues.

John Hirst joined Ultra as Non-Executive Director
on 1 January 2015. On appointment, he
received a full induction pack explaining Ultra’s
governance framework, policies and procedures.
He had induction meetings with the Executive
Directors, Company Secretary & General
Counsel, HR Director, external audit
engagement partner and head of internal audit.
He will also undertake a programme of visits to
the Group’s businesses where he will meet with
the management teams of these businesses.

The Company Secretary & General Counsel
annually presents to the Board on corporate
governance. The Board is briefed on significant
changes in the law or governance codes
affecting their duties as Directors. Experts
present to the Board on specialist areas, such as
pensions and tax. Specific training is arranged for
Directors as and when appropriate. The Directors
are able to call on independent professional
advice at anytime should this be necessary in
order for them to carry out their duties.

Board evaluation
The Chairman commissions externally-facilitated
annual Board evaluations. Board evaluations run
on a two year cycle. One year, the effectiveness
of the Board and its Committees is evaluated.
The next year, individual Director’s performance
is evaluated.

In 2014, Mr Telfer of Auxesis Consulting Ltd
undertook an assessment of the effectiveness of
the Board and its Committees. The evaluation
was conducted through a questionnaire with
follow up discussions. A report was prepared for
the Board on the results of the exercise and Mr
Telfer attended a Board meeting at which the
report was discussed. The Board and its
Committees were considered to be fully effective,
and the action points, illustrated in the table
above, were identified.

Mr. Telfer has considerable experience of
working at board level. He was the Human
Resources Director of the Company up until
June 2004 (when he left the Company to set up
his own consultancy) and so was able to
facilitate the evaluation from a position of
having a good understanding of the Company
and its culture. He provides a valuable insight
into the Company’s challenges and needs and is
able to assess the Board and its Committees in
the context of the Company’s development.

Board evaluation action points

Focus

Increased strategic focus

Succession planning for senior managers

Continued improvements to risk management
processes

Annual re-election of Directors
All the Directors will stand for re-election at the
Annual General Meeting on 30 April 2015
except for Chris Bailey who, after ten years in
tenure, will retire. In 2014, the Board appointed
a new finance specialist Non-Executive Director,
John Hirst. His appointment took effect on
1 January 2015. John will seek election at the
Annual General Meeting and will replace Chris
as the Chairman of the Audit Committee.

Conflicts of interest
The Company has in place procedures for
managing conflicts and potential conflicts of
interest. The Company’s Articles of Association
also contain provisions to allow the Directors to
authorise conflicts or potential conflicts of
interest so that a Director is not in breach of his
or her duty under company law. If Directors
become aware of a conflict or potential conflict
of interest they should notify in line with the
Company’s Articles of Association. Directors
have a continuing duty to update any changes
to their conflicts of interest. Directors are
excluded from the quorum and vote in respect
of any matters in which they have a conflict of
interest. No material conflicts were reported by
Directors in 2014.

Internal controls
The Directors carry out an annual review of the
effectiveness of the Group’s internal control
systems. This covers the ways in which identified
strategic, operational and financial risks are
managed. Particular attention in the year was paid
to business continuity planning and improving
information security management. Further, as part
of this assessment of internal controls the Directors
have considered the implications of the
termination of the Oman Airport IT contract and
have concluded that the control environment
continues to operate effectively, and that the
Company’s risk management procedures remain
appropriate. In light of this experience, the
Directors will review the application of the risk
management procedures to ensure that any
required enhancements are captured as part of a
continuous improvement.

Actions

In addition to the annual off-site meeting
dedicated to strategy, there will be two additional
annual half day Board strategy sessions.

The Chief Executive will provide the Board with
a written summary of strategic matters prior to
each Board meeting.

There will be an increased focus on strategy in
the businesses’ presentations to the Board.

The Board will receive annually a report on the
succession planning and career progression of
senior employees.

A review of the Company’s risk management
processes in light of the Code’s requirements
will be undertaken.

Ultra’s internal controls are designed, and have
evolved over time, to meet the Group’s particular
needs and the risks to which it is exposed.
However, no controls can provide absolute
assurance against material errors, losses or fraud.
The key features of the internal control system
that operated during the year are described in
the Audit Committee report on pages 62 to 64.

Risk management
Risk assessment and management is not treated
as a separate function within Ultra. It is assessed
and managed as an integral part of all of Ultra’s
management and control processes. The key
features of the risk management system are
described in the Audit Committee report on
pages 62 to 64.

Financial reporting systems
The Group has a well-established process for
collecting financial information from operating
businesses and for consolidating this at
Divisional and Group level.

Financial results for operating businesses, each
Division and the whole Group are provided to
the Board monthly and presented at every
scheduled Board meeting. Ten scheduled Board
meetings are held each year. When a scheduled
Board Meeting is not held in the month, the
Directors receive the following information: a
summary financial report for the Group
comprising consolidated financial information
and business financial information; summary
financial reports from each of the businesses;
and a shareholder analysis summary report on
Ultra. The Chief Executive and Group Finance
Director explain the significance of any major
impacts on the financial performance and draw
the Board’s attention to any significant trends or
deviations from budget revealed by forecasts of
future performance.

Ultra Electronics Holdings plc 59
Corporate Governance Report (continued)

Shareholder communication
Commitment to dialogue
The Board is committed to high-quality dialogue
with shareholders. The Executive Directors lead
in this respect. The Senior Independent Director
and other Non-Executive Directors are available
to meet with shareholders on request.

The Chairman and Senior Independent Director
offered to meet the small number of shareholders
who voted against the resolutions to re-appoint
the Directors at the 2014 Annual General Meeting
to understand their reasons. These shareholders
had voted against the resolutions because their
voting guidelines prevented them voting in
favour of a Board that was not made up of a
majority of independent Non-Executive Directors.
However, the shareholders emphasised their
confidence in the Board.

The Remuneration Committee Chairman has
also led a shareholder engagement exercise on
the remuneration policy, details of which can be
found in the Remuneration report on page 65.

Annual programme
A full programme of engagement with
shareholders, potential investors and analysts is
undertaken each year by the Executive Directors.
Ultra organises focused events and/or site visits
to provide greater insight into the strengths and
potential of its extensive portfolio of specialist
capabilities. These range from introductory
briefings on the Group as a whole to
presentations on specific areas of capability.

Visits and presentations in the year included a
presentation in London to shareholders and to
analysts at Bletchley Park in November 2014. At
this event the Directors gave presentations on the
new acquisitions – Forensic Technology Inc and
3 Phoenix Inc. The briefing also covered updates
on Sonar and Cyber capability. In addition, Ultra
invited investors and members of the financial
community to the Farnborough Airshow where
a significant proportion of the Group’s products
and capabilities was exhibited.

Meetings are held with institutional investors
and financial analysts after the release of the
interim and full year financial results, at which
detailed briefings are given. These briefings can
also be found on the Investors’ section of the
Group’s website, together with copies of all
regulatory announcements, press releases and
copies of the published full year and interim
accounts and reports.

The Board is regularly updated by the
Company’s stock broker on analysts’ and major
shareholders’ views on the Company. The Board
receives a report at each meeting on any
changes to the holdings of the Company’s main
institutional shareholders.

All shareholders are invited to attend the Annual
General Meeting where they have the
opportunity to meet with Directors and to ask
questions. Voting at the Annual General
Meeting is conducted by way of a show of
hands. Proxy votes lodged for each Annual
General Meeting are announced at the meeting
and published on Ultra’s website. Electronic
communication with shareholders is preferred
wherever possible since this is both more
efficient and environmentally friendly. However,
shareholders may opt to receive hard copy
communication if they wish.

Shareholder analysis
The majority of Ultra’s shares are held by
institutional shareholders. The Chairman,
Chief Executive and other members of the
Executive Team have significant holdings in the
Company, including shares awarded through
share option or long term incentive schemes.

Shareholder analysis by size of holding as at 31 December 2014

Fund

Unit trusts

Pension funds

Other managed funds

Sovereign wealth

Insurance companies

Private investor

Mutual fund

Investment trust

Custodians

Hedge fund

Exchange-traded fund

Employees share scheme trustees

Charity

Local authority

Other

Holding

39,398,653

8,686,854

3,903,247

2,207,343

3,519,396

5,195,065

3,687,413

1,122,255

1,099,543

475,420

235,247

194,906

236,713

56.31

12.41

5.58

3.16

5.03

7.43

5.27

1.60

1.57

0.68

0.34

0.28

0.34

Total issued share capital

69,962,055

100.00

Shareholder analysis by category of shareholder as at 31 December 2014

Size of shareholding
1-50
51-100
101-250
251-500
501-1,000
1,001-5,000
5,001-10,000
10,001-25,000
25,001-50,000
Over 50,000

Total

Total number

of holdings % of holders
7.67
5.35
21.39
14.97
15.86
16.40
3.21
3.62
3.03
8.50

129
90
360
252
267
276
54
61
51
143

Total number
of shares
2,815
7,441
66,559
91,831
185,758
559,534
386,392
959,827
1,830,506
65,871,392

%
issued capital
0.00
0.01
0.10
0.13
0.27
0.80
0.55
1.37
2.62
94.15

1,683

100.00

69,962,055

100.00

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

60 Ultra Electronics Holdings plc
Corporate Governance Report (continued)

Governance (continued)
Corporate Governance Report

Financial calendar

24 March 2015

9 April 2015

10 April 2015

30 April 2015

6 May 2015

3 August 2015

25 September 2015

Annual Report &
Accounts published

Ex-dividend date

Record date

Annual General
Meeting

Final dividend
payment date

Interim results
announced

Interim dividend
payment date

Board Committees
Ultra has established three Committees of the
Board (the Audit, Remuneration and Nomination
Committees), to which certain key responsibilities
have been delegated. The detailed terms of
reference of each Committee are available from
the Investors’ section of the Group website. The
responsibilities of each Committee are in line with
the recommendations of the Code. The
membership of the Audit and Remuneration
Committees comprises the three independent
Non-Executive Directors – Chris Bailey, Sir Robert
Walmsley and Martin Broadhurst. Chris is the
Chairman of the Audit Committee and Martin is
the Chairman of the Remuneration Committee.
The membership of the Nomination Committee
comprises the three independent Non-Executive
Directors and Douglas Caster, with Chris as
Chairman of the Committee. Summaries of the
key activities of each Committee are given in the
following paragraphs.

Audit Committee
The Committee met four times during the year. It
is responsible for overseeing the Company’s
internal financial controls and risk management;
recommending the half and full year financial
results to the Board; and monitoring the integrity
of all formal reports and announcements relating
to the Company’s financial performance. Full
details of the activities of the Audit Committee
during 2014 are given on page 62.

Nomination Committee
Role
The function of the Nomination Committee is to
keep under review the structure, size and
composition of the Board, and to make proposals
to the Board regarding the appointment of new
directors and Board Committee Chairmen. The
Board’s policy on diversity is described on page 57.
The terms of reference (which are reviewed
annually by the Nomination Committee) are
available on the Company’s website
(www.ultra-electronics.com).

During 2014 the Committee met twice. A
search firm, The Inzito Partnership, was engaged
to identify potential candidates for the position
of Non-Executive Director and, following the
retirement of Chris Bailey at the 2015 Annual
General Meeting, Chair of the Audit
Committee. The search firm does not have any
other connection with the Company. The
selection criteria required the candidate to: be a
qualified accountant; have recent and relevant
financial experience; have experience in
corporate finance matters; have experience in
dealing with investors and analysts; and have
the time capacity to take on the role. The list of
shortlisted candidates included male and female
applicants. The curriculum vitaes of the
shortlisted candidates were considered by the
Nomination Committee and members of the
Nomination Committee were invited to attend
the interviews. Following this process, upon the
recommendation of the Nomination Committee,
the Board appointed John Hirst as a Non-Executive
Director effective on 1 January 2015. He will be
appointed Chairman of the Audit Committee,
subject to election at the 2015 Annual General
Meeting. John comes with: a strong background
in strategy, knowledge of the public/private
sector and regulatory/governance issues; and
experience in international operations.

Ultra’s succession planning process is described
in detail on page 46.

Remuneration Committee
Role
The Committee met four times during the year.
It is responsible for formulating and
recommending to the Board the remuneration
policy for Executive Directors and Chairman of
the Board. Full details of the activities of the
Remuneration Committee during 2014 are
given in the Directors’ Remuneration Report on
page 65, comprising the Directors Remuneration
Policy Report and the Annual Report on
Remuneration. Both sections of the report will
be presented for approval by the shareholders at
the Annual General Meeting.

Statement of going concern
Ultra’s banking facilities amount to £300m in
total, together with a £15m overdraft. They
were established in two tranches.

The first tranche comprises £100m of revolving
credit, denominated in Sterling, US dollars,
Canadian dollars, Australian dollars or Euros.
This facility was signed in December 2012 and
expires in December 2017. The facility is
provided by a group of five banks.

The second tranche provides a further £200m of
revolving credit in the same currencies. This was
signed in August 2014 with seven banks and
expires in July 2019. Both facilities have the
same covenants.

The Group has a ‘shelf’ facility with Prudential
Investment Management Inc. This agreement
gives the Group access to the US private
placement market on a bilateral basis. The facility
is non-committed but is for up to $195m. At the
year-end $70m of loan notes had been issued,
which will mature in 2018 and 2019.

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. The Group’s
banking covenants have all been met in 2014
with a comfortable margin. The approved Group
budget for 2015 and strategic plan for later
years give confidence that the Group will
continue to meet these covenants. Details of
how Ultra manages its liquidity risk can be
found in note 23 – Financial Instruments and
Financial Risk Management.

Though global macro-economic conditions
remain uncertain, 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.

The Directors have a reasonable expectation that
Ultra has adequate resources to continue in
operational existence for the foreseeable future.
Thus, they continue to adopt a going concern
basis of accounting in preparing the annual
financial statements.

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 International Financial
Reporting Standards (IFRSs) as adopted by the
European Union and Article 4 of the
International Accounting Standards Regulation
(“IAS”) and have elected to prepare the Parent
Company financial statements in accordance
with United Kingdom Generally Accepted
Accounting Practice (United Kingdom
Accounting Standards and applicable law).
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 of the Company and of the profit or loss
of the Company for that period.

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

• Select suitable accounting policies and then

apply them consistently

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 Company’s
website. 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;

• Make judgments and accounting estimates

• the annual report and accounts are fair,

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 IFRSs 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.

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

• 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.

In accordance with Section 418 of the
Companies Act 2006, each Director in office at
the date the Directors’ report is approved,
confirms that:

• so far as the Director is aware, there is no
relevant audit information of which the
Company’s auditors are unaware; and

• he/she has taken all the steps that he/she ought
to have taken as a Director in order to make
himself/herself aware of any relevant audit
information and to establish that the Company’s
auditors are aware of that information.

The Annual Report on pages 1 to 79 was
approved by the Board of Directors and
authorised for issue on 27 February 2015 and
signed on behalf of the Board by:

Rakesh Sharma, Chief Executive
Mary Waldner, Group Finance Director

Ultra Electronics Holdings plc 61
Corporate Governance Report (continued)

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

62 Ultra Electronics Holdings plc
Audit Committee Report

Governance
Audit Committee Report

...as Chairman of the Audit Committee, I am
pleased to present our report detailing the
role and responsibilities of the Committee
and its activities during the year.
Chris Bailey Chairman of the Audit Committee

The Company is committed to ensuring that we
have robust and effective risk management and
control processes. As Chairman of the Audit
Committee, I am pleased to present our report
detailing the role and responsibilities of the
Committee and its activities during the year that
support this. The Board’s report on the systems
of internal control and their effectiveness,
together with the going concern statement, can
be found in the Corporate Governance section
on pages 52 to 61.

During the year, the Committee continued to
review the appropriateness of the Group’s
system of risk management and internal
controls, the robustness and integrity of the
Group’s financial reporting, along with both the
internal and external audit processes.

A risk based approach is taken by the Company
in determining its internal audit plan, thereby
ensuring the plan is clearly linked to the
Company’s strategy and flexible enough to
highlight and address emerging risks. The focus
in 2014 was on compliance with the Company’s
Business Continuity and IT Disaster Recovery
Policies by all of the Company’s businesses. In
addition, PricewaterhouseCoopers (PwC), the
Company’s internal auditors, continued to work
with the businesses to ensure the Company’s risk
management procedures remain relevant to
changing business conditions.

In 2014, the significant issues at the forefront
of the Committee’s deliberations were:
valuation and impairment testing of goodwill
and intangible assets; and long term
accounting, in particular in respect of the Oman
Airport IT contract. The Audit Committee
received regular updates on the Oman Contract
from management throughout the year and a
presentation from the law firm representing the
Company’s joint venture subsidiary in its
discussions regarding certification and payment
for work completed.

At the Annual General Meeting in April, I will
retire from the Board and Chair of the Audit
Committee following ten years of service as a
Non-Executive Director of Ultra. John Hirst, who
was appointed to the Board with effect from
the 1 January 2015, will seek election as a
Director of the Company and if so elected, will
be appointed as the Chairman of the Audit
Committee. John has recent and relevant
financial experience as well as being an
experienced leader of large global private and
public sector organisations.

Composition
The composition of the Committee is set out on
page 60. The Chairman of the Committee has the
relevant financial and accounting experience
required by the Code. The Chairman of the
Committee is supported in his role by the other
members of the Committee who have a wide
range of business experience and expertise, as
evidenced in their biographies on page 51.

Meetings and attendance
The Committee met four times during the year
under review. In addition to the Committee
members, regular attendees are: the Chairman
of the Board, the Chief Executive, the Group
Finance Director and the Marketing Director.
The Company Secretary & General Counsel acts
as Secretary to the Committee. Deloitte LLP is
the Group’s external auditor. To ensure full and
open communication, Deloitte was represented
at all Committee meetings, and the lead partner
from PwC attended those meetings at which
summary Internal Audit Reports were reviewed
by the Committee.

During 2014, the Committee Chairman met with
Deloitte and PwC in the absence of Executive
and Non-Executive Directors. In addition, the
Committee met with Deloitte without Executive
Directors present, where Deloitte reported on
their views of the Group’s financial management
process and any matters that they thought
should be brought to the Committee.

In terms of the effectiveness of the Committee,
an externally facilitated evaluation was carried
out (see page 58) by way of questionnaire
which was circulated to the Board. The role of
the Committee, its skills mix and oversight of
financial management, reporting and audit was
considered to remain effective.

Role
The Committee’s main responsibilities include
the following:

• Scrutinising the Group’s annual and interim

financial statements and accounts and
reporting to the Board on the significant
financial reporting issues and judgements made

• Reviewing the content of the Annual Report
& Accounts and advising the Board whether,
taken as a whole, it is fair, balanced and
understandable and provides the information
necessary for shareholders to assess the
Company’s performance, business model
and strategy

• Reviewing the scope and effectiveness of the
external audit process, including the external
auditors’ appointment, fees and independence

• Reviewing the effectiveness of the internal
audit function and the Group’s system of
internal control, including financial reporting,
and the processes for monitoring and
evaluating the risks facing the Group.

The Committee has written terms of reference
which includes all matters indicated by the
Code. These terms of reference are reviewed
and approved by the Board annually and are
available on the Company’s website
(www.ultra-electronics.com).

The Board is kept fully informed of the
Committee’s work and the minutes of each
Committee meeting are circulated to Board
members.

Internal controls and risk management
The Committee reviews the Company’s systems
of internal controls and risk management and
their effectiveness as well as continued
improvements to these systems and resolution of
any control issues identified. Clear terms of
reference set out the duties of the Board and the
Board Committees, with delegation of operating
responsibility to management clearly described in
the Group Operating Manual. Financial reporting
systems are comprehensive and include monthly
reporting cycles. Monthly finance reports are
prepared by all businesses containing actual
financial performance measures for the most
recent month and year to date. These are
compared with budget, forecasts and the prior
year. These monthly reports are reviewed by the
relevant Divisional Finance Director, Group
Finance Director, members of the Executive Team
and the Board. Financial information is uploaded
monthly by all businesses to BPC, the Group’s
consolidation and reporting system, which is
collated by the Head Office finance team and
reconciled to the businesses’ monthly reports.
When preparing and reviewing financial
information, the businesses do not work to a
materiality threshold. All variances judged to be
significant are investigated and explained.

Every 6 months, Divisional Control Review
(“DCR”) meetings, which are attended by the
Group Finance Director, each Divisional Finance
Director and PwC, are held. At the DCR meetings,
the internal controls processes and issues for each
business are discussed. These include:

Ultra Electronics Holdings plc 63
Audit Committee Report (continued)

• Results from the Senior Accounting Officer

review and any tax audits

• Self-assessment against the Group

Operating Manual

• Outstanding internal and external audits

• Segregation of duties and IT access audits

• Compliance with the Group’s Information

Security Policy

the risk management and internal control
systems have been in place for the year under
review and up to the date of approval of this
Annual Report & Accounts. With the assistance
of the Committee, all significant aspects of
internal control for 2014 have been reviewed and
internal procedures amended where necessary.

Activities of the Committee during the year

Summary results from these reviews are included in
the Internal Controls Improvement Status Report,
which is presented to the Committee twice a year.

Topic

Financial reporting

Effective and on-going monitoring and review are
essential components of sound systems of risk
management and internal control. Ultra’s financial
reporting and internal control systems are
intended to allow the Board to consider whether
the systems are aligned with the Company’s
strategic objectives and help to determine risks
including, but not limited to, principal risks and
uncertainties facing the Company. The Company’s
principal risks are set out on pages 36 to 39. The
Committee confirms its view that it has received
sufficient, reliable and timely information from
management in the last financial year to enable it
to fulfil its responsibilities. The Board maintains an
internal audit process, carried out by PwC, to
review financial and information systems control
procedures throughout the Group. All significant
business units are audited at least once every
2 years, while other businesses are audited on a
3 year cycle. In addition, all newly acquired
individually operating businesses are audited
within a year of their acquisition date. The lead
partner of PwC reports directly to the Chairman
of the Committee and presents the findings of his
team twice annually to the Committee. Progress
reports on follow-up remedial actions are
reported regularly to the Committee. PwC
confirms whether appropriate action has been
taken to address the risks when they next visit
the business concerned.

The Managing Directors and Presidents, Finance
Directors and Vice Presidents of Finance of each
business are required to give a formal written
representation to the Board each year
confirming that they accept responsibility for
maintaining effective internal controls and that
they have disclosed full details of any fraud or
suspected fraud within their business.

As part of the ongoing assessment of internal
controls and risk management the Committee has
considered the implications of the termination of
the Oman Airport IT contract and has concluded
that the control environment continues to operate
effectively. Whilst the Committee considers the
Company’s risk management procedures to
remain appropriate, in light of this experience the
Committee will review the application of the risk
management procedures to ensure that we
capture any required enhancements.

The Board accepts overall responsibility for
reviewing the operation and effectiveness of the
Group’s internal controls at least annually and has
performed a specific assessment for the purposes
of this Annual Report. The Board confirms that

What was considered

Annual and interim financial statements and related results
announcements

Reports from the external auditor on the outcomes of their
audit process

Key accounting policies and practices adopted by the
Group, key accounting judgments (see page below) and
matters that required the exercise of significant
management judgment (see page below)

The going concern statement (see page 60)

Reports on the internal control environment and risk
management and their effectiveness

Tracking compliance with the Group’s Business Continuity
and IT Disaster Recovery Policies

Progress reports on work undertaken to strengthen
controls around the Group’s main risks (see page 62)

Internal and external audit plans for the year

Reports of calls to the Group’s external Employee Hotline
and how they have been investigated and dealt with

The external auditors’ engagement policy, independence
and effectiveness

Review of audit and non-audit fees

Changes to IFRS, financial reporting and UK Corporate
Governance Code

The Committee’s terms of reference

Internal controls

Key risk mitigation

Audit plans

Whistleblowing

External auditor

Governance

Significant financial judgements
and financial reporting for 2014

How the Committee addressed
these judgements

Oman airport IT contract termination

The Committee reviewed the documentation received in
respect of the termination event and discussed the
implications arising from this, in particular whether it was
an adjusting post balance sheet event for FY14.
The Committee considered the judgements taken in
accounting for the termination event including revenue
recognition, recoverability of assets, provisions for all
known liabilities, and the associated disclosures presented
in this Annual Report.
The Committee further considered reports from, and held
discussions with, the external auditors.

Revenue and profit recognition on
the largest long term contracts in
the Group

The Committee assessed the risk control processes and
approval practices adopted when determining revenue and
profit recognition

Valuation of goodwill and
intangibles

Retirement benefit plans

The Committee reviewed the methodology and
assumptions used to determine the balance sheet values.
The Committee also considered reports from, and held
discussions with, the external auditors

The Committee reviewed the main assumptions used in
determining the defined benefit post retirement obligation

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

64 Ultra Electronics Holdings plc
Audit Committee Report (continued)

Governance (continued)
Audit Committee Report

External auditors
The performance, effectiveness and independence
of the Company’s auditors, Deloitte, are reviewed
annually by the Committee. The Committee
considered the questions contained in a
questionnaire issued by the Institute of Chartered
Accountants of Scotland in October 2007 to
assess performance, effectiveness and
independence and concluded that Deloitte had
been sufficiently transparent and incisive and the
audits had been effective. The Committee
concluded that Deloitte was both independent
and objective and that the reappointment of
Deloitte as external auditor should be
recommended to the shareholders. Accordingly,
a resolution to reappoint Deloitte will be put to
shareholders at the Annual General Meeting.

The senior audit partner employed by Deloitte
on the Ultra audit is subject to a strict policy of
regular rotation such that there is a change in
this role at least once every five years. This is in
accordance with professional practice
guidelines. The current senior audit partner’s
tenure commenced in 2011. Deloitte was
appointed in 2002. The Committee considers
that for an organisation of the size and
complexity of Ultra, the tendering of external
audit must be well planned to ensure that the
Group complies with best practice corporate
governance as well as ensuring the Group
receives a high quality, efficient and effective
external audit service. On this basis, the
Committee considers it would be appropriate to
conduct an external audit tender no later than
2023 (in line with applicable regulations and the
Code) at which point Deloitte would be
precluded from being Ultra’s external auditors.
There are no contractual obligations that restrict
the Committee’s choice of external auditors.

The auditor’s engagement letter and the scope of
the year’s annual audit cycle is discussed in
advance by the Committee, ensuring that any
changes in circumstances arising since the
previous year are taken into account. With respect
to non-audit assignments undertaken by Deloitte,
the Company has a policy to ensure that the
provision of such services do not impair Deloitte’s
independence or objectivity. The policy is that:

• Non-audit services are restricted to regulatory
reporting, consultancy services associated with
financial restructuring, responding to new
reporting requirements, due diligence
assessments of potential acquisitions and minor
consultancy work. In connection with acquisition
due diligence work and certain consultancy
work, it is the Board’s view that the auditor’s
familiarity with the Company’s accounting
practices and the techniques that are involved in
the Company’s long-term contracting activities
serves them well in carrying out such work.

• When considering the use of the external
auditors to undertake non-audit work,
consideration must be given to the provisions
of the Financial Reporting Council Guidance
on Audit Committees with regard to the
preservation of independence and objectivity.

• The external auditors must certify to the

Company that they are acting independently.

• In providing a non-audit service, the external

auditors should not:
– audit their own work
– make management decisions for the Company
– create a mutuality of interest
– find themselves in the role of advocate for

the Company.

• The Group Finance Director has authority to

commission the external auditors to undertake
non-audit work where there is a specific
project with a cost that is not expected to
exceed £50,000. Any individual assignments
with an estimated fee in excess of £50,000
must be referred in advance to the Chairman
of the Committee for his approval. All
non-audit work has to be reported to the
Committee at its next meeting.

• Before commissioning non-audit services, the
Group Finance Director or the Chairman of
the Committee, as appropriate, must ensure
that there is no issue as regards independence
and objectivity and that other potential
providers are adequately considered.

The effectiveness of the external audit process is
assessed by the Committee, which meets
regularly throughout the year with the audit
partner and senior audit managers. Key to the
overall effectiveness of the process is that each
of the Company and the Auditor make the other
aware of accounting and financial reporting
issues as and when they arise, and this exchange
is not limited to the period in which formal audit
and review engagements take place.

This general approach is supported by a formal
feedback request process whereby each of the
businesses in the Group are requested to feedback
comments on the audit process, the performance
of the auditors and any recommendations for the
audit process going forward. A debrief meeting is
then held with Deloitte to discuss the results of the
feedback and agree on any measures for
improvement of the audit process.

The Committee believes that sufficient and
appropriate information is obtained from the
feedback request to form an overall judgment on
the effectiveness of the external audit process.

The fees paid to Deloitte in respect of audit and
non-audit services are shown in note 6 to the
Financial Statements.

The Group has a policy on employment of
former employees of external auditors. This
requires that any such employment is considered
on a case by case basis and takes into account
the Auditing Practices Board’s Ethical Standards
on such appointments. Such appointment
requires approval by a combination of the Group
Finance Director, Audit Committee and Board,
depending on the seniority of the appointment.

Fraud
The internal audit process carried out by PwC,
described on page 63, and the Group’s internal
control framework help to protect the Group
against fraud. Regular business reviews take
place at all businesses, in which detailed balance
sheet and cash flow reviews are carried out by
the relevant Divisional Managing and Financial
Directors. In addition, the Group Finance
Director and Group Chief Operating Officer
review the performance of the businesses with
the Divisional team monthly and directly with
the businesses at least twice a year. Significant
differences between forecast and reported
financial results are highlighted and require
explanation by the business unit concerned. The
Group Chief Executive and Group Marketing
Director also attend such Divisional/Business
reviews as the case requires. The internal control
framework that is in place is supplemented by
the external audit process which represents a
second independent review of controls and
procedures, with selective transaction testing of
higher risk areas. There is a fraud reporting
process in place. Any reports of fraud would
immediately be investigated and the situation
reported at the next Board meeting.

Whistleblowing
An independently hosted Employee Hotline is
used to provide a process for reporting ethical
concerns. Employees are informed of this process
through posters (which are translated into local
languages) and through the Group intranet
(which is accessible by all employees). Employees
can report ethical dilemmas or other similar
concerns they may have via this external
Employee Hotline and can remain anonymous if
they wish. Employee concerns are forwarded to
the Chairman of the Audit Committee or, in the
case of issues covered by US security legislation,
to the Chairman of the Security Committee of
either Ultra’s Special Security Agreement
company or Ultra’s Proxy Board company, as
appropriate. During 2014, two reports were
submitted (none in 2013) which were
investigated and dealt with appropriately.

Anti-bribery
Ultra has robust anti-bribery policies and
procedures in place. All Directors and employees
are required to sign Ultra’s code of conduct on
anti-bribery and commit to act in accordance with
the code. Within 1 week of joining Ultra, Directors
and employees undertake anti-bribery training.
Further anti-bribery training is given to targeted
groups throughout the year. The Group intranet
contains a statement from the Chief Executive
regarding compliance with Ultra’s anti-bribery
policies. Compliance with the code of conduct on
anti-bribery is closely monitored by a requirement
for Ultra businesses to submit monthly business
performance reports confirming compliance with
the code and reporting any breaches.

By order of the Board

Chris Bailey, Chairman of the Audit Committee
27 February 2015

Ultra Electronics Holdings plc 65
Remuneration Report

Revenue
£713.7m
2013: £745.2m

-4.2%

Underlying operating profit*
£118.1m
2013: £121.7m

-3.0%

Underlying earnings per share*
123.1p
2013: 127.1p

-3.1%

+5.2%

Operating cash flow*
£83.1m
2013: £79.0m

Total shareholder return
+8%
2013: 14%

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

Governance
Remuneration Report

As the recently appointed Chairman of the
Remuneration Committee, I am pleased to
present the Remuneration Report for the
financial year ended 31 December 2014.
Martin Broadhurst, Chairman, Remuneration Committee

ANNUAL STATEMENT
Dear shareholder
As the recently appointed Chairman of the
Remuneration Committee, I am pleased to
present the Remuneration Report, prepared by
the Remuneration Committee (the “Committee”)
and approved by the Board, for the financial year
ended 31 December 2014. It has been prepared
in accordance with Schedule 8 of The Large and
Medium-sized Companies and Group (Accounts
and Reports) Regulations 2008 as amended in
August 2013 and has been divided into the
following three sections:

1. this Annual Statement, which summarises
the major decisions on, and any substantial
changes to, Directors’ remuneration;

2. the Directors’ Remuneration Policy

Report, which sets out Ultra’s policy on the
remuneration of Executive and Non-Executive
Directors; and

3. the Annual Report on Remuneration,

which discloses how the Remuneration Policy
will be implemented in the year ending 31
December 2015 and how it was implemented
in the year ended 31 December 2014.

The Committee is seeking to make a number of
minor changes to the Directors’ Remuneration
Policy Report, and accordingly, a binding vote to
approve the new three year Directors’
Remuneration Policy Report will be proposed at
the forthcoming 2015 AGM. The annual
advisory vote on the Annual Report on
Remuneration will be also tabled.

Remuneration policy for 2015
Following my appointment as Chairman of the
Committee and a review of the Remuneration
Policy in light of best and market practice, the
Committee proposes to make a number of minor
changes to the Remuneration Policy. Reflecting a
comprehensive strategic review, the Company is
realigning its capabilities to better position itself
to enhance the marketing effectiveness and
make the most of its extensive technology
offerings. As such, the Committee considers it
timely to introduce selected non-financial
incentive measures within the Directors’ annual
bonus plan to a maximum of 25% of the 100%
of salary maximum annual bonus potential.

*see footnote on page 132

In addition, and consistent with best practice,
the Committee is proposing to extend and
expand its incentive clawback provisions and
introduce dividend equivalent provisions into the
policy (the LTIP rules currently permit the
payment of dividend equivalents although the
provision has not been operated to date).

Finally, although not part of the Committee’s
remit, the Non-Executive Director fee policy will,
subject to shareholder approval, be amended to
introduce a separate responsibility fee for
serving as Senior Independent Director.

Performance and reward during 2014
2014 was a challenging year: revenue and
underlying operating profit* were £713.7m
(2013: £745.2m) and £118.1m (2013: £121.7m)
respectively; underlying earnings per share* were
123.1p (2013: 127.1p); operating cash flow* was
£83.1m (2013: £79.0m); and total shareholder
return was 8% (2013: 14%). Reflecting this, no
annual bonus was payable for 2014 (no bonus
was paid for 2013) and the 2012 LTIP awards
which had been due to crystallise in 2015 based
on three year TSR and EPS performance to
31 December 2014 will not vest as a result of
performance targets not being met.

In light of these results, the Non-Executive
Directors (including the Chairman of the Board)
declined a fee increase for 2015.

Shareholder engagement
Our voting result at the 2014 AGM was
97.99% in favour of the Directors’
Remuneration Policy Report and 99.56% in
favour of the Annual Statement and Annual
Report on Remuneration.

The Committee continues actively to seek
shareholder views on our Remuneration Policy
and is mindful of the concerns of shareholders
and other stakeholders. As such, we carried out
a consultation in December 2014 with all of our
major shareholders as well as the IA and ISS on
the proposed changes to the Remuneration
Policy Report.

In conclusion, the Board firmly considers that
the Remuneration Policy continues to be aligned
with the strategic goal of the Group in adding
to shareholder value and supporting the long
term success of the Company.

Martin Broadhurst, Chairman, Remuneration Committee
27 February 2015

66 Ultra Electronics Holdings plc
Remuneration Report (continued)

Remuneration Report
Directors’ Remuneration Policy

The policy described in this section, which was originally approved by shareholders at the 2014 Annual General Meeting, contains a number of minor
amendments for which shareholder approval will be sought at the 2015 Annual General Meeting. In summary, the amendments are: (i) extending and
expanding incentive clawback provisions; (ii) introducing a strategic/personal element to the annual bonus; (iii) introducing dividend equivalents to LTIP
awards; and (iv) introducing a separate fee for acting as Senior Independent Director. The proposed changes, subject to shareholder approval, will
become effective from the 2015 Annual General Meeting and will apply from 1 January 2015.

Policy overview
The Group’s Remuneration Policy is to reward senior management competitively, enabling Ultra to recruit, motivate and retain executives of high calibre,
whilst avoiding making excessive remuneration payments. The remuneration of Executive Directors and senior managers is aligned with corporate objectives
and the interests of shareholders. The linkages between each element of the Executive Directors’ remuneration packages with the Group’s objectives and the
interests of shareholders are set out in the following information.

Future policy
The following information summarises the Directors’ Remuneration Policy:

How the element supports
our strategy

SALARY

Reflects the value of the
individual and their role and
responsibilities

Reflects underlying
performance of the individual

Provides an appropriate level of
basic fixed income avoiding
excessive risk arising from over
reliance on variable income

Operation of the element

Maximum potential

Performance targets

Normally reviewed annually,
effective 1 January

Paid in cash on a monthly basis;
pensionable

Is compared with companies
with similar characteristics and
sector comparators

Targeted at or below median

Reviewed in context of the
salary increase budget across
the Group

None

While there is no defined
maximum salary, it is the
Committee’s policy to set pay for
Executive Directors at industry
competitive levels taking market
capitalisation and annual sales
into account. Annual salary
increases take into account:
(i) underlying performance of
the individual; (ii) underlying
performance of the business;
(iii) underlying annual salary
increases within the overall
Group; (iv) any changes to the
scope of the role in terms of size
or complexity; and (v) underlying
salary increases for similar
industry roles

It is recognised that annual
salary increases may also include
a ‘catch up’ element over and
above the factors listed above to
increase the salary towards or to
a competitive industry level
where the Executive Director
was appointed with a salary
significantly below the
competitive level

Annual salary increases for
Executive Directors will not
normally exceed the average
increase awarded to other
Company UK based employees
although increases may be
above this if there is an increase
in: (i) the scale, scope or
responsibility of the role; and/or
(ii) the experience of the
incumbent where this has a
positive impact on Group
performance

Ultra Electronics Holdings plc 67
Remuneration Report (continued)

Operation of the element

Maximum potential

Performance targets

How the element supports
our strategy

ANNUAL BONUS

Provides focus on delivering/
exceeding annual budget

Rewards and helps retain key
executives and is aligned to the
Group’s risk profile

Maximum bonus only payable
for achieving demanding targets

Payable in cash

Non-pensionable

Malus and claw back
provisions apply

100% of salary p.a.

At least 75% of bonus potential
based on financial measures (e.g.
headline profit before tax; and
operating cash flow)

No more than 25% based on
non-financial strategic/personal
targets

No bonus will be paid in respect
of the non-financial element of
the bonus if the Committee
considers the Company’s
financial performance to be
unsatisfactory or there is an
exceptional negative event
during (or just after) the
relevant financial year

Performance measured over
three years

Relative Total Shareholder Return
(TSR) targets (with an absolute
EPS underpin)

20% of award vests at threshold
performance

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

LONG TERM INCENTIVE PLAN

Aligned to main strategic
objective of delivering
long-term value creation

Aligns Executive Directors’
interests with those of
shareholders

Rewards and helps retain key
executives and is aligned to the
Group’s risk profile

Share plan approved (as
amended) by shareholders
in April 2013

Discretionary annual grant of
nil cost options or conditional
share awards

Malus and claw back
provisions apply

PENSION

To provide competitive, yet
cost-effective retirement benefits

Defined benefit provision,
defined contribution and/or
salary supplements paid on a
cash neutral basis

OTHER BENEFITS

To provide benefits consistent
with role

Benefits include: private medical
cover; life insurance; critical care
insurance; permanent health
insurance; car and fuel allowance;
relocation and expatriation
expense; and other benefits
payable where applicable

Normal Limit:
• 125% of salary p.a. for the

Chief Executive

• 100% of salary p.a. for other

Executive Directors

Exceptional Limit:
• 150% of salary p.a. e.g.

recruitment or retention of
an employee

Dividend equivalents may be payable
on LTIP awards, in cash or shares, to
the extent that awards vest

None

The Defined Benefit Scheme (which
is closed to new employees) provides
a benefit of two thirds of a members
Final Pensionable Earnings if they
have completed over twenty years’
Pensionable Service at Normal
Retirement Date. If Pensionable
Service at Normal Retirement Date is
less than this it will be calculated as
1/30th of Final Pensionable Earnings
for each year

Defined contribution/salary
supplement rates up to a maximum
of 20% of base salary

n/a

68 Ultra Electronics Holdings plc
Remuneration Report (continued)

Remuneration Report (continued)
Directors’ Remuneration Policy

How the element supports
our strategy

SHARE OWNERSHIP GUIDELINES

To provide alignment of
interests between Executive
Directors and shareholders

ALL EMPLOYEE SHARE PLANS

The Executive Directors are
eligible to participate in the
Company’s HMRC approved
All-Employee Share Ownership
Plan (“AESOP”) and the Savings
Related Share Option Scheme
on the same terms as other
employees

To encourage employee share
ownership and increase
alignment with shareholders

NON-EXECUTIVE DIRECTOR FEES

Reflects time commitments and
responsibilities of each role

Reflects fees paid by similarly
sized companies

Chairman’s remuneration is
set by the Remuneration
Committee which meets
without him. The remaining
Non-Executive Directors’ fees
are proposed by a sub-committee
of the Executive Directors and
approved by the Board

Operation of the element

Maximum potential

Performance targets

n/a

Executive Directors are required
to build and maintain a
shareholding equivalent to one
year’s base salary (125% of
base salary for the Chief
Executive) through the retention
of at least 50% of the post-tax
shares received on the vesting
of LTIP awards

Aim to hold a shareholding equal
to 100% of base salary (125% for
the Chief Executive)

Under the AESOP up to the value of
£1,500 per annum from pre-tax pay

n/a

Under the Savings Related Share
Option Scheme, up to £1,200 per
annum from post-tax pay

Under the AESOP, UK
employees are offered the
opportunity to buy shares up to
the prevailing HMRC limits per
annum from pre-tax salary.
Shares are then held in trust
until the maturity date or until
they leave Ultra

Under the Savings Related
Share Option Scheme,
employees are entitled to save
up to the prevailing HMRC
limits or the lower limit set by
Ultra per annum from net pay
towards the purchase of
options to buy Ultra shares

Cash fee paid monthly

n/a

Fees are reviewed on an
annual basis

Fixed 12 month contracts with
no notice periods

An additional fee is paid to the
Chairman of the Audit,
Remuneration and Nomination
Committees and to the Senior
Independent Director

No additional fees are payable
for any other duties to
Non-Executive Directors

Notes to future policy table:

(1) A description of how the Company intends
to implement the policy in 2015 is set out in
the Annual Report on Remuneration.

(2) The Remuneration Policy described above
provides an overview of the structure that
operates for the most senior executives in the
Group. Lower levels of incentive operates for
employees below executive level, with
remuneration driven by market comparators
and the impact of the role. Long-term
incentives are reserved for those anticipated
as having the greatest potential to influence
the Group’s earnings growth and share price
performance, although as the Committee is
aware of the benefits which wider employee
share ownership can generate, all employees
are encouraged to participate in the AESOP
and Savings Related Share Option Scheme in
the countries in which they are offered.

(3) The choice of the performance metrics
applicable to the annual bonus scheme
reflect the Committee’s view that any
incentive compensation should be
appropriately challenging and largely tied to
financial performance. The TSR and EPS
performance conditions applicable to the LTIP
(further details of which are provided on
page 71) were selected by the Committee on
the basis that:

• TSR aligns the performance objectives of the

Executive Directors (TSR is one of the
Group’s Key Performance Indicators) more
closely with the interests of the shareholders;

• TSR is an entirely objective measure of

relative performance;

• The use of TSR and EPS reflects the metrics

most commonly used by other quoted
companies;

• TSR reduces the complexity and cost of

calculating the vesting result; and

• The EPS underpin ensures an appropriate
level of profit growth is maintained by the
Group.

(4) All employee share plans do not operate

performance conditions.

(5) As highlighted above, Ultra has a share
ownership policy which requires the
Executive Directors to build up and maintain
a target holding equal to 100% of base
salary (125% for the Chief Executive). Details
of the extent to which the Executive Directors
had complied with this policy as at
31 December 2014 are set out on page 74.

(6) For the avoidance of doubt, in approving this
amended Directors’ Remuneration Policy,
authority was given to Ultra to honour any
commitments entered into with current or
former Directors (such as, but not limited to,
the payment of a pension or the
vesting/exercise of past share awards) that
have been disclosed to and approved by
shareholders in previous Remuneration
Reports. Details of any payments to former
Directors will be set out in the Annual Report
on Remuneration as they arise.

Ultra Electronics Holdings plc 69
Remuneration Report (continued)

Executive Director service contracts
The Group’s policy is to ensure that the
Executive Directors’ service contracts have a
notice period of one year, which the Committee
considers appropriately reflects both current
market practice and the balance between the
interests of the Group and each Executive
Director. The following table provides more
information on each Director’s service contract:

Name

M. Anderson
R. Sharma
M. Waldner

Date of
contract

Notice
period

1 Apr 2012 12 months
21 Apr 2011 12 months
1 Jul 2013 12 months

No Executive Directors have provisions in their
contracts for compensation on early termination
other than for the notice period.

External appointments of Executive Directors
The Chief Executive is not permitted to accept
any external appointment as a Non-Executive
Director. Other Executive Directors may accept
not more than one external appointment as a
Non-Executive Director. Up to 50% of any time
spent undertaking such external duties can be
taken as additional unpaid leave with the
remainder being treated as annual holiday.

Executive Director exit policy
Ultra may terminate an Executive Director’s
contract early with contractual notice or by way
of a payment in lieu of notice, at its discretion.
Neither notice nor a payment in lieu of notice
will be given in the event of gross misconduct.
Payments in lieu of notice will equate to the
basic salary and benefits payable during the
notice period or, if notice has already been
given, the remainder of the notice period.
Payment in lieu of notice will be made by way of
a lump sum or by phased instalments over the
notice period. Where payments are phased, if an
employee gains employment during the notice
period, payments would be reduced. There is no
contractual entitlement to annual incentive
payments in respect of the notice period. An
annual bonus may be payable with respect to
the period of the financial year served although
it will be pro-rated for time and paid at the
normal payment date as defined by the bonus
scheme rules.

Any share-based entitlements granted to an
Executive Director under the Group’s share plans
will be determined based on the relevant plan
rules. The default treatment under the 2007 LTIP
is that any outstanding awards lapse on cessation
of employment. However, if a participant ceases
to hold office or employment because of death
or for any other circumstance, at the discretion of
the Committee, ‘good leaver’ status may be
applied. For good leavers, the Committee can
decide that awards will vest on the date they
would normally have vested had the participant
not ceased to hold office or employment.

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

Remuneration scenarios for
Executive Directors
The charts below show how the composition of
the Executive Directors’ remuneration packages
varies at three performance levels, namely, at
minimum (i.e. fixed pay including pensions and
taxable benefits), target and maximum levels,
under the policy set out in the table overleaf.
The charts show the proportion of the total
package comprised of each element.

Chief Executive
remuneration composition levels (%)

2,000

1,600

1,200

800

400

£’000

1,903

1,381

2
8

1
9

1
5

3
8

3
4

2
7

1
1

2
7

728

2
8

7
2

Min

Target

Max

Group Finance Director
remuneration composition levels (%)

1,100

825

550

275

£’000

1,023

3
1

738

2
6

2
1

1
0

4
3

389

1
9

8
1

Min

Target

Max

Group Marketing Director
remuneration composition levels (%)

900

675

450

225

£’000

802

3
1

578

2
6

2
1

1
0

4
3

306

1
9

8
1

Min

Target

Max

(cid:1) Long-term share awards
(cid:1) Annual bonus

(cid:1) Pensions/benefits
(cid:1) Salary

Director recruitment policy
The Nomination Committee normally considers
both internal and external candidates before any
new appointment is made. New Executive
Directors are provided with remuneration
consisting of base salary, short-term incentive,
long-term incentive and other benefits.

Salary
Ultra’s policy is to set pay for Executive Directors
at industry competitive levels taking market
capitalisation and annual sales into account. It is
recognised that a new appointee may not have
as much experience as someone at a competitive
level and may therefore be offered a salary
below competitive levels but at a level that is
sufficient to attract the person. In exceptional
circumstances, the Committee may exercise its
discretion to offer an above industry competitive
level salary in order to attract the best person.

Short-term incentive
Short-term incentives are offered in line with
those paid to other Executive Directors.
Maximum opportunities will be in line with
current plan maximums for existing Directors
(i.e. 100% of salary p.a.).

Long-term incentive
Long-term incentives are offered in line with
those paid to other Executive Directors.
Maximum opportunities will be in line with
current plan maximum for existing Directors (i.e.
up to 125% of salary p.a. or 150% of salary
p.a. in exceptional circumstances).

Other benefits
Other benefits are offered in line with those
paid to other Executive Directors.

Buy outs
To facilitate recruitment, the Committee may make
an award to buy-out incentive arrangements
forfeited on leaving a previous employer. In doing
so, the Committee will take account of all relevant
factors including any performance conditions
attached to these awards and the time over which
they would have vested or been paid. Ultra may
make use of the flexibility provided in the Listing
Rules (LR 9.4.2) to make awards if appropriate.
Where possible, incentives will be bought out on a
like-for-like basis with respect to vesting/payment
dates, currency (i.e. cash versus shares) and the
use of performance targets.

Non-Executive Directors
The approach to the recruitment of
Non-Executive Directors is to pay an annual fixed
fee, after considering existing Non-Executive
Directors fee levels, market levels and expected
time commitment. In deciding whether to
accept any fee increase the Non-Executive
Directors consider Company performance.

Notes to remuneration scenarios
(1) Base salary levels are based on those applying from

1 January 2015.

(2) Benefit and pension value for 2015 has been estimated.
(3) Annual Bonus outturn is assumed to be 50% of salary at target
level. For maximum, outturn assumes a maximum bonus award
level of 100% of salary.

(4) Long-Term Incentive Share Awards assume a grant policy of
125% of salary for the Chief Executive and 100% of salary
for the other Executive Directors which vests in full at
maximum performance, while 20% is assumed to vest at
target level of performance. No share price appreciation has
been included.

70 Ultra Electronics Holdings plc
Remuneration Report (continued)

Remuneration Report (continued)
Directors’ Remuneration Policy

How shareholders’ views are taken
into account
The Committee considers shareholder feedback
received in relation to the Annual General
Meeting each year. This, and any other feedback
received during the year, is then considered as
part of the Group’s annual review of the
Remuneration Policy. At the 2014 Annual General
Meeting, 99.56% of our shareholders voted in
favour of the Annual Statement and Annual
Report on Remuneration and 97.99% voted for
the Directors’ Remuneration Policy. Additionally
we carried out a consultation in December 2014
with all of our major shareholders as well as, the
IA and ISS on the proposed changes to the
Remuneration Policy Report and Executive
Director Remuneration.

Claw back and malus policy
Consistent with common practice when
clawback was first introduced, the Company
operated a clawback provision in the annual
bonus but not the LTIP. In addition, the trigger
was limited to misstatement of the accounts.
However, following a detailed review of practice
at Ultra and how this compared to best and
market practice, Ultra’s recovery provisions will
be amended to: introduce malus (i.e. the ability
to reclaim deferred remuneration prior to
payment/vesting) in addition to clawback (i.e.
the ability to reclaim amounts paid); extend the
provisions into the LTIP; and expand the triggers
to include misstatement, error in respect of the
calculation of a payment, where an individual
has (or would have) been dismissed for gross
misconduct and where there has been an
exceptional negative event.

Executive Director exit policy (continued)
Alternatively, the Committee can decide that
awards will vest on cessation. In both cases, the
award will vest subject to the satisfaction of the
relevant performance conditions at that time
and a pro rata reduction to reflect the period of
time from the date of grant of the award to the
date of cessation relative to the normal three
year vesting period. However, the Committee
can decide not to apply a pro rata reduction if it
regards it as inappropriate to do so in any
particular case.

Non-Executive Director service contracts
The Non-Executive Directors have fixed twelve-
month contracts with no notice period. Details
of their service contracts are in the table below:

Date of
contract
Name
31 Jan 2015
C. Bailey1
2 Jul 2014
M. Broadhurst
21 Apr 2014
D. Caster
J. Hirst
7 Oct 2014
Sir Robert Walmsley 31 Jan 2015

Notice
period
Nil
Nil
Nil
Nil
Nil

1 Chris Bailey will retire as Non-Executive Director

at the 2015 Annual General Meeting.

There are no provisions in their contracts for
compensation on early termination.

How employment conditions elsewhere in
the Group are considered
Base salary increases take into account a
number of factors including the underlying base
salary increases within the overall Group. Pay is
only set centrally for Executive Directors,
Executive Team members, Divisional staff,
Business Managing Directors/Presidents, UK
Directors and Head Office staff. All other salaries
are set within the operating businesses. In all
cases there are two levels of approval. The
Remuneration Committee does not consult with
employees when setting the remuneration of
Executive Directors. It uses independent
comparison metrics to benchmark remuneration
with other companies.

97.99%

Our voting result at the
2014 Annual General
Meeting was 97.99% in
favour of the Directors’
Remuneration Policy Report...

99.56%

...and 99.56% in favour of
the Annual Statement and
Annual Report on Remuneration

Ultra Electronics Holdings plc 71
Remuneration Report (continued)

Remuneration Report
Annual Report on Remuneration

Implementation of the Remuneration Policy in 2015
A summary of how the Directors’ Remuneration Policy will be applied for the year ending 31 December 2015 is set out below.

Salaries
Current Executive Director salary levels are as follows:

R. Sharma
M. Waldner
M. Anderson

2015
Salary
£’000

522
317
248

2014
Salary
£’000

474
302
225

Increase
%

10
5
10

Consistent with its policy of moving base salary levels for recent appointments towards market levels over time, Rakesh Sharma’s salary was increased to
£522,000 and Mark Anderson’s salary was increased to £248,000 from 1 January 2015. Reflecting Mary Waldner’s performance in the year, her base
salary was increased to £317,000 from the same date. Following the award of these increases, the Committee is satisfied that the base salary levels are
now within the relevant competitive ranges.

Directors’ pension entitlements
The Group will continue to operate a defined benefit pension scheme for Rakesh Sharma. Mary Waldner and Mark Anderson will continue to participate
in the defined contribution scheme, receiving annual company contributions of up to 18% of their salary.

Non-Executive Directors’ fees
A minor amendment to the fee structure for Non-Executive Directors is proposed in the Remuneration Policy table. There will be an additional fee paid to
the Senior Independent Director equivalent to the additional fees paid to the Chairs of the Audit, Remuneration and Nomination Committees.

Annual bonus for 2015
The maximum bonus for Executive Directors in 2015 will continue to be 100% of base salary.

However, reflecting a comprehensive review, the Committee considers it timely to introduce selected non-financial incentive measures within the
Directors’ annual bonus plan. For 2015, a maximum 20% of salary will be payable for the achievement of strategic non-financial measures (assuming
shareholder approval is obtained to amend the Remuneration Policy). No bonus will be paid in respect of the non-financial element of the bonus if the
Committee considers the Company’s financial performance to be unsatisfactory or there is an exceptional negative event during (or just after) the relevant
financial year. A maximum of 20% of salary will be payable for the achievement of an agreed profit target and a maximum of 60% payable for
achievement of an agreed operating cash flow target. As the Committee considers that commercial sensitivities restrict the disclosure of forward-looking
annual bonus targets, full retrospective disclosure of the targets will be provided in next year’s Annual Report on Remuneration.

Long term awards to be granted in 2015
Consistent with the Directors’ Remuneration Policy, the Committee intends to grant annual LTIP awards to Executive Directors in the form of shares worth
125% of salary for the Chief Executive and 100% of salary for other Executive Directors during 2015. As per last year’s grant, 20% of awards will vest at
median TSR ranking, increasing to 100% vesting for an upper quartile TSR ranking, measured against the constituents of the FTSE 250 (excluding
investment trusts). In addition to the TSR target, there is an underpin requiring an average growth of EPS (after adjustments to exclude gains or losses on
financial instruments and the amortisation of intangibles arising on acquisition) of 15% over the three year performance period.

Single total figure of remuneration – Audited
Directors’ emoluments are detailed below:

2014
Executive Directors
M. Anderson
R. Sharma
M. Waldner

Non-Executive Directors
C. Bailey
M. Broadhurst
D. Caster
Sir Robert Walmsley

Basic
salary
/fees

£’000

225
474
302

59
51
192
48

Benefits1

Pension2

Subtotal

Annual
performance
bonus3

LTIP4

Subtotal

£’000

13
26
15

-
-
-
-

23
180
54

-
-
-
-

261
680
371

59
51
192
48

-
-
-

-
-
-
-

-
-
-

-
-
-
-

-
-
-

-
-
-
-

Total

£’000

261
680
371

59
51
192
48

1,662

Total

1,351

257

1,662

1 Benefits comprise: taxable car benefit (in respect of Rakesh Sharma only), car allowance (in respect of Mary Waldner and Mark Anderson), taxable fuel

benefit/fuel allowance (excluding Mary Waldner), life assurance and private medical insurance.

2 Pensions: Rakesh Sharma’s pension is calculated in accordance with the rules of the defined benefit scheme as set out in the policy table on page 67.

Mary Waldner and Mark Anderson, who are members of the defined contribution scheme, received pension contributions of up to 18% of basic salary.
Included within pensions are cash supplements given in lieu of pension contributions where the latter have exceeded the annual allowance or lifetime
allowance for the individual Director under the relevant pension scheme has been exceeded.

3 Annual performance bonus was £nil.
4 The 2012 LTIP award which had been due to crystallise in 2015 will not vest and the aggregate gain made by the Directors under the LTIP during the

year was £nil.

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

72 Ultra Electronics Holdings plc
Remuneration Report (continued)

Remuneration Report (continued)
Annual Report on Remuneration

Single total figure of remuneration – Audited (continued)
Directors’ emoluments are detailed below:

2013
Executive Directors
M. Anderson
R. Sharma
M. Waldner1

Non-Executive Directors
C. Bailey
M. Broadhurst
D. Caster
Sir Robert Walmsley

Former Directors2

Total

Basic
salary
/fees

£’000

205
460
138

58
46
188
46

Benefits

£’000

Pension

£’000

Subtotal

£’000

Annual
performance
bonus

£’000

LTIP

£’000

Subtotal

£’000

Total

£’000

12
22
82

-
-
-
-

18
130
21

-
-
-
-

181

235
612
241

58
46
188
46

1,520

-
-
-

-
-
-
-

-
-
-

-
-
-
-

-
-
-

-
-
-
-

235
612
241

58
46
188
46

1,520

1,218

121

1 Mary Waldner joined the Board on 1 July 2013 and received a one-off relocation allowance of £75,000.
2 Paul Dean stepped down from the Board with effect from 31 March 2013.

Annual bonus for year under review – Audited
Annual bonuses in relation to 2014 were based upon the achievement of a sliding scale of underlying profit before tax and operating cash flow targets.
These targets were derived from the annual budgets approved by the Board. They were adjusted where appropriate to provide an appropriate degree of
“stretch” challenge and incentive to outperform. Profit and cash are two of the Key Performance Indicators by which the Group is measured. Please refer
to pages 24 and 25 for details. The bonus targets set by the Committee for 2014 were a maximum of 25% of salary (subject to the achievement of
£120.5m profit before tax and loss on fair value movements on derivatives and amortisation of intangibles on acquisition), and a maximum of 75% of
salary (subject to achieving an operating cash flow of £137m after capitalised development costs, capital expenditure, purchase of long-term incentive
plan shares and taking account of movements in working capital).

The Committee assessed the achievement of performance against each target as follows:

Underlying profit before tax
Operating cash flow

Threshold
£’000

108,450
72,540

Maximum
£’000

120,500
137,020

Actual
Achieved
£’000

112,034
83,072

Bonus
Payable1
%

-
-

1 No bonus was payable in 2014 because in accordance with the bonus scheme rules, the operating cash flow was negatively adjusted to reflect working

capital performance throughout the year. In order for a bonus to be payable both profit and cash bonus criteria are required to be met.

LTIP vesting for year under review – Audited
The LTIP award granted in March 2012 was based on performance to the year ended 31 December 2014. As disclosed in previous annual reports, the
performance condition for this award was as follows:

Metric

Performance condition

Total
Shareholder
Return

TSR against the constituents of a comparator group*.
20% vesting for median performance increasing pro rata
to 100% vesting for upper quartile performance or above.
TSR measured over three financial years with a three month
average at the start and end of the performance period

Earnings Per
Share Underpin

In addition to the main TSR condition, an “underpin”
requires average annual growth in headline EPS growth of
7% p.a. over the performance period. In the event that this
underpin is not met, the level of vesting falls to zero

Total

Threshold
target

Stretch
target

Actual

%
Vesting

Median

Upper quartile

< Median

7% EPS growth

n/a

2012: 3.6%
2013: 1.3%
2014: (3.1%)

n/a

*The comparator group comprised the following companies: ARM Holdings, Babcock International, BAE Systems, Chemring Group, Cobham,

Dialight, Domino Printing Sciences, Halma, Laird Group, Meggitt, Oxford Instruments, QinetiQ, Renishaw, Rotork, Rolls-Royce, Senior, Serco Group,
Smiths Group, Spectris, Spirax-Sarco Engineering, Spirent Communications, TT Electronics, Vitec Group and WS Atkins.

Ultra Electronics Holdings plc 73
Remuneration Report (continued)

The award details for those Executive Directors granted 2012 LTIP awards are therefore as follows:

Executive

R. Sharma

Number
of shares
at grant

Number
of shares
to vest

Number
of shares
to lapse

24,634

Total

Estimated
value1
£’000

1 The estimated value of the vested shares is based on the average share price during the 3 months to 31 December 2014.

Share awards granted during the year – Audited

R. Sharma 1

M. Waldner1

M. Anderson1

Scheme

Date of
grant

Basis of
award

LTIP*

17 March
2014

125% of
salary

Face value

£
592,500

Vesting at
threshold

Vesting at
maximum

Performance
period

20%

100%

LTIP*

17 March
2014

100% of
salary

302,000

20%

100%

LTIP*

17 March
2014

100% of
salary

225,000

20%

100%

3 years to
31 December
2016

*Structured as a conditional award
1 In addition, Rakesh Sharma purchased 149 shares, Mary Waldner purchased 22 partnership shares and Mark Anderson purchased 67 partnership shares

under the AESOP during 2014.

For awards presented above, 20% of awards will vest for a median TSR ranking, increasing to 100% vesting for an upper quartile TSR ranking, measured
against the constituents of the FTSE 250 (excluding investment trusts). In addition to the TSR target, there is an underpin requiring an average growth of
EPS (after adjustments to exclude gains or losses on financial instruments and the amortisation of intangibles arising on acquisition) of 15% over the
three year performance period.

Change in Chief Executive’s remuneration
The following table illustrates the change (as a percentage) in elements of the Chief Executive’s remuneration from 2013 to 2014, and compares that to
the average remuneration of employees of the Group in the UK, who were employed in November 2013 and November 2014. Such group best reflects
the remuneration environment of the Chief Executive.

Salary
Taxable benefits
Bonus 1

1 Based on the average bonus paid to employees of the Group in the UK for 2013 and 2014.

Relative importance of spend on pay
The following table shows the Group’s actual spend on pay (for all employees) relative to other financial indicators:

Staff costs1
Dividends2
Revenue 3
Statutory profit before tax 3

Chief
Executive
% change

All UK
Employees
% change

3.04
18.18
-

2.00
4.99
25.36

2014
£m

240.0
30.9
713.7
21.5

2013
£m

229.0
29.3
745.2
49.3

Change
%

4.8
5.5
(4.2)
(56.4)

1 £1.5m of the staff costs figures relate to pay for the Executive Directors.
2 The dividends figures relate to amounts payable in respect of the relevant financial year.
3 Although not required, revenue and statutory profit before tax have also been provided as this disclosure is considered to add further context to the

annual spend on pay number.

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

74 Ultra Electronics Holdings plc
Remuneration Report (continued)

Remuneration Report (continued)
Annual Report on Remuneration

Total defined benefit pension entitlements – Audited
Under the defined benefit scheme, a pension equal to two-thirds of salary at retirement is provided at the normal retirement age of 63 years. Where
pensionable service is less than 20 years, the pension is calculated at one-thirtieth of the retirement salary for each year of service. With the Group’s
consent, Executive Directors may retire from age 55. After age 58, Group consent to early retirement is not required. The pension is reduced in the event
of early retirement. In the event of death-in-service, a spouse’s pension of 33% of pensionable earnings is payable, together with an allowance for
dependent children up to a maximum of 33% of pensionable earnings where relevant. On the death of a retired Executive Director, a spouse’s pension of
50% of the Executive Director’s pension is payable. Once the pension is in payment, the part of the Executive Director’s pension above the Guaranteed
Minimum Pension will be increased each year in line with the increase in the retail price index, capped at 7.5% for service prior to 1 April 2008 and at 5%
thereafter, above which increases are at the Trustees’ and the Group’s discretion. The table below sets out the pension benefits earned by Executive
Directors for the year ended 31 December 2014:

Age at Contributions
during 20141

year-end

Accrued
benefit at
beginning
of year

Increase
in value
in period
(net of
indexation contributions)

Increase
in 2014
net of

Accrued
benefit
at end
of period2

R. Sharma

10,073

70,911

(2,539)

(60,844)

70,287

1 Over the period, contributions of £10,073 were paid on R. Sharma’s behalf. R. Sharma will be entitled to a return of the contributions associated with

the restricted benefits.

2 The accrued benefit at the end of the period has been restricted by £14,751 so that R Sharma does not exceed his annual allowance. There has been no

accrual since 6 April 2014 as R. Sharma ceased future accrual in the Scheme.

Payments to past directors – Audited
There were no payments made to past Directors during 2014.

Loss of office payments – Audited
There were no loss of office payments made to Directors during 2014.

Statement of Directors’ shareholdings – Audited

Legally owned

LTIP
awards 1

AESOP

SAYE

2014

2013

Unvested

Restricted2 Unrestricted3

Under option

Exercised

Total

Share
ownership
guideline
met
Y/N

% Share
ownership
guidelines

Executive
Directors
M. Anderson
R. Sharma
M. Waldner

Non-Executive
Directors
C. Bailey
M. Broadhurst
D. Caster
J. Hirst 4
Sir Robert Walmsley

337
41,342
22

-
41,193
-

31,421
89,499
28,205

67
2,754
22

-
1,000

2,500
1,000
751,188 751,188
-
1,600

-
1,600

-
-
-
-
-

-
-
-

-
-
-
-
-

-
433
-

270
-
-

31,758
131,274
28,227

3%
157%
0.1%

-
-
-
-
-

-
1,000
751,188
-
1,600

-
-
-
-
-

N
Y
N

-
-
-
-
-

1 There were no vested LTIP share awards within the period.
2 The restricted shares under the AESOP are held in the Ultra Electronics Holdings plc Employee Benefit Trust.
3 The unrestricted shares under the AESOP have been released from the Ultra Electronics Holdings plc Employee Benefit Trust.
4 John Hirst joined the Company on 1 January 2015.

Total shareholder return performance graph and single figure remuneration table
The graph below shows the TSR performance of Ultra in comparison with the FTSE 250 Index over the past six years. The graph shows the value at the
end of 2014 of £100 invested at the start of the evaluation period, in Ultra and in the Index. The Committee considers the FTSE 250 a relevant index for
the TSR comparison as Ultra is a member of the index and because together the index members represent a broad range of UK quoted Companies.

Total shareholder return – compared to FTSE 250 Index
Source: Thomson Reuters Datastream

Ultra Electronics

FTSE 250 Index

)
£
(

e
u
l
a
V

300

250

200

150

100

31 December 09

31 December 10

31 December 11

31 December 12

31 December 13

31 December 14

Ultra Electronics Holdings plc 75
Remuneration Report (continued)

Total shareholder return performance graph and single figure remuneration table (continued)
The table below presents single figure remuneration for the Chief Executive over the past six years, together with past annual bonus payouts and relevant
LTIP vestings.

R. Sharma
R. Sharma
R. Sharma
R. Sharma1
D. Caster 2
D. Caster
D. Caster

1 Chief Executive from 21 April 2011
2 Chief Executive to 21 April 2011

Year ended

Total
remuneration

Annual bonus

LTIP

£’000 % max. payout % max. payout

31 December 2014
31 December 2013
31 December 2012
31 December 2011
31 December 2011
31 December 2010
31 December 2009

680
612
597
722
141
1,068
1,512

-
-
-
76
-
46
67

-
-
-
-
-
81
100

Shareholder voting at the last AGM
At the 2014 Annual General Meeting, the Directors’ Remuneration Report received the following votes from shareholders:

Votes for
Votes against
Total votes cast (for and against)
Votes withheld
Total votes cast (including withheld votes)

Directors’ interests under Long-Term Incentive Plans
Details of the Directors’ interests in these arrangements are given below:

Interests under the Ultra Electronics Long-Term Incentive Plan 2007

2011 award
2012 award
2013 March award
2013 August award

Interests at 1 January 2014
2011 awards lapsed during the year
2014 award

Interests at 31 December 2014

Annual Statement
and Annual Report
on Remuneration

Remuneration Policy

Total number
of votes

59,746,818
263,955
60,010,773
9,588
60,020,361

% of
votes cast

Total number
of votes

% of
votes cast

99.56
0.44
100

58,803,834
1,204,667
60,008,501
11,860
60,020,361

97.99
2.01
100

M. Anderson

R. Sharma M. Waldner

-
7,273
11,908
-

19,181
-
12,240

31,421

16,513
24,634
26,722
5,909

73,778
(16,513)
32,234

89,4991

-
-
-
11,775

11,775
-
16,430

28,205

Market
price
of shares
granted

Crystallising
dates of
outstanding
awards

£16.96 March 2014
£17.05 March 2015
£17.21 March 2016
£19.46 March 2016

£18.38 March 2017

1 This interest in LTIP awards includes the 2012 award of 24,634 which as a result of not meeting performance conditions will lapse in 2015. This will

leave Rakesh Sharma with outstanding LTIP awards of 64,865.

The 2011 award lapsed during the year as detailed above as a result of the performance targets not being met. The actual date of the award was
14 March 2011. The market price of the shares when granted was £16.96. The aggregate gain made by the Directors under the LTIP during the year was
£nil (2013: £nil). Ultra’s share price on 31 December 2014 was £18.00. The range during 2014 was £16.24 to £19.87.

Directors’ interests under the All-Employee arrangements

Name of Director

M. Anderson
R. Sharma
M. Waldner

Interests as
at 1 January
2014

-
2,605
-

Shares acquired
during year

Interests as
at 31 December
2014

Partnership
shares
acquired from
1 January 2015 to
27 February 2015

337
149
22

337
2,754
22

17
14
6

Interests as at
27 February 2015

354
2,768
28

During the year, the Share Ownership Plan Trust, established and operated in connection with the AESOP, purchased 33,401 (2013: 30,206) Ultra Electronics
Holdings plc. shares, with a nominal value of £1,670 (2013: £1,510) for £597,645 (2013: £497,205).

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

76 Ultra Electronics Holdings plc
Remuneration Report (continued)

Remuneration Report (continued)
Annual Report on Remuneration

The role and composition of the Remuneration Committee
Role
The role of the Committee is to: determine and agree with the Board the framework and broad policy for the remuneration of the Executive Directors,
Chairman of the Board, and senior management reporting to the Executive Directors (the “Executive Team”); ensure that the Executive Directors are fairly
rewarded for their individual contributions to the Group’s overall performance with due regard to the interests of shareholders and to the financial and
commercial health of the Group; and ensure that contractual arrangements, including the termination of Executive Directors, are fair both to the
individuals concerned and to the Group. The Committee’s terms of reference include all matters indicated by the Code and are approved and reviewed by
the Board annually. The terms of reference are available on Ultra’s website (www.ultra-electronics.com).

Composition
Chris Bailey was Chairman of the Remuneration Committee up to 26 November 2014 and Martin Broadhurst and Sir Robert Walmsley were members of
the Committee. On the 26 November 2014, Martin took over as Chairman of the Committee and Chris and Sir Robert were members of the Committee.

Sharon Harris continued to act as Secretary to the Committee. The Chairman, Chief Executive and Group HR Director also normally attend Committee
meetings by invitation, except where matters directly relating to their own remuneration are discussed, although they are not Committee members.

Advice
Wholly independent advice on executive remuneration and share schemes is received from New Bridge Street, an Aon plc company. New Bridge Street was
appointed by the Committee after a tender process and, during the year, provided the Group with advice on the operation of Ultra’s LTIP and other share
schemes, remuneration benchmarking services and an annual update on market and best practice. During 2014, insurance broking services were also provided
to the Group by other subsidiaries of Aon plc which the Committee considers in no way prejudices New Bridge Street’s position as the Committee’s
independent advisers. Fees charged by New Bridge Street for advice provided to the Committee for 2014 amounted to £28,201 (excluding VAT). Pension
advisory services were provided to the Committee and the Group by Towers Watson. Fees charged by Towers Watson for advice provided to the Committee for
2014 amounted to £39,690 (excluding VAT). In addition, the Committee consults the Chief Executive with regard to the remuneration and benefits packages
offered to Executive Directors (other than in relation to his own remuneration and benefits package) and members of the Executive Team.

We strongly encourage shareholders to vote in favour of the two remuneration-related resolutions at the 2015 AGM. These resolutions ensure alignment
between business strategy and remuneration and are designed to be fair and balanced as between employees and shareholders.

This Report was approved by the Board of Directors on 27 February 2015 and signed on its behalf by:

Martin Broadhurst, Chairman of the Remuneration Committee

Ultra Electronics Holdings plc 77
Directors’ Report

Directors’ Report
For the year ended 31 December 2014

The Directors present their annual report on
the affairs of the Group, together with the
accounts and independent auditor’s report,
for the year ended 31 December 2014.
Sharon Harris, Company Secretary & General Counsel

Ultra Electronics Holdings plc is the Group holding company and it is incorporated in the United Kingdom under the Companies Act 1985.

The Directors present their annual report on the affairs of the Group, together with the accounts and independent auditor’s report, for the year ended
31 December 2014. Details in relation to health and safety, the environment and greenhouse gas emissions, business ethics and employment practices are
included in the Sustainability section on pages 47 to 49 of the Strategic Report. The Corporate Governance statement on pages 52 to 61 forms part of
this report, and the financial risk management objectives and policies can be found in note 23.

Strategic Report
In accordance with the Companies Act 2006 Ultra is required to set out information which helps the shareholders assess how the Directors have
performed their duty to promote the success of the Group, together with a description of the principal risks and uncertainties facing the Group. The
information that satisfies these requirements can be found in the Strategic Report on pages 36 to 39.

Results and dividends
Group results and dividends are as follows:

Balance on retained earnings, beginning of year
Total comprehensive income for the year
Dividends: 2013 final paid of 29.5p per share

2014 interim paid of 13.2p per share
Equity-settled employee share schemes

Balance on retained earnings, end of year

2014
£’000

258,609
15,589
(20,528)
(9,194)
1,656

246,132

The final 2014 dividend of 31.1p per share is proposed to be paid on 6 May 2015 to shareholders on the register on 10 April 2015. The interim dividend
was paid on 26 September 2014, making a total of 44.3p (2013: 42.2p) per share paid in the year.

Future developments
A review of the activities and future developments of the Group is contained in the Chief Executive’s review on pages 4 and 7.

Research and development
The Directors are committed to maintaining a significant level of research and development expenditure in order to expand the Group’s range of
proprietary products. During the year a total of £157.1 million (2013: £130.4 million) was spent on engineering and business development of which
£115.9 million (2013: £87.1million) was funded by customers and £41.2 million (2013: £43.3 million) by the Group.

Purchase of own shares
During the year Ultra purchased no (2013: nil) ordinary shares and no (2013: nil) ordinary shares were distributed following vesting of awards under the
Ultra Electronics Long-Term Incentive Plan. At 31 December 2014, the Group held 235,245 ordinary shares under the Ultra Electronics Long-Term
Incentive Plan (representing 0.3% of the ordinary shares in issue as at 31 December 2014).

Supplier payment policy
Individual operating businesses are responsible for agreeing the terms and conditions under which they conduct business transactions with their suppliers.
It is Group policy that payments to suppliers are made in accordance with those terms, provided that the supplier is also complying with all relevant terms
and conditions. Trade payable days of the Group for the year ended 31 December 2014 were 64 days (2013: 59 days) based on the ratio of Group trade
payables at the end of the year to the amounts invoiced during the year by suppliers.

Employment policy
It is the policy of Ultra to create a working environment in which there is no discrimination and all employment decisions are based entirely on merit and
the ability of people to perform their intended roles. Ultra aims to continue to build a workforce that is recruited from the widest possible talent pool.

Directors and their interests
The Directors who served throughout the year and to the date of signing these financial statements, and their interests in the shares and share options of
Ultra at 27 February 2015 are listed on pages 74 and 75.

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

78 Ultra Electronics Holdings plc
Directors’ Report (continued)

Directors’ Report (continued)

Directors’ indemnities
The Group has made qualifying third party indemnity provisions for the benefit of its Directors which were made during the year and remain in force at
the date of this report.

Contractual arrangements
The Group contracts with a large number of customers in order to sell its wide portfolio of specialist capabilities to a broad range of customers around
the world. The Group’s largest customers are the US Department of Defense and UK Ministry of Defence. Contracts placed with these customers are on a
wide range of separate contracts placed by different Ultra businesses through different project offices and project teams. The Group also contracts with
numerous suppliers across the world and manages these arrangements to ensure that it is not over-dependent on a single supplier. This is normally
achieved through dual sourcing specialist components.

Substantial shareholdings
As at 27 February 2015, Ultra had been notified, in accordance with Chapter 5 of the Disclosure and Transparency rules, of the following voting rights as
shareholders of Ultra:

Aberdeen Asset Management
Artemis Investment Management LLP
Ameriprise Financial Inc
Schroders plc
Blackrock Inc

Nature of holding

Indirect
Direct & indirect
Direct & indirect
Indirect
Indirect

Percentage
of ordinary
share capital

Number of 5p
ordinary shares

Date of
announcement

6.05
5.07
5.051
4.683
4.2

4,222,192
3,535,035
3,529,947
3,269,563
2,910,296

07 April 2014
23 October 2013
19 September 2014
25 April 2014
15 April 2010

Capital structure
Details of the authorised and issued share capital, together with details of the movements in Ultra’s issued share capital during the year are shown in note 27.
Ultra has one class of ordinary shares which carry no right to fixed income. Each share carries the right to one vote at general meetings of Ultra.

There are no specific restrictions either on the size of a holding or on the transfer of shares, which are both governed by the general provisions of the Articles
of Association and prevailing legislation.

Details of employee share schemes are set out in note 27. No person has any special rights of control over the Ultra’s share capital and all issued shares are
fully paid.

With regard to the appointment and replacement of Directors, Ultra is governed by its Articles of Association, the UK Corporate Governance Code, the
Companies Acts and related legislation. The Articles themselves may be amended by special resolution of the shareholders. The powers of Directors are
described in the ‘Matters to be reserved to the Board’ which is available from the Investors’ section of the Group website.

Annual General Meeting
The next Annual General Meeting of Ultra will be held on 30 April 2015 at 417 Bridport Road, Greenford, Middlesex UB6 8UA at 10 am. A separate
circular providing details of the Annual General Meeting has been sent to shareholders with the Annual Report and Accounts.

Auditor
Each of the Directors at the date of approval of this report confirms that:
(1) So far as the Director is aware, there is no relevant audit information of which Ultra’s auditors are unaware; and
(2) The Director has taken all the steps that he/she ought to have taken as a Director to make himself/herself aware of any relevant audit information and

to establish that Ultra’s auditors are aware of that information.

This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of The Companies Act 2006.

By order of the Board,
Sharon Harris, Company Secretary & General Counsel
27 February 2015
Registered Office: 417 Bridport Road, Greenford, Middlesex UB6 8UA Registered Number: 02830397

Executives and advisors

Executive Team members

Business MDs and Presidents

Rakesh Sharma
Chief Executive

Mary Waldner
Group Finance Director

Mark Anderson
Group Marketing Director

Sharon Harris
Company Secretary & General Counsel

Carlos Santiago
Chief Operating Ofﬁcer

Keith Thomson
Group Human Resources Director

Divisional Managing Directors

Mike Baptist
Divisional Managing Director
Tactical Systems

Mike Clayton
Divisional Managing Director
Naval Systems

Chris Gane
Divisional Managing Director
Aircraft & Vehicle Systems

Graeme Stacey
Divisional Managing Director
Infrastructure & Power

Olugbenga Erinle
President
3eTI

Andy Liverman
President
3 Phoenix

John McAlonan
President
Advanced Tactical Systems

Paul Owen
Managing Director
Airport Systems

Mark Doyle
Chief Executive Ofﬁcer
Al Shaheen (49%)

Doug Burd
Managing Director
Avalon Systems
& Ultra Electronics, Australia

David Taylor
Managing Director
CEMS

Mike Williams
Managing Director
Command & Control Systems

Mike Baptist
Managing Director
Communication & Integrated Systems

Rob McDonald
Managing Director
Controls

Pete Crawford
President
EMS

Paul Fardellone
President
Flightline Systems

René Bélanger
President
Forensic Technology

Tom Cross
Managing Director
GigaSat

External auditor

Deloitte LLP
Abbots House
Abbey Street
Reading RG1 3BD

Principal bankers

The Royal Bank of Scotland plc
135 Bishopsgate
London EC2M 3UR

Solicitors

Slaughter & May
One Bunhill Row
London EC1Y 8YY

Osborne Clarke
2 Temple Back East
Temple Quay
Bristol BS1 6EG

Ultra Electronics Holdings plc 79
Annual Report & Accounts 2014

Andy Matko
Managing Director
ID

Omar Al Ismaili
Managing Director
Ithra (70%)

Ken Walker
President
Maritime Systems

Nick Gaines
Managing Director
Nuclear Control Systems

Dan Upp
President
Nuclear Sensors & Process Instrumentation

Bill Terry
President
Ocean Systems

Jon Everett
Managing Director
PMES

Andy Yates
Managing Director
Precision Air & Land Systems

Michael Spencer
President
ProLogic

Ross Parsell
Managing Director
Sonar Systems

Michael Spencer
President
SOTECH

Mark Darvill
Managing Director
Surveillance & Security Systems

Iwan Jemczyk
President
TCS

Joe Peters
President
USSI

Financial advisors

Moelis & Company
First Floor, Condor House
10 St. Paul’s Churchyard
London EC4M 8AL

JPMorgan Cazenove Limited
25 Bank Street, Canary Wharf
London E14 5JP

Stockbrokers

JPMorgan Cazenove Limited
25 Bank Street, Canary Wharf
London E14 5JP

Registrars

Equiniti
Aspect House
Spencer Road, Lancing
West Sussex BN99 6DA

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ
y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

80 Ultra Electronics Holdings plc
Independent auditor’s report

Independent auditor’s report
To the members of Ultra Electronics Holdings plc

Opinion on financial statements of
Ultra Electronics Holdings plc

In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and the Parent

Company’s affairs as at 31 December 2014 and of the Group’s profit for the year then ended;

• the Group financial statements have been properly prepared in accordance with International

Financial Reporting Standards (IFRSs) as adopted by the European Union;

• the Parent Company financial statements have been properly prepared in accordance with United

Kingdom Generally Accepted Accounting Practice; and

• the financial statements have been prepared in accordance with the requirements of the Companies

Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation.

The financial statements comprise the Consolidated Income Statement, the Consolidated Statement of
Comprehensive Income, the Consolidated and Parent Company Balance Sheets, the Consolidated Cash
Flow Statement, the Consolidated Statement of Changes in Equity and the related notes 1 to 49. The
financial reporting framework that has been applied in the preparation of the Group financial statements
is applicable law and IFRSs as adopted by the European Union. The financial reporting framework that
has been applied in the preparation of the Parent Company financial statements is applicable law and
United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

As required by the Listing Rules we have reviewed the Directors’ statement contained within the
Corporate Governance report on page 60 that the Group is a going concern. We confirm that:

• we have concluded that the directors’ use of the going concern basis of accounting in the

preparation of the financial statements is appropriate; and

• we have not identified any material uncertainties that may cast significant doubt on the Group’s

ability to continue as a going concern.

However, because not all future events or conditions can be predicted, this statement is not a
guarantee as to the Group’s ability to continue as a going concern.

Going concern

Our assessment of risks of material
misstatement

The assessed risks of material misstatement described below are those that had the greatest effect
on our audit strategy, the allocation of resources in the audit and directing the efforts of the
engagement team:

Risk

Oman contract termination
Refer to page 125 (critical accounting
judgements and key sources of estimation
uncertainty – assessment of contract
accounting); and page 63 (Audit Committee
report – significant judgements considered).

Subsequent to the year end the Oman contract
was terminated and hence there is significant
judgement as to:

• the value of recoverable work performed

and therefore revenue recognition of £12m
in the year;

• the required costs to deliver the remaining

contractual obligations;

• and the recoverabilty of contract balances and
associated costs of recovering these contract
balances leading to a £39m provision as
disclosed in note 36.

How the scope of our audit responded
to the risk

Our audit work assessed the adequacy of the
design and implementation of controls over the
work performed on the contract and completeness
and accuracy of costs on the contract.

We have reviewed correspondence relating to
the contract termination, in addition to
understanding the events and circumstances
surrounding the termination. This included a
further visit to Oman post year-end to meet
with our local component auditor to provide
appropriate oversight of their work performed
and conclusions reached.

With regards to the work performed under the
contract, we have reviewed evidence from the
contract engineer, who reports on the
completion of effort under the contract.

To determine the remaining costs to deliver the
contract, we have considered the status of sub-
contractor contracts and invoices received to
date, in addition to committed spend for
completing all obligations under the contract.

We assessed the recoverability of contract
balances and associated costs of recovering
these contract balances through our review of
correspondence relating to the negotiations and
the likely timing of any receipt or agreed
settlement process.

Ultra Electronics Holdings plc 81
Independent auditor’s report (continued)

Our assessment of risks of material
misstatement (continued)

Risk

How the scope of our audit responded
to the risk

Revenue recognition
Refer to page 125 (critical accounting judgements
and key sources of estimation uncertainty
– assessment of contract accounting); page 121
(accounting policies – revenue recognition); and
page 63 (Audit Committee report – significant
judgements considered).

Revenue recognition is a risk area, specifically
in relation to:

• Significant long term contracts. Subject to
meeting certain criteria, Ultra Electronics
adopts long term contract accounting for a
number of its contracts. Revenue recognised
on this basis in the year was £387.1m. In
these circumstances, a number of judgements
are undertaken which specifically impact the
extent of revenue and profit recognised,
including: determing the total contract value;
estimating the costs to completion and within
this judgements relating to the provision for
the cost of mitigating technical risks and
meeting future milestones; and assessing the
percentage of contract completion at the
balance sheet date.

• Delivery of goods, due to the complex

contractual terms with regards to the transfer
of risk and reward that arise within the
Aerospace and Defence industry and therefore
whether revenue has been appropriately
recognised. The complexity is increased as
individual business units enter into different
contractual terms with different customers for
similar products.

Our audit work assessed the adequacy of the
design and implementation of controls over long-
term contract accounting.

To confirm that revenue and profit recognised to
date are based on the current best estimate of the
degree of work performed under the contract, we
selected a sample of contracts and reviewed the
contract risk registers and evidence for the
progress made against the contract such as
milestone completion to provide evidence over
the judgement taken when providing for the
cost of mitigating technical risks and meeting
future milestones. We also sought to verify the
costs to complete by agreeing to evidence of
committed spend, budgeted rates or actual costs
incurred to date.

We understood and challenged management’s
assumptions by referring to evidence including
signed contract terms and latest project status
reports, and discussed contract progress and
future risks with contract engineers. We also
assessed the reliability of management estimates
through consideration of the historical accuracy of
prior period management estimates.

For each contract selected for testing, we made
enquiries as to any unusual contract terms or side
agreements separate to the original contract, in
addition to detail testing of billings and costs
incurred to date.

Our audit work assessed the adequacy of the
design and implementation of controls around
revenue recognition.

We reviewed contractual evidence to understand
how the specific terms in respect of the transfer
of risk and reward had been met. Then we
performed a sample test of sales recognised either
side of the year end, and outstanding trade
receivables to substantiate whether the
appropriate terms of the relevant contracts had
been satisfied and that the risks and rewards
associated with the contract had passed to the
customer. We used external evidence, such as
shipping documentation or client acceptance
documentation to confirm that revenue had been
recognised in the appropriate period.

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

82 Ultra Electronics Holdings plc
Independent auditor’s report

Independent auditor’s report
To the members of Ultra Electronics Holdings plc

Our assessment of risks of material
misstatement (continued)

Risk

How the scope of our audit responded
to the risk

Goodwill and other intangible assets
Refer to page 125 (critical accounting judgements
and key sources of estimation uncertainty
– goodwill impairment); pages 120 and 122
(accounting policies – intangible assets); and
page 63 (Audit Committee report – significant
judgements considered).

The Group recognised £299.0m of goodwill and
£138.7m of acquired intangibles at 31 December
2014. There is a risk regarding the potential
impairment of the carrying value of these assets
given the judgements management are required
to make in respect of the assumptions used to
determine their recoverable amount.

The key judgements include identification of
cash generating units, growth rates in future
cashflow forecasts both short term and longer
term, discount rates applied to these forecasts,
and determining the impact of reasonably
possible changes in these assumptions.

Acquisition accounting
Refer to page 125 (critical accounting
judgements and key sources of estimation
uncertainty – acquisition accounting);
page 120 (accounting policies – business
combinations); and page 63 (Audit Committee
report – significant issues considered).

During the year, the Group entered into four
business combinations, being 3 Phoenix Inc.,
Forensic Technology WAI Inc., ICE Corporation Inc.,
and Lab Impex Systems. In aggregate, £104.5m
was paid in respect of acquisitions.

There is a risk that acquisitions are not
accounted for correctly in line with IFRS 3
‘Business Combinations’. The risk relates to the
assumptions and assertions used by
management to forecast future trading
performance to determine both the fair value of
acquired assets and future contingent
consideration payments.

Our audit work assessed the adequacy of the
design and implementation of controls over
monitoring the carrying value of goodwill and
acquired intangibles.

Independently we identified and challenged
management’s assessment of the cash generating
units within the Group based on a review of the
cashflows internally reported by management,
and our understanding of the Group structure.

We challenged the assumptions used by
management in their impairment assessment by
using valuation specialists within the audit team
to benchmark the discount rate against
independently available data, together with
peer group analysis, our understanding of the
secured orders underpinning the Group’s
cashflow forecasts, and the historical
performance of the businesses.

Having audited the assumptions, we checked
that the impairment model had been prepared
on the basis of management’s assumptions
and was arithmetically accurate. We challenged
the appropriateness of management’s
sensitivities based on our work performed on
the key assumptions, and recalculated these
sensitised scenarios.

Our audit work assessed the adequacy of the
design and implementation of controls over
acquisition accounting.

For the current year acquisitions, we made use of
our valuations specialists to support our review of
the acquisition accounting, and in particular the
valuation of acquired intangible assets identified.
We obtained calculations for the fair value
adjustments for these acquisitions and assessed
whether the period of assessment was correct as
well as confirming that the adjustment was
supported by actual trading data.

For contingent consideration, we agreed the
underlying data in the contingent consideration
calculation to signed sale and purchase
agreements and the trading performance for
the audited entity for the current period, and
approved budgets for future performance. We
assessed whether management’s treatment of
contingent consideration payment
arrangements for former owners, as either
additional purchase consideration or post-
acquisition remuneration, is appropriate.

For historical acqusitions we compared the
forecast contingent consideration positions to
the post year end trading results, approved
budgets and historical levels of settlement. We
recalculated the release of £8.4m of the balance
based on the audited financial results and
assessed whether management has disclosed
adequately the release of the provision in the
Consolidated Income Statement.

Our assessment of risks of material
misstatement (continued)

Risk

Provisions
Refer to page 125 (critical accounting
judgements and key sources of estimation
uncertainty – provisions); page 123 (accounting
policies – provisions); and page 63 (Audit
Committee report – significant issues considered).

There is judgement required in respect of
potential provisions required on long term support
arrangements and warranties in respect of
complex mission critical product manufacturing,
due to the products being bespoke to the
environment in which they are operating.
Provisions total £31.3m at 31 December 2014.

We have deemed the appropriateness and
completeness of provisions made by management
in respect of product warranties and other
provisions to be a risk for these reasons.

Pensions
Refer to page 125 (critical accounting
judgements and key sources of estimation
uncertainty – pensions); page 122 (accounting
policies – pensions); and page 63 (Audit
Committee report – significant issues considered).

The Group operates five defined benefit pension
schemes, for which there is judgement in
determining the IAS 19 valuation as recorded at
the balance sheet date. At 31 December 2014,
these five schemes had a total net IAS 19 deficit
of £87.3m.

The valuation is based on a number of
assumptions on both a micro and a macro-
economic level as disclosed in the notes to
the accounts.

Ultra Electronics Holdings plc 83
Independent auditor’s report (continued)

How the scope of our audit responded
to the risk

Our audit work assessed the adequacy of the
design and implementation of controls over the
appropriateness and completeness of provisions.

We recalculated and assessed management’s
estimates for the provisions in conjunction with
our understanding of the potential liability as set
out in contract terms.

In respect of warranties, we assessed the level of
provisioning by verifying the actual failure costs
incurred to date and the products in circulation
subject to a warranty. We used external evidence
to evaluate the adequacy of the warranty
provision, including sales data, credit notes raised
post year-end and contract terms together with
any correspondence with third parties in respect
of product failures and claims.

In response to other provisions, we circularised
the Group’s external legal advisors and reviewed
legal costs incurred in the year to confirm the
completeness of legal cases to which the Group
is party. Through external evidence including
submitted legal advice and discussion with
management, we sought to substantiate the
basis for the Group’s expections over likely
outcomes and their subsequent quantification of
the related provisions.

Our audit work assessed the adequacy of the
design and implementation of controls over the
accounting for defined benefit pension schemes.

We included pension specialists within our audit
team to assess the appropriateness of the
assumptions through benchmarking to industry
data, and methodology used to value the
defined benefit pension schemes at the balance
sheet date.

In addition, we circularised the independent
actuary and investment managers responsible for
managing the pension fund to confirm the source
inputs into the pension valuation. This confirmed
the completeness of the pension assets and the
valuation for which we further agreed a sample
to publically available asset valuations.

The description of the risks above should be read in conjunction with the significant issues considered
by the Audit Committee discussed on page 63. With the exception of the Oman contract termination,
our risks are consistent with the 2013 year-end.

Our audit procedures relating to these matters were designed in the context of our audit of the
financial statements as a whole, and not to express an opinion on individual accounts or disclosures.
Our opinion on the financial statements is not modified with respect to any of the risks described
above, and we do not express an opinion on these individual matters.

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

84 Ultra Electronics Holdings plc
Independent auditor’s report (continued)

Our application of materiality

An overview of the scope of our audit

We define materiality as the magnitude of misstatement in the financial statements that makes it
probable that the economic decisions of a reasonably knowledgeable person would be changed or
influenced. We use materiality both in planning the scope of our audit work and in evaluating the
results of our work.

We have used professional judgement in determining an appropriate materiality benchmark, this
includes consideration of alternative benchmarks.

On this basis, we determined materiality for the Group to be £6.2 million (2013: £8 million), which
represents 7% (2013: 9%) of adjusted underlying pre-tax profit, and 2% (2013: 2%) of equity.

Adjusted underlying pre-tax profit is defined as underlying pre-tax profit as presented by management,
after adding back amortisation of acquired intangibles. The Group has established a track record of
making acquisitions and hence we consider amortisation of acquired intangibles to be relevant when
considering our basis for determining materiality.

We agreed the materiality levels with the Audit Committee following the presentation of our Audit
Plan in September 2014 and further agreed that we would report to the Committee all audit
differences in excess of £124,000 (2013: £160,000) as well as differences below that threshold that, in
our view, warranted reporting on qualitative grounds.

Following on from the Oman contract termination post year-end, we revisited our materiality and
concluded that it remained appropriate.

We further report to the Audit Committee on disclosure matters that we identified when assessing the
overall presentation of the financial statements.

Our Group audit was scoped by obtaining an understanding of the Group and its environment, including
Group-wide controls, and assessing the risks of material misstatement at the Group level. Based on that
assessment, we focused our Group audit scope primarily on the audit work at 25 (2013: 21) locations;
the increase reflecting the acquisitions in the year. 14 (2013: 14) of these were subject to a full audit,
whilst the remaining 11 (2013: 7) were subject to either an audit of specified account balances or
specified audit procedures where the extent of our testing was based on our assessment of the risks of
material misstatement and of the materiality of the Group’s operations at those locations.

These 25 (2013: 21) locations represent the principal business units and account for 87% (2013: 87%)
of the Group’s net assets, 91% (2013: 91%) of the Group’s revenue and 91% (2013: 93%) of the
Group’s underlying operating profit. They also provided an appropriate basis for undertaking audit
work to address the risks of material misstatement identified above. Our audit work at the 25 (2013: 21)
units was executed at levels of materiality applicable to each individual entity which were lower than
Group materiality.

At the parent entity level we also tested the consolidation process and carried out analytical procedures
to confirm that there were no significant risks of material misstatement of the aggregated financial
information of the remaining components not subject to audit or audit of specified account balances.

The Group audit team follows a programme of planned visits that has been designed so that the
Senior Statutory Auditor or another senior member of the Group audit team visits each of the
significant overseas components locations at least once every three years. Every year, regardless of
whether we have visited or not, we include the component audit partner and other senior members of
the component audit team in our team briefing, direct the scope of their work for the purposes of our
Group audit, discuss their risk assessment and review documentation of the findings from their work

Opinion on other matters prescribed by
the Companies Act 2006

In our opinion:
• the part of the Directors’ Remuneration Report to be audited has been properly prepared in

accordance with the Companies Act 2006; and

• the information given in the Strategic Report and the Directors’ Report for the financial year for

which the financial statements are prepared is consistent with the financial statements.

Ultra Electronics Holdings plc 85
Independent auditor’s report (continued)

Matters on which we are required to
report by exceptions

Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion

• we have not received all the information and explanations we require for our audit; or

• adequate accounting records have not been kept by the Parent Company, or returns adequate

for our audit have not been received from branches not visited by us; or

• the Parent Company financial statements are not in agreement with the accounting records and returns.

We have nothing to report in respect of these matters.

Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures
of directors’ remuneration have not been made or the part of the Directors’ Remuneration Report to
be audited is not in agreement with the accounting records and returns. We have nothing to report
arising from these matters.

Corporate Governance Statement
Under the Listing Rules we are also required to review the part of the Corporate Governance
Statement relating to the Company’s compliance with ten provisions of the UK Corporate
Governance Code. We have nothing to report arising from our review.

Our duty to read other information in the Annual Report
Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in
our opinion, information in the annual report is:

• materially inconsistent with the information in the audited financial statements; or

• apparently materially incorrect based on, or materially inconsistent with, our knowledge of the

Group acquired in the course of performing our audit; or

• otherwise misleading.

In particular, we are required to consider whether we have identified any inconsistencies between our
knowledge acquired during the audit and the Directors’ statement that they consider the annual
report is fair, balanced and understandable and whether the annual report appropriately discloses
those matters that we communicated to the audit committee which we consider should have been
disclosed. We confirm that we have not identified any such inconsistencies or misleading statements.

As explained more fully in the Directors’ Responsibilities Statement, the Directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view. Our
responsibility is to audit and express an opinion on the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with
the Auditing Practices Board’s Ethical Standards for Auditors. We also comply with International Standard
on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim to ensure that our quality
control procedures are effective, understood and applied. Our quality controls and systems include our
dedicated professional standards review team and independent partner reviews.

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of
Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to
the Company’s members those matters we are required to state to them in an auditor’s report and
for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s members as a body, for our
audit work, for this report, or for the opinions we have formed.

An audit involves obtaining evidence about the amounts and disclosures in the financial statements
sufficient to give reasonable assurance that the financial statements are free from material misstatement,
whether caused by fraud or error. This includes an assessment of: whether the accounting policies are
appropriate to the Group’s and the Parent Company’s circumstances and have been consistently applied and
adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and
the overall presentation of the financial statements. In addition, we read all the financial and non-financial
information in the annual report to identify material inconsistencies with the audited financial statements
and to identify any information that is apparently materially incorrect based on, or materially inconsistent
with, the knowledge acquired by us in the course of performing the audit. If we become aware of any
apparent material misstatements or inconsistencies we consider the implications for our report.

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

Kerr Mitchell FCA, Senior Statutory Auditor
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
Reading, United Kingdom
27 February 2015

Respective responsibilities of directors
and auditor

Scope of the audit of the financial statements

86 Ultra Electronics Holdings plc
Group highlights

Group highlights
For the year ended 31 December 2014

Revenue
Underlying operating profit*
Operating profit
Underlying profit before tax*
Profit before tax

Underlying earnings per share*
Basic earnings per share
Dividend per share

2014
£’000

713,741
118,066
39,543
112,034
21,462

2014
pence

123.1
29.8
44.3

2013
£’000

745,154
121,717
57,398
116,806
49,281

2013
pence

127.1
54.8
42.2

Change
%

(4.2)
(3.0)
(31.1)
(4.1)
(56.4)

Change
%

(3.1)
(45.6)
5.0

* Ultra uses underlying figures as key performance indicators. Underlying figures are stated before the Oman Airport IT contract termination costs,

amortisation charges relating to acquired intangibles, impairment of goodwill, adjustments to deferred consideration net of acquisition related costs,
defined benefit pension interest charges, unwinding of discounts on provisions and the revaluation of financial instruments based on their fair values.
A reconciliation between operating profit and underlying operating profit, and between profit before tax and underlying profit before tax is shown in
note 2 to the accounts. A reconciliation between basic earnings per share and underlying earnings per share is shown in note 12.

Consolidated income statement
For the year ended 31 December 2014

Ultra Electronics Holdings plc 87
Consolidated income statement/Consolidated statement of comprehensive income

Revenue
Cost of sales

Gross profit
Other operating income
Distribution costs
Administrative expenses
Share of profit from associate
Other operating expenses
Contingent consideration release
Impairment of goodwill
Oman contract termination costs

Operating profit
Investment revenue
Finance costs

Profit before tax
Tax

Profit for the year
Attributable to:

Owners of the Company
Non-controlling interests

Earnings per ordinary share (pence)
Basic
Diluted

Note
3

16
5
1
13
36

6
8
9

12
12

2014
£’000
713,741
(494,294)

219,447
4,748
(1,893)
(137,698)
1,957
(1,149)
8,364
(7,355)
(46,878)

39,543
108
(18,189)

21,462
(14,964)

2013
£’000
745,154
(523,687)

221,467
497
(1,883)
(126,371)
1,424
(2,860)
9,363
(44,239)
-

57,398
1,606
(9,723)

49,281
(11,124)

6,498

38,157

20,799
(14,301)

38,157
-

29.8
29.7

54.8
54.7

The accompanying notes are an integral part of this consolidated income statement. All results are derived from continuing operations.

Consolidated statement of comprehensive income
For the year ended 31 December 2014

Profit for the year

Items that will not be reclassified to profit or loss:
Actuarial loss on defined benefit pension schemes
Tax relating to items that will not be reclassified

Total items that will not be reclassified to profit or loss

Items that may be reclassified to profit or loss:
Exchange differences on translation of foreign operations
(Loss)/gain on net investment hedges
Tax relating to items that may be reclassified

Total items that may be reclassified to profit or loss

Other comprehensive income for the year

Total comprehensive income for the year
Attributable to:
Owners of the Company
Non-controlling interests

The accompanying notes are an integral part of this consolidated statement of comprehensive income.

Note

2014
£’000

6,498

2013
£’000

38,157

(5,704)
1,299

(4,405)

10,974
(4,161)
(804)

6,009

1,604

8,102

(5,677)
(1,321)

(6,998)

(4,896)
810
748

(3,338)

(10,336)

27,821

22,407
(14,305)

27,821
-

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

88 Ultra Electronics Holdings plc
Consolidated balance sheet

Consolidated balance sheet
31 December 2014

Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Interest in associate
Deferred tax assets
Derivative financial instruments
Trade and other receivables

Current assets
Inventories
Trade and other receivables
Tax assets
Cash and cash equivalents
Derivative financial instruments

Total assets

Current liabilities
Trade and other payables
Tax liabilities
Derivative financial instruments
Obligations under finance leases
Short-term provisions

Non-current liabilities
Retirement benefit obligations
Other payables
Deferred tax liabilities
Derivative financial instruments
Obligations under finance leases
Borrowings
Long-term provisions

Total liabilities

Net assets

Equity
Share capital
Share premium account
Own shares
Hedging reserve
Translation reserve
Retained earnings

Equity attributable to equity holders of the company
Non-controlling interest

Total equity

Note

2014
£’000

2013
£’000

13
14
15
16
25
23
19

17
19

23
21
26

31
20
25
23
21
22
26

27
28
28
28
28
28

298,960
162,512
62,569
8,105
4,494
1,117
4,694

252,115
125,445
59,146
7,317
5,147
4,226
9,622

542,451

463,018

73,745
190,186
1,814
41,259
1,725

57,774
239,916
2,454
30,570
3,307

308,729

334,021

851,180

797,039

(231,954)
(7,166)
(1,920)
-
(27,105)

(269,907)
(16,927)
(777)
(44)
(18,140)

(268,145)

(305,795)

(87,263)
(9,512)
(6,192)
(1,678)
-
(170,754)
(4,190)

(86,078)
(4,773)
(222)
(269)
(19)
(72,664)
(6,040)

(279,589)

(170,065)

(547,734)

(475,860)

303,446

321,179

3,498
56,131
(2,581)
(13,330)
27,219
246,132

317,069
(13,623)

3,490
53,908
(2,581)
(9,169)
16,240
258,609

320,497
682

303,446

321,179

The financial statements of Ultra Electronics Holdings plc, registered number 02830397, were approved by the Board of Directors and authorised for
issue on 27 February 2015.

On behalf of the Board
R. Sharma, Chief Executive
M. Waldner, Finance Director

The accompanying notes are an integral part of this consolidated balance sheet.

Consolidated cash flow statement
For the year ended 31 December 2014

Net cash flow from operating activities
Investing activities
Interest received
Dividends received from equity accounted investments
Purchase of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Expenditure on product development and other intangibles
Acquisition of subsidiary undertakings
Net cash acquired with subsidiary undertakings

Net cash used in investing activities

Financing activities
Issue of share capital
Dividends paid
Funding from government loans
Loan syndication costs
Repayments of borrowings
Proceeds from borrowings
Increase in loan to associate
Repayment of obligations under finance leases

Net cash from/(used in) in financing activities

Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes

Cash and cash equivalents at end of year

The accompanying notes are an integral part of this consolidated cash flow statement.

Ultra Electronics Holdings plc 89
Consolidated cash ﬂow statement

Note

2014
£’000

2013
£’000

68,717

63,932

108
1,619
(8,362)
55
(9,289)
(111,285)
6,737

136
2,825
(13,857)
1,280
(7,657)
(26,374)
4,623

(120,417)

(39,024)

2,231
(29,722)
687
(1,495)
(68,331)
161,700
(1,654)
(63)

63,353

11,653
30,570
(964)

41,259

5,176
(28,071)
1,282
(181)
(64,939)
62,622
-
(24)

(24,135)

773
30,840
(1,043)

30,570

32
32

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

90 Ultra Electronics Holdings plc
Consolidated statement of changes in equity

Consolidated statement of changes in equity
For the year ended 31 December 2014

Equity attributable to equity holders of the parent

Balance at 1 January 2014
Profit for the year
Other comprehensive
income for the year

Total comprehensive

income for the year
Equity-settled employee

share schemes

Dividend to shareholders
Tax on share-based

payment transactions

Share
capital
£’000

3,490
-

8
-

Share
premium
account
£’000

53,908
-

2,223
-

Reserve for
own shares
£’000

Hedging
reserve
£’000

Translation
reserve
£’000

(2,581)
-

(9,169)
-

16,240
-

Retained
earnings
£’000

258,609
20,799

Non
controlling
interest
£’000

Total equity
£’000

682
(14,301)

321,179
6,498

-
-

(4,161)

10,979

(5,210)

(4)

1,604

(4,161)

10,979

15,589

(14,305)

8,102

-
-

1,783
(29,722)

(127)

-
-

4,014
(29,722)

(127)

Balance at 31 December 2014

3,498

56,131

(2,581)

(13,330)

27,219

246,132

(13,623)

303,446

Balance at 1 January 2013
Profit for the year
Other comprehensive
income for the year

Total comprehensive

income for the year
Equity-settled employee

share schemes

Dividend to shareholders
Tax on share-based

payment transactions

3,470
-

48,752
-

(2,581)
-

(9,979)
-

21,119
-

252,745
38,157

699
-

314,225
38,157

20
-

5,156
-

-
-

810

-
-

(4,879)

(6,250)

(17)

(10,336)

(4,879)

31,907

(17)

27,821

-
-

1,859
(28,071)

169

-
-

7,035
(28,071)

169

Balance at 31 December 2013

3,490

53,908

(2,581)

(9,169)

16,240

258,609

682

321,179

Ultra Electronics Holdings plc 91
Notes to accounts – Group

Notes to accounts – Group
31 December 2014

1 Segment information

For management purposes, the Group is organised into three operating segments – Aircraft & Vehicle Systems, Information & Power Systems and
Tactical & Sonar Systems. These segments are consistent with the internal reporting as reviewed by the Chief Executive. Each segment includes
businesses with similar operating and market characteristics.

Revenue
Aircraft & Vehicle Systems
Information & Power Systems
Tactical & Sonar Systems
Eliminations

Consolidated revenue

All inter-segment trading is at arm’s length.

2014

Total
£’000

154,702
210,530
383,900
(35,391)

Inter
segment
£’000

14,436
6,487
14,468
(35,391)

External
revenue
£’000

140,910
276,764
327,480
-

Inter
segment
£’000

19,077
8,837
19,247
(47,161)

2013

As restated*

Total
£’000

159,987
285,601
346,727
(47,161)

713,741

745,154

External
revenue
£’000

140,266
204,043
369,432
-

713,741

Underlying operating profit
Amortisation of intangibles arising on acquisition
Adjustments to deferred consideration net of acquisition costs†
Oman contract termination costs
Impairment of goodwill (see note 13)

Operating profit/(loss)
Investment revenue
Finance costs

Profit before tax
Tax

Profit after tax

Aircraft
& Vehicle
Systems
£’000

Information
& Power
Systems
£’000

24,642
(3,071)
(223)
-
(7,355)

29,158
(7,415)
(183)
(46,878)
-

Tactical
& Sonar
Systems
£’000

64,266
(18,305)
4,907
-
-

13,993

(25,318)

50,868

2014

Total
£’000

118,066
(28,791)
4,501
(46,878)
(7,355)

39,543
108
(18,189)

21,462
(14,964)

6,498

† A provision of £8,364,000 (2013: £9,363,000) was released relating to the GigaSat earn-out agreement for which the 2014 targets were not met.

GigaSat is in the Tactical & Sonar Systems division.

Underlying operating profit
Amortisation of intangibles arising on acquisition
Adjustments to deferred consideration net of acquisition costs†
Impairment of goodwill (see note 13)

Operating profit/(loss)
Investment revenue
Finance costs

Profit before tax
Tax

Profit after tax

Aircraft
& Vehicle
Systems
£’000

34,779
(3,555)
(274)
-

Information
& Power
Systems
£’000

37,335
(9,042)
(36)
(44,239)

Tactical
& Sonar
Systems
£’000

49,603
(16,486)
9,313
-

30,950

(15,982)

42,430

2013

As restated*

Total
£’000

121,717
(29,083)
9,003
(44,239)

57,398
1,606
(9,723)

49,281
(11,124)

38,157

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

*During 2014 the Command & Control business was moved from the Group’s Information & Power Systems division into the Tactical & Sonar Systems division and MSI

and AMI were moved from the Aircraft & Vehicle Systems division into the Information & Power Systems and Tactical & Sonar Systems divisions respectively. The prior year
segmented analysis has been restated to reflect this change.

92 Ultra Electronics Holdings plc
Notes to accounts – Group (continued)

1 Segment information (continued)

Capital expenditure, additions to intangibles, depreciation and amortisation

Aircraft & Vehicle Systems
Information & Power Systems
Tactical & Sonar Systems

Total

Capital expenditure and
additions to intangibles
(excluding goodwill and
acquired intangibles)

2014
£’000

7,069
3,492
7,090

17,651

2013
£’000

As restated*

10,016
5,574
5,924

21,514

Depreciation
and amortisation

2014
£’000

5,867
12,141
25,021

43,029

2013
£’000

As restated*

5,660
15,146
22,526

43,332

The 2014 depreciation and amortisation expense includes £32,202,000 of amortisation charges (2013: £31,967,000) and £10,827,000 of
property, plant and equipment depreciation charges (2013: £11,365,000).

Total assets by segment

Aircraft & Vehicle Systems
Information & Power Systems
Tactical & Sonar Systems

Unallocated

Consolidated total assets

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

Total liabilities by segment

Aircraft & Vehicle Systems
Information & Power Systems
Tactical & Sonar Systems

Unallocated

Consolidated total liabilities

2014
£’000

2013
£’000

As restated*

165,069
205,821
429,881

800,771
50,409

154,928
251,812
344,595

751,335
45,704

851,180

797,039

2014
£’000

2013
£’000

As restated*

41,292
92,660
144,537

278,489
269,245

35,737
124,933
142,589

303,259
172,601

547,734

475,860

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

Revenue by destination

The following table provides an analysis of the Group’s sales by geographical market:

United Kingdom
Continental Europe
Canada
USA
Rest of World

2014
£’000

227,419
70,186
15,051
296,736
104,349

2013
£’000

243,650
61,860
17,130
313,352
109,162

713,741

745,154

During the year there were two direct customers (2013: one), that individually accounted for greater than 10% of the Group’s total turnover. Sales
to these customers in 2014 were £79.6m and £144.0m (2013: £70.9m and £164.8m) across all segments.

*During 2014 the Command & Control business was moved from the Group’s Information & Power Systems division into the Tactical & Sonar Systems division and MSI

Ultra Electronics Holdings plc 93
Notes to accounts – Group (continued)

1 Segment information (continued)

Other information (by geographic location)

United Kingdom
USA
Canada
Rest of World

Unallocated

Non current assets

Total assets

2014
£’000

221,461
215,030
88,205
12,144

536,840
5,611

2013
£’000

221,362
159,927
47,960
24,396

453,645
9,373

2014
£’000

376,744
291,203
113,856
18,968

800,771
50,409

2013
£’000

375,315
229,563
62,983
83,474

751,335
45,704

542,451

463,018

851,180

797,039

Additions to Property,
Plant & Equipment
and intangible assets
(excluding
acquisitions)

2014
£’000

9,876
4,805
2,537
433

17,651
-

17,651

2013
£’000

14,607
3,852
2,719
336

21,514
-

21,514

2 Additional non-statutory performance measures

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

Operating profit
Amortisation of intangibles arising on acquisition (see note 14)
Impairment of goodwill (see note 13)
Adjustments to contingent consideration net of acquisition related costs
Oman contract termination costs (see note 36)

Underlying operating profit

Profit before tax
Amortisation of intangibles arising on acquisition (see note 14)
Impairment of goodwill (see note 13)
Adjustments to contingent consideration net of acquisition related costs
Unwinding of discount on provisions (see note 26)
Loss/(profit) on fair value movements of derivatives (see note 23)
Net interest charge on defined benefit pensions (see note 9)
Oman contract termination costs (see note 36)

Underlying profit before tax

Cash generated by operations (see note 29)
Purchase of property, plant and equipment
Proceeds on disposal of property, plant and equipment
Expenditure on product development and other intangibles
Dividend from equity accounted investment
Acquisition related payments

Underlying operating cash flow

2014
£’000

39,543
28,791
7,355
(4,501)
46,878

2013
£’000

57,398
29,083
44,239
(9,003)
-

118,066

121,717

21,462
28,791
7,355
(4,501)
1,172
7,243
3,634
46,878

49,281
29,083
44,239
(9,003)
1,268
(1,470)
3,408
-

112,034

116,806

96,067
(8,362)
55
(9,289)
1,619
2,982

83,072

93,476
(13,857)
1,280
(7,657)
2,825
2,973

79,040

The above analysis of the Group’s operating results, earnings per share and cash flows, is presented to provide readers with additional performance
indicators that are prepared on a non-statutory basis. This presentation is regularly reviewed by management to identify items that are unusual and other
items relevant to an understanding of the Group’s performance and long-term trends with reference to their materiality and nature. This additional
information is not uniformly defined by all Companies and may not be comparable with similarly titled measures and disclosures by other organisations.
The non-statutory disclosures should not be viewed in isolation or as an alternative to the equivalent statutory measure. See page 124 for further details.

3 Revenue

An analysis of the Group’s revenue is as follows:

Sales of goods
Revenue from long term contracts

4 Other operating income

Amounts included in other operating income were as follows:

Foreign exchange gains

2014
£’000

326,613
387,128

2013
£’000

331,598
413,556

713,741

745,154

2014
£’000

4,748

2013
£’000

497

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

94 Ultra Electronics Holdings plc
Notes to accounts – Group (continued)

5 Other operating expenses

Amounts included in other operating expenses were as follows:

Amortisation of development costs
Foreign exchange losses

6 Operating profit

Operating profit is stated after charging/(crediting):

Raw materials and other bought in inventories expensed in the year
Staff costs (see note 7)
Depreciation and amounts written off property, plant and equipment
Amortisation of internally generated intangible assets
Amortisation of acquired intangible assets (and other intangibles)
Impairment of goodwill (see note 13)
Government grant income (see note 24)
Net foreign exchange (gain)/loss
(Profit)/loss on disposal of property, plant and equipment
Operating lease rentals

– plant and machinery
– other

Research and development costs
Auditor’s remuneration for statutory audit work (including expenses)

The Company only audit fee included in the Group audit fee shown above was £20,000 (2013: £20,000).

Analysis of auditor’s remuneration

Fees payable for the audit of the annual accounts
Fees payable for the audit of subsidiaries

Total for statutory Group audit services

Analysis of non-audit services:
Audit related services
Tax compliance
Other tax advisory services
Corporate finance services – due diligence
Other services

Total for non-audit services

7 Staff costs

Particulars of employees (including Executive Directors) are shown below.
Employee costs during the year amounted to:

Wages and salaries
Social security costs
Pension costs

The average monthly number of persons employed by the Group during the year was as follows:

Production
Engineering
Selling
Support services

2014
£’000

780
369

1,149

2013
£’000

608
2,252

2,860

2014
£’000

218,256
239,985
10,827
780
31,422
7,355
(1,931)
(1,169)
(3)

1,405
12,219
36,149
780

2013
£’000

226,096
228,994
11,365
608
31,359
44,239
(1,819)
2,771
130

1,590
10,043
36,952
705

2014
£’000

183
597

780

-
10
-
436
15

461

2013
£’000

179
526

705

27
7
3
341
13

391

2014
£’000

209,639
18,518
11,828

2013
£’000

198,369
19,595
11,030

239,985

228,994

2014
Number

1,875
1,936
304
672

4,787

2013
Number

1,698
1,725
262
589

4,274

Information on Directors’ remuneration is given in the section of the Remuneration Report described as having been audited and those elements
required by the Companies Act 2006 and the Financial Conduct Authority form part of these accounts.

8 Investment revenue

Bank interest
Fair value movement on derivatives

9 Finance costs

Amortisation of finance costs of debt
Interest payable on bank loans, overdrafts and other loans

Total borrowing costs
Retirement benefit scheme finance cost
Unwinding of discount on provisions
Fair value movement on derivatives

10 Tax

UK taxes
Corporation tax
Adjustment in respect of prior years

Overseas taxes
Current taxation
Adjustment in respect of prior years

Total current tax

Deferred tax
Origination and reversal of temporary differences:
UK deferred tax
Overseas deferred tax

Total deferred tax credit

Total tax charge

Ultra Electronics Holdings plc 95
Notes to accounts – Group (continued)

2014
£’000

108
-

108

2014
£’000

662
5,478

6,140
3,634
1,172
7,243

18,189

2014
£’000

9,145
(722)

8,423

8,373
(875)

7,498

2013
£’000

136
1,470

1,606

2013
£’000

616
4,431

5,047
3,408
1,268
-

9,723

2013
£’000

15,453
1,853

17,306

7,238
414

7,652

15,921

24,958

(776)
(181)

(957)

(3,711)
(10,123)

(13,834)

14,964

11,124

Corporation tax in the UK is calculated at 21.5% (2013: 23.25%) of the estimated assessable profit for the year.

Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

In addition to the amount charged to the income statement, the following amounts relating to tax have been recognised directly in other
comprehensive income:

Current tax
Net investment hedges

Deferred tax
Arising on income and expenses recognised in other comprehensive income:
Actuarial loss on defined benefit pension schemes

Total income tax charge recognised directly in other comprehensive income

2014
£’000

2013
£’000

(804)

748

1,299

495

(1,321)

(573)

In addition to the amount charged to the income statement and other comprehensive income, the following amounts relating to tax have been
recognised directly in equity:

Current tax
Excess tax deductions related to share based payments on exercised options
Deferred tax
Change in estimated excess tax deductions related to share-based payments

Total income tax recognised directly in equity

2014
£’000

(153)

(127)

2013
£’000

117

169

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

96 Ultra Electronics Holdings plc
Notes to accounts – Group (continued)

10 Tax (continued)

The difference between the total current tax shown above and the amount calculated by applying the standard rate
of UK corporation tax to the profit before tax is as follows:

Group profit before tax

Tax on Group profit at standard UK corporation tax rate of 21.5% (2013: 23.25%)
Tax effects of:
Income/expenses that are not taxable/allowable in determining taxable profits
Effect of change in UK tax rate
Change in unrecognised deferred tax assets
Different tax rates of subsidiaries operating in other jurisdictions
Adjustments in respect of prior years

Tax expense for the year

11 Dividends

Amounts recognised as distributions to equity holders in the year:

Final dividend for the year ended 31 December 2013 of 29.5p (2012: 27.8p) per share
Interim dividend for the year ended 31 December 2014 of 13.2p (2013: 12.7p) per share

Proposed final dividend for the year ended 31 December 2014 of 31.1p (2013: 29.5p) per share

2014
£’000

21,462

4,614

606
-
5,391
6,395
(2,042)

2013
£’000

49,281

11,458

1,264
(2,049)
-
(324)
775

14,964

11,124

2014
£’000

20,528
9,194

29,722

21,685

2013
£’000

19,259
8,812

28,071

20,523

The 2014 proposed final dividend of 31.1p per share is planned to be paid on 6 May 2015 to shareholders on the register at 10 April 2015. It was
approved by the Board after 31 December 2014 and has not been included as a liability as at 31 December 2014.

12 Earnings per share

Basic underlying (see below)

Diluted underlying (see below)

Basic

Diluted

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

Earnings
Earnings for the purposes of basic earnings per share being profit for the year

Underlying earnings
Profit for the year
Profit on fair value movements on derivatives (net of tax)
Amortisation of intangibles arising on acquisition (net of tax)
Unwinding of discount on provisions (net of tax)
Acquisition-related costs net of contingent consideration (net of tax)
Net interest charge on defined benefit pensions (net of tax)
Impairment of goodwill (net of tax)
Oman contract termination costs (net of tax)
Elimination of non-underlying non-controlling interest

Earnings for the purposes of underlying earnings per share

The adjustments to profit are explained in note 2.

The weighted average number of shares is given below:
Number of shares used for basic earnings per share
Effect of dilutive potential ordinary shares – share options

Number of shares used for fully diluted earnings per share

2014
pence

123.1

122.8

29.8

29.7

2014
£’000

2013
pence

127.1

126.7

54.8

54.7

2013
£’000

20,799

38,157

20,799
5,794
20,417
1,172
(4,960)
2,851
7,355
46,878
(14,301)

86,005

38,157
(1,322)
20,727
973
(9,061)
2,609
36,394
-
-

88,477

2014
Number of
shares

2013
Number of
shares

69,864,755
158,862

69,588,526
218,397

70,023,617

69,806,923

12 Earnings per share (continued)

Underlying profit before tax
Tax rate applied for the purposes of underlying earnings per share

13 Goodwill

Cost
At 1 January
Exchange differences
Recognised on acquisition of subsidiaries
Other changes

At 31 December

Accumulated impairment losses
At 1 January
Exchange differences
Impairment of goodwill

Carrying amount at 31 December

Ultra Electronics Holdings plc 97
Notes to accounts – Group (continued)

2014
£’000
112,034

2013
£’000
116,806

23.23%

24.25%

2014
£’000

2013
£’000

293,988
6,471
47,601
538

291,824
(3,670)
9,790
(3,956)

348,598

293,988

(41,873)
(410)
(7,355)

-
2,366
(44,239)

298,960

252,115

Other changes in 2014 relate to a deferred consideration release relating to a 2006 acquisition and a fair value adjustment relating to a 2013
acquisition. Other changes in 2013 relate to the release of an earn-out provision of £4,276,000 relating to a 2008 acquisition which was credited to
goodwill, and other adjustments relating to the re-assessment of initial fair values.

Goodwill acquired in a business combination is allocated, at acquisition, to the Cash-Generating Units (CGUs) that are expected to benefit from that
business combination. These consist of the Group’s operating businesses. Goodwill has been allocated to CGUs as set out below:

Blue Sky Group
Controls
Precision Air & Land Systems
Other

Aircraft & Vehicle Systems

Airport Systems
EMS
NSPI
SOTECH
Other

Information & Power Systems

3eTI
3Phoenix
AEP
Command & Control Systems
Flightline
Forensic Technology
GigaSat
Security & Surveillance Systems
Tactical Communication Systems
UnderSea Sensor Systems
Other

Tactical & Sonar Systems

Total – Ultra Electronics

2014
Discount rate
%

2013
Discount rate
%

10.8
10.8
10.8
10.8 to 11.8

12.3
12.3
12.3
12.3 to 13.3

11.8
10.8
11.8
10.8
10.8 to 11.8

13.3
13.3
13.3
12.3
12.3 to 13.3

10.8
13.7
11.8
10.8
10.8
12.5
11.8
10.8
10.8
10.8
10.8

12.3
-
13.3
12.3
12.3
-
13.3
12.3
12.3
12.3
12.3

2014
£’000

-
10,085
10,317
13,074

33,476

27,942
20,129
11,138
9,161
11,478

79,848

19,927
15,885
24,908
5,827
10,080
24,707
9,544
9,851
19,398
26,040
19,469

2013
£’000
As restated

7,333
7,876
10,317
13,074

38,600

28,064
2,356
10,518
8,652
11,457

61,047

18,817
-
24,908
5,827
9,519
-
9,544
9,851
36,054
24,487
13,461

185,636

152,468

298,960

252,115

During the year the Command & Control Systems business moved from the Information & Power Systems division into the Tactical & Sonar Systems
Division and split into two units, Command & Control Systems and Security & Surveillance Systems. The MSI and AMI businesses moved from the
Aircraft & Vehicle Systems division into the Information & Power Systems division and Tactical & Sonar Systems division respectively. Prior year
comparators have been restated. Goodwill relating to the legacy DNE business has been reallocated between the Tactical Communication Systems
and EMS businesses during 2014.

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

98 Ultra Electronics Holdings plc
Notes to accounts – Group (continued)

13 Goodwill (continued)

The recoverable amounts of CGUs are determined from value-in-use calculations. In determining the value-in-use for each CGU, the Group prepares
cash flows derived from the most recent financial budgets and strategic plans, representing the best estimate of future performance. These plans,
which have been approved by the Board, include detailed financial forecasts and market analysis covering the expected development of each CGU
over the next five years. The cash flows for the following ten years are also included and assume a growth rate of 2.5% per annum. Cash flows
beyond that period are not included in the value-in-use calculation.

The key assumptions used in the value-in-use calculations are those regarding the discount rate, future revenues, growth rates and forecast gross
margins. Management estimates the discount rate using pre-tax rates that reflect current market assessments of the time value of money and risks
specific to the Group, being the Weighted Average Cost of Capital (WACC). The WACC is then risk-adjusted to reflect risks specific to each business.
The pre-tax discount rate used during 2014 varied between 10.8% and 13.7% (2013: 12.3% to 13.8%). Future revenues are based on orders already
received, opportunities that are known and expected at the time of setting the budget and strategic plans and future growth rates. Budget and
strategic plan growth rates are based on a combination of historical experience, available government spending data and management and industry
expectations of the growth rates that are expected to apply in the major markets in which each CGU operates. Longer-term growth rates, applied for
the ten year period after the end of the strategic planning period, are set at 2.5%. Ultra considers the long-term growth rate to be appropriate for the
sectors in which it operates. Forecast gross margins reflect past experience, factor in expected efficiencies to counter inflationary pressures, and also
reflect likely margins achievable in the shorter-term period of greater defence spending uncertainty.

Within each of the strategic plans a number of assumptions are made about business growth opportunities, contract wins, product development
and available markets. A key assumption is that there will be continued demand for Ultra’s products and expertise from a number of US government
agencies and prime contractors during the strategic plan period.

Sensitivity analysis has been performed on the value-in-use calculations to:
(i) reduce the post-2019 growth assumption from 2.5% to nil.
(ii) apply a 10% reduction to forecast operating profits in each year of the modelled cash inflows.
(iii) consider specific market factors.

Certain of these sensitivity scenarios give rise to potential impairments at SOTECH, Airport Systems, AEP and Tactical Communications Systems.
Headroom for these businesses, which represents the value derived from the key growth assumptions in the value-in-use calculations, is as follows:
Tactical Communication Systems £32.3m, Airport Systems £4.9m, SOTECH £16.5m and AEP £8.3m. Consideration of specific market factors has
identified the following:
(a) in Tactical Communication Systems a material delay in bringing a key programme to market, combined with failure to secure sufficient business

with new and existing customers would result in impairment

(b) following the termination of the Oman Airport IT contract, the Airport Systems CGU is sensitive to the ability of the remaining business to win

sufficient new customers over the medium term; and

(c) the SOTECH CGU is sensitive to the ability to successfully expand the business into new geographic areas and market sectors.

Accordingly if assumption (ii) was extended further, the level of reduction to forecast operating profits required to indicate impairment is as follows:
Tactical Communication Systems 60%, Airport Systems 14%, SOTECH 43% and AEP: 15%.

Following a review of the performance of our businesses in the Middle East, a potential indicator of impairment was identified for the Blue Sky
Group CGU, and an impairment review was undertaken. The value-in-use of the Blue Sky Group CGU was lower than the carrying value of the
CGU’s net operating assets and consequently an impairment charge of £7.4m has been recorded in the year. The pretax discount rate used during
this assessment was 10.8%. Following the impairment charge, the carrying value of goodwill for the Blue Sky Group CGU as at 31 December 2014
is £nil. As set out in note 2, the £7.4m impairment charge has been included as part of the non-underlying operating results of the Group. Blue Sky
Group is within the Aircraft & Vehicle Systems operating segment.

For all other CGUs, the value-in-use calculations exceed the CGU carrying values in the sensitivity scenarios.

The reduction in placement of US service contracts particularly impacted the ProLogic business. During the prior year the value-in-use of the ProLogic CGU
was lower than the carrying value of the CGU’s net operating assets and consequently an impairment charge of £44.2m was recorded in administrative
expenses in 2013. As set out in note 2, the £44.2m prior year impairment charge was included as part of the non-underlying operating results of the
Group. ProLogic is within the Information & Power Systems operating segment.

Ultra Electronics Holdings plc 99
Notes to accounts – Group (continued)

14 Other intangible assets

Cost
At 1 January 2013
Foreign exchange differences
Acquired on acquistion of
subsidiary undertakings

Additions
Disposals

At 1 January 2014

Foreign exchange differences
Acquired on acquistion of
subsidiary undertakings

Additions
Transfers from inventories
Disposals

At 31 December 2014

Accumulated amortisation
At 1 January 2013
Foreign exchange differences
Disposals
Charge

Acquired intangibles

Customer
relationships
£’000

Intellectual
property
£’000

Profit in
order book
£’000

Other
acquired
£’000

Internally
generated
capitalised
development
costs
£’000

Other
intangibles
£’000

Total
£’000

157,286
(3,234)

73,220
(1,085)

22,536
(557)

1,695
(24)

17,139
(331)

19,475
(351)

291,351
(5,582)

9,114
-
-

163,166

7,083

31,905
-
-
-

202,154

-
-
-

72,135

3,177

16,156
-
-
-

91,468

1,987
-
-

715
-
-

-
6,312
-

-
1,345
(232)

11,816
7,657
(232)

23,966

2,386

23,120

20,237

305,010

669

2,306
-
-
-

26,941

2,366
-
-
-

4,847

645

-
5,020
1,335
-

663

12,332

448
4,269
-
(45)

53,181
9,289
1,335
(45)

30,120

25,572

381,102

(75,396)
2,660
-
(18,921)

(28,270)
862
-
(8,580)

(22,402)
557
-
(1,169)

(646)
21
-
(413)

(13,635)
139
-
(608)

(11,842)
122
232
(2,276)

(152,191)
4,361
232
(31,967)

At 1 January 2014

(91,657)

(35,988)

(23,014)

(1,038)

(14,104)

(13,764)

(179,565)

Foreign exchange differences
Disposals
Charge

(3,863)
-
(17,268)

(1,716)
-
(8,652)

(634)
-
(2,313)

(54)
-
(558)

(221)
-
(780)

(380)
45
(2,631)

(6,868)
45
(32,202)

At 31 December 2014

(112,788)

(46,356)

(25,961)

(1,650)

(15,105)

(16,730)

(218,590)

Carrying amount
At 31 December 2014

At 31 December 2013

89,366

71,509

45,112

36,147

980

952

3,197

1,348

15,015

9,016

8,842

6,473

162,512

125,445

‘Other intangibles’ represents software, patents and trademarks. Of the £8,842,000 (2013: £6,473,000) net book value, £504,000 (2013: £482,000)
related to patents and trademarks. The amortisation of intangible assets charge is included within administrative expenses.

Intangible assets, other than goodwill, are amortised over their estimated useful lives, typically as follows:

Customer relationships

Intellectual property

Profit in acquired order book

Other acquired

Development costs

Other intangibles:

Software

Patents and trademarks

5 to 16 years

5 to 10 years

1 to 3 years

1 to 5 years

2 to 10 years

3 to 5 years

10 to 20 years

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

100 Ultra Electronics Holdings plc
Notes to accounts – Group (continued)

15 Property, plant and equipment

Cost
At 1 January 2013
Foreign exchange differences
Acquisitions
Additions
Disposals

At 1 January 2014

Foreign exchange differences
Acquisitions
Additions
Disposals

At 31 December 2014

Accumulated Depreciation
At 1 January 2013
Foreign exchange differences
Charge
Disposals

At 1 January 2014

Foreign exchange differences
Charge
Disposals

At 31 December 2014

Carrying amount
At 31 December 2014

At 31 December 2013

Land and Buildings

Freehold
£’000

Short
leasehold
£’000

Plant and
machinery
£’000

27,945
(568)
-
4,014
(1,080)

30,311

329
2,793
983
-

19,794
(199)
3
2,447
(1,268)

20,777

538
383
579
(1,057)

Total
£’000

136,901
(2,134)
861
13,857
(5,919)

89,162
(1,367)
858
7,396
(3,571)

92,478

143,566

2,230
1,787
6,800
(3,070)

3,097
4,963
8,362
(4,127)

34,416

21,220

100,225

155,861

(4,630)
302
(1,407)
201

(5,534)

(72)
(1,121)
-

(8,118)
118
(1,742)
1,070

(66,397)
1,161
(8,216)
3,238

(79,145)
1,581
(11,365)
4,509

(8,672)

(70,214)

(84,420)

(331)
(2,059)
1,062

(1,717)
(7,647)
3,013

(2,120)
(10,827)
4,075

(6,727)

(10,000)

(76,565)

(93,292)

27,689

24,777

11,220

12,105

23,660

22,264

62,569

59,146

Freehold land amounting to £3,502,000 (2013: £3,502,000) has not been depreciated. The net book value of plant and machinery held under finance
leases was £nil (2013: £48,000). Depreciation charged in the year on assets held under finance leases was £nil (2013: £65,000). Included within
Land and Buildings is £nil (2013: £nil) of assets in the course of construction.

16 Interest in associate

The value of the Group’s investment is made up as follows:

Total assets
Total liabilities

Interest in associate

Total revenue of associate
Group’s share of profit recognised

2014
£’000

2013
£’000

15,085
(6,980)

8,105

2014
£’000

41,340
1,957

13,894
(6,577)

7,317

2013
£’000

29,370
1,424

The Group’s interest in associate is represented by its 49% holding of ordinary shares in Al Shaheen Adventure LLC, a Company incorporated in the
UAE. The Group has significant influence over the entity but does not control it, consequently the associate is incorporated in these financial
statements using the equity method of accounting. The associate’s year end is 31 December 2014.

17 Inventories

Raw materials and consumables
Work in progress
Finished goods and goods for resale

2014
£’000

44,226
18,462
11,057

73,745

2013
£’000

36,888
13,774
7,112

57,774

The amount of any write down of inventory recognised as an expense in the year was £3,051,000 (2013: £2,727,000).

18 Long-term contract balances

Contracts in progress at the balance sheet date:
Amounts due from contract customers included in trade and other receivables
Amounts due to contract customers included in trade and other payables

Contract costs incurred plus recognised profits less recognised losses to date

Advances received from customers for contract work amounted to £68,391,000 (2013: £81,585,000).

19 Trade and other receivables

Non-current

Trade receivables
Provisions against receivables (note 36)
Amounts due from contract customers (note 18)

Current
Trade receivables
Provisions against receivables

Net trade receivables
Amounts due from contract customers
Provisions against amounts due from contract customers (note 36)

Net amounts due from contract customers (note 18)
Other receivables
Prepayments and accrued income

Ultra Electronics Holdings plc 101
Notes to accounts – Group (continued)

2014
£’000

2013
£’000

82,662
(70,138)

12,524

133,368
(124,122)

9,246

1,546,394

1,375,409

2014
£’000

7,279
(6,884)
4,299

4,694

2014
£’000

92,617
(1,043)

91,574
110,612
(32,249)

78,363
10,547
9,702

2013
£’000

5,296
-
4,326

9,622

2013
£’000

87,174
(1,605)

85,569
129,042
-

129,042
17,150
8,155

190,186

239,916

Trade receivables do not carry interest. The average credit period on sale of goods is 35 days (2013: 34 days).

The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.

The ageing profile of unprovided overdue trade receivables was as follows:

1 to 3 months
4 to 6 months
7 to 9 months
Over 9 months

Total overdue

2014
£’000

15,877
1,433
269
518

18,097

Related
provision
£’000

(311)
(49)
(165)
(518)

(1,043)

Total
£’000

15,566
1,384
104
-

17,054

2013
£’000

12,698
2,123
791
740

16,352

Related
provision
£’000

(364)
(358)
(143)
(740)

(1,605)

Total
£’000

12,334
1,765
648
-

14,747

The Group provides against its trade receivables where there are serious doubts as to future recoverability based on prior experience, on assessment
of the current economic climate and on the length of time that the receivable has been overdue. All trade receivables that have been overdue for
more than a year are provided for in full.

Movement in the provision for trade receivables was as follows:

Current

Balance at beginning of year
Foreign exchange differences
Increase in provision for trade receivables regarded as potentially uncollectable
Decrease in provision for trade receivables recovered during the year

Balance at end of year

Non-current

Balance at beginning of year
Increase in provision for trade receivables regarded as potentially uncollectable

Balance at end of year

2014
£’000

1,605
9
546
(1,117)

1,043

2014
£’000

-
6,884

6,884

2013
£’000

1,445
(8)
731
(563)

1,605

2013
£’000

-
-

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

102 Ultra Electronics Holdings plc
Notes to accounts – Group (continued)

19 Trade and other receivables (continued)

Credit risk
Credit risk is defined as the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group
mitigates this risk of financial loss by only dealing with creditworthy counterparties.

The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned
by international credit rating agencies.

Whilst the Group has elements of concentration of credit risk, with exposure to a number of large counter parties and customers, the customers are
mainly government agencies or multi-national organisations with whom the Group has long term business relationships. The Group has a small number
of customers with individually significant amounts outstanding. These customers are considered to have low credit risk. As set out in note 36, the Oman
Airport IT contract has been terminated. Specific provisions, as set out above, have been recorded against the associated receivables balances.

Ongoing credit evaluation is performed on the financial condition of accounts receivable and when appropriate action is taken to minimise the Group’s
credit risk.

The carrying amount of financial assets recorded in the financial statements (see note 23) net of any allowances for losses represents the Group’s
maximum exposure to credit risk.

20 Trade and other payables

Amounts included in current liabilities:
Trade payables
Amounts due to contract customers (note 18)
Other payables
Accruals and deferred income

Amounts included in non current liabilities:
Amounts due to contract customers (note 18)
Other payables
Accruals and deferred income

The Directors consider that the carrying amount of trade and other payables approximates to their fair value.

21 Finance leases

Minimum lease payments

Amounts payable under finance leases:
Within one year
Between one and five years

Less: future finance charges

Present value of finance lease liabilities

Present value of finance lease liabilities – payments due:
Within one year
Between one and five years

22 Borrowings

Amounts due after less than one year:
Bank loans

Amounts due after more than one year:
Bank loans
Unsecured loan notes
Loans from government

Total borrowings:
Amount due for settlement within 12 months
Amount due for settlement after 12 months

2014
£’000

92,855
69,257
23,924
45,918

2013
£’000

85,709
122,856
19,505
41,837

231,954

269,907

881
5,607
3,024

9,512

1,266
1,174
2,333

4,773

2014
£’000

2013
£’000

-
-

48
24

72
(9)

44
19

2014
£’000

2013
£’000

120,177
44,849
5,728

170,754

-
170,754

170,754

25,975
42,352
4,337

72,664

-
72,664

72,664

Ultra Electronics Holdings plc 103
Notes to accounts – Group (continued)

23 Financial instruments and financial risk management

Derivative financial instruments
Exposure to currency and interest rate risks arises in the normal course of the Group’s business. Derivative financial instruments are used to hedge
exposure to all significant fluctuations in foreign exchange rates and interest rates.

Fair value measurements recognised in the balance sheet
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels
1 to 3 based on the degree to which the fair value is observable:
• Level 1 fair value measurements are those derived from quoted (unadjusted) active markets for identical assets or liabilities;
• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or

liability, either directly (i.e as prices) or indirectly (i.e. derived from prices); and

• Level 3 fair value measurements are those derived from valuation techniques that includes inputs for the asset or liability that are not based on

observable market data (unobservable inputs).

All of Ultra’s financial instruments have been assessed as Level 2.

Fair value measurements recognised in the balance sheet

Financial assets at fair value
Foreign exchange derivative financial instruments (through profit and loss)

Financial liabilities at fair value
Foreign exchange derivative financial instruments (through profit and loss)

Financial assets at fair value
Foreign exchange derivative financial instruments (through profit and loss)

Financial liabilities at fair value
Foreign exchange derivative financial instruments (through profit and loss)

Level 2
£’000

2014
Total
£’000

2,842

3,598

Level 2
£’000

3,598

2013
Total
£’000

7,533

1,046

Current assets/(liability) Non-current assets/(liability)
2013
£’000

2014
£’000

2013
£’000

Financial assets/(liabilities) carried at fair value through profit or loss
Foreign exchange currency liabilities

Foreign exchange currency assets

Financial assets
The financial assets of the Group were as follows:

(1,920)

1,725

(777)

(1,678)

3,307

1,117

(269)

4,226

Cash and cash equivalents
Currency derivatives used for hedging
Amounts due from contract customers
Other receivables
Trade receivables

The Directors consider that the carrying amount for all financial assets approximates to their fair value.

Financial liabilities
The financial liabilities of the Group were as follows:

Currency derivatives used for hedging
Other financial liabilities:

Bank loans and overdrafts
Loan notes
Finance leases
Government loans
Trade payables
Amounts due to contract customers
Deferred consideration
Accruals

The Directors consider that the carrying amount for all financial liabilities approximates to their fair value.

2014
£’000

41,259
2,842
82,662
10,547
91,969

2013
£’000

30,570
7,533
133,368
17,150
90,865

2014
£’000

3,598

120,177
44,849
-
5,728
92,855
70,138
6,108
28,222

2013
£’000

1,046

25,975
42,352
63
4,337
85,709
124,122
11,593
28,729

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

104 Ultra Electronics Holdings plc
Notes to accounts – Group (continued)

23 Financial instruments and financial risk management (continued)

Liquidity risk
The Group maintains committed banking facilities with core banks to provide prudent levels of borrowing headroom.

The Group’s banking facilities are provided by a small group of banks, led by The Royal Bank of Scotland. During the year there were two facilities in
place; one provides £100 million of revolving credit and expires in December 2017 and a second, which was put in place in August 2014 to replace
the previous £90 million facility, provides £200 million of revolving credit which expires in July 2019. Both facilities are denominated in Sterling, US
dollars, Canadian dollars, Australian dollars and Euros and are used for balance sheet and operational needs. A further £15 million overdraft is
available for short-term working capital funding.

All bank loans are unsecured. Interest was predominantly charged at 1.00% (2013: 1.45%) over base or contracted rate.

At 31 December 2014, the Group had available £177,956,000 (2013: £163,000,000) of undrawn, committed borrowing facilities.

The Group is strongly cash-generative and the funds generated by operating companies are managed regionally to fund short-term local working
capital requirements. Where additional funding is required, this is provided centrally through the Group’s committed banking facilities.

The Group, through its Canadian subsidiary Ultra Electronics Tactical Communication Systems (UETCS), participates in two Canadian programmes
that provide government support in relation to the development of certain of its products. Further disclosure is provided in note 24.

In July 2011 the Group negotiated a private shelf agreement with Prudential Investment Management, Inc. which allowed the Group to issue loan
notes up to a value of USD150 million and with a maturity date of up to 10 years. USD10 million of loan notes were issued in 2011 with a maturity
date of July 2018 and a further USD60 million of loan notes were issued in January 2012 with a maturity date of January 2019. On 2 January 2014
the Group agreed an amendment to extend the private shelf agreement for a three year period. Consequently loan notes can now be issued up
until 2 January 2017. The amendment also increased the size of the shelf agreement so USD125 million of notes remain available for issue. As at
31 December 2014 USD125 million remained available under the shelf agreement.

The following table details the Group’s remaining contractual maturity for its financial liabilities:

2014
Bank loans and overdrafts
Loan notes
Government loans
Trade payables
Currency derivatives used for hedging
Deferred consideration
Accruals

2013
Bank loans and overdrafts
Loan notes
Government loans
Finance leases
Trade payables
Currency derivatives used for hedging
Deferred consideration
Accruals

Within
1 year
£’000

1,563
1,615
-
92,855
1,920
3,459
25,196

496
1,525
-
48
85,709
777
11,593
26,396

1 to
2 years
£’000

1,563
1,615
-
-
1,678
2,234
1,853

496
1,525
-
23
-
169
-
1,262

2 to
5 years
£’000

125,971
48,045
-
-
-
415
967

27,736
10,510
-
1
-
56
-
775

Over
5 years
£’000

-
-
5,728
-
-
-
206

-
36,386
4,337
-
-
44
-
296

Total
£’000

129,097
51,275
5,728
92,855
3,598
6,108
28,222

28,728
49,946
4,337
72
85,709
1,046
11,593
28,729

Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to
stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes the
borrowings disclosed in note 22 to the Accounts, cash and cash equivalents and equity attributable to equity holders of the parent, comprising
issued capital, reserves and retained earnings as disclosed in the Group Statement of Changes in Equity.

The Group is not subject to externally imposed capital requirements.

Currency risk
The Group uses currency derivatives in the form of forward currency contracts to hedge its foreign currency transaction risk. The currencies giving
rise to this risk are primarily US dollars and Canadian dollars.

At 31 December 2014, the net fair value of the Group’s currency derivatives is estimated to be a liability of approximately £756,000 (2013: asset
£6,487,000), comprising £2,842,000 assets (2013: £7,533,000) and £3,598,000 liabilities (2013: £1,046,000). The loss on derivative financial
instruments included in the Group’s consolidated income statement for the period was £7,243,000 (2013: profit £1,470,000).

Ultra Electronics Holdings plc 105
Notes to accounts – Group (continued)

23 Financial instruments and financial risk management (continued)

The net notional, or net contracted amounts of foreign currency related forward sales contracts, classified by year of maturity are shown below.

2014
US dollars/Sterling

Euro/other currencies

Total

2013
US dollars/Sterling

US dollars/Canadian dollars

Canadian dollars/Sterling

Euro/other currencies

Total

Not
exceeding
1 year
£’000

Between
1 year and
5 years
£’000

Over
5 years
£’000

Total
£’000

56,470

7,332

63,802

46,771

3,889

50,660

103,241

2,604

13,825

117,066

50,873

55,614

6,333

3,173

1,724

62,103

6,349

61,963

3,464

106,487

6,333

3,173

11,537

127,530

Net investment hedges
At the year end the Group had net investments in US companies where the associated foreign currency translation risk is hedged by external
borrowings in US dollars. The value of the borrowings does not exceed the net investments, meeting the conditions required to qualify as
effective hedges.

Interest rate risk
The Group has USD70 million of long term fixed rate debt with an interest rate of 3.60%. This was entered into to achieve an appropriate mix of
fixed and floating rate exposure reflecting the Group’s policy.

The effective interest rates and repricing dates of the Group’s financial assets and liabilities were as follows:

2014
Cash and cash equivalents
Loan notes
Unsecured bank loans
Government loans

2013
Cash and cash equivalents
Loan notes
Unsecured bank loans
Government loans
Finance lease liabilities

Effective
interest
rate

0.31%
3.60%
1.28%
4.43%

0.39%
3.60%
1.84%
4.43%
4.89%

Total
£’000

41,259
44,849
120,177
5,728

30,570
42,352
25,975
4,337
63

Within
1 year
£’000

41,259
-
-
-

30,570
-
-
-
44

1 to 2 years
£’000

2 to 5 years
£’000

5+ years
£’000

-
-
-
-

-
-
-
-
19

-
44,849
120,177
-

-
6,050
25,975
-
-

-
-
-
5,728

-
36,302
-
4,337
-

Market risk sensitivity analysis
Interest rate risk
During 2014 the Group’s net borrowings were predominantly at floating interest rates. The Group has estimated the impact on the income
statement of a 1% increase in market interest rates, from the average rates applicable during 2014. There is no significant difference between the
amount recharged to the income statement and equity in the year.

2014
Interest rate sensitivity

2013
Interest rate sensitivity

1% change

Profit
before tax
£’000

(1,043)

(229)

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

106 Ultra Electronics Holdings plc
Notes to accounts – Group (continued)

23 Financial instruments and financial risk management (continued)

Currency risks
The Group has estimated the impact on the income statement and equity of a 10% and 25% strengthening or weakening of average actual and
transactional currency rates applicable during the year and a 10% and 25% change in the foreign exchange rates applicable for valuing foreign
exchange derivative instruments.

10% strengthening

10% weakening

25% strengthening

25% weakening

Profit
before
tax
£’000

Equity
£’000

2014
Transaction
P&L translation
Foreign exchange derivatives

6,815
1,998
(12,330)

6,815
1,994
(12,330)

Total foreign exchange

(3,517)

(3,521)

2013
Transaction
P&L translation
Foreign exchange derivatives

7,089
1,680
(11,577)

7,089
2,831
(11,577)

Total foreign exchange

(2,808)

(1,657)

24 Government grants and loans

Profit
before
tax
£’000

(6,815)
(1,998)
9,759

946

(7,089)
(1,680)
9,581

812

Profit
before
tax
£’000

Equity
£’000

Profit
before
tax
£’000

Equity
£’000

17,038
4,996
(37,623)

17,038
4,985
(37,623)

(17,038)
(4,996)
28,065

(17,038)
(4,985)
28,065

Equity
£’000

(6,815)
(1,994)
9,759

950

(15,589)

(15,600)

6,031

6,042

(7,089)
(2,831)
9,581

17,723
4,199
(34,294)

17,723
7,078
(34,294)

(17,723)
(4,199)
21,208

(17,723)
(7,078)
21,208

(339)

(12,372)

(9,493)

(714)

(3,593)

The Group through its Canadian subsidiaries Ultra Electronics Tactical Communication Systems (UETCS) and Ultra Electronics Maritime Systems
(UEMS) participates in three Canadian programmes that provide government support in relation to the development of certain of its products.

Under the Strategic Aerospace and Defence Initiative (SADI), the Canadian Federal Government provides a long-term funding arrangement in respect
of certain eligible research and development project costs. Under this arrangement, up to $32m will be provided to UETCS and reimbursed at
favourable rates of interest over the period 2016 to 2030. Up to $8m will be provided to UEMS and reimbursed at favourable rates of interest over
the period 2020 to 2033. The benefit of the below market rate of interest has been calculated as the difference between the proceeds received and
the fair value of the loans and has been credited to profit in the year. The fair value of the loans have been calculated using a market interest rate
for a similar instrument applicable at the time the agreements were signed.

UETCS also participates in the Investissement Quebec (IQ) research and development programme, whereby IQ shares in the cost of research and
development of certain specified new products. Under this arrangement IQ will finance up to $14m of eligible costs associated with these specified
projects. This funding is repayable under a royalty arrangement over the period 2014 to 2021 if these products are successfully brought to market.
Royalties only become payable when sales of these products are made. As there is no minimum repayment, funding received in respect of the IQ
programme has been included in the income statement.

Amounts recognised in the financial statements in respect of these programmes were as follows:

Fair value of SADI loan brought forward
Contributions
Interest charged to finance costs
Foreign exchange differences

Fair value of SADI loan carried forward

Government grants credited to profit in the year

SADI
IQ
Other†

†Ultra Electronics Limited received a £222,000 (2013: £265,000) grant from the Technology Strategy Board in the year.

2014
£’000

4,337
687
823
(119)

5,728

2014
£’000

1,709
-
222

1,931

2013
£’000

2,914
1,282
539
(398)

4,337

2013
£’000

1,128
426
265

1,819

Ultra Electronics Holdings plc 107
Notes to accounts – Group (continued)

25 Deferred tax

The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior
reporting period.

At 1 January 2013
Credit/(charge) to income
Credit/(charge) to other

comprehensive income

Charge direct to equity
Exchange differences
Effect of change in tax rate
– income statement
– other comprehensive income
– equity

Arising on acquisition

At 1 January 2014

Credit/(charge) to income
Credit/(charge) to other

comprehensive income

Charge direct to equity
Exchange differences
Arising on acquisition

At 31 December 2014

Non current assets
Non current liabilities

Accelerated†
tax
depreciation
£’000

(18,652)
2,088

-
-
669

1,922
-
-
(2,656)

(16,629)

3,386

-
-
(121)
(8,373)

(21,737)

Employee
share
options
costs
£’000

624
43

-
63
-

(20)
-
(11)
-

699

(127)

-
(153)
-
-

419

Derivatives
£’000

Retirement
benefit
obligations
£’000

(1,150)
(300)

19,227
(550)

Goodwill
£’000

(8,840)
7,631

-
-
-

152
-
-
-

1,106
-
-

(32)
(2,427)
-
-

(1,298)

17,324

1,449

(1,016)

-
-
-
-

1,299
-
-
-

-
-
455

19
-
-
-

(735)

(832)

-
-
(169)
-

151

17,607

(1,736)

Other
£’000

2,850
2,874

-
-
(145)

8
-
-
(23)

5,564

(1,903)

-
-
278
(341)

3,598

2014
£’000

4,494
(6,192)

(1,698)

Total
£’000

(5,941)
11,786

1,106
63
979

2,049
(2,427)
(11)
(2,679)

4,925

957

1,299
(153)
(12)
(8,714)

(1,698)

2013
£’000

5,147
(222)

4,925

†Relates to property, plant and equipment and intangible assets.

Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so.

The Group has not recognised deferred tax assets of £9.5 million (2013: £3.47 million) relating to tax losses, due to uncertainty as to their recoverability.
There are no temporary differences which arise in respect of undistributed earnings.

The main rate of UK corporation tax will reduce from 21% to 20% from 1 April 2015. The rate of 20% has been used to calculate the deferred tax
balances at 31 December 2014 as this rate reduction was enacted before the balance sheet date.

26 Provisions

At 1 January 2014
Created
Reversed
Utilised
Unwinding of discount
Exchange differences

At 31 December 2014

Included in current liabilities
Included in non-current liabilities

Warranties
£’000

6,274
1,816
(1,603)
(1,929)
-
58

4,616

3,395
1,221

4,616

Contract
related
provisions
£’000

17,906
22,313
(10,690)
(4,545)
1,172
523

26,679

23,710
2,969

26,679

Total
£’000

24,180
24,129
(12,293)
(6,474)
1,172
581

31,295

27,105
4,190

31,295

Warranty provisions are based on an assessment of future claims with reference to past experience. Such costs are generally incurred within two
years after delivery. Contract related provisions will be utilised over the period as stated in the contract to which the specific provision relates.
Contract related provisions also include contingent consideration, dilapidation costs and provisions associated with the Oman Airport IT contract
termination (see note 36). Dilapidations will be payable at the end of the contracted life which is up to fifteen years. Contingent consideration is
payable when earnings targets are met: £8,364,000 of the provision was released in the year when the 2014 GigaSat earn-out target was not met.
As at 31 December 2014 the remaining contingent consideration provision is £3,276,000 (2013: £7,679,000), payment of which is contingent on
earnings targets for the Forensic Technology and 3Phoenix acquisitions through until December 2016, and for contingent payments relating to the
ICE WheelTug certification.

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

108 Ultra Electronics Holdings plc
Notes to accounts – Group (continued)

27 Share capital and share options

Authorised:
5p ordinary shares

Allotted, called-up and fully paid:
5p ordinary shares

No.

2014

£’000

No.

2013

£’000

90,000,000

4,500

90,000,000

4,500

69,962,055

3,498

69,804,884

3,490

157,239 ordinary shares having a nominal value of £7,862 were allotted during the year under the terms of the Group’s various Share Option Schemes.
The aggregate consideration received was £2,231,000.

Share options
During the year to 31 December 2014, the Group operated the following equity-settled share option schemes:

1. Savings-Related Share Option Schemes
A Savings-Related Share Option Scheme is open to all US employees and provides for a purchase price equal to the average of the daily average
market price on the five days before the grant less 10%. The vesting period is two years. If the options remain unexercised after a period of three
months from the date of maturity, the options expire. Options are forfeited if the employee leaves the Group before the options vest.

A Savings-Related Share Option Scheme is open to all Canadian employees and provides for a purchase price equal to the daily average market price
on the five days before the grant less 10%. The vesting period is three years. If the options remain unexercised after a period of six months from the
date of maturity, the options expire. Options are forfeited if the employee leaves the Group before the options vest.

A Savings-Related Share Option Scheme is open to all UK employees and provides for a purchase price equal to the daily average market price on
the day before grant less 10%. The vesting periods are three and five years. If the options remain unexercised after a period of six months from the
date of maturity, the options expire. Options are forfeited if the employee leaves the Group before the options vest.

At 31 December 2014, share options outstanding under the Savings Related Share Option Schemes were as follows:

Options granted
2012 – US scheme

2013 – US scheme

2014 – US scheme

2012 – Canadian scheme

2013 – Canadian scheme

2008 – UK 5 year scheme

2009 – UK 5 year scheme

2010 – UK 3 year scheme

2010 – UK 5 year scheme

2011 – UK 3 year scheme

2011 – UK 5 year scheme

2012 – UK 3 year scheme

2012 – UK 5 year scheme

2013 – UK 3 year scheme

2013 – UK 5 year scheme

2014 – UK 3 year scheme

2014 – UK 5 year scheme

Number of shares
2013
32,970

2014
-

Option
price (£)
13.79

Exercise
dates
September 2014 - December 2014

51,191

35,730

29,802

3,113

1,622

9,567

3,995

16,847

24,047

30,602

26,539

16,869

17,979

13,193

53,335

31,108

3,373

1,462

8,353

2,743

9,943

18,530

19,058

27,200

33,601

29,450

19,617

17.16

15.94

13.79

16.80

12.00

11.48

15.54

13.33

13.85

16.80

16.13

September 2015 - December 2015

September 2016 - December 2016

September 2015 - March 2016

September 2016 - December 2016

December 2013 - June 2014

December 2014 - June 2015

December 2013 - June 2014

December 2015 - June 2016

December 2014 - June 2015

December 2016 - June 2017

December 2015 - June 2016

December 2017 - June 2018

December 2016 - June 2017

December 2018 - June 2019

December 2017 - June 2018

December 2019 - June 2020

Ultra Electronics Holdings plc 109
Notes to accounts – Group (continued)

27 Share capital and share options (continued)

2. Company Share Option Plan
The Company Share Option Plan provides share options for nominated employees in the UK. The purchase price is set at a mid-market price on the
date of grant. This is an approved scheme and vesting is unconditional. Options vest after three years and lapse after ten years from the date of grant.

At 31 December 2014, share options outstanding under the Company Share Option Plan were as follows:

Options granted

2005
2006
2007
2008
2009
2010
2011
2012
2013
2014

Number of shares
2013

2014

Option
price (£)

2,472
968
3,858
2,261
4,922
14,278
22,455
29,484
58,075
34,377

4,395
2,355
5,172
2,261
6,417
14,680
26,829
29,484
59,369
-

7.28
10.32
12.07
12.00
11.90
14.83
16.97
17.10
17.18
18.29

Exercise
dates

March 2008 - March 2015
February 2009 - February 2016
May 2010 - May 2017
March 2011 - March 2018
March 2012 - March 2019
March 2013 - March 2020
March 2014 - March 2021
March 2015 - March 2022
March 2016 - March 2023
March 2017 - March 2024

3. Executive Share Option Scheme
The Executive Share Option Scheme provides share options for nominated employees in the UK, US and Canada. The purchase price is set at a
mid-market price on the date of grant. This is an unapproved scheme and vesting is unconditional. Options vest after three years and lapse after
seven years from the date of grant.

At 31 December 2014, share options outstanding under the Executive Share Option Scheme were as follows:

Options granted

2007
2008
2009
2010
2011
2011
2012
2013
2014

Number of shares
2013

2014

Option
price (£)

-
16,408
50,632
46,608
112,534
8,183
167,258
181,251
196,303

19,740
33,568
69,431
83,331
131,473
8,183
176,781
182,136
-

12.07
12.00
11.90
14.83
16.97
15.70
17.10
17.18
18.29

Exercise
dates

May 2010 - May 2014
March 2011 - March 2015
March 2012 - March 2016
March 2013 - March 2017
March 2014 - March 2018
August 2014 - August 2018
March 2015 - March 2019
March 2016 - March 2020
March 2017 - March 2021

4. Long-Term Incentive Plan
Details in relation to the LTIP are included in the Directors’ Remuneration report on pages 65 to 76.

The number and weighted average exercise price of share options for all share based payment arrangements (including LTIP) are as follows:

Beginning of year
Granted during the year
Forfeited during the year
Expired during the year
Exercised during the year

Outstanding at the end of the year

Exercisable at the end of the year

Weighted
average
exercise
price (£)

2014

12.34
12.97
12.83
3.70
14.17

Number
of options

2014

1,456,124
418,791
(25,877)
(136,892)
(148,084)

Weighted
average
exercise
price (£)

2013

11.40
13.24
14.59
5.18
13.08

Number
of options

2013

1,575,958
454,025
(23,581)
(194,727)
(355,551)

13.07

1,564,062

12.34

1,456,124

14.93

283,013

13.04

245,555

The Group recognised total expenses of £1,783,000 (2013: £1,859,000) in relation to equity-settled, share-based payment transactions. Expected
volatility was determined by calculating the historical volatility of the Group’s share price.

Share options were exercised on a regular basis throughout the year. The weighted average share price during the year was £18.03. The fair value of
options granted during the year was £1,725,239 (2013: £1,869,986).

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

110 Ultra Electronics Holdings plc
Notes to accounts – Group (continued)

27 Share capital and share options (continued)

The Group’s equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date is
expensed on a straight line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. The fair value for all
schemes other than the LTIP schemes are measured by use of the Black Scholes option pricing model using the following assumptions:

Weighted average share price (£)
Weighted average exercise price (£)
Expected volatility %
Expected option life (years)
Risk-free interest rate %
Expected dividends %

Share save*

CSOP*

ESOS*

16.03
14.81
24.5
3.6
1.1
2.3

17.14
17.37
25.3
6
1.6
1.7

17.44
17.40
24.9
5
1.2
2.2

Share save*

CSOP*

ESOS*

15.82
14.60
25.2
3.6
1.1
2.2

17.14
17.10
25.7
6
1.5
1.6

17.10
17.07
25.8
5
1.1
2.2

LTIP*

2014

n/a
n/a
n/a
n/a
n/a
n/a

LTIP*

2013

n/a
n/a
n/a
n/a
n/a
n/a

*Figures in the above table show an average across the invested schemes at year end.

For the 2011, 2012 and 2013 LTIP awards, the stochastic model has been used to calculate the fair value of the awards at grant date as this is the
most accurate way of modelling the TSR performance condition. The fair value of these schemes has been calculated using the following assumptions:

Exercise price (£)
Share price at grant (£)
Expected option life (years)
Expected volatility %
Expected dividend yield %
Risk-free interest rate %

2014

n/a
17.83
3.0
23.1
0.0
1.0

2013

n/a
17.22
3.0
24.2
0.0
0.7

Figures in the above table show an average across the schemes.

The weighted average fair value of options granted during the year was £4.44 (2013: £4.51).

The weighted average remaining contractual life of share options was 3.7 years (2013: 3.8 years).

28 Equity

Balance at 1 January 2013
Total comprehensive

income for the year
Equity-settled employee

share scheme

Dividends to shareholders

Share
capital
£’000

3,470

20
-

Share
premium
account
£’000

48,752

5,156
-

Reserve
for own
shares
£’000

Hedging
reserve
£’000

Translation
reserve
£’000

(2,581)

(9,979)

21,119

Retained
earnings
£’000

252,745

Non
controlling
interests
£’000

Total
equity
£’000

699

314,225

-
-

810

(4,879)

31,907

(17)

27,821

-
-

2,028
(28,071)

-
-

7,204
(28,071)

Balance at 1 January 2014

3,490

53,908

(2,581)

(9,169)

16,240

258,609

682

321,179

Total comprehensive

income for the year
Equity-settled employee

share scheme

Dividends to shareholders

8
-

2,223
-

-
-

(4,161)

10,979

15,589

(14,305)

8,102

-
-

1,656
(29,722)

-
-

3,887
(29,722)

Balance at 31 December 2014

3,498

56,131

(2,581)

(13,330)

27,219

246,132

(13,623)

303,446

The share premium account represents the premium arising on the issue of equity shares.

The ‘own shares reserve’ represents the cost of shares in Ultra Electronics Holdings plc purchased in the market and held by the Ultra Electronics
Employee Trust to satisfy options under the Group’s Long-Term Incentive Plan (“LTIP”) share schemes. At 31 December 2014, the number of own
shares held was 235,245 (2013: 235,245).

29 Notes to the cash flow statement

Operating profit
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of intangible assets
Impairment of goodwill
Cost of equity-settled employee share schemes
Adjustment for pension funding
(Profit)/loss on disposal of property, plant and equipment
Share of profit from associate
Increase/(decrease) in provisions

Operating cash flow before movements in working capital
Increase in inventories
Decrease/(increase) in receivables
(Decrease)/increase in payables

Cash generated by operations

Income taxes paid
Interest paid

Net cash from operating activities

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

Net increase in cash and cash equivalents
Cash (inflow)/outflow from movement in debt and finance leasing

Change in net debt arising from cash flows
Loan syndication costs
Amortisation of finance costs of debt
Translation differences

Movement in net debt in the year
Net debt at start of year

Net debt at end of year

Net debt comprised the following:

Cash and cash equivalents
Borrowings
Obligations under finance leases included in current liabilities
Obligations under finance leases included in non-current liabilities

Ultra Electronics Holdings plc 111
Notes to accounts – Group (continued)

2014
£’000

2013
£’000

39,543

57,398

10,827
32,202
7,355
1,783
(8,448)
(3)
(1,957)
2,564

83,866
(4,443)
73,977
(57,333)

11,365
31,967
44,239
1,859
(6,103)
130
(1,424)
(13,508)

125,923
(4,197)
(43,144)
14,894

96,067

93,476

(22,899)
(4,451)

(25,591)
(3,953)

68,717

63,932

2014
£’000

11,653
(94,817)

(83,164)
1,495
(662)
(5,007)

(87,338)
(42,157)

2013
£’000

773
521

1,294
-
(616)
165

843
(43,000)

(129,495)

(42,157)

2014
£’000

41,259
(170,754)
-
-

2013
£’000

30,570
(72,664)
(44)
(19)

(129,495)

(42,157)

Cash and cash equivalents comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.

30 Other financial commitments

a) Capital commitments
At the end of the year capital commitments were:

Contracted but not provided

2014
£’000

720

2013
£’000

2,688

b) Lease commitments
At 31 December 2014, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which
fall due as follows:

Within one year
Between one and five years
After five years

2014
£’000

11,980
33,305
17,029

62,314

2013
£’000

9,065
27,811
13,009

49,885

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

112 Ultra Electronics Holdings plc
Notes to accounts – Group (continued)

31 Retirement benefit schemes

Some UK employees of the Group are members of the Ultra Electronics Limited defined benefit scheme which was established on 1 March 1994. The
scheme is a final salary scheme with the majority of members accruing 1/60th of their final pensionable earnings for each year of pensionable service.
The scheme was closed to new members in 2003. A new defined contribution plan was introduced for other employees and new joiners in the UK.
The latest full actuarial valuation of the defined benefit scheme was carried out as at 6 April 2013. The Group also operates two defined contribution
schemes for overseas employees. In addition to these schemes, the Group’s Tactical Communication Systems business based in Montreal, Canada, has
three defined benefit schemes and the Swiss business of the acquired Forensic Technology group has a defined benefit scheme.

Defined contribution schemes
The total cost charged to income in respect of the defined contribution schemes was £4,696,000 (2013: £4,916,000).

Defined benefit schemes
All the defined benefit schemes were actuarially assessed at 31 December 2014 using the ‘projected unit’ method.

In the UK, Ultra Electronics Limited sponsors the Ultra Electronics Pension Scheme, a funded defined benefit pension scheme. The scheme is
administered within a trust which is legally separate from the Company. Trustees are appointed by both the Company and the scheme’s
membership and act in the interest of the scheme and all relevant stakeholders, including the members and the Company. The Trustees are also
responsible for the investment of the scheme’s assets.

This scheme provides pensions and lump sums to members on retirement and to their dependants on death. Members who leave service before
retirement are entitled to a deferred pension.

Active members of the scheme pay contributions via salary sacrifice and the Company pays the balance of the cost as determined by regular
actuarial valuations. The Trustees are required to use prudent assumptions to value the liabilities and costs of the scheme whereas the
accounting assumptions must be best estimates.

Responsibility for making good any deficit within the scheme lies with the Company and this introduces a number of risks for the Company.
The major risks are: interest rate risk; inflation risk; investment risk and longevity risk. The Company and Trustees are aware of these risks and
manage them through appropriate investment and funding strategies. The Trustees manage governance and operational risks through a
number of internal controls policies, including a risk register.

The scheme is subject to regular actuarial valuations, which are usually carried out every three years. The last actuarial valuation of the scheme
was at 6 April 2013. The next actuarial valuation is due to be carried out with an effective date of 6 April 2016. These actuarial valuations are
carried out in accordance with the requirements of the Pensions Act 2004 and so include deliberate margins for prudence. This contrasts with
these accounting disclosures, which are determined using best estimate assumptions.

The results of the 6 April 2013 valuation have been projected to 31 December 2014 by a qualified independent actuary. The figures in the
following disclosure were measured using the Projected Unit Method.

Key financial assumptions used in the valuation of these schemes were as follows:

Discount rate
Inflation rate – RPI
Inflation rate – CPI
Expected rate of salary increases
Future pension increases (pre 6/4/08)
Future pension increases (post 6/4/08)

UK
2014

3.65%
3.05%
2.05%
3.30%
2.85%
1.90%

Canada
2014

Switzerland
2014

3.65%
3.05%
2.05%
3.30%
3.05%
n/a

1.50%
1.40%
1.40%
1.00%
1.40%
n/a

UK
2013

4.45%
3.40%
2.40%
3.90%
3.10%
2.00%

Canada
2013

4.45%
3.40%
n/a
3.90%
3.40%
n/a

For each of these assumptions there is a range of possible values. Relatively small changes in some of these variables can have a significant impact on
the level of the total obligation. For the UK scheme, a 0.1% increase in the inflation assumption to 3.15% and a 0.1% decrease in the discount rate to
3.55% would increase the scheme’s liabilities by 1.8% and 1.9% respectively. If the members’ life expectancy were to increase by 1 year, the scheme
liabilities would increase by 3.6%. The average duration of the scheme liabilities is 19 years (2013: 19 years).

The key demographic assumption used was in relation to the mortality rates of current and future pensioners. Due to the size of the scheme the
mortality rates were based on standard tables, namely:

Current pensioners
Future pensioners

95% SAPS S1PMA/105% SAPS S1PFA c2002 MC1% imps from 2002
95% SAPS S1PMA/105% SAPS S1PFA c2002 MC1% imps from 2002

The mortality assumptions used in the valuation of the UK scheme make appropriate allowance for future improvements in longevity and are set
out below:

Current pensioners (at 65) – males
Current pensioners (at 65) – females
Future pensioners (at 65) – males
Future pensioners (at 65) – females

2014

2013

22 years
24 years
24 years
26 years

Ultra Electronics Holdings plc 113
Notes to accounts – Group (continued)

31 Retirement benefit schemes (continued)

Amounts recognised in the income statement in respect of the Group’s defined benefit schemes were as follows:

Current service cost
Administration expenses
Interest on pension scheme liabilities
Expected return on pension scheme assets
Loss on settlements

UK
2014
£m

4.9
0.5
12.0
(8.4)
-

9.0

Canada
2014
£m

Switzerland
2014
£m

0.1
0.1
0.4
(0.4)
-

0.2

0.1
-
-
-
-

0.1

Total
2014
£m

5.1
0.6
12.4
(8.8)
-

9.3

UK
2013
£m

4.7
0.6
11.0
(7.7)
-

8.6

Canada
2013
£m

0.1
0.3
0.5
(0.4)
0.3

0.8

Total
2013
£m

4.8
0.9
11.5
(8.1)
0.3

9.4

Of the current service cost for the year, £3.8 million (2013: £3.7 million) has been included in cost of sales, and £1.3 million (2013: £1.1 million) has
been included in administrative expenses.

Actuarial gains and losses have been reported in the statement of comprehensive income.

The amount included in the balance sheet arising from the Group’s obligations in respect of its defined benefit retirement schemes is as follows:

Fair value of scheme assets
Present value of scheme liabilities

Scheme deficit
Related deferred tax asset

Net pension liability

UK
2014
£m

220.8
(306.5)

(85.7)
17.1

(68.6)

Canada
2014
£m

Switzerland
2014
£m

9.9
(11.1)

(1.2)
0.3

(0.9)

3.7
(4.1)

(0.4)
0.2

(0.2)

Total
2014
£m

234.4
(321.7)

(87.3)
17.6

(69.7)

Movements in the present value of defined benefit obligations during the year were as follows:

Present value of obligation at 1 January
Current service cost
Interest cost
Actuarial gains and losses
Exchange difference
Liabilities extinguished on settlements
Liabilities assumed on business combinations
Benefits paid

UK
2014
£m

(270.2)
(4.9)
(12.0)
(25.7)
-
-
-
6.3

Present value of obligation at 31 December

(306.5)

Canada
2014
£m

Switzerland
2014
£m

(10.2)
(0.1)
(0.4)
(1.6)
0.3
-
-
0.9

(11.1)

-
(0.1)
-
(0.2)
0.2
-
(4.0)
-

(4.1)

Movements in the fair value of scheme assets during the year were as follows:

Fair value at 1 January
Expected return on scheme assets
Actuarial gains and losses
Exchange differences
Employer contributions
Administration expenses
Assets distributed on settlements
Assets assumed on business combinations
Benefits paid

Fair value at 31 December

UK
2014
£m

185.0
8.4
21.0
-
13.2
(0.5)
-
-
(6.3)

220.8

Canada
2014
£m

Switzerland
2014
£m

9.3
0.4
0.6
(0.3)
0.8
(0.1)
-
-
(0.8)

9.9

-
-
0.2
(0.1)
0.1
-
-
3.6
(0.1)

3.7

Total
2014
£m

(280.4)
(5.1)
(12.4)
(27.5)
0.5
-
(4.0)
7.2

(321.7)

Total
2014
£m

194.3
8.8
21.8
(0.4)
14.1
(0.6)
-
3.6
(7.2)

234.4

UK
2013
£m

185.0
(270.2)

(85.2)
17.0

(68.2)

UK
2013
£m

(235.4)
(4.7)
(11.0)
(26.0)
-
-
-
6.9

(270.2)

UK
2013
£m

153.4
7.7
20.0
-
11.4
(0.6)
-
-
(6.9)

185.0

Canada
2013
£m

9.3
(10.2)

(0.9)
0.3

(0.6)

Canada
2013
£m

(11.1)
(0.1)
(0.5)
(0.9)
0.9
0.9
-
0.6

(10.2)

Canada
2013
£m

10.0
0.4
1.2
(0.9)
0.7
(0.3)
(1.2)
-
(0.6)

9.3

Total
2013
£m

194.3
(280.4)

(86.1)
17.3

(68.8)

Total
2013
£m

(246.5)
(4.8)
(11.5)
(26.9)
0.9
0.9
-
7.5

(280.4)

Total
2013
£m

163.4
8.1
21.2
(0.9)
12.1
(0.9)
(1.2)
-
(7.5)

194.3

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

114 Ultra Electronics Holdings plc
Notes to accounts – Group (continued)

31 Retirement benefit schemes (continued)

Scheme assets were as follows:

Fair value:
Equities
Bonds
Property
Other assets
Other investment funds

UK
2014
£m

55.6
65.5
11.3
14.4
74.0

220.8

Canada
2014
£m

Switzerland
2014
£m

4.2
4.0
-
1.7
-

9.9

1.0
1.8
0.4
0.5
-

3.7

Total
2014
£m

60.8
71.3
11.7
16.6
74.0

UK
2013
£m

63.0
60.7
8.1
0.2
53.0

234.4

185.0

The analysis of the actuarial loss in the consolidated statement of comprehensive income was as follows:

Actual return less expected return
on pension scheme assets

Experience gains arising on

scheme liabilities

Changes in assumptions underlying the

present value of the scheme liabilities

UK
2014
£m

21.0

(2.3)

(23.4)

(4.7)

Canada
2014
£m

Switzerland
2014
£m

0.6

(0.2)

(1.4)

(1.0)

0.2

(0.2)

Total
2014
£m

21.8

(2.5)

(25.0)

(5.7)

UK
2013
£m

20.0

2.9

(28.9)

(6.0)

Canada
2013
£m

4.9
4.1
-
0.3
-

9.3

Canada
2013
£m

1.2

(0.6)

(0.3)

0.3

Total
2013
£m

67.9
64.8
8.1
0.5
53.0

194.3

Total
2013
£m

21.2

2.3

(29.2)

(5.7)

Cumulative actuarial losses, net of deferred tax, recognised in the consolidated statement of comprehensive income at 31 December 2014 were
£52.1 million (2013: £47.7 million).

The five-year history of experience adjustments is as follows:

Present value of defined benefit obligations
Fair value of scheme assets

Scheme deficit

Experience adjustments on scheme liabilities
Percentage of scheme liabilities
Experience adjustment on scheme assets
Percentage of scheme assets

2014
£m

(321.7)
234.4

(87.3)

(2.5)
0.8%

21.8

9.3%

2013
£m

(280.4)
194.3

(86.1)

2.3
(0.8%)
21.2
10.9%

2012
£m

(246.5)
163.4

(83.1)

(3.1)
1.3%
2.8
1.7%

2011
£m

(232.0)
149.1

(82.9)

0.4
(0.2%)

(11.6)

(7.8%)

2010
£m

(221.6)
143.1

(78.5)

7.5
(3.4%)
6.1
4.3%

The amount of contributions expected to be paid to defined benefit schemes during the 2015 financial year is £13.9m. For the UK scheme this
includes an additional deficit payment of £8.5m agreed with the Trustee. This will be followed by £9.0m per annum for the following 8.5 years to
fund the scheme deficit.

32 Acquisitions

Acquisitions during the year
In aggregate, consideration of £104.5m was paid in respect of acquisitions, all of which was discharged by means of cash and cash equivalents
and was made up as follows.

Cash outflow on subsidiaries acquired
Cash acquired with subsidiaries

Net cash outflow

£’000

111,285
(6,737)

104,548

Aggregate assets and liabilities acquired comprised intangible assets of £53.2m, property, plant and equipment of £5.0m, cash of £6.7m,
inventories of £11.6m, net receivables of £14.4m and payables of £25.4m.

If all the acquisitions had occurred on 1 January 2014 the revenue for the Group would have been £731.1m and operating profit would have been £42.4m.

With respect to prior year acquisitions, fair value adjustments totalling net £0.5m have been debited to goodwill. The prior year acquisition fair
values are now final.

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.

Ultra Electronics Holdings plc 115
Notes to accounts – Group (continued)

32 Acquisitions (continued)

3 Phoenix Inc.
On 18 February 2014, the Group acquired the entire share capital of 3 Phoenix Inc. (“3Pi”) for cash consideration of £46.0m. A further sum,
estimated at the time of acquisition as £1.4m (discounted), is payable if certain earnings targets are met for the years ending 31 December 2014,
2015 and 2016. This contingent consideration has been recorded against goodwill in accordance with IFRS 3. Additional amounts of up to £6.0m
will be payable subject to performance and retention of certain members of staff over the next three years and will be expensed to the income
statement as incurred, in accordance with IFRS 3.

3Pi is a leading supplier of specialist sonar, radar, intelligence, surveillance and reconnaissance products and solutions. The company has a 10 year
track record of delivering critical real-time sensor and processing systems, primarily to the US Navy, but also to commercial customers. 3Pi is a bolt-on
acquisition to Ultra’s existing Tactical & Sonar Systems division, with which there are a significant number of internal and external synergies.

The provisional fair values of the net assets acquired are stated below:

Book value

Revaluations

Provisional fair value

Intangible assets
Property, plant and equipment
Cash and cash equivalents
Receivables
Payables

Net assets acquired
Goodwill arising on acquisition

Purchase consideration

£’000

249
763
2,873
6,355
(4,581)

5,659

£’000

21,005
-
-
-
-

21,005

£’000

21,254
763
2,873
6,355
(4,581)

26,664
20,782

47,446

The net revenue and profit contributions from 3 Phoenix were approximately £31.3m and £2.4m respectively in the year from the date of acquisition
to 31 December 2014.

The goodwill arising on the acquisition is attributable to the assembled workforce of 3 Phoenix, the immediate access to certain technology/
know-how and US Navy programmes and the strategic premium to gain access to the 3 Phoenix market niche relative to an organic entry. Some of
this goodwill has been allocated to relevant businesses within the Tactical & Sonar Systems division.

Acquisition costs of £0.4m were charged to the income statement during the year. Fair value of receivables is considered to equate to book value.

The total goodwill on this acquisition expected to be deductible for tax is £20.8m.

Forensic Technology WAI Inc.
On 13 May 2014, the Group acquired the entire share capital of Forensic Technology WAI Inc. (“Forensic Technology”) for initial cash consideration
of £55.2m. Additional payments, estimated at the time of acquisition as £0.9m (discounted), are payable if certain earnings targets are met for the
years ending 31 December 2014 and 2015. This contingent consideration has been recorded against goodwill in accordance with IFRS 3.

Forensic Technology provides automated firearm ballistics identification and forensic analysis systems to law enforcement agencies in over 65 countries.
The company is currently developing a number of document security and analytic products based on its existing capabilities and areas of expertise.

The provisional fair values of the net assets acquired are stated below:

Intangible assets
Property, plant and equipment
Cash and cash equivalents
Inventories
Receivables
Payables

Net assets acquired
Goodwill arising on acquisition

Purchase consideration

Book value

£’000

179
3,084
3,351
6,570
6,610
(11,137)

8,657

Revaluations

Provisional fair value

£’000

27,654
-
-
2,274
-
(6,878)

23,050

£’000

27,833
3,084
3,351
8,844
6,610
(18,015)

31,707
24,426

56,133

The net revenue and profit contributions from Forensic Technology were approximately £25.1m and £6.4m respectively in the year from the date of
acquisition to 31 December 2014.

The goodwill arising on the acquisition is attributable to the assembled workforce of Forensic Technology, access to new customers and opportunities
in new geographic markets, and development of new technologies.

Acquisition costs of £0.9m were charged to the income statement during the year. Fair value of receivables is considered to equate to book value.

The total goodwill on this acquisition expected to be deductible for tax is £nil.

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

116 Ultra Electronics Holdings plc
Notes to accounts – Group (continued)

32 Acquisitions (continued)

ICE Corporation Inc.
On 5 May 2014, the Group acquired the entire share capital of ICE Corporation Inc. (“ICE”) for initial cash consideration of £5.9m. Additional
payments, estimated at the time of acquisition as £0.4m (discounted), are payable subject to certification, and future sales, of the new WheelTug
electric taxi system for which ICE provides essential parts. This contingent consideration has been recorded against goodwill in accordance with IFRS 3.

The provisional fair values of the net assets acquired are stated below:

Book value

Revaluations

Provisional fair value

Intangible assets
Property, plant and equipment
Cash and cash equivalents
Inventories
Receivables
Payables

Net assets acquired
Goodwill arising on acquisition

Purchase consideration

£’000

-
1,008
513
1,062
767
(429)

2,921

£’000

2,414
-
-
(118)
-

(1,047)

1,249

£’000

2,414
1,008
513
944
767
(1,476)

4,170
2,110

6,280

The net revenue and profit contributions from ICE were approximately £2.8m and £0.3m respectively in the year from the date of acquisition to
31 December 2014.

The goodwill arising on the acquisition is attributable to the strategic premium to gain access to ICE’s market and technology relative to an organic entry.

Acquisition costs of £0.2m were charged to the income statement during the year. Fair value of receivables is considered to equate to book value.

The total goodwill on this acquisition expected to be deductible for tax is £nil.

Lab Impex Systems
On 15 June 2014, the Group acquired the trade and assets of Lab Impex Systems Limited (“LIS”) for cash consideration of £3.2m.

LIS is a developer and supplier of radiation measurement solutions and services for use within the nuclear industry. LIS provides systems engineering,
installation and support of full environmental radiation monitoring systems, including alpha, beta and gamma radiation and associated safety systems.
The acquisition extends Ultra’s radiation monitoring product capabilities, strengthens the Group’s nuclear qualified engineering expertise and Ultra’s
position within the global nuclear sector.

The provisional fair values of the net assets acquired are stated below:

Book value

Revaluations

Provisional fair value

Intangible assets
Property, plant and equipment
Inventories
Receivables
Payables

Net assets acquired
Goodwill arising on acquisition

Purchase consideration

£’000

20
108
1,797
650
(1,318)

1,257

£’000

1,660
-
-
-
-

1,660

£’000

1,680
108
1,797
650
(1,318)

2,917
283

3,200

The net revenue and profit contributions from LIS were approximately £2.8m and £0.4m respectively in the year from the date of acquisition to
31 December 2014.

The goodwill arising on the acquisition is attributable to the value of synergies arising from the acquisition and the immediate access to the
acquiree’s technology.

Acquisition costs of £0.2m were charged to the income statement during the year. Fair value of receivables is considered to equate to book value.

The total goodwill on this acquisition expected to be deductible for tax is £0.3m.

Ultra Electronics Holdings plc 117
Notes to accounts – Group (continued)

33 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 71 to 74.

Short-term employee benefits
Post-employment benefits
Share-based payments

2014
£’000

3,241
423
905

4,569

2013
£’000

2,837
395
900

4,132

Transactions with associate
At 31 December 2014, a loan of £2,428,000 (2013: £643,200) was due from Al Shaheen Adventure LLC (ASA), the Group’s 49% equity-accounted
investment.

A small amount of trading also occurs with ASA, in the normal course of business and on an arm’s length basis. Balances are settled on normal
trade terms and the amounts outstanding at year end were insignificant.

34 Non-controlling interests

The following table summarises the information, before any intra-group eliminations, relating to the Group’s subsidiary ‘Ultra Electronics in
Collaboration with Oman Investment Corporation’, incorporated in the Sultanate of Oman, that has a material non-controlling interest held by
Oman Investment Corporation (’OIC’). The Group is currently in negotiations with OIC to determine the future obligations in light of the loss
recognised following the termination of the Airport IT contract (see note 36).

Non-controlling interest percentage

Net (liabilities)/assets

Carrying amount of non-controlling interest

Revenue
(Loss)/profit

Total comprehensive income for the year

Profit allocated to non-controlling interest
Other comprehensive income allocated to non-controlling interest

35 Contingent liabilities

2014
£’000

30%

(45,410)

13,623

11,650
(47,670)

(47,670)

(14,301)
(4)

2013
£’000

30%

2,273

(682)

41,730
-

-
-

The Group has entered into a number of guarantee and performance bond arrangements in the normal course of business totalling £59.6m
(2013: £62.6m).

The nature of much of the contracting work performed by the Group means that there are occasional contractual issues, variations and renegotiations
that arise in the ordinary course of business. In addition, as set out in note 36, the Oman Airport IT contract has been terminated. There is significant
uncertainty regarding the likely outcome of negotiations regarding this event. The Group is, from time to time, party to legal proceedings and claims
which arise in the ordinary course of business. The Directors do not anticipate that the outcome of these proceedings, actions and claims, either
individually or in aggregate, will have a material adverse effect upon the Group’s financial position.

36 Post balance sheet events – Oman Airport IT contract termination

Confirmation of the termination of the Oman Airport IT contract was received on 9 February 2015. The termination event related to conditions already
in existence at the balance sheet date and consequently the termination is considered to be an adjusting post balance sheet event for 2014 in
accordance with IAS 10. There is significant uncertainty regarding the likely outcome of negotiations with the Sultanate of Oman, Ministry of Transport
& Communications, over the timing of receipt of any agreed settlement, or whether agreement can be reached without the need to enter a formal
arbitration or judicial process. Consequently, a number of significant judgements and estimates are required with respect to matters arising due to the
termination event. Revenue has been recognised, in accordance with group policy, to the extent of work performed that it is probable will be
recovered at the time. Trade debtors and amounts recoverable on contracts have been assessed for recoverability and allowances made for estimated
irrecoverable amounts. Specific provisions have been booked to cover estimated legal costs and all known liabilities where the group has assessed it is
probable that an outflow of economic benefits will be required to settle the obligation. Material items have been disclosed separately within the
financial statements. Disclosure is provided on the consolidated income statement and in note 2 regarding the £46.9m termination cost, comprising
the £37.2m provision charge booked against contract receivables balances (see note 19) and other termination provisions of £9.7m (see note 26).

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

118 Ultra Electronics Holdings plc
Notes to accounts – Group (continued)

37 Subsidiaries

The Company owns either directly or indirectly 100% of the ordinary share capital of the following principal subsidiary undertakings which are
consolidated in the Group results:

Name

Ultra Electronics Limited
Ultra Electronics USA Group Inc.
Ultra Electronics Canada Inc.

Place of registration
or incorporation

England and Wales
USA
Canada

The principal activity of the subsidiary undertakings is the design, development and manufacture of electronic systems for the international
defence and aerospace markets. A full list of subsidiary undertakings will be annexed to the Company’s next Annual Return filed with the
Registrar of Companies.

38 Additional information as required by Listing Rules Requirement 9.8.4

• Long-term incentive schemes – see Directors’ remuneration report
• Allocation of equity securities for cash – see note 27
• Election of independent directors – see Corporate Governance Report on page 58
• Contractual arrangements – see Directors’ Report on page 78
• Details of independent directors – see Corporate Governance Report on page 57
• Substantial shareholders – see Directors’ Report on page 78

No profit forecasts are issued by the Group and no Directors have waived any current or future emoluments. No shareholders have waived or
agreed to waive dividends. None of the shareholders is considered to be a Controlling Shareholder (as defined in Listing Rules 6.1.2A).

Ultra Electronics Holdings plc 119
Statement of accounting policies in respect of the Group’s consolidated financial statements

Statement of accounting policies
In respect of the Group’s consolidated financial statements

A summary of the Group’s principal accounting policies, all of which have been applied consistently across the Group throughout the current and
preceding year, is set out below:

Basis of accounting
The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”). The financial statements have also
been prepared in accordance with IFRSs adopted by the European Union and therefore comply with Article 4 of the EU IAS regulations.

Adoption of new and revised Standards
The following IFRIC interpretations, amendments to existing standards and new standards have been adopted in the current year but have not impacted
the reported results or the financial position:
• IAS 27 (Revised) Separate Financial Statements
• IAS 28 (Revised) Investments in Associates and Joint Ventures
• Amendment to IAS 32 Financial Instruments: Presentation – Amendments to application guidance on the offsetting of financial assets and

financial liabilities

The following standards were also adopted in the current year and have had the impact as set out below:
• IFRS 10 Consolidated Financial Statements
• IFRS 11 Joint Arrangements
• IFRS 12 Disclosure of Interests in Other Entities

IFRS 10 replaces the parts of IAS 27 Consolidated and Separate Financial Statements that dealt with consolidated financial statements and SIC-12
Consolidation – Special Purpose Entities. IFRS 10 changes the definition of control such that an investor has control over an investee when a) it has
power over an investee; (b) it is exposed, or has rights, to variable returns from its involvement with the investee; and (c) has the ability to use its power
to affect its returns. All three of these criteria must be met for an investor to have control over an investee. Previously, control was defined as the power
to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The adoption of IFRS 10 had no impact on the
consolidation of entities held by the Group.

IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-controlled Entities – Non-monetary Contributions by Venturers. IFRS 11 deals with
how a joint arrangement of which two or more parties have joint control should be classified and accounted for. Under IFRS 11, there are only two types
of joint arrangements – joint operations and joint ventures. The application of IFRS 11 did not have an effect on these consolidated financial statements.

IFRS 12 is a new disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated
structured entities. In general, the application of IFRS 12 has resulted in more extensive disclosures in the consolidated financial statements (see
accounting policies note and note 34).

At the date of authorisation of these financial statements, the following standards and interpretations which have not been applied in these financial
statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):
• Amendments to IFRS 7 Financial Instruments: Disclosures: enhancing disclosures about the Transfers of Financial Assets, enhancing disclosures about

offsetting of financial assets and financial liabilities and disclosures about the initial application of IFRS 9

• IFRS 9 Financial Instruments
• IFRS 15 Revenue from contracts with customers

The Directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the financial
statements of the Group, except for:
• IFRS 9 Financial Instruments – This will introduce a number of changes in the presentation of financial instruments.
• IFRS 15 Revenue from contracts with customers – This will potentially revise the timing and amount of revenue recognition on some of the Group’s

contracts. The Group is assessing the impact of the new standard on its financial statements. IFRS 15 is effective from 1 January 2017.

Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these standards until a detailed review has been completed.

The consolidated financial information has been prepared on the historical cost basis except for derivatives and assets held for sale which are measured
at fair value.

Going concern
The Directors have, at the time of approving the financial statements, a reasonable expectation that the Group has adequate resources to continue to
adopt the going concern basis of accounting in preparing the financial statements. Further detail is contained in the statement on Corporate
Governance on page 60.

Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries)
made up to 31 December each year. Control is achieved when the Company:
• has the power over the investee;
• is exposed, or has rights, to variable returns from its involvement with the investee; and
• has the ability to use its power to affect its returns.

The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three
elements of control listed above.

Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the
subsidiary. Specifically, income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statements of profit
or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests.
Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the
non-controlling interests having a deficit balance.

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

120 Ultra Electronics Holdings plc
Statement of accounting policies in respect of the Group’s consolidated financial statements

Basis of consolidation (continued)
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies.

All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in
full on consolidation.

Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of
the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference
between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in
equity and attributed to owners of the company.

When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of
the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and
liabilities of the subsidiary and any non-controlling interests. Amounts previously recognised in other comprehensive income in relation to the subsidiary
are accounted for (i.e. reclassified to profit or loss or transferred directly to retained earnings) in the same manner as would be required if the relevant
assets or liabilities were disposed of. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the
fair value on initial recognition for subsequent accounting under FRS 39 Financial Instruments: Recognition and Measurement or, when applicable, the
cost on initial recognition of an investment in an associate or jointly controlled entity.

Proxy Board
Certain Group companies in the US undertake work of importance to US national security; consequently activities are conducted under foreign
ownership regulations which require operation under a Proxy Agreement. The regulations are intended to insulate these activities from undue foreign
influence as a result of foreign ownership. The entities that are operated under the management of a Proxy Board are Special Operations Technology Inc
(“SOTECH”), ProLogic Inc (“ProLogic”) and Advanced Tactical Systems Inc (“ATS”).

The Directors consider that the Group has control over the operating and financial policies and results of these entities, therefore, they are consolidated
in the Group consolidated accounts in accordance with IFRS 10 Consolidated Financial Statements.

Business combinations
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a business combination is
measured at fair value, which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group
to the former owners of the acquiree and the equity interest issued by the Group in exchange for control of the acquiree. Acquisition-related costs are
recognised in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that:
• deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with

IAS 12 Income Taxes and IAS 19 Employee Benefits respectively; and

• assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

are measured in accordance with that standard.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair
value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets
acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities
assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the
acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

When the consideration transferred by the Group in a business combination includes an asset or liability resulting from a contingent consideration
arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a
business combination. Changes in fair value of the contingent consideration that qualify as measurement period adjustments are adjusted
retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional
information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that
existed at the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends
on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and
its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent
reporting dates in accordance with IAS 39, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain
or loss being recognised in profit or loss.

When a business combination is achieved in stages, the Group’s previously-held interests in the acquired entity is remeasured to its acquisition date fair
value and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that
have previously been recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that
interest were disposed of.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports
provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see
above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the
acquisition date that, if known, would have affected the amounts recognised as of that date.

Goodwill
Goodwill is initially recognised and measured as set out above. Goodwill is not amortised but is reviewed for impairment at least annually. Any impairment is
recognised immediately in the income statement and is not subsequently reversed.

Ultra Electronics Holdings plc 121
Statement of accounting policies in respect of the Group’s consolidated financial statements (continued)

For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the
combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an
indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the
impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on
the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

Goodwill arising on acquisitions before the date of transition to IFRSs has been retained at the previous UK GAAP amounts subject to being tested for
impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and will not be included in determining
any subsequent profit or loss on disposal.

Investments in associates
An associate is an entity over which the Group is in a position to exercise significant influence and that is neither a subsidiary nor an interest in a joint
venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control
over those policies.

The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Investments in
associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group’s share of the net assets of the associate, less any
impairment in the value of individual investments. Losses of an associate in excess of the Group’s interest in that associate (which includes any long-term
interests that, in substance, form part of the Group’s net investment in the associate) are recognised only to the extent that the Group has incurred legal
or constructive obligations or made payments on behalf of the associate.

Revenue recognition
Revenue from the sale of goods is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods
and services provided in the normal course of business, net of discounts, VAT and other sales related taxes. Sales of goods are normally recognised when
goods are delivered and title has passed.

Revenue from contracts to provide services is recognised by reference to the stage of completion of the contracts in the same way as for long-term
contracts. This is normally measured by the proportion that contract costs incurred for work performed to date bear to the estimated total contract
costs, except where this would not be representative of the stage of completion.

Revenue from long-term contracts is recognised in accordance with the Group’s accounting policy on long-term contracts (see accounting policy
‘Long-term contracts’).

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

Long-term contracts
Where the outcome of a long-term contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the
contract activity at the balance sheet date. This is normally measured by the proportion that contract costs incurred for work performed to date bear to
the estimated total contract costs, except where this would not be representative of the stage of completion. Variations in contract work, claims and
incentive payments are included to the extent that they have been agreed with the customer, or when it is considered probable that the customer will
approve the variation and the amount of revenue arising from the variation.

Where the outcome of a long-term contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that it
is probable will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

Foreign currency
Transactions denominated in foreign currencies are recorded in the local currency at the actual exchange rates at the date of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the rates of exchange prevailing at that
date. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in the
income statement.

The trading results and cash flows of overseas undertakings are translated into sterling, which is the functional currency of the Company, using the
average rates of exchange during the relevant financial period. The balance sheets of overseas subsidiary undertakings are translated into sterling at the
rates ruling at the year-end. Exchange differences arising from the retranslation of the opening balance sheets and results are classified as equity and
transferred to the Group’s translation reserve.

Goodwill and fair value adjustments on the acquisition of foreign entities are treated as assets and liabilities of the foreign entity and translated at the
closing rate. The Group has elected to treat goodwill and fair value adjustments arising on acquisitions before the date of transition to IFRSs as sterling
denominated assets and liabilities.

Borrowing costs
Borrowing costs are recognised in profit or loss in the period in which they are incurred, except where they relate to qualifying assets, in which case they
are capitalised.

Government grants
Government grants are recognised in the income statement so as to match them with the expenditure towards which they are intended to contribute,
to the extent that the conditions for receipt have been met and there is reasonable assurance that the grant will be received.

Government assistance provided in the form of below market rate of interest loans are treated as government grants. The benefit of the below market
rate of interest is calculated as the difference between the proceeds received and the fair value of the loan and is matched against the related
expenditure. The fair value of the loan is calculated using prevailing market interest rates.

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

122 Ultra Electronics Holdings plc
Statement of accounting policies in respect of the Group’s consolidated financial statements (continued)

Retirement benefit costs
The Group provides pensions to its employees and Directors through defined benefit and defined contribution pension schemes. The schemes are
funded and their assets are held independently of the Group by trustees.

For defined benefit retirement schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations
being carried out at each balance sheet date. The actuarial gains and losses are recognised in full in the period in which they occur. They are recognised
outside the income statement and presented in the statement of comprehensive income.

Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the
average period until the benefits become vested.

The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for
unrecognised past service cost, and as reduced by the fair value of scheme assets.

Payments to defined contribution retirement schemes are charged as an expense as they fall due.

Research and development
Expenditure on research activities is recognised as an expense in the period in which it is incurred.

Any internally generated intangible asset arising from development activities is recognised only if an asset is created that can be identified, it is probable
that the asset created will generate future economic benefit and the development cost of the asset can be measured reliably.

Internally generated assets are amortised on a straight-line basis over their useful lives. Where no internally generated intangible asset can be
recognised, development expenditure is recognised as an expense in the period in which it is incurred.

Other intangible assets
Costs associated with producing or maintaining computer software programmes for sale are recognised as an expense as incurred. Costs that are directly
associated with the development of identifiable and unique software products controlled by the Group, that will generate economic benefits exceeding
costs beyond one year and that can be measured reliably, are recognised as intangible assets. Capitalised software development expenditure is stated at cost
less accumulated amortisation and impairment losses. Amortisation is provided on a straight-line basis over the estimated useful life of the related asset.

Acquired computer software licences for use within the Group are capitalised as intangible assets on the basis of the costs incurred to acquire and bring
to use the specific software.

Patents and trademarks are stated initially at historical cost. Patents and trademarks have definite useful lives and are carried at cost less accumulated
amortisation and impairment losses.

Intangible assets arising from a business combination whose fair value can be reliably measured are separated from goodwill and amortised over their
remaining estimated useful lives.

Impairment
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication
that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine
the extent of the impairment loss. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the
recoverable amount of the cash generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment
annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing the value in use, the estimated future cash flows are
discounted to their present value. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the
asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so
that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for
the asset in prior years. A reversal of an impairment loss is recognised as income immediately, except for goodwill.

Property, plant and equipment
Property, plant and equipment is shown at original historical cost, net of depreciation and any provision for impairment.

Depreciation is provided at rates calculated to write off the cost, less estimated residual value, of each asset on a straight-line basis over its expected
useful life as follows:

Freehold buildings

Short leasehold improvements

Plant and machinery

Freehold land and assets under construction are not depreciated.

40 to 50 years

over remaining period of lease

3 to 20 years

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of
the relevant lease.

Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.

Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease
payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease
obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest
on the remaining balance of the liability. Finance charges are charged directly against income.

Ultra Electronics Holdings plc 123
Statement of accounting policies in respect of the Group’s consolidated financial statements (continued)

Rentals under operating leases, where the Group acts as either lessee or lessor, are charged on a straight line basis over the lease term, even if the
payments are not made on such a basis. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of
the leased asset and recognised on a straight-line basis over the lease term.

Inventories
Inventories are valued at the lower of cost (determined on a first-in, first-out basis and including an appropriate proportion of overheads incurred in bringing
the inventories to their present location and condition) and net realisable value. Provision is made for any obsolete, slow moving or defective items.

Trade receivables
Trade receivables are measured at fair value. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is
objective evidence that the asset is impaired.

Cash and cash equivalents
Cash and cash equivalents comprise cash in-hand, call deposits and bank overdrafts, where there is right of set off. Bank overdrafts are presented as
current liabilities to the extent that there is no right of offset with cash balances.

Assets held for sale
Assets classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell.

Assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This
condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Management must
be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Trade payables
Trade payables are stated at their fair value.

Loans and overdrafts
Interest-bearing loans and overdrafts are recorded at the proceeds received, net of direct issue costs where there is a facility commitment. In these
circumstances issue costs are deducted from the value of the loan and amortised over the life of the commitment. Where there is no facility
commitment, issue costs are written-off as incurred. Finance charges including premiums payable on settlement or redemption are accounted for on an
accruals basis in profit or loss using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they
are not settled in the period in which they arise.

Share-based payments
The Group issues equity settled share-based payments to certain employees. Equity settled share-based payments are measured at fair value at the date
of grant. The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of
shares that will eventually vest and adjusted for the effect of non-market related conditions.

Fair value is measured by use of a Black-Scholes model for the share option plans and a stochastic model for awards made under the 2007 Long-Term
Incentive Plan.

The credits in respect of equity-settled amounts are included in equity.

Provisions
Provisions, including property related provisions are recognised in the balance sheet when the Group has a legal or constructive obligation as a result of
a past event, and where it is probable that an outflow of economic benefits will be required to settle the obligation.

Provision is made for the anticipated cost of repair and rectification of products under warranty, based on known exposures and historical occurrences.
Provisions for restructuring costs are recognised when the Group has a detailed formal plan for the restructuring that has been communicated to
affected parties.

Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Taxation
The tax expense represents the sum of the current tax payable and deferred tax.

The current tax payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it
excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The
Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not
recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and
liabilities in a transaction that affects neither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries except where the Group is able to control
the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be recovered.

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

124 Ultra Electronics Holdings plc
Statement of accounting policies in respect of the Group’s consolidated financial statements (continued)

Taxation (continued)
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is
charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also
dealt with in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when
they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities.

Derivative financial instruments
Ultra uses derivative financial instruments, principally forward foreign currency contracts and interest rate swaps, to reduce its exposure to exchange rate
and interest rate movements. Ultra does not hold or issue derivatives for speculative or trading purposes.

Derivative financial instruments are recognised as assets and liabilities and measured at their fair values at the balance sheet date. Changes in their fair
values are recognised in the income statement and this is likely to cause volatility in situations where the carrying value of the hedged item is not
adjusted to reflect fair value changes arising from the hedged risk. Provided the conditions specified by IAS 39 are met, hedge accounting may be used
to mitigate this income statement volatility. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are
recognised in the income statement as they arise.

Hedge accounting will not generally be applied to transactional hedging relationships, such as hedges of forecast or committed transactions. However,
hedge accounting will be applied to translational hedging relationships where it is permissible under IAS 39. When hedge accounting is used, the
relevant hedging relationships will be classified as fair value hedges, cash flow hedges or net investment hedges.

Where the hedging relationship is classified as a fair value hedge, the carrying amount of the hedged asset or liability will be adjusted by the increase or
decrease in the fair value attributable to the hedged risk and the resulting gain or loss will be recognised in the income statement where, to the extent
that the hedge is effective, it will be offset by the change in the fair value of the hedging instrument.

Where the hedging relationship is classified as a cash flow hedge or as a net investment hedge, to the extent that the hedge is effective, changes in the
fair value of the hedging instrument will be recognised directly in equity rather than in the income statement. Any gain or loss relating to the ineffective
portion is recognised immediately in the income statement. For cash flow hedges of forecasted future transactions, when the hedged item is recognised
in the financial statements, the accumulated gains and losses recognised in equity will be either recycled to the income statement or, if the hedged
items result in a non-financial asset, will be recognised as adjustments to its initial carrying amount.

Income statement
Additional line items are disclosed in the consolidated income statement when such presentation is relevant to an understanding of the Group’s
financial performance.

Operating profit
Operating profit is stated after charging restructuring costs and after the share of results of associates but before investment income and finance costs.

Exceptional items
When items of income or expense are material and they are relevant to an understanding of the entity’s financial performance, they are disclosed
separately within the financial statements. Such exceptional items include material costs or reversals arising from a restructuring of the Group’s operations,
material creation or reversals of provisions, and material litigation settlements.

Non-statutory performance measures
In the analysis of the Group’s operating results, earnings per share and cash flows, information is presented to provide readers with additional
performance indicators that are prepared on a non-statutory basis. This presentation is regularly reviewed by management to identify items that are
unusual and other items relevant to an understanding of the Group’s performance and long-term trends with reference to their materiality and nature.
This additional information is not uniformly defined by all Companies and may not be comparable with similarly titled measures and disclosures by other
organisations. The non-statutory disclosures should not be viewed in isolation or as an alternative to the equivalent statutory measure. Information for
separate presentation is considered as follows:
• Contract losses arising in the ordinary course of trading are not separately presented, however losses (and subsequent reversals) are separately disclosed

in situations of a material dispute which are expected to lead to arbitration or legal proceedings.

• Material costs or reversals arising from a significant restructuring of the Group’s operations are presented separately.
• The amortisation of intangible assets arising on acquisitions and impairment of goodwill are presented separately.
• Other matters arising due to the Group’s acquisitions such as adjustments to contingent consideration, payment of retention bonuses, acquisition costs

and fair value adjustments for acquired inventory made in accordance with IFRS 13 are separately disclosed in aggregate.

• Furthermore, IAS 37 requires the Group to discount provisions using a pre-tax discount rate that reflects the current assessment of the time value of

money and the risks specific to the liability, this discount unwind is presented separately when the provision relates to acquisition contingent consideration.

• Derivative instruments used to manage the Group’s foreign exchange exposures are ‘fair valued’ in accordance with IAS 39. This creates volatility in the

valuation of the outstanding instruments as exchange rates move over time. This has minimal impact on profit over the full term of the instruments, but
can cause significant volatility on particular balance sheet dates, consequently the gain or loss is presented separately.

• The defined benefit pension net interest charge arising in accordance with IAS 19 is presented separately.
• 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, the Group 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. Management 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 under-reporting of the true cash cost of sustaining a growing business.

Ultra Electronics Holdings plc 125
Statement of accounting policies in respect of the Group’s consolidated financial statements (continued)

Critical accounting judgements and key sources of estimation uncertainty
When applying the Group’s accounting policies, management must make a number of key judgements involving estimates and assumptions concerning
the future. These estimates and judgements are based on factors considered to be relevant, including historical experience, that may differ significantly
from the actual outcome. The key assumptions concerning the future and other key sources of estimation uncertainty at the Balance Sheet date that
have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year include:

CONTRACT REVENUE AND PROFIT RECOGNITION
A significant proportion of the Group’s activities are conducted under long term contract arrangements and are accounted for in accordance with IAS 11
Construction Contracts.

Revenue and profit on such contracts are recognised according to the stage of completion of the contract activity at the balance sheet date of the
particular contract and are calculated by reference to reliable estimates of contract revenue and expected costs. When the contract outcome cannot be
reliably estimated, revenue is recognised to match costs until such time as this can be reliably estimated. Expected costs are calculated after taking
account of the perceived contract risks related to performance not yet proven.

Owing to the complexity of some of the contracts undertaken by the Group the cost estimation process requires significant judgement and is carried out
using the experience of the Group’s engineers, project managers and finance and commercial professionals. Because of the level of judgement required,
cost estimates are reviewed and updated on a regular basis using the Group’s established project management processes. Some of the factors that will
impact upon cost estimates include the availability of suitably qualified labour, the nature and complexity of the work to be performed, the availability of
materials, the impact of change orders and the performance of sub-contractors.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised immediately as an expense.

Where services are rendered, sales are recognised when the stage of completion of the services and the related revenue and costs can be measured reliably.

Where goods are delivered under arrangements not considered to fall under the scope of IAS 11 Construction Contracts, revenue is recognised when
substantially all of the risks and rewards of ownership have transferred to the customer.

RETIREMENT BENEFIT PLANS
The Group accounts for its post-retirement pension plans in accordance with IAS 19 Employee Benefits.

For defined benefit retirement plans, the cost of providing benefits is determined periodically by independent actuaries and charged to the income
statement in the period in which those benefits have been earned by the employees. Actuarial gains and losses are recognised in full in the period in
which they arise and are recognised in the statement of comprehensive income.

The retirement benefit obligation recognised in the balance sheet represents the present value of the scheme liabilities as reduced by the fair value of
the scheme assets.

The main assumptions used in determining the defined benefit post retirement obligation include the discount rate used in discounting scheme
liabilities, the inflation rate, the expected rate of salary inflation, the expected rate of future pension increases, expected returns on scheme assets and
future mortality assumptions. For each of these assumptions, there is a range of possible values. Relatively small changes in some of these variables can
have a significant impact on the level of the total obligation.

The valuation of pension scheme assets and liabilities at a specific point of time rather than over a period of time can lead to significant annual
movements in the pension scheme deficit as calculated under IAS 19, but has no impact on short-term cash contributions since these are based upon
separate independent actuarial valuations.

Details of the pension scheme assumptions and obligation at 31 December 2014 are provided in note 31.

INTANGIBLE ASSETS
IFRS 3 (revised) Business Combinations requires that goodwill arising on the acquisition of subsidiaries is capitalised and included in intangible assets.
IFRS 3 (revised) also requires the identification of other intangible assets at acquisition. The assumptions involved in valuing these intangible assets
requires the use of estimates and judgements, that may differ from the actual outcome. These estimates and judgements cover future growth rates,
expected inflation rates and the discount rate used.

GOODWILL
Each year the Group carries out impairment tests of its goodwill balances which requires estimates to be made of the value in use of its cash generating
units (CGUs). These value in use calculations are dependent on estimates of future cash flows and long-term growth rates of the CGUs. Further details
on these estimates are provided in note 13.

INCOME TAXES
In determining the Group’s provisions for income tax and deferred tax it is necessary to consider transactions in a small number of key tax jurisdictions
for which the ultimate tax determination is uncertain. To the extent that the final outcome differs from the tax that has been provided, adjustments will
be made to income tax and deferred tax provisions held in the period the determination is made.

OMAN AIRPORT IT CONTRACT TERMINATION
Confirmation of the termination of the Oman Airport IT contract was received on 9 February 2015. The termination event related to conditions already in existence
at the balance sheet date and consequently the termination is considered to be an adjusting post balance sheet event for 2014 in accordance with IAS 10. There
is significant uncertainty regarding the likely outcome of negotiations with the Sultanate of Oman, Ministry of Transport & Communications, over the timing of
receipt of any agreed settlement, or whether agreement can be reached without the need to enter a formal arbitration or judicial process. Consequently, a number
of significant judgements and estimates are required with respect to matters arising due to the termination event. Revenue has been recognised, in accordance
with group policy, to the extent of work performed that it is probable will be recovered at the time. Trade debtors and amounts recoverable on contracts have
been assessed for recoverability and allowances made for estimated irrecoverable amounts. Specific provisions have been booked to cover estimated legal costs
and all known liabilities where the group has assessed it is probable that an outflow of economic benefits will be required to settle the obligation. Material items
have been disclosed separately within the financial statements. Disclosure is provided on the consolidated income statement and in note 2 regarding the £46.9m
termination cost, comprising the £37.2m provision charge booked against contract receivables balances (see note 19) and other termination provisions of
£9.7m (see note 26).

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

126 Ultra Electronics Holdings plc
Company balance sheet

Company balance sheet
31 December 2014

Fixed assets
Tangible assets
Investments

Current assets
Debtors: Amounts falling due within one year
Cash at bank and in hand

Creditors: Amounts falling due within one year

Net current liabilities

Total assets less current liabilities
Creditors: Amounts falling due after more than one year

Net assets

Capital and reserves
Called-up share capital
Share premium account
Profit and loss account
Own shares

Shareholders’ funds

Note

40
41

2014
£’000

2013
£’000

711
709,228

879
650,885

709,939

651,764

24,125
-

24,125

10,242
-

10,242

(145,442)

(124,334)

(121,317)

(114,092)

588,622
(165,026)

537,672
(68,327)

423,596

469,345

3,498
56,131
366,548
(2,581)

3,490
53,908
414,528
(2,581)

423,596

469,345

47
48
48
48

The financial statements of Ultra Electronics Holdings plc, registered number 02830397, were approved by the Board of Directors and authorised for
issue on 27 February 2015.

On behalf of the Board
R. Sharma, Chief Executive
M. Waldner, Finance Director

The accompanying notes are an integral part of this balance sheet.

Notes to accounts – Company
31 December 2014

39 Staff costs

Employee costs during the year amounted to:
Wages and salaries
Social security costs
Other pension costs

The average number of persons employed by the Company during the year was as follows:

Support services

40 Tangible fixed assets

Cost
At 1 January 2013
Additions

At 1 January 2014
Additions

At 31 December 2014

Accumulated depreciation
At 1 January 2013
Charge

At 1 January 2014
Charge

At 31 December 2014

Net book value
At 31 December 2014

At 31 December 2013

41 Investments

Ultra Electronics Holdings plc 127
Notes to accounts – Company

2014
£’000

3,644
312
7,976

2013
£’000

3,615
353
7,724

11,932

11,692

2014
number

2013
number

Plant and
machinery
£’000

2,026
-

2,026
8

2,034

969
178

1,147
176

1,323

711

879

a) Principal subsidiary undertakings
The Company owns either directly or indirectly 100% of the ordinary share capital of the following principal subsidiary undertakings:

Name

Ultra Electronics Limited
Ultra Electronics USA Group Inc.
Ultra Electronics Canada Inc.

Place of registration
or incorporation

England and Wales
USA
Canada

b) Investment in subsidiary undertakings

At 1 January 2014
Additions
Disposals
Impairments

At 31 December 2014

Total
£’000

650,885
163,583
(84,062)
(21,178)

709,228

The additions in the year related to the acquisitions of the ordinary share capital of certain Forensic Technology entities, and to a further
investment in an intermediate holding company. The impairments arise following review of the recoverability of investments within the corporate
Company structure. The disposals in the period relate to restructurings of intermediate holding companies.

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

128 Ultra Electronics Holdings plc
Notes to accounts – Company

42 Debtors

Amounts falling due within one year:
Amounts due from subsidiary undertakings
Deferred tax assets
Other debtors
Prepayments and accrued income
VAT

43 Deferred tax

Movements in the deferred tax asset were as follows:

Beginning of year
Charge to the profit and loss account

End of year

The deferred tax balances are analysed as follows:

Other temporary differences relating to current assets and liabilities

Deferred tax asset

These balances are shown as follows:

Debtors: Amounts falling due within one year

At the balance sheet date the Company had nil unprovided deferred tax (2013: nil).

44 Creditors: amounts falling due within one year

Bank loans and overdraft
Amounts owed to subsidiary undertakings
Other creditors:

– VAT
– social security and PAYE
– other creditors

Accruals and deferred income

2014
£’000

21,060
43
2,691
331
-

24,125

2013
£’000

6,979
308
2,729
193
33

10,242

2014
£’000

308
(265)

2014
£’000

2013
£’000

670
(362)

308

2013
£’000

308

2013
£’000

308

2014
£’000

37,851
93,750

64
330
11,520
1,927

2013
£’000

36,877
71,657

-
337
11,310
4,153

145,442

124,334

The bank loans are unsecured. Interest was predominantly charged at 1.00% (2013: 1.45%) over base or contracted rate.

45 Creditors: amounts falling due after more than one year

Borrowings

2014
£’000

165,026

2013
£’000

68,327

The financial risk management objectives and policies of the Company are managed at a Group level; further information is set out in the Group
financial statements.

46 Borrowings

Borrowings fall due as analysed below:

Bank loans and overdraft
In one year or less, or on demand

Less: included in creditors: amounts falling due within one year

Amounts due after more than one year
Bank loans
Unsecured loan notes

Ultra Electronics Holdings plc 129
Notes to accounts – Company

2014
£’000

37,851

2013
£’000

36,877

(37,851)

(36,877)

120,177
44,849

165,026

25,975
42,352

68,327

The loan notes are unsecured and due for repayment in 2018 and 2019. Interest was charged at 3.60% (2013: 3.60%).

47 Called-up share capital

Authorised:
5p ordinary shares

Allotted, called-up and fully paid:
5p ordinary shares

No.

2014

£’000

No.

2013

£’000

90,000,000

4,500

90,000,000

4,500

69,962,055

3,498

69,804,884

3,490

157,239 ordinary shares having a nominal value of £7,862 were allotted during the year under the terms of the Group’s various Share Option
Schemes. The aggregate consideration received by the Company was £2,231,000.

48 Reserves and reconciliation of movement in shareholders’ funds

Balance at 1 January
Issue of new shares
Retained (loss)/profit for the year
Dividends paid
Share based payments

Balance at 31 December

Called
up share
capital
£’000

3,490
8
-
-
-

3,498

Share
premium
account
£’000

53,908
2,223
-
-
-

56,131

Profit
and loss
account
£’000

414,528
-
(20,041)
(29,722)
1,783

366,548

Own
shares
£’000

(2,581)
-
-
-
-

2014
£’000

469,345
2,231
(20,041)
(29,722)
1,783

2013
£’000

408,870
5,176
81,511
(28,071)
1,859

(2,581)

423,596

469,345

The profit and loss account includes £195,462,000 (2013: £188,222,000) which is not distributable. A net foreign exchange gain of £7,941,000 was
taken to reserves in the year. Further details in respect of dividends are presented in note 11 to the Group financial statements and share based
payments in note 27 to the Group financial statements.

The Company holds 235,245 own shares (2013: 235,245).

49 Guarantees and other financial commitments

Lease commitments
The minimum rentals for the next 12 months are as follows:

Operating lease rentals which expire

– within one year
– between two to five years

Plant and
machinery
2014
£’000

Plant and
machinery
2013
£’000

3
45

25
41

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

130 Ultra Electronics Holdings plc
Statement of accounting policies for the Company accounts

Statement of accounting policies
for the Company accounts

A summary of the Company’s principal accounting policies, all of which have been applied consistently throughout the year and preceding year in the
separate financial information presented for the Company, are set out below:

Basis of accounting
The Company accounts have been prepared under the historical cost convention and in accordance with applicable United Kingdom accounting standards. No
profit and loss account is presented for the Company, as permitted by section 408 of the Companies Act 2006. The Company’s retained profit for the
year is disclosed in note 48.

Fixed assets and depreciation
Tangible fixed assets are shown at original historical cost, net of depreciation and any provision for impairment. Depreciation is provided at rates
calculated to write off the cost, less estimated residual value, of each asset on a straight-line basis over its expected useful life as follows:

Plant and machinery

3 to 20 years

Taxation
UK Corporation tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantially
enacted by the balance sheet date.

Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or
events that result in an obligation to pay more tax in the future, or a right to pay less tax in the future, have occurred at the balance sheet date.
Temporary differences are differences between the Company’s taxable profits and its results as stated in the financial statements. These arise from
including gains and losses in tax assessments in different periods from those recognised in the financial statements. A net deferred tax asset is regarded
as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be
suitable taxable profits from which the future reversal of the underlying timing difference can be deducted. Deferred tax is measured at the average tax
rates that are expected to apply in the periods in which the timing differences are expected to reverse based on tax rates and laws that have been
enacted or substantively enacted by the balance sheet date. Deferred tax is not discounted.

Retirement benefit costs
The Company provides pensions to its employees and Directors through defined benefit and defined contribution pension schemes. The schemes are
funded and their assets are held independently of the Group by trustees.

The amount charged to the profit and loss account for defined benefit schemes is the estimated regular cost of providing the benefits accrued in the
period adjusted to reflect variations from the cost. The regular cost is calculated so that it represents a substantially level percentage of current and
future pensionable payroll. Any difference between the amount charged to the profit and loss account and contributions paid to the pension scheme is
shown as a separately identifiable liability or asset in the balance sheet.

Certain employees and Directors participated in the UK defined benefit scheme operated by Ultra Electronics Limited. Paragraph 9(b) of FRS 17 allows
for a defined benefit scheme to be accounted for as a defined contribution scheme where there are multi-employers and one employer is unable to
identify its share of the underlying assets and liabilities on a consistent and reasonable basis. The Ultra Electronics Limited defined benefit scheme has
been accounted for on this basis. The deficit in the scheme at 31 December 2014 was £85.7 million (2013: £85.2 million). Further disclosures in relation
to this pension scheme are given in note 31 to the Group financial statements. Payments to defined contribution pension schemes are charged as an
expense as they fall due.

Investments
Fixed asset investments are shown at cost less provision for impairment.

Foreign currency
Transactions denominated in foreign currencies are recorded in the local currency at the actual exchange rates at the date of the transactions (or, where
appropriate, at the rate of exchange in a related forward exchange contract). Monetary assets and liabilities denominated in foreign currencies at the
balance sheet date are reported at the rates of exchange prevailing at that date (or, where appropriate, at the rate of exchange in a related forward
exchange contract). Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain
or loss in the profit and loss account.

Share-based payments
The Company issues equity settled share-based payments to certain employees. Equity settled share-based payments are measured at fair value at the
date of grant. The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the Company’s estimate
of shares that will eventually vest. Further disclosure in relation to share-based payments is given in note 27 of the Group financial statements.

Related parties
The Company has taken the FRS 8 (revised) exemption from disclosure of transactions between wholly-owned subsidiaries. Remuneration of the
Directors is provided in the audited part of the Directors’ Remuneration Report on pages 71 to 74.

Loans and overdrafts
Interest-bearing loans and overdrafts are recorded at the proceeds received, net of direct issue costs where there is a facility commitment. In these
circumstances issue costs are deducted from the value of the loan and amortised over the life of the commitment. Where there is no facility commitment,
issue costs are written-off as incurred. Finance charges including premiums payable on settlement or redemption are accounted for on an accruals basis
in profit or loss using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled
in the period in which they arise.

Five-year review

Financial highlights

As restated*

Revenue
Aircraft & Vehicle Systems
Information & Power Systems
Tactical & Sonar Systems

Total revenue

Underlying operating profit1
Aircraft & Vehicle Systems
Information & Power Systems
Tactical & Sonar Systems

Total underlying operating profit1

Margin1

Profit before tax
Profit after tax

Operating cash flow 2
Free cash flow before dividends, acquisitions and financing3
Net cash/(debt) at year-end 4

Underlying earnings per share (p) 5
Dividend per share (p)

Ultra Electronics Holdings plc 131
Five-year review

2010
£m

154.6
176.2
379.2

710.0

20.5
24.7
64.8

2011
£m

146.4
194.5
390.8

731.7

30.2
23.6
67.9

2012
£m

130.9
297.2
332.7

760.8

32.3
41.9
47.6

2013
£m

140.9
276.8
327.5

745.2

34.8
37.3
49.6

2014
£m

140.3
204.0
369.4

713.7

24.6
29.2
64.3

110.0

121.7

121.8

121.7

118.1

15.5%

16.6%

16.0%

16.3%

16.5%

89.8
65.2

106.4
83.4
17.8

108.5
34.6

89.1
64.6

133.7
100.1
(46.1)

121.1
38.5

79.8
61.3

89.6
57.4
(43.0)

125.5
40.0

49.3
38.2

79.0
43.8
(42.2)

127.1
42.2

21.5
6.5

83.1
51.2
(129.5)

123.1
44.3

Average employee numbers

4,006

4,206

4,430

4,274

4,787

1 Before acquisition-related costs and amortisation of intangibles arising on acquisition and impairment of goodwill and Oman Airport IT contact

termination costs.

2 Cash generated by operations, and dividends from associates less net capital expenditure, R&D and LTIP share purchases.

3 Free cash flow before dividends, acquisitions and financing has been adjusted to include the purchase of LTIP shares, which are included in

financing activities.

4 Loans and overdrafts less cash and cash equivalents.

5 Before acquisition-related costs, amortisation of intangibles arising on acquisition, impairment of goodwill, fair value movement on derivative

financial instruments, defined benefit pension interest charges and unwinding of discount on provisions.

*Comparatives have been restated following the move of the Command & Control Systems business from the Information & Power Systems division
into the Tactical & Sonar Systems division and the move of MSI and AMI from the Aircraft & Vehicle Systems division into the Information & Power
Systems division and Tactical & Sonar Systems division respectively.

n
o
i
t
c
u
d
o
r
t
n

.
1

t
r
o
p
e
r

c
i
g
e
t
a
r
t
S

.
2

e
c
n
a
n
r
e
v
o
G

.
3

s
l
a
c
n
a
n
ﬁ
p
u
o
r
G

.
4

s
l
a
c
n
a
n
ﬁ

y
n
a
p
m
o
C

.
5

w
e
i
v
e
r

r
a
e
y
-
e
v
i
F

.
6

132 Ultra Electronics Holdings plc
Annual Report and Accounts 2014

Footnote
underlying operating proﬁt before Oman Airport IT
contract termination costs, amortisation of intangibles
arising on acquisition, impairment of goodwill and
adjustments to contingent consideration net of
acquisition related costs. IFRS operating proﬁt was
£39.5m (2013: £57.4m).

organic growth (of revenue or proﬁt) is the annual
rate of increase in revenue or proﬁt that was achieved,
assuming that acquisitions made during the prior year
were only included for the same proportion of the
current year at constant currencies.

underlying operating margin is the underlying
operating proﬁt as a percentage of revenue.

ﬁnance charges exclude fair value movements on
derivatives, deﬁned beneﬁt pension interest charges and
discount on provisions.

underlying proﬁt before tax before Oman Airport IT
contract termination costs, amortisation of intangibles
arising on acquisition, impairment of goodwill, fair value
movements on derivatives, unwinding of discount on
provisions, deﬁned beneﬁt pension interest charges and
adjustments to contingent consideration net of
acquisition related costs. Basic EPS 29.8p (2013: 54.8p).

underlying tax is the tax charge on underlying proﬁt
before tax. The underlying tax rate is underlying tax
expressed as a percentage of underlying proﬁt before tax.

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

operating cash conversion is underlying operating
cash ﬂow as a percentage of underlying operating proﬁt.

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

bank interest cover is the ratio of underlying operating
proﬁt to ﬁnance costs associated with borrowings.

underlying order book growth excludes the impact
of foreign exchange, the Oman Airport IT contract and
the order book arising on acquisition.

underlying order intake excludes the removal of the
Oman order book in 2014 and includes orders from
acquisitions since acquisition date.