Ultra Electronics Holdings plc Annual Report 2015

← All annual reports

FY2015 Annual Report · Ultra Electronics Holdings plc

Loading PDF…

Ultra Electronics Holdings plc
Annual Report and Accounts 2015

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
5

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 2015

Financial highlights

Revenue +1.8%

£726.3m (2014: £713.7m)

KPI

2015

2014

2013

2012

2011

726.3

713.7

745.2

760.8

731.7

2015

2014

2013

2012

2011

Underlying earnings per share* +0.6%

Dividend per share +4.1%

123.9p (2014: 123.1p)

KPI

123.9

123.1

127.1

125.5

121.1

46.1p (2014: 44.3p)

2015

2014

2013

2012

2011

46.1

44.3

42.2

40.0

38.5

Underlying proﬁt before tax* +0.4%

£112.4m (2014: £112.0m)

KPI

Underlying operating proﬁt* +1.6%

Group order book -4.3%

£120.0m (2014: £118.1m)

£753.8m (2014: £787.3m)

2015

2014

2013

2012

2011

112.4

112.0

116.8

116.5

2015

2014

2013

2012

2011

120.0

118.1

121.7

121.8

121.7

2015

2014

2013

2012

2011

753.8

787.3

781.2

905.0

950.3

IFRS operating proﬁt +68.0%

£66.4m (2014: £39.5m)

2015

2014

2013

2012

2011

66.4

39.5

57.4

88.3

98.8

Dividend
The proposed ﬁnal dividend is 32.3p,
bringing the total dividend for the year to
46.1p (2014: 44.3p). This represents an
annual increase of 4.1%, with the dividend
being covered 2.7 times (2014: 2.8 times) by
underlying earnings per share. If approved at
the Annual General Meeting, the dividend
will be paid on 5 May 2016 to shareholders
on the register on 8 April 2016.

1. Introduction
Group at a glance

2. Strategic report
Chief Executive’s review
Rakesh Sharma, Chief Executive

Business model

Strategic objectives

Segment strategies

Financial review
Mary Waldner, Group Finance Director

Key Performance Indicators

Aerospace & Infrastructure

Communications & Security

Maritime & Land

Risk management

Making a difference

Developing Ultra’s people

Corporate Social Responsibility

3. Governance
Board of Directors

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 94

Notes to accounts

Statement of accounting policies in respect of
the Group’s consolidated ﬁnancial statements 123

*see footnote on page 136

KPI

Key Performance Indicator,
see pages 28 and 29 for details

5. Company ﬁnancials
Company balance sheet

130

Company statement of changes in equity 130

Notes to accounts

Statement of accounting policies
for the Company accounts

6. Five-year review
Five-year review

131

134

135

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.

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

Business addresses

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

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

Controls
417 Bridport Road
Greenford, Middlesex UB6 8UA
England
Tel: +44 (0) 20 8813 4444
www.ultra-controls.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
P.O. Box 300
Round Rock, Texas 78680-0300
USA
Tel: +1 512 434 2800
www.ultra-nspi.com

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

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

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

Forensic Technology
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

Herley
10 Sonar Drive
Woburn, Massachusetts 01801
USA
Tel: +1 781 729 9450
www.ultra-herley.com

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

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

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

Maritime & Land
3 Phoenix Inc.
14585 Avion Parkway #200
Chantilly, Virginia 20151
USA
Tel: +1 703 956 6480
www.ultra-3pi.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

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

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

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

USSI
4578 East Park 30 Drive
Columbia City, Indiana 46725-8861
USA
Tel: +1 260 248 3500
www.ultra-ussi.com

Ultra Electronics Holdings plc
Annual Report and Accounts 2015

Photography
TEAM IMAGES ON PAGE 31:
Jerry Jones Photography

TEAM IMAGES ON PAGES 33 AND 35, BOARD
OF DIRECTORS AND THROUGHOUT:
Molyneux Associates

PLATFORMS/END APPLICATIONS COURTESY OF:
BAE Systems, Eurofighter, NIMR Automotive,
Textron Aviation, UK MoD and US DoD.

Ultra Electronics Holdings plc 01
Annual Report and Accounts 2015

Introduction
What is Ultra?

The Ultra Electronics Group manages a wide range 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 environments and critical applications
to meet customer needs.

Ultra’s business model

Portfolio
strength
• Eight distinct and wide-ranging
market segments
• Acquisition and divestment
to position in growth markets
• Innovative solutions focused
on customer need

Read about our portfolio
strength on pages 04-21

profit reinvested

Focus on
customer need
• Focus on tiers 2 – 4
• R&D at 5% of revenue
• Customer funded development
at 15% of revenue
• Form external partnerships
to develop the best solution
for customers

Read about how we deliver for
our customers on pages 04-21

profit reinvested

Our objective
outperform
the market in terms
of annual increases in
shareholder return

value created

World class
performance
• Agility through a devolved
organisation
• Operational efficiency through
engaged competent people
with domain expertise
• An excellent and strategic supplier
• Help customers identify true needs
• Develop customer relationships

Read about our world class
performance on pages 22-35

Our business model is underpinned by:

Sustainability
pages 42-51

People and culture
pages 44-48

Risk management
pages 36-41
Good governance
pages 52-83

The business model, pictured above,
describes how Ultra operates to achieve its
strategic objective. Investment in portfolio
strength and innovative technologies, whilst
developing tailored solutions focused on
customer need, ensures long-term value
creation and informs inward investment.

Ultra’s business model is further explained on
pages 8 and 9, while the Group’s strategies for
growth are set out on pages 10 and 11. The
strength of Ultra’s broad capability portfolio is
set out under the eight market segments
described on pages 12 to 21. The key to
delivering a sustainable business is rooted in

Ultra’s responsible values and behaviours,
embedded in our people and embodied
within Ultra’s culture, described on pages
44 to 48. Good corporate governance and
effective risk management are at the heart
of Ultra’s compliance framework and are
described on pages 36 to 41 and 52 to 83.

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 2015

Group at a glance
How and where Ultra operates

During 2015 Ultra has reorganised to deliver and report its
performance through three divisions: Aerospace & Infrastrucure,
Communications & Security and Maritime & Land. Ultra’s
divisions deliver specialist capabilities to our key end markets of
Defence & Aerospace, Security & Cyber, Transport and Energy. The
Group addresses these end markets through eight distinct market
segments, discussed on pages 12 to 21.

Revenue by region
1 United Kingdom

2 North America

3 Mainland Europe

4 Rest of the world

% of Group revenue

29
47
10
14

Ultra’s place in the market
Ultra continues to focus on its main markets
of Defence & Aerospace, Security & Cyber,
Transport and Energy. To explain its wide
portfolio of capabilities more effectively, the
Group have adopted the market segmentation
shown opposite. Each of the eight segments
generate highly differentiated, cost-effective
and proven technologies at the system,
sub-system and component level. These
technologies are often fundamental to the
performance, safety or mission success of the
platforms in which they are incorporated,
making Ultra a critical supplier on many
complex platforms, enjoying long-term
positions. To sustain this advantage the Group
harnesses both internal and customer-funded
research and development to tailor solutions
to changing customer needs and budgets.
This sustains its reputation as an exceptional
supplier of enabling technology. This is based
upon the development of a deep
understanding of individual customer
requirements through open dialogue and
long-term relationships.

The segment structure allows Ultra to harness
the capabilities of its 24 businesses to
provide technical expertise and domain
knowledge to deliver the more complete,
comprehensive and cost-effective solutions
they demand. Where needed, the Group
partners seamlessly with best-of-breed
suppliers to offer a more complete solution
and will happily “lead or follow” as a
non-threatening mid-tier company in order
to completely satisfy customer need. Equally,
individual businesses continue to develop and
supply the speciﬁc, high-end technologies for
which they are well known, providing the
agility and responsiveness of a smaller,
autonomous business unit. The Group
maintains its development focus on the eight
segments that it understands well while
reviewing markets for new opportunities
where Ultra can apply its existing technology
edge or explore a sensible adjacency.

Where we operate
Ultra’s core regional markets remain North
America and the United Kingdom. In mainland
Europe the Group focuses on technologies
that are unavailable from indigenous suppliers
(e.g. sonobuoys). Elsewhere in the world the
Group has developed its strategic positioning

*see footnote on page 136

on its target regions of Australia, the Middle
East, India, Turkey and (for non-defence
products) China, while continuing to pursue
individual opportunities and business
relationships in many other nations. These
core markets and target regions allow Ultra to
access the largest addressable defence and
security budgets in the world, positioning for
long-term growth through well-considered
partnerships and government relationships.
Given Ultra’s relatively low exposure to
mainland Europe, a potential UK Exit from the
EU (Brexit) is not expected to have a
significant specific impact on the Group,
notwithstanding any global macroeconomic
impact.

Ultra’s customers
This market position, together with Ultra’s
independence, allows it to work very
effectively with the world’s prime contractors
in the Group’s chosen markets. The graphic
below shows the major customers for the
Group’s 2015 revenue. Within these top
customers, such as the US Department of
Defense (DoD), the UK Ministry of Defence
(MoD) and BAE Systems, the Group supplies
to a wide range of different project ofﬁces,
integrated project teams and platform teams.
Therefore, Ultra deals with a larger number of
different partners and customers than the
graphic might at ﬁrst suggest, executing
against tens of thousands of contracts and
production orders on an annual basis.

Market segment

Aerospace

Read more on pages 34 and 35

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

Revenue

£193.2m

2014: £198.6m†

-2.7%

Underlying operating profit*

£28.7m

2014: £29.6m†

Order book

£265.4m

2014: £252.9m†

Number of employees

1,402

Revenue

£239.3m

2014: £224.4m†

-3.0%

+4.9%

+6.6%

Underlying operating profit*

£40.4m

2014: £37.0m†

Order book

£213.7m

2014: £214.5m†

Number of employees

1,674

Revenue

£293.8m

2014: £290.7m†

+9.2%

-0.4%

+1.1%

Underlying operating profit*

-1.2%

-14.1%

£50.9m

2014: £51.5m†

Order book

£274.7m

2014: £319.9m†

Number of employees

1,767

†During 2015 the Group reorganised under three new divisions. The prior
year divisional analysis has been restated to reflect these changes.

*see footnote on page 136

04 Ultra Electronics Holdings plc
Annual Report and Accounts 2015

Portfolio strength focused on customer need
Chief Executive’s review

“

These outcomes
provide greater clarity
for the future UK and
US defence procurement
programmes, with real
opportunities in Ultra’s
areas of strength,
including submarine
build, ISTAR and
Communications.

”

Rakesh Sharma
Chief Executive

Introduction
As we entered 2015, the continuing
uncertainty in our core defence markets led us
to adopt a prudent view of annual performance
against which we have delivered. While it
seems a long time ago, you will recall in those
early months the UK was in its normal pause
during the general election and resolution of
US government spending plans were far from
certain. Uncertainty of this nature inevitably
translates into caution at the contract ofﬁcer
level, which we saw reﬂected in the 10%
year-on-year reduction reported in US defence
outlays in the ﬁrst half of 2015. This caution led
us to take the early measures necessary to
control costs across the Group and ensure
performance in line with market expectations.

By the close of the year we were in a very
different place. A surprise election victory by
the Conservative Party in the UK led to a
comprehensive and well-considered Strategic
Defence & Security Review by ministers and

ofﬁcials familiar with the challenges. A
real-term increase in defence spending
coupled with a commitment to maintain
spending at 2% of GDP was a responsible
reaction to the increase in global instability,
security threats and conﬂicts. In the US a
similar appreciation of the broad range of
potential threats that the nation’s armed
forces may need to respond to, contributed
to a welcome two-year budget agreement.
These outcomes provide greater clarity for
the future UK and US defence procurement
programmes, with real opportunities in Ultra’s
areas of strength, including submarine build,
ISTAR and Communications. My remaining
caution would be that both the US and UK
defence procurement programmes remain
highly ambitious and funding pressure will
inevitably continue. Improved efﬁciency in
the supply chain will be an increasing
demand made by both governments but one
to which we are already responding.

*see footnote on page 136

Ultra Electronics Holdings plc 05
Annual Report and Accounts 2015

Underlying earnings per share* +0.6%

Dividend per share +4.1%

123.9p (2014: 123.1p)

2015

2014

2013

2012

2011

> KPI

123.9

123.1

127.1

125.5

121.1

46.1p (2014: 44.3p)

2015

2014

2013

2012

2011

46.1

44.3

42.2

40.0

38.5

Positioning for future growth
During the year we reorganised into three
new divisions (pages 30 to 35) which reflect
the eight market segments we now use to
better connect our organisational structure to
end markets. The divisions drive performance
and delivery through the organisation,
controlling costs and instilling the behaviours
we seek. The segments allow businesses from
across the Group to collaborate in the
presentation of their collective capability to
end customers and allow Ultra to offer the
more comprehensive solutions the market
increasingly demands. Importantly, the 24
individual businesses retain a high degree
of autonomy, allowing them the agility to
respond quickly to emerging opportunities
and changing customer needs without the
need to seek permission from a dense,
hierarchal structure. It also ensures our people
feel responsibility towards every aspect of
delivery to the customer and the performance
of their individual business.

Challenging markets and a deflationary
economy demand increasing efficiency. In the
year we have taken further manpower
reductions to match changes in revenue and
keep our businesses lean. We have also
announced the Standardisation & Shared
Services S3 programme which will bring
together non-differentiating activities
(including HR, IT and Finance) from across the
Group into regional hubs where we can deliver
the services to the businesses more effectively.
S3 is on track to start to cover its costs in 2016
and make substantive savings thereafter.

Entry into new markets requires careful
assessment accompanied by appropriate
relationships. Ultra builds such positions
gradually so as to test assumptions and grow
confidence in new partnerships. During the
period we made two key moves which
position us for future growth:

• In June we signed a Memorandum of

Understanding (MOU) with Mahindra in
India to support defence and security
opportunities, initially in sonar systems and
radio equipment. Mahindra is a $17bn
multinational group that is responding to
the signiﬁcant changes that have followed
the election of Prime Minister Modi’s BJP
party to enter the defence sector. In
partnership we have been selected to
supply £30m of torpedo defence systems to
the Indian Navy with further orders
expected. Mahindra have already
demonstrated their ability to build the
system’s countermeasure launcher in
country to the required levels of quality.

• In September we announced a strategic

partnership with NuScale Power in the US
to produce the ﬁrst commercial Small
Modular Reactor (SMR). Ultra will provide
the reactor control and instrumentation
systems for a new kind of nuclear plant
that is a safer, smaller and scalable version
of the pressurised water reactor technology
we are already familiar with from our
submarine propulsion experience.
Incorporating natural safety features, this
safe, reliable, carbon-free power source
takes away many of the issues surrounding
larger nuclear installations. The US and UK
governments are very supportive and Ultra
is ﬁrmly on board at the outset.

S3 is on track to cover its costs in 2016

and make substantive savings thereafter.

“

”

The Group’s development of secure positions
on a range of aerospace opportunities
through long-term development investment
will transition to production revenue over the
next few years. The majority of the value that
this unlocks lies beyond the current order
book value in multi-year positions and
agreements. Our nuclear business is
increasingly focused on commercial
opportunities as long-term investment plans
clarify. As an example, the excellent
relationship we have developed with EDF in
the commercial nuclear market is now
physically reﬂected in the delivery of the ﬁrst
reactor core neutron ﬂux detectors from the
£5m joint Ultra/EDF facility.

Operational highlights
• The award of an £18m contract for

the design and development of reactor
control and cooling systems for the
next generation of Royal Navy nuclear
submarines. This continues our close
involvement in the UK submarine
programme supplying critical electrical
and control systems to the Vanguard,
Astute and Future Deterrent platforms.

• An £18m contract award for the supply

of sonobuoys for the Royal Navy’s
Merlin Maritime Patrol Helicopter ﬂeet.
This contract covers technical design,
development, manufacture and logistic
support of a range of passive and active
buoys capable of detecting modern
conventional and nuclear submarines.
The capability supports forecast export
sales over the next two years to France,
Germany, Sweden, Poland, Turkey, UAE
and Australia.

• The award of engineering development
contracts for the Mitsubishi Regional Jet
(MRJ) landing gear and steering gear
control units, adding another long-term
position to our aerospace business.

*see footnote on page 136

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

06 Ultra Electronics Holdings plc
Annual Report and Accounts 2015

Portfolio strength focused on customer need
Chief Executive’s review (continued)

“

Acquisition of
Herley established a
major presence in the
Electronic Warfare (EW)
market at a time of
strong growth in this
sector, correcting an
underweight position.

”

Customer needs
Ultra’s underlying behaviours focus heavily on
meeting customer need. By remaining with
technologies and markets we understand
well, and through sustained internal
development investment, we are able to offer
leading technology solutions tailored to
customer need. Our through-life and service
provision supports the Group’s systems,
products and components so we understand
how to deliver successfully. Meeting our
commitments and sustaining our position as
an excellent strategic supplier to our
customers is at the forefront of our
behaviours. These guiding principles are
underpinned by our LEAP and LAUNCH
behaviours (more information on page 45).

Portfolio strength
The segment analysis we have undertaken has
also allowed us to more rigorously assess our
portfolio in terms of internal investment,
acquisition and divestment. This analysis
directly inﬂuenced the Group’s decision in June
to make its largest ever acquisition of the
Electronic Products Division of Kratos Defense
& Security Solutions for $258m, now known
as Ultra Electronics Herley (Herley). Acquisition
of Herley established a major presence in the
Electronic Warfare (EW) market at a time of
strong growth in this sector, correcting an
underweight position. The business comes
with long-term contracts as a specialist
component and sub-system provider to several
major US programmes. Since joining Ultra the
business has been successful in winning new
positions, most recently on the US Navy’s
Surface EW Improvement Programme (SEWIP).
Herley is now part of the Communications &
Security division.

In October the Group acquired Furnace Parts
LLC for $12m, a developer and supplier of
thermocouple-based temperature sensors for
demanding applications in the nuclear and
process control markets. Furnace Parts has
been integrated into Ultra’s existing Nuclear
Sensors & Process Instrumentation (NSPI)
business based in Round Rock, Texas.

Ultra continues to invest between 5% and
6% of revenue in internal development to
refresh and develop new offerings. Segment
analysis and collaboration has allowed the
prioritisation of this development spending to
better match customer interests and funding.
We are also more carefully aligning
development activity across the Group.

Ultra Electronics Holdings plc 07
Annual Report and Accounts 2015

A slow but steady

“

reversal of recent
declines can now
be anticipated.

”

Summary
Ultra’s objective remains to outperform the
market in terms of annual increases in
shareholder return. Our long-term
performance is illustrated by the graph below.
In the prevailing markets the Executive Team
must maintain a careful balance between
meeting performance during the year while
investing and positioning for longer-term
growth. I believe that the changes we have
made in our market approach, the improved
management of our portfolio of capabilities
and the new positions we are achieving,
through acquisition, investment and
partnership, will deliver that longer-term
growth. Improved efﬁciency, through delivery
of the S3 programme and through
continuing cost control, will keep Ultra lean
and ﬁt. Balancing this with continuing
autonomy in our individual businesses will
maintain our innovation, sense of ownership
and agility.

2016 should see stabilising defence and
security budgets in the face of increased
tensions and threats but the impacts will take
time to reach our mid-tier position. Wider
ﬁscal volatility, in oil revenues and reducing
demand from emerging markets, will impact
some of our markets. That said, it is an
improving picture and there are promising
indications of a new growth cycle for defence
and security.

Increasing efﬁciency and portfolio
rationalisation, together with the beneﬁts
of sound acquisition, will add to this
improving position. Over the next few years
the acceleration in aerospace production
will further improve revenue. As a result a
slow but steady reversal of recent declines
can now be anticipated.

None of this happens without a huge
amount of hard work and commitment by
every one of the Group’s 4,843 employees.
At all levels of management, engineering,
production, marketing, HR and ﬁnance
people have gone the extra mile to ensure
we met our market guidance and delivered
for our shareholders. I could not be more
proud of the sustained levels of enthusiasm,
commitment, dedication and resolve that I
see on a daily basis within Ultra. In the ﬁnal
analysis it is this resolve that gives me
conﬁdence in the Group’s future success.

Rakesh Sharma
Chief Executive

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

Ultra Electronics Holdings plc

FTSE all share price index

FTSE 100 price index

FTSE all share aerospace/defence

KPI

1400

1200

1000

800

600

400

200

0
1996 97

14 2015

KPI

= Key Performance Indicator, see pages 28-29 for details

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

08 Ultra Electronics Holdings plc
Annual Report and Accounts 2015

Portfolio strength focused on customer need
Business model

The value Ultra creates through its business model
enables it in achieving its primary objective:
To outperform the market in terms of annual
increases in shareholder return.

Portfolio
strength

Focus on
customer
need

value created

profit
reinvested

World class
performance

Ultra invests 5% of revenue into R&D to
develop new offerings and its customers
invest a further 15%.

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

Funded by:
(cid:1) Group

(cid:1) Customer

25%
75%

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.

Ultra constantly innovate
to meet customer need

Focus on tiers 2-4.

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

Tier 1

Tier 2

Tier 3

Tier 4

Tier 1. Platform provider
Responsible for being the prime contractor
of the platform in question, examples being
a naval or a terminal at an airport.

Tier 2. Sub-system integrator
Responsible for integrating equipment or
components that will make up a functional
element of the platform. Examples of
system integration Ultra has completed
include integrated sonar systems and wing
ice protection systems.

Tier 3. Equipment supplier
Ultra has a large presence at this level of the
supply chain, supplying equipment such as
data links, cryptographic equipment and
large electrical transformers.

Tier 4. Component supplier
Ultra also provides a broad range of smaller
components for many programmes
worldwide, including sensors for measuring
the performance of a nuclear reactor and
joysticks to control UAVs.

Ultra faces the market
with portfolio strength

Eight distinct and wide-ranging
market segments.

Market segments are the natural evolution
of Ultra’s business model, supporting a shift
from individual products to allow more
complex offerings. This approach establishes
a framework that aligns resources to greater
effect across each market-facing segment.
This in turn supports the development of
coherent strategies against particular end
markets, based upon collective market
research and opportunity capture. The
market segment 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.

Acquisition and divestment to position
in growth markets.

Ultra invest in targeted acquisitions to
further strengthen its portfolio and will
dispose of capabilities that no longer ﬁt.

Ultra invests to develop and apply its
domain expertise, capabilities and technical
synergies in common end markets.

Ultra’s deep understanding of the users’
domain, its enduring customer
relationships and its outward-facing nature,
inform the Group’s investment decisions.

Innovative solutions focused on
customer need.

Ultra creates value by generating innovative
solutions from across its portfolio and by
becoming a key partner in its customers’
design process.

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.

Ultra Electronics Holdings plc 09
Annual Report and Accounts 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

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

24
AUTONOMOUS
BUSINESSES

RESPONSIBLE FOR:

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

Operational efﬁciency through engaged
competent people with domain expertise.

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.

Ultra’s business model is underpinned by:
Sustainability. Page 42
Ultra’s people and culture. Page 44
Risk management. Page 36
Good governance. Page 54

We achieve world class
performance

Agility through a devolved organisation.

A key differentiator for Ultra is the agility
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 that lie elsewhere in the Group
(collaborative autonomy) or with partners
and by Ultra’s strong financial position.

Ultra is an excellent and strategic
supplier to its customers. To enable
this Ultra’s businesses are focused on
helping customers identify their true
needs whilst developing long-term
relationships.

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
that leads to a better pipeline of
opportunities and ultimately, enables
growth. This approach ensures Ultra
understands the real needs of its customers
and encourages a long-term strategic
relationship where Ultra’s businesses
become part of the customers’ extended
enterprises, to mutual benefit.

Form external partnerships to develop
the best solution for customers.

Ultra has an established ability to partner and
team (internally and externally) in order 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 it to deliver
differentiated solutions which meet customer
needs efficiently. By working together, the
team members are able to win opportunities
which would not be possible in isolation.

Ultra is continually evolving its approach
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

This 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
customers’ requirements and develop effective
and innovative solutions.

Customer
‘problem
statement’

Ultra’s
solution

3rd party
technology

10 Ultra Electronics Holdings plc
Annual Report and Accounts 2015

Portfolio strength focused on customer need
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.

1
Increase the Group’s portfolio
of specialist capability areas

• Concentrate on providing customers

with capabilities and systems

• Offer electronic and software solutions

in niche markets

• Focus on developing specialist capabilities
with demanding and critical requirements

• Provide specialist solutions, often for

demanding environments

2
Increase the number of long-term
platforms and programmes on
which Ultra’s specialist capabilities
are speciﬁed

• Identify new platforms and programmes

to apply Ultra capabilities

• Platform lives are typically 30 to

50 years which provides a long-term
“ﬂywheel” effect

• Enables resilient ﬁnancial performance

despite market ﬂuctuation

4
Widen geographic footprint

3
Broaden customer base

• Gained access to two of the largest

addressable defence budgets in the world

• Independence allows portfolio to be sold
to a broad range of customers globally

• The US still spends more on defence

each year than other nations combined

• Undertaken the majority of acquisitions

in North America to achieve transatlantic
capability

• Focus now is to gain competitive

advantage through measured expansion
into Australia, the Middle East, India and
Asia-Paciﬁc

• Supply to different project ofﬁces, teams
and platform teams within customers

• Largest customers include: US DoD,
UK MoD, Rolls-Royce, BAE Systems,
Lockheed Martin and Boeing

Ultra Electronics Holdings plc 11
Annual Report and Accounts 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

Examples of how the Group is performing
in each strategy can be found below:

• Acquisition and integration of Furnace
Parts into NSPI extends the Group’s
temperature sensing capability

• The acquisition of Herley has significantly
extended and strengthened the Group’s
Electronic Warfare (EW) capability

• A strategic partnership with NuScale

provides a suite of instrumentation to
support the Small Modular Reactor
(SMR), further enhancing the capabilites
of the Group

• Ultra’s TCS business has partnered with
Thales for the next generation of high-
capacity communications systems

• Sonar Systems will be supplying sonobuoys
to the Royal Navy’s Merlin maritime patrol
helicopter that maintains a persistent Anti-
Submarine Warfare surveillance capability
against hostile submarines

• Contract for secure radio development on

the RAF Typhoon

• PALS will be working on the new COMAC
C919 aircraft after winning a contract to
produce the translating harness mechanism

• Ultra’s Controls business awarded a

contract by the Xi’an Aircraft Corporation
of China for the MA700

• Partnering with Mahindra Group in India to

address significant opportunities in
Underwater Warfare equipment for the
Indian Navy and high capacity radios for the
Indian Army

• TCS expanded in Africa, receiving its first

contract from Algeria

• PALS received a contract from NIMR, a new
customer in the UAE, to supply electrical
systems for armoured fighting vehicles

• Partnering with Rolls-Royce led to a

contract award for the delivery of the next
generation propulsion power system for
the future submarine fleet

• EWST, who formed part of the acquisition
of Herley and are now integrated into
CIS, are active in over 30 countries and
bring these customers into the Group’s
customer base

• NSPI’s new online e-commerce system
has resulted in orders from previously
unknown customers

12 Ultra Electronics Holdings plc
Annual Report and Accounts 2015

Portfolio strength focused on customer need
Market-facing segment strategies

Ultra has introduced eight segments 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. 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.

Market segment deﬁnition

Aerospace

The design, manufacture, production, operation, support and maintenance of commercial,
military, manned and unmanned aircraft.

Infrastructure

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

Nuclear

Nuclear reactor control for UK submarines and civil power power stations. Radiation monitoring
at national and tactical platform levels.

Communications

Secure communication and timely exchange of voice, data and video information.
As well as communication platforms and products, this segment also encompasses architectures,
system integration, cryptographic systems and information assurance capabilities.

C2ISR

Command & Control (C2) and surveillance solutions in military and civil domains, Electronic
Warfare reconnaissance and targeting systems, and forensic solutions for law enforcement.

Underwater warfare

Anti-submarine warfare, sonobuoys, sonobuoy receivers for ships and aircraft, surface ship
mounted sonars, towed arrays, submarine sonars, sensors and acoustic countermeasures.

Maritime

Land

Signal and power management, operating, controlling, supporting and maintaining maritime
(surface and sub-surface) military platforms, both manned and unmanned.

Operating, controlling, supporting and maintaining land military platforms, both manned
and unmanned, including the dismounted soldier’s power management, situational awareness
and information distribution.

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

Ultra Electronics is now making its internal
sophisticated cyber defence capability (see
page 38) available to customers on a
commercial basis under the trading name
of CORVID. Increasing recognition of the
growing threat from internet enabled
cyber-attacks is driving new market
demands that lie well beyond the realms of
normal IT security techniques. Managed
security from CORVID provides advanced
prevention, detection and incident analysis
beyond that which is achieved by typical

Security Operations Centres (SOCs).
CORVID focuses on reducing an attacker’s
window of opportunity and articulating
exactly what impact a security incident has
to a business, in order to assess damage
and restore operations promptly. CORVID
operates remotely through bespoke and
commercial off the shelf (COTS) software
to allow specialist forensic analysis at a
central location, supported by a uniquely
generated intelligence base.

Ultra Electronics Holdings plc 13
Annual Report and Accounts 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

2015 revenue (%)

18%

24%

14%

23%

The pie chart above shows Group
revenue by market segment.

More information about each
market facing segment can be
found on pages 14 to 21

14 Ultra Electronics Holdings plc
Annual Report and Accounts 2015

Portfolio strength focused on customer need

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.

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 worldwide
passenger growth doubling over the next
15 years. Large aircraft manufacturers are
buoyed by record order backlogs that exceed
12,000 aircraft. This growth in platform
numbers is driven by the demand for new
aircraft in the developing regions while the
more established markets need new aircraft
to replace ageing aircraft as well as to capture
the greater efficiencies in fuel, emissions and
system reliability. 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.

Strategy in action
In 2015, Ultra’s ICE business in Kansas,
which joined the Group in 2014, was
awarded the largest contract in its history
by Cessna Aircraft in Wichita, to provide it
with a novel Power Transfer Control Unit
for its new Citation Longitude business jet.

Revenue by segment
Aerospace

18%

Market outlook
In the civil aerospace sector the twin aisle
market continues to grow and will remain
dominated by Airbus and Boeing for the
foreseeable future. Ultra provides unique
electrical wing ice protection systems and
position sensing electronics to the Boeing 787
and provides specialist harnessing, landing
gear service panels and a new Electrical
Ground Door Opening system to the new
Airbus A350. The single aisle market is also in
growth and, while currently dominated by
Boeing and Airbus, is seeing new entrants
from China and Canada. The regional aircraft
market is highly competitive and in this sector
Ultra has secured content on the Japanese
Mitsubishi Regional Jet and also the new
Chinese MA700 regional turboprop. Growth
in the business jet market is focused on larger
aircraft, where Ultra has secured business on
the new Gulfstream G650, G600 and G500
as well as the Cessna Citation Longitude. In
the rotary wing market the large reduction in
energy prices is reducing orders from the oil
and gas rig servicing businesses and key
requirements in this market are minimising
aircraft through-life costs. In the military
aerospace sector, the fixed wing combat
aircraft market will be dominated for the next
20 years by the increasing build rate and
entry-into-service of the F-35 Joint Strike
Fighter and its F-135 engine. Ultra provides
significant content to this aircraft/engine
combination including precision pneumatics
(HiPPAG) for weapons ejection and the engine
inlet ice protection system controller. 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. The UAV market
remains attractive however, it is still crowded
and relatively immature.

Ultra Electronics Holdings plc 15
Annual Report and Accounts 2015

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 segment
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 and 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
worldwide. The increase in global air traffic
and national prestige projects is driving
investment in airport infrastructure, although
competition in this sector is also growing. Rail
infrastructure, globally, is also growing 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. Energy
dominates the global trend in smart
infrastructure, with Smart Grid and secure
energy management lying at the heart of
Smart Cities and Critical National
Infrastructure. Whilst global infrastructure
demand is largely being driven by China,
India and the Middle East and North Africa
region, at least 50% of the global market for
smart solutions lies in Europe and the US.

Strategy in action
In September 2015 Ultra’s Infrastructure
segment combined expertise with UK
start-up, PowerOasis, to integrate and
launch a cyber-secure, intelligent remote
management solution for critical
national infrastructure.

Market outlook
In the airport sector, the market for Airport
Master Systems Integration continues to
experience growth, especially in the demand
for tier 2 airports. This is particularly so in
South America, the Middle East and Asia,
where there are number of key capital
projects. The Airport & Airline Information
Management market is also forecast to see
investment grow, although many of the
operational systems are becoming increasingly
commoditised. There is growing polarisation
between global commoditised offerings and
those with more localised niche expertise, so
Ultra has continued to focus upon market
intimacy, customer relationships and
comprehensive solutions over individual
products. The Rail Transit Power Conversion &
Control market is also anticipated to see
significant growth. However, with the
exception of the Rail Control sector and the
drive toward Smart Digital solutions, 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
power resilience, energy storage and fast
switching all 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. The emergent Smart Grid market
relies on the ability to securely identify each
connected device and, in September, Ultra
launched a cyber-hardened critical
infrastructure management system to improve
site management and performance without
the need to replace legacy equipment. Whilst
the Smart Grid market is likely to remain
fragmented until the appropriate regulatory
frameworks are established, Ultra’s broader
secure communication and data portfolio
places it in a strong position with the Group
able to offer the highest level of assurance
that can be gained for the storage of unique
digital keys and identifiers of devices.

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 2015

Portfolio strength focused on customer need

Nuclear

Through its established relationships with Original Equipment
Manufacturers (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 segment
Nuclear

Market overview
There are over 440 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
around 240 civil research reactors, with many
of these in developing countries. Globally
there are over 65 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 is
proceeding with a new commercial model it
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 that 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 further
contract wins with EDF for the provision of
specialist sensors and with the Strategic
Partnership announcement with NuScale to
develop a suite of reactor and plant
instrumentation and control systems
for their Small Modular Reactor (SMR). The
Group currently provides equipment to over
190 reactors across 16 countries, plus
another 32 reactors currently under
construction. Furthermore Ultra is uniquely
qualified on eight new types (as well as many
legacy plants), meaning that it is well
positioned for the future.

The Fukushima accident 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 segment
on page 18), position Ultra well in this sector.

Ultra’s portfolio strength
Ultra’s CORE capabilities include:
• Extensive pool of suitably qualified
experienced personnel (SQEP)

• Nuclear safety system expertise

• Qualified reactor instrumentation control

• Radiation detection sensors

• Nuclear energy management systems

• Nuclear operational support

Strategy in action
Ultra NSPI was awarded in excess of
$8m of contracts to design, qualify, and
manufacture new temperature and
pressure sensors for a variety of nuclear
power plant customers around the world.
These have resulted in multiple new
products which broaden the scope,
capability and international reach of
Ultra’s offering.

Ultra Electronics Holdings plc 17
Annual Report and Accounts 2015

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 segment
Communications

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

• Airborne communication exchange

• Personal protective gear

communications

• Acoustic hailing devices

• “Through the earth” communications

Strategy in action
In December, Ultra’s Communication &
Integrated Systems business was awarded
an initial contract to upgrade the radios
on the Royal Air Force’s Typhoon aircraft,
with further orders to follow in 2016 and
beyond. Over the life of the programme
this could be worth in excess of £20m.

14%

Market outlook
In general, the demand to deliver secure
voice, data and video communications will
increase, driving the requirement for faster
performance using lower cost platforms.
More specifically, the data link market, in
which Ultra is well placed with its wide range
of advanced data link and airborne gateway
solutions, will see a growing demand for
secure full motion video and C2 links to
deliver real time situational awareness to the
smallest platforms at the tactical edge. This, in
turn, will continue to drive the demand for
more bandwidth and broader connectivity,
and thus for higher performance tactical
communication systems such as the Ultra
Orion multi-mission radio. In the satellite
earth station market, the move to smaller,
more portable and mobile solutions that
deliver higher bandwidth X and Ka band
solutions will accelerate over the next five
years, driven by the rapid expansion of High
Throughput Satellite (HTS) capacity and the
migration of users to Ka band services. Ultra
has a strong pedigree in this sector and is
positioning to capitalise on this development.

Looking at the encryption market, there is a
general move to smaller form factor products
and from link to Internet Protocol (IP)-based
cryptographic solutions, coupled with a shift
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 electronic key
distribution and management solutions, is
well positioned in this sector. Finally, with the
vulnerabilities of M2M communications
becoming increasingly apparent and a
growing recognition of the need for solutions
to secure such systems, the secure M2M
market will continue to grow. Here again
Ultra’s proven certified security solutions, that
are tailored to meet critical national
infrastructure and industrial needs, position
the Group well. Similarly, the increasing
secure low power communication market will
enable Ultra to build on its reputation as a
trusted supplier of wireless network solutions.

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.
Many nations have a plethora of
communications systems in service and there
is a drive to streamline these to achieve
coherency and cost-effectiveness, which is
translating into the gradual modernisation of
legacy equipment and systems. The
customers’ desire to maintain interoperability
throughout these modernisation programmes
is resulting in small evolutionary changes, as
opposed to step changes, an approach that
allows customers to exploit commercial and
modified commercial off the shelf (COTS)
technology. In particular, there is a 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 have
to develop bespoke solutions. Many nations
wish to procure low risk and proven systems,
rather than being the first adopters or having
to fund the development. Additionally,
overseas customers want the ability to
implement their own waveforms and
cryptographic algorithms. Globally, there is a
growing reliance on Machine-to-Machine
(M2M) communications, especially in critical
national infrastructure. With the rising
prevalence of connected devices and the
growth in the “Internet of Things” (IoT), the
secure low power communication market is
also experiencing a considerable increase.

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 2015

Portfolio strength focused on 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 segment
C2ISR

Ultra’s portfolio strength
Ultra’s CORE capabilities include:

• Surveillance solutions for critical national

infrastructure, coastal and border
security needs

• Covert surveillance solutions

• Command and control systems

• Communications surveillance

and analysis

• Airborne surveillance and targeting

• Ballistics and crime scene analysis

• Secure identification systems

• Document examination systems

• Electronic warfare solutions,

electronic warfare simulators and radar
test systems

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 (CNI) protection
opportunities are increasing, driving the
requirement for surveillance and security
solutions. The market is seeing a growing
demand for interoperable and mobile
networks that deliver a single integrated
picture for timely situational awareness. With
a growing number of devices capable of
collecting sensor data operating across
multiple communications networks, integrated
surveillance systems continue to increase in
complexity and scale. Solutions need to be
tailored to customer need, comprehensive and
able to draw on “best-of-breed”, established
and clearly differentiated technologies.

The reliance on air power as the principal
mechanism for early or urgent delivery of
military effect is driving the demand for
airborne intelligence, surveillance, target
acquisition and reconnaissance (ISTAR). In this
regard, there has been a significant growth in
the use of unmanned air vehicles and the
associated intelligence, surveillance and
reconnaissance payloads. The challenge
remains to be the timely and secure
dissemination of such data, typically video,
around the battlespace.

23%

Market Outlook
In the civil security market, political,
economic and social factors will continue to
drive growth in the border surveillance and
security market. This is seeing a move from
more traditional approaches to high tech
networked solutions, and Ultra has all the
necessary elements to deliver these for
multiple applications. The CNI protection
market is also expected to see significant
growth and here Ultra is well positioned to
provide complete cyber-physical security
solution drawing on its advanced secure
communications and surveillance capabilities.
The communications and intelligence
surveillance market will also continue to see
demand, but remains politically sensitive in
some countries.

In the defence market, the demand for
precision strike, reduced collateral damage
and extended stand-off ranges will continue.
There will also be 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 will continue to drive 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. Electronic Warfare (EW) is also gaining in
prominence. The worldwide EW market is
forecast to grow significantly over the next few
years and Ultra, with the acquisition of Herley
last summer, is well placed to strengthen and
widen its EW offerings and grow its share of
the EW market.

Strategy in action
Last year, Ultra’s 3eTI business secured
orders worth over $30m for the protection
of US Navy bases in the Washington,
Southwest and Hawaii regions.

*Command & Control, Intelligence Surveillance and Reconnaissance

Ultra Electronics Holdings plc 19
Annual Report and Accounts 2015

Revenue by segment
Underwater
Warfare

24%

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. Specifically, the
US Secretary of Defense has directed the
Navy to adjust their budget to prioritise
acceleration of submarine combat system
upgrades, torpedo production and next
generation torpedo countermeasures. Ultra’s
Underwater Warfare segment has leadership
positions for these specific areas in and
beyond the US market, particularly with
torpedo warning systems, torpedo
countermeausres 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
continued investment in integrated sonar
systems and surface ship torpedo defence
system technologies, both of which have
enabled recent contract wins in the UK and
New Zealand patrol aircraft requirements.

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

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 offshore 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 a 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 December, Ultra was selected by the
Indian Navy for delivery of the New
Torpedo Defence System (NTDS). Ultra
partnered with Mahindra Defence Naval
Systems (MDNS) to provide the Indian
Navy with the winning solution based on
the Sea Sentor Torpedo Defence System
in use by the Royal Navy. The NTDS
success was achieved through a winning
combination of Ultra’s extensive
experience and innovation in torpedo
defence systems, alongside MDNS’
understanding of the unique customer
requirements. The combined strengths of
this team led to an optimised, affordable
offering for the Indian Navy. The offering
builds off of Sea Sentor’s architecture
which enables efficient design tailoring to
incorporate only those capabilities
meeting operational requirements. This
down selection is the first major Indian
Navy programme win for the Ultra-MDNS
strategic collaboration, culminating after
many months of intensive
customer/industry exchanges and rigorous
at-sea demonstrations.

20 Ultra Electronics Holdings plc
Annual Report and Accounts 2015

Portfolio strength focused on customer need

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 segment
Maritime
systems

Ultra’s portfolio strength
Ultra’s CORE capabilities include:

• Customised command and control

systems for smaller ships

• Weapons interfaces

• 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

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
Ultra PMES was awarded a contract in June
for continued design work on the UK’s Next
Generation Nuclear Power and Propulsion
(NGNPP) programme. The award leverages
Ultra’s established niche expertise in
power management and control designs
and products present on today’s nuclear
submarines. This award puts Ultra in a
strong position for contributing product on
the UK’s follow-on submarine programmes,
Successor and Maritime Future Underwater
Capability (MFUC).

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 Programme (ORP),
projected to provide 12 new hulls beginning
in 2021. The 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
Burkeclass guided missile destroyers (DDG-
51), Ohio class submarines, landing platform
dock (LPD-17) and replenishment naval vessel
(T-AKE class) that provides further
opportunities for growth of the Group’s
advanced power management and signature
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 the 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 Programme,
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.

Ultra Electronics Holdings plc 21
Annual Report and Accounts 2015

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 segment
Land systems

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 that
led to the cancellation of several large new
vehicle programmes, the DoD has funds for a
number of platform upgrade programmes,
that 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 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 at 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’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 the increased
electrical generation capacity and
management within the platform.

Strategy in action
Ultra EMS was awarded a contract in
December for Battery Monitoring System
(BMS) delivery for use on the Army’s
Warfighter Information Network-Tactical
(WIN-T) Increment 2 Programme.
Specifically, Ultra’s BMS allows the Army
to provide its tactical vehicles with a
lighter, more collaborative, maintenance
and crew-reduced Network and
Communications capability. The Ultra
BMS is now designed into the Army’s
Tactical Communications Node Lite
(TCN-L) and Network Operations and
Security Center Lite (NOSC-L)
architectures that drive the electronic
architecture of their tactical vehicles.

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 2015

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 2015 results
The order book at the end of 2015 was
£753.8m compared to £787.3m in the prior
year. Acquisitions, primarily Herley, contributed
7.3% and there was a foreign exchange
beneﬁt of 0.9%, however, there was an
underlying order book decline of 12.5%. This
reﬂected the delay into 2016 of over £100m
of orders, a substantial number of which are
expected to be secured in the ﬁrst half of the
year. This includes the UK sonobuoy partnering
and India torpedo defence orders.

Revenue
The revenue of £726.3m represented an
increase of 1.8%, or £12.6m, on the prior year
(2014: £713.7m). A 5.9% increase reﬂecting
the impact of acquisitions, together with a
beneﬁt from the positive impact of foreign
exchange on overseas revenues, was partially
offset by an organic decline of 8.1%, 2.1% of
which related to the Oman Airport IT contract
which was terminated on 9 February 2015.

With approximately 50% of revenues sold in
US Dollars, Ultra was impacted by the
reduction in the US Dollar rate to 1.53 (2014:
1.65) which increased revenues by 4.0%.

*see footnote on page 136

Ultra Electronics Holdings plc 23
Annual Report and Accounts 2015

Revenue +1.8%

£726.3m (2014: £713.7m)

KPI

Underlying proﬁt before tax* +0.4%

£112.4m (2014: £112.0m)

KPI

2015

2014

2013

2012

2011

726.3

713.7

745.2

760.8

731.7

2015

2014

2013

2012

2011

112.4

112.0

116.8

116.5

Following the securing of a number of new
orders to develop products for the aerospace
sector, Aerospace & Infrastructure margins
have been impacted by increased R&D
investment and lower margins during the
engineering phases of projects. There were
also restructuring costs at the CEMS business.
This was partially offset by higher margins as
vehicle programmes enter the production
phase. In Communications & Security, there
were higher margins as the CIS ECU RP
programme completes its production phases.
This more than offsets the impact of both the
loss of high margin revenue and the associated
restructuring costs in the SoTech business. In
Maritime & Land, margins reﬂected the release
of some contract risk reserve in the prior year.

Acquisitions contributed an additional £5.8m
to proﬁt, primarily in Communications &
Security, reﬂecting the acquisition of Herley in
2015 and Forensic Technology during 2014.

The integration of Herley is on schedule, with
$1m of the acquisition case synergies already
actioned and a further $0.5m planned. In
addition, Herley’s future position is improved
by its selection for more than expected of the
modules in the major US Surface Electronic
Warfare Improvement Programme (SEWIP),
securing signiﬁcant revenue opportunities
over many years.

Ultra continues to invest in research and
development to support future opportunities;
this investment, at £36.0m, represented 5.0%
of Group turnover.

The Group’s Standardisation & Shared
Services programme (S3) is on track. The UK
Shared Service Centre will be set up during
2016, and the ERP strategy phase will identify
the ERPs to be used across the Group. c£3m
of savings have been identiﬁed for delivery in
2016 and procurement savings are already
being delivered.

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
£7.6m (2014: £6.1m). The increase reﬂected
higher debt balances as a result of the
acquisition of Herley during the year, partially
offset by the impact of lower rates following
the renewal of the £100m revolving credit
facility during the year. The interest on bank
debt was covered 16 times (2014: 20 times) by
underlying operating proﬁt*.

Underlying proﬁt before tax* was £112.4m
(2014: £112.0m).

Underlying proﬁt before tax

Amortisation of intangibles arising on acquisition

Net interest charge on deﬁned beneﬁt pensions

Loss on fair value movements on derivatives

Adjustments to contingent consideration, net of acquisition costs

Unwinding of discount on provisions

Oman contract termination charge

Deemed disposal of Ithra

S3 programme

Impairment charges

Reported proﬁt before tax

2015
£m

112.4

(30.8)

(3.0)

(4.0)

(9.4)

(0.6)

2014
£m

112.0

(28.8)

(3.6)

(7.2)

4.5

(1.2)

(46.9)

(16.5)

(4.9)

(8.4)

34.8

(7.3)

21.5

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

Acquisitions contributed 5.9% to revenue,
primarily reﬂecting the impact of Herley
together with Furnace Parts, acquired during
2015, as well as contributions from 3 Phoenix,
Forensic Technology, Ice Corporation and
Lab Impex Systems all of which were acquired
during 2014.

Excluding the impact of Oman, the organic
revenue decline of 6.0% comprised
reductions across all three divisions.

Aerospace & Infrastructure sales were
impacted by the termination of the Oman
contract, as well as a reduction in revenue
from the A400M NIM programme, reﬂecting
contract phasing. However, these were
partially offset by an increase in Aerospace
sales, in particular on the MRJ and the JSF
programmes, and in revenues from Airport
Systems including the Orange County
contract in the US. Revenue from vehicle
programmes, including the Warrior, Scout
and Middle East NIMR, also increased.

Communications & Security was impacted by
the repeal of the US Patriot Act that
signiﬁcantly reduced domestic legal intercept
revenues in the SoTech business; however,
this was offset by an increase in revenue from
security and surveillance products and from
the ECU RP programme. This division saw the
beneﬁt of the acquisition of Herley in 2015
together with the prior year acquisition of
Forensic Technology.

In Maritime & Land there was an increase in
sales of US and international sonobuoys
reﬂecting the pivot to the Paciﬁc, and also in
revenue on the Sonar 2050 programme for
the UK MoD. This was offset by the impact
of funding delays on the Torpedo Warning
System in the US and by a reduction in rail
power management revenue. The acquisition
of 3 Phoenix in the prior year contributed to
divisional sales.

Operating proﬁt and margins*
Underlying operating proﬁt* was £120.0m
(2014: £118.1m). Acquisition growth
contributed 4.9% and foreign exchange
1.9%, which was partially offset by an organic
decline of 5.2%. The Group’s businesses
maintained their focus on restructuring their
cost bases which sustained an underlying
operating margin of 16.5% (2014: 16.5%).

*see footnote on page 136

24 Ultra Electronics Holdings plc
Annual Report and Accounts 2015

World class performance
Financial review (continued)

77%

the cash to underlying operating
proﬁt ratio over a ﬁve-year
rolling period is 77%

Operating cash ﬂow
Underlying operating cash ﬂow* was £81.3m
(2014: £83.1m) and the ratio of cash to
underlying operating proﬁt was 68% (2014:
70%). Excluding outﬂow of £10.8m relating
to the Oman airport IT contract cash
conversion would have been 77%.

The cash to underlying operating proﬁt ratio
over a rolling ﬁve-year period is 77%.

Depreciation and disposals were slightly higher
than last year reﬂecting the sale of an airport
systems building in the UK.

Capital expenditure, including on systems, was
lower than last year, at £4.6m (2014: £10.7m)
as we scheduled ERP upgrades into 2016 in
order that they can be implemented through
the S3 programme. The net outﬂow on
intangible capital expenditure reduced
reﬂecting capitalised development of £0.9m
compared to £5.0m in the prior year.

Working capital increased by £40.0m (2014:
decrease £12.2m), reﬂecting a reduction in
creditors and an increase in debtors, partially
offset by a reduction in inventory.

Included in creditors was a £10.8m impact
relating to settlement of sub-contractors
following the termination of the Oman airport
IT contract. There was also an £20m impact
relating to the unwind of a number of
advanced payment balances including on the
ECU RP contract and on the US sonobuoy
IDIQ. Debtors increased reﬂecting the timing
of delivery on vehicle programmes. This was
partially offset by a £6.6m reduction in
inventory, resulting from the Company-wide
initiative targeting working capital.

The other outﬂow primarily represents the
pension deﬁcit reduction payments of £8.5m
agreed with the trustees.

Finally during the period we received an £5.3m
dividend from Al Shaheen.

IFRS proﬁt before tax
Ultra’s IFRS proﬁt before tax increased from
£21.5m (2014) to £34.8m. In the prior year an
exceptional non-underlying charge of £46.9m
relating to the termination of Oman Airport IT
contract was recognised in proﬁt before tax. In
2015, the deemed disposal of Ithra resulted in
a non-cash, non-underlying IFRS accounting
charge. It arises from the liquidation of the
Ithra contract vehicle following the termination
of the Oman contract. Proﬁt before tax also
includes a £2.7m charge reﬂecting the sale of
Ultra’s minority shareholding in the Al Shaheen
joint venture, following a review of activities in
the Middle East and a £5.7m charge to impair
the intangible ﬁxed asset impacted by the
repeal of the US Patriot Act. The prior year
included the impairment of the acquired
goodwill relating to Al Shaheen.

The £9.4m of acquisition related costs
primarily reﬂected costs incurred on the
acquisition of Herley during the year. In the
prior year, £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.

The start-up costs of the S3 programme,
include onerous lease costs relating to
facility consolidations.

Tax, EPS and dividends
The underlying tax rate* reduced slightly to
22.8% (2014: 23.2%) reﬂecting lower UK
tax rates.

Underlying earnings per share* were 123.9p
(2014: 123.1p), an increase of 0.6%. A ﬁnal
dividend of 32.3p (2014: 31.1p) is proposed. If
this is approved at the Annual General Meeting,
this will give a full year dividend of 46.1p (2014:
44.3p) and will be covered 2.7 times.

*see footnote on page 136

Ultra Electronics Holdings plc 25
Annual Report and Accounts 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

46.1p

Full year dividend of 46.1p

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 £140.2m
(2014: £122.0m), giving headroom of
£159.8m (2014: £178.0m) in addition to the
£15m overdraft. £47.2m (2014: £44.8m) of
Pricoa loan notes had been issued. The
Group also held £45.5m of cash, which was
held for working capital purposes and to
fund acquisitions.

The Group’s balance sheet remains resilient,
with net debt/EBITDA of 2.2 and net interest
payable on borrowings covered around 16
times by underlying operating proﬁt.

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. During 2015,
interest rate hedging was put in place to
ensure that 40% of forecast debt was at a
ﬁxed rate at year end.

“

Company-wide
initiative to target
working capital.

”

Non-operating cash ﬂow
With underlying operating cash ﬂow* of
£81.3m (2014: £83.1m), the Group funded
various non-operating items with net debt
increasing to £295.6m (2014: £129.5m).
The main non-operating items were:

• cash tax of £17.3m (2014: £22.9m)

• acquisition spend of £179.1m (2014:

£107.5m) including acquisition fees and
other acquisition related payments, with
the majority of the spend in respect of the
two acquisitions completed in the year

• dividend payments of £31.3m (2014:

£29.7m)

Effect of acquisitions
The two acquisitions made in the year, Herley
and Furnace Parts, were made at a total
purchase consideration of £176.3m, including
related acquisition fees of £5.3m. The
purchase consideration includes cash acquired
of £0.7m. In addition, £3.5m was spent on
prior year acquisitions and fees.

Banking facilities
Ultra’s current banking facilities amount to
£451.8m in total, together with a £15.0m
overdraft. They are provided by a small club of
banks, led by the Royal Bank of Scotland, and
comprise three tranches all of which are due
to expire in August 2019. The ﬁrst two
tranches comprise £200m and £100m
revolving credit facilities, that can be drawn
down in any major currency. During the
period, the £100m facility, that was due to
expire in December 2017 was extended and
amended to match the favourable interest
pricing of the £200m facility. The third tranche
is a $225m term loan which was put in place
at the time of the Herley acquisition. The
covenants match the revolving credit facilities.

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 2015, $70m of loan notes had
been issued, that 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.

*see footnote on page 136

26 Ultra Electronics Holdings plc
Annual Report and Accounts 2015

World class performance
Financial review (continued)

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,
that are topped up by employee
contributions. The scheme was actuarially
assessed, using the projected unit method at
31 December 2015, when the net scheme
deﬁcit, calculated in accordance with IAS19,
was £68.1m, compared to £68.6m in 2014.
The present value of the liabilities rose by
£1.2m in 2015. The increase in the scheme
liabilities was more than offset by a £3.7m
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; it was £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.

During 2015 a consultation took place with
the members on a proposal to close the
scheme to future beneﬁt accrual from 5 April
2016. Following the end of the consultation
and discussion with the Trustee, it was
announced to members on 1 February 2016
that the Company had agreed with the
Trustee the terms under which the scheme is
to be closed and that the proposed closure
would go ahead.

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 £0.6m at the end of
the year (2014: £0.9m). 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 Technology, acquired during 2014,
participate in a deﬁned beneﬁt pension
scheme. The scheme had an IAS19 net deﬁcit
of £0.7m at 31 December 2015 (2014: £0.2m).

“

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

”

*see footnote on page 136

Ultra Electronics Holdings plc 27
Annual Report and Accounts 2015

100%

Foreign exchange risks: 100%
of expected exposure for 2016
is covered

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.

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 products 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 2016, 100% of the expected
exposure is covered, reducing to 80% of the
exposure for 2017, 50% for 2018 and 30%
for 2019. Exposure to other currencies is
hedged as it arises on speciﬁc contracts.

Statement of going concern
Ultra’s committed banking facilities amount
to £451.8m in total, together with a
£15.0m overdraft. They were established in
three 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, amended and extended in July 2015
and expires in August 2019. 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 August 2019. Both facilities
have the same covenants.

The third tranche, agreed in May 2015, is a
$225m term loan with a group of four banks
from our existing lending group. This loan,
denominated in US Dollars, was drawn in full
in August 2015 to complete the Herley
acquisition. The covenants match the revolving
credit facilities.

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

Long-term viability statement
In accordance with provision C.2.2 of the
2014 revision of the Code, the Directors have
assessed the viability of the Company over a
longer period than the 12 months required by
the going concern basis of accounting. The
Board conducted this review for a period of
three years to December 2018, to coincide
with its review of the Group’s ﬁnancial
budgets and medium-term forecasts from its
Strategic Plan. The certainty is lower in later
years due to the inherent uncertainties in
forecasting future performance. The Strategic
Plan is underpinned by the regular Executive
Team reviews of business unit performance,
market opportunities and associated risks. The
assessment has taken into account the
Group’s current position and the potential

impact of the principal risks documented in
the Strategic Report. Based on this
assessment, the Directors have a reasonable
expectation that the Company will be able to
continue in operation and meet its liabilities
as they fall due over the period to December
2018. In making this statement the Directors
have considered the resilience of the Group,
taking account of its current position, the
principal risks facing the business in severe
but reasonable scenarios and the effectiveness
of any mitigating actions. This assessment has
considered the potential impacts of these risks
on the business model, future performance,
solvency and liquidity over the period. The
Directors have determined that the three-year
period to December 2018 is an appropriate
period to provide its viability statement. In
making their assessment, the Directors have
taken account of the Group’s robust balance
sheet, its ﬁnancial covenant headroom, its
ability to raise new ﬁnance in different
ﬁnancial market conditions and its key
potential mitigating action of restricting
dividend payments.

This conclusion is based on a review of the
resources available to the Group, taking
account of the Group’s ﬁnancial projections
together with available cash and committed
borrowings, ﬁnancial covenants and any
material uncertainties. In reaching this
conclusion, the Board has considered the
magnitude of potential impacts resulting from
uncertain future events or changes in
conditions, the likelihood of their occurrence
and the likely effectiveness of mitigating actions
that the Directors would consider undertaking.

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

28 Ultra Electronics Holdings plc
Annual Report and Accounts 2015

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.

Revenue
growth

Underlying proﬁt
before tax growth

Growth in underlying
earnings per share

Operating
cash conversion

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.

+1.8%

+0.4%

68%

2015

2014

2013

2012

2011

+1.8%

-4.2%

-2.1%

+4.0%

+3.1%

2015

2014

2013

2012

2011

+0.4%

-4.1%

+0.3%

+0.1%

+10.7%

2015

2014

2013

2012

2011

+1%

+5%

+9%

+15%

2015

2014

2013

2012

2011

68%

70%

65%

74%

110%

Comment
Revenue increased by 1.8% or
£12.6m to £726.3m. A 5.9%
increase reﬂecting the impact of
acquisitions, together with a
4.0% beneﬁt from the positive
impact of foreign exchange on
overseas revenues was partially
offset by an organic decline of
8.1%. 2.1% (or £14.9m) of the
decline related to the Oman
Airport IT contract which was
terminated in February 2015.

Comment
Underlying proﬁt before tax was
£112.4m (2014 £112.0m). This
contributed to an underlying
operating margin of 16.5%
(2014: 16.5%).

Comment
Underlying operating earnings
per share in the year were
123.9p (2014: 123.1p), an
increase of 0.6%. A ﬁnal
dividend of 32.3p (2014: 31.1p)
is proposed. If this is approved
at the Annual General Meeting
it will give a full year dividend of
46.1p (2014: 44.3p) and will be
covered 2.7 times.

Comment
Underlying operating cash ﬂow*
in the year was £81.3m (2014:
£83.1m) reﬂecting the expected
Oman impact and other working
capital movements, leading to a
cash conversion of 68% (2014:
70%). Excluding the impact of
Oman, cash conversion would
have been 77%. Through the
cycle, the Group targets average
cash conversion of 80% to 85%.

*see footnote on page 136

Ultra Electronics Holdings plc 29
Annual Report and Accounts 2015

Total shareholder
return

Interest
cover

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.

YOURviews employee
engagement survey

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

+6.0%

16 times

82%

2015

2014

2013

2012

2011

+6.0%

+8.0%

+14.0%

+6.0%

+9.0%

2015

2014

2013

2012

2011

16 times

20 times

25 times

23 times

2015

2014

2013

2012

2011

82%

81%

79%

Comment
Annual total shareholder return
over the 5-year period from
2011 to 2015 is 6%.

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

Comment
The level of employee
engagement has remained
stable in 2015. 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.

see pages 44 to 48
for details

2
3

1
4
Additional non-ﬁnancial
performance indicators
Ultra’s four strategies for growth
are described on pages 10 and
11 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 48 of this 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

30 Ultra Electronics Holdings plc
Annual Report and Accounts 2015

World class performance

Aerospace
& Infrastructure

Aerospace

Infrastructure

Nuclear

Revenue

Profit*

Order book

£193.2m -2.7%

£28.7m -3.0%

£265.4m +4.9%

Excluding the impact of Oman, the
divisional revenue increased by 3.4%
compared to 2014, as the prior year
included £11.7m of sales from the Oman
Airport IT programme, whereas no
revenue was recognised in 2015.

The division saw an increase in Aerospace
sales, in particular on the Mitsubishi Regional
Jet (MRJ) and the Joint Strike Fighter (JSF)
programmes, and in revenues from Airport
Systems including the Orange County contract
in the US. Revenue from vehicle programmes,
including the Warrior, Scout and Middle East
NIMR also increased. As well as the impact of
the Oman contract, revenue from the A400M
Network Interface Module (NIM) was lower
reﬂecting contract phasing.

Following the securing of a number of new
orders to develop products for the aerospace
sector, the division’s margins have been
impacted by increased R&D investment and

lower margins during the engineering phases
of projects. There were also restructuring costs
at the CEMS business. This was partially offset
by higher margins as vehicle programmes
enter the production phase. The acquisitions
of Ice Corporation in 2014 and Furnace Parts
in 2015, provided a positive contribution to
both revenue and proﬁts as did the impact of
foreign exchange. The resulting divisional
margin was 14.9% (2014: 14.9%).

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

Strategy in action
In October 2015, Ultra’s Precision Air & Land Systems business was awarded the next three
Low Rate Production phases for the engine harnesses for the F-35 Lightning II aircraft. This
contract, worth in excess of £10m, marks the end of Low Rate Production, with the aircraft
scheduled to move towards Full Rate Production by 2020. Ultra also supplies missile cooling
and pneumatic stores ejection to the F35 Lightning II programme which in totality is forecast
to be worth in excess of £500m to Ultra through its life.

*see footnote on page 136

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

• Awarded development contracts by the
Xi’an Aircraft Corporation of China for
the landing gear control unit and nose
steering wheel system on the new
MA700 twin-engine, medium-range
turboprop airliner.

• A strategic partnership with NuScale to
develop a suite of reactor and plant
instrumentation and control systems to
support deployment of their Small
Modular Reactor (SMR) ﬂeet worldwide.
Part payment for this contract includes
an equity stake in NuScale.

• Selection by the Cessna Aircraft

Company to provide a Power Transfer
Control Unit for its new Hemisphere
business jet.

For further information on Ultra’s
strategies see pages 10 and 11

Ultra Electronics Holdings plc 31
Annual Report and Accounts 2015

Throughout 2015 Ultra NSPI accelerated its win of new contracts across a number of nuclear reactor
new build programmes around the world. The projects included the design, qualiﬁcation and
manufacture of multiple new temperature and pressure sensor designs for Generation III and SMR
reactors. The resulting expansion in Ultra’s portfolio of sensors and the opening of a new sales ofﬁce
in Beijing during the year, positions the business well for the next wave of new build opportunities in
that region.

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 Chris Brown, Director of Industrial Sales & Marketing. 2 Anthony Martinez, Technician.
3 Miriam Gonzalez, Planning Manager. 4 Xavier Menchaca, Welder/Machine Operator.
5 Flora Shen, Quality Engineer. 6 Kelden Marshall, Assembler. 7 Janice Hampton, Accounting Specialist.
8 Greg Michalik, Nuclear Production Specialist.

32 Ultra Electronics Holdings plc
Annual Report and Accounts 2015

World class performance

Communications
& Security

Communications

C2ISR

Revenue

Profit*

Order book

£239.3m +6.6%

£40.4m +9.2%

£213.7m -0.4%

There were higher margins as the ECU RP
programme completes its production phases
and Herley improved the mix. This more than
offset the impact of both the loss of high
margin revenue and associated restructuring
costs in the SoTech business and took
divisional margin to 16.9%.

The order book reﬂected the trading of the
ECU RP Crypto contract and the reduction
in US contract placement over the last
12 months.

Communications & Security saw the
beneﬁt of the acquisition of Herley in
2015, together with the prior year
acquisition of Forensic Technology.
Against this, the division was impacted
by the repeal of the US Patriot Act which
signiﬁcantly reduced domestic legal
intercept revenues in the SoTech
business. This was partially offset by an
increase in revenue from security and
surveillance products (and from the ECU
RP programme) and a positive impact
from foreign exchange.

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

• Orders worth over $30m for the

protection of US Navy bases in the
Washington, Southwest and Hawaii
regions.

• Award of a contract for Phase 1 of the

US Reprogrammable Single Chip
Universal Encryptor (RESCUE)/KOV-21A
replacement programmes. This is the
development phase of a long-awaited
and much larger US software-
programmable crypto opportunity.

• Selection by Inmarsat as a technology
partner to develop micro satellite
terminals for both government and
commercial customers.

For further information on Ultra’s
strategies see pages 10 and 11

Strategy in action
In November 2015, Ultra’s CIS business was awarded an initial contract to upgrade the
radios on the RAF’s Typhoon aircraft, with further orders to follow in 2016 and beyond.
Over the life of the programme this could be worth in excess of £20m.

*see footnote on page 136

Ultra Electronics Holdings plc 33
Annual Report and Accounts 2015

Ultra’s Communication & Integrated Systems business has entered its production phase on the UK MOD
End Cryptographic Replacement Programme (ECU RP) with many devices now successfully integrated and
installed on a variety of naval platforms and land systems. In 2015, Ultra received a signiﬁcant contract
amendment to make modiﬁcations in order to meet future air platform requirements. In 2016, Ultra is
working with the Authority to put in place a sizeable ﬁve-year support contract for the programme
alongside several development upgrades to provide the customer with continued interoperability with its
allies as communications and security standards evolve.

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 Graham Housby, Contractor Logistics Support Manager. 2 Nicky Tabram, Business Unit Director, IA.
3 Marlon Brown, Principal Systems Engineer. 4 Gavin Newport, Managing Director.
5 James Dalrymple-Smith, Programme Manager. 6 Rawindar Chana, Senior Software Engineer.
7 James Lovell, Business Unit Director, AEP and EWST. 8 James Fleeting, Firmware Engineer.

34 Ultra Electronics Holdings plc
Annual Report and Accounts 2015

World class performance

Maritime
& Land

Underwater Warfare

Maritime

Land

Revenue

Profit*

Order book

£293.8m +1.1%

£50.9m -1.2%

£274.7m -14.1%

In Maritime & Land there was an increase
in revenue from US and international
sonobuoys and from the Sonar 2050
programme for the UK MoD. This was
offset by the impact of funding delays
on the Torpedo Warning System in the
US and by a reduction in rail power
management revenue. The acquisition
of 3 Phoenix in the prior year
contributed to divisional revenues,
as did foreign exchange.

Margins at 17.3% (2014: 17.7%) reﬂected
the release of some contract risk reserve in
the prior year comparative, and the product
mix within the sonobuoy businesses.

The order book declined as a result of the
trading of major contracts, including
Fatahillah and UK sonobuoy partnering.
There was also a delay into 2016 of some
large orders, including the 2017 UK
sonobuoy partnering contract extension and
India torpedo defence.

Strategy in action
In February 2015, Ultra’s Sonar Systems business was awarded an £18m contract to supply
sonobuoys for the Royal Navy’s Merlin maritime patrol helicopter. The contract will be
executed over the next two years with options for a further two years. The contract, between
Ultra and the MoD, for sonobuoy engineering, manufacture, logistics and support, ensures
the Royal Navy maintains a persistent Anti-Submarine Warfare surveillance capability against
hostile submarines.

*see footnote on page 136

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

• Award of £18m contract, by Rolls-

Royce, for the design and development
of reactor control and cooling systems
for Royal Navy submarines.

• A $25m contract award for the

procurement of engineering services
for development, integration, testing
and logistic support of the Torpedo
Warning System.

• Partnering with Mahindra Group in

India to address signiﬁcant opportunities
Underwater Warfare equipment for the
Indian Navy and high-capacity radios for
the Indian Army.

For further information on Ultra’s
strategies see pages 10 and 11

Ultra Electronics Holdings plc 35
Annual Report and Accounts 2015

In June 2015, Ultra’s PMES business was awarded an £18m contract by Rolls-Royce Nuclear to design
and develop the rod control and main coolant pump systems for the next generation nuclear reactor on
the Vanguard replacement programme. Production deliveries for an advanced degaussing system for the
Royal Navy continued with a contract in March 2015, maintaining PMES’s position as the UK designated
design authority for sub-surface signature management.

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

1/2

4/5

7/8

10/11 12

1 Amanda Gibbs, Materials Planner. 2 Sandra Haire, Materials Planner. 3 Nicola Melia, Project Manager.
4 Andy Purslow, Principal Engineer. 5 Steve Booker, Principal Engineer. 6 Sarah Wright, Materials Control Buyer.
7 Phil Hulse, Support Manager. 8 Lawrie Boardman, Operations Support Manager.
9 Norma Sheard, Supply Chain Manager. 10 Deb Cumiskey, Quotations Coordinator.
11 Les Thompson, Support Manager. 12 Iain Robertshaw, Head of Programmes

36 Ultra Electronics Holdings plc
Annual Report and Accounts 2015

2015 Principal risks and uncertainties
How we analyse and manage risk

The business environment in which the Group operates presents a number of risks and uncertainties
which continue to be the focus of the Board’s attention. Ultra’s approach to risk management and
internal controls is designed to achieve the Group’s business objectives whilst mitigating risk to within
an acceptable risk appetite. The Group has implemented mitigation strategies to manage the overall
risk exposure in line with the Board’s risk appetite.

“

A programme of
continuous monitoring
and reporting has been
undertaken to ensure
Ultra’s risk profile reflects
the current risk exposure
and improvements in
control activity.

”

Ultra encourages its businesses to challenge
the market through innovation and to exhibit
audacity. Profitable growth cannot be
achieved without accepting some degree of
considered risk. Review of business activity
and the management of risk is 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.

The implementation of a revised Risk
Management Framework in 2015 (see pages
61 and 62) resulted in a refresh of Ultra’s
principal risks. This has had a direct impact
on the risks disclosed in this Annual Report
and Accounts in that previously reported risks
have been separated out to provide more
granularity, and other risks have been
escalated to principal risks status. The
development of the revised Risk Management
Framework was undertaken with engagement
from the Executive Team, the Audit Committee
and the Board to ensure a robust assessment
of the principal risks facing Ultra, including
those that would threaten its business model,
future performance, solvency and liquidity.

A programme of continuous monitoring and
reporting (as outlined in the Risk Management
Framework) has been undertaken to ensure
Ultra’s risk profile reflects the current risk
exposure and improvements in management
activity.

The Board has developed risk appetite
statements against each of the principal risks,
clearly setting out the Board’s perspective on
its willingness to accept risk in pursuance of
its strategic objective – “to outperform the
market in terms of annual increases in
shareholder return” (see page 10). In
addition, metrics have been established to
support the Board’s ability to identify when its
tolerance for risk is being reached.

The Group’s principal risks
are identified below and
on the following pages,
together with:
• A description of the risk and its

potential impacts.

• Examples of the current controls

and mitigations.

• An indication of the direction of
travel of the risk exposure and,
where relevant, an indication of
the rationale for this.

01. Strategy and market environment

02. Contract win/delivery

03. Delivering change*

04. Acquisitions*

05. Intellectual property/
information security

06. Innovation and development

07. People

08. Culture*

09. Supply chain*

10. Legislation/regulation

11. Governance and internal control*

12. Health, safety and environment*

13. Pensions

14. Treasury and tax

*newly reported principal risks

Ultra Electronics Holdings plc 37
Annual Report and Accounts 2015

Principal risks

Risk 01. Strategy and market environment

Trend: No signiﬁcant change

Description
Ultra’s core markets continually change as
government budgets come under fiscal
strain and/or geopolitical events affect the
Group’s operations.

Understanding and effectively responding to
these changing market dynamics is key to
delivering future organic growth.

Potential impacts:
• Reduced business opportunity through an

Mitigations (examples):
• Cleary deﬁned and consistently applied

inability to adapt our offerings and approach
quickly enough

approach for setting strategies for each of
the eight segments (see page 12)

• Inability to match the full range of customer

requirements

• Loss of market share

• Dedicated Regional Marketing Directors
focused on creating local networks,
understanding the market and
culture/procurement regime

• LAUNCH principles embedded to understand

customers’ requirements (see page 45)

• Ultra has a diversiﬁed portfolio of businesses

that mitigates exposure

Risk 02. Contract win/delivery

Trend: No signiﬁcant change

Description
Underpinning the overall success of the Group
is its ability to win new business and manage/
deliver against contracted customer
commitments (on budget, on time and to the
agreed quality).

Potential impacts:
• Customer dissatisfaction and reputational

damage

• Loss of future order book opportunities

• Ultra may need to provide for unrecoverable
additional costs incurred until the end of a
programme

• Contract disputes/litigation

Mitigations (examples):
• The Group Operating Manual sets out the
policies and procedures for major bids

• The monthly review process of the Business
Performance Reports provides oversight and
challenge on the order book and delivery
status of signiﬁcant contracts

• Commercial Directors support their Divisional
Directors in reviewing major bids and assist
collaboration across the divisions

• A country risk assessment process has been

implemented to evaluate jurisdictional
contracting risks

Trend: Escalated to a principal risk

Risk 03. Delivering change

Description
Effective delivery of major change programmes
with minimal effect on business as usual (BAU)
is a key component of Ultra’s continual
programme of operational improvement.

The introduction of two major change
programmes in the year (market-facing
segment strategies (see page 12) and S3 (see
page 5)) resulted in the escalation of this to a
principal risk.

Potential impacts:
• Identiﬁed beneﬁts of change not realised

Mitigations (examples):
• All major change programmes are monitored

• Signiﬁcant increase in change programme costs

on a monthly basis by the Board

• Senior management distraction from BAU

• Reduction in employee morale

• An Executive Team sponsor for all major

change programmes

• Recruitment of specialists in designing
and delivering change programmes to
support delivery

• Employee communication and engagement

strategies

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 2015

2015 Principal risks and uncertainties
Principal risks (continued)

Risk 04. Acquisitions

Description
The Group continues to look at acquisitions to
add capabilities, market access and critical
mass. The effective selection, due diligence
and/or integration of acquisitions is critical to
making this a success.

The acquisition of the Electronic Products
Division of Kratos Defense & Security
Solutions was the largest the Group has
done, which resulted in the escalation of this
to a principal risk.

Potential impacts:
• Destruction of value through overpayment

for acquisitions

• Non-delivery of synergies and/or economies

of scale

• Senior management focus diverted away from

delivering BAU

Trend: Escalated to a principal risk

Mitigations (examples):
• The Group acquisition process and procedures
are led by the M&A Director and include due
diligence, the use of professional advisors and
appropriate and enforceable representations
and warranties

• Detailed post-acquisition integration plans are
in place and led by an Executive Team sponsor

• Formal two and ﬁve-year post-acquisition

reviews are undertaken by the Board

• Medium-term integration milestones and plans
are reported quarterly to the Executive Team

Risk 05. Intellectual property/information security

Trend: No signiﬁcant change

Description
The Group’s information systems, personnel
and facilities are subject to security risks. The
incidence and sophistication of cyber security
crime is on the rise. Breach of security could
cause controlled or critical data to be lost,
made inaccessible, corrupted or be accessed
by unauthorised users.

Potential impacts:
• Reputational damage to Ultra as a highly
regarded provider of secure data systems

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

Mitigations (examples):
• Dedicated Cyber Protection Group (CPG)

providing Group-wide monitoring, incident
response and continued enhancement of Ultra’s
IT systems and processes

• Security clearance process for all employees

• Reduced product differentiation with loss of

• The Group Information Security policy classiﬁes

intellectual property

all information assets

• Disruption to business activity as systems are

• Established physical security processes

cleansed and restored

implemented at all sites

• Training provided on IP awareness, IP
management and IP exploitation

Over the last three years Ultra Electronics
has made a signiﬁcant investment in
internal cyber defence to ensure that the
Group’s sensitive information is
appropriately secured against the increasing
threats that are taking advantage of the
internet as an attack-vector. The Ultra
Cyber Protection Group (CPG) provides
comprehensive pro-active defence using
advanced techniques to prevent, detect and
respond to security incidents. Operating

from a UK base, the CPG uses advanced
and often uniquely designed software
techniques to remotely monitor and protect
all of the Group’s network operations at
sites in several different countries. The CPG
is led by senior network security specialists
with long experience from highly sensitive
national and multinational organisations,
supported by some very carefully selected
and highly capable graduates.

Ultra Electronics Holdings plc 39
Annual Report and Accounts 2015

Risk 06. Innovation and development

Trend: Increased risk

Description
Ultra must continue to distinguish itself from
its competitors through product and service
innovation/development. This needs to
address changing customer preferences and
deliver highly-differentiated solutions.

The market conditions throughout the year
have continued to have a direct impact on the
availability of customer funding for new
product development.

Risk 07. People

Description
Attracting, developing and retaining the right
people who embrace and sustain Ultra’s
culture, and who have the domain expertise is
critical to delivering the Group’s strategy and
business plan.

Risk 08. Culture

Description
The preservation of Ultra’s culture (innovation,
agility and accountability) as the Group
expands through organic growth, natural staff
turnover and acquisitions is a key driver for
future success.

In 2015, the Group completed its largest
acquisition (Ultra Electronics Herley);
introduced a new market segment structure;
and launched S3. Preserving Ultra’s culture in
light of this has resulted in the escalation of
this to a principal risk.

Potential impacts:
• Loss of key customers

• Signiﬁcant loss of revenue, proﬁts and or

market share

• Ultra’s portfolio of specialist capabilities is

eroded through commoditisation

Mitigations (examples):
• A culture that focusses on ensuring a

deep understanding of customer need
and delivering innovation

• Market and competitor analysis to support

technology and product roadmaps

• Segment focussed R&D prioritisation to avoid

duplication and maximise advantage

Potential impacts:
• Ultra could lose key staff or capabilities and
be unable to fulﬁl its contractual obligations

• Reduction in staff morale results in a rise of
employee related issues (e.g. grievances
and sickness)

• Talent within the business is not developed to

its full potential

Trend: No signiﬁcant change

Mitigations (examples):
• Clearly deﬁned and implemented recruitment

processes

• Annual Organisation, Succession and

Development Process

• The Chief Executive meets high potential

employees to assess performance, skills and
competencies ﬁrst-hand

• Quarterly review by the Executive Team and

annual review by the Nomination Committee
of the succession planning and career
progression of senior employees

• Engagement with potential recruits at an early

stage through links with schools and universities
by offering apprenticeships, work placements
and graduate training (see page 46)

• Monitoring and reviewing salary and beneﬁts

surveys

Trend: Escalated to a principal risk

Potential impacts:
• Reduction in the quality and consistency of

service delivery to customers

• Reduction in staff morale results in a rise

of employee related issues (e.g. grievances
and sickness)

Mitigations (examples):
• Delivery and follow-up analysis of the
YOURviews employee survey (which is
reviewed annually by the Board)

• Implementation of LEAP and LAUNCH

behaviours across the Group

• Loss of high potential employees

• Group culture expectations is a key part of

the HR induction process

• Culture transition requirements are included
as part of the formal integration plans for all
new acquisitions

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 2015

2015 Principal risks and uncertainties
Principal risks (continued)

Risk 09. Supply chain

Description
The Group places signiﬁcant reliance on key
suppliers/sub-contractors for the delivery of its
customer commitments and therefore, there is
a need to ensure the continuing effectiveness
of the supply chain. The Group’s manufacturing
facilities are exposed to natural catastrophe
risks and the Group is affected by the social,
economic, regulatory and political conditions in
the countries in which it operates.

Continued funding pressures on US and UK
defence procurement programmes has led to
increasing demands for improved efﬁciency in
the supply chain. This has resulted in the
escalation of this to a principal risk.

Trend: Escalated to a principal risk

Potential impacts:
• Failure to deliver against customer commitments

Mitigations (examples):
• Pre-contract audits of key suppliers and

• Signiﬁcant product quality defect

sub-contractors and continuing review of
their performance

• Business continuity and disaster recovery plans

are in place and tested

• Single-source supplier risks are identiﬁed

through risk management process and, where
possible, key materials or components are
dual-sourced

• The Group has business interruption, property

damage and product liability insurance

Risk 10. Legislation/regulation

Trend: No signiﬁcant change

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

Potential impacts:
• Debarment from government contracts

• Regulatory ﬁnes and/or penalties

• Legal disputes

• Reputational damage

Mitigations (examples):
• Implementation of the Group Operating

Manual that sets out policies and procedures
for legislative and regulatory requirements and
compliance training

• Monthly compliance reporting

• Ethics Overview Committee (see page 49)

• Effective whistle blowing procedures (EthicsPoint)

(see page 49)

Risk 11. Governance and internal control

Trend: Escalated to a principal risk

Description
Maintaining corporate governance standards
and an effective and efﬁcient risk management
and internal control system is critical to
supporting the delivery of the Group strategy.

As a result of the re-fresh of the principal risks
in 2015, governance and internal control has
been separated out from the legislation/
regulation risk to provide greater granularity
and to reﬂect the continued focus of the Board
in this area. This has resulted in the escalation
of this to a principal risk.

Potential impacts:
• Signiﬁcant ﬁnancial loss (e.g. fraud, theft,

Mitigations (examples):
• Implementation of the Group Operating

material errors)

• Loss of investor conﬁdence

• Loss of business opportunity with removal

of government approval to work on classiﬁed
programmes

Manual as the overall policy and procedures
framework

• Effective internal controls and Risk

Management Framework

• Year end disclosures by the businesses on the

effectiveness of accounting and internal
control systems

• Terms of reference for Board and Committees

are reviewed and updated annually

Ultra Electronics Holdings plc 41
Annual Report and Accounts 2015

Risk 12. Health, safety and environment

Trend: Escalated to a principal risk

Description
A continued focus on: ensuring high standards
of health and safety of employees and visitors;
and maintaining our commitment to minimise
the environmental impact of our activities is of
paramount importance to support the
achievement of Ultra’s business objectives.

As a result of the refresh of the principal risks in
2015, health, safety and environment has been
separated out from the legislation/regulation
risk to provide greater granularity and to reﬂect
the continued focus of the Board in this area
(see page 50). This has resulted in the escalation
of this to a principal risk.

Risk 13. Pensions

Description
The Group’s UK deﬁned beneﬁt pension
scheme needs to be managed to ensure it
does not become a serious liability for the
Group. There are a number of factors
including investment returns, long-term
interest rate and price inﬂation expectations,
and anticipated members’ longevity that can
increase the liabilities of the scheme.

The planned closure of the Group’s UK
deﬁned beneﬁt pension scheme will
contribute to reducing the overall risk
exposure (see page 26).

Risk 14. Treasury and tax

Description
Operating across a number of countries adds
complexity to managing currency exchange
rate and interest rate ﬂuctuations that can
directly impact on Ultra’s business performance.

As for all companies, Ultra is exposed to
changing tax legislation in the territories in
which it operates including as an international
business, changes that may arise due to local
legislation arising from the OECD’s current Base
Erosion and Proﬁt Shifting project.

Potential impacts:
• Harm to people’s well-being

• Serious business interruption

• Reputational damage

Mitigations (examples):
• Annual self-assessment of health, safety and
environment by each business and bi-annual
external health, safety and environment audit
for each business

• Quarterly review of health, safety and

environment by the Executive Team and
annual review by the Board

Potential impacts:
• Any increase in the deﬁcit may require

additional cash contributions and therefore
reduce the available cash for the Group

Potential impacts:
• 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 UK businesses
transacting in a foreign currency

Trend: Decreased risk

Mitigations (examples):
• The Group’s UK deﬁned beneﬁt pension

scheme is closed to new members

• Formal annual reviews of the Group pension

strategy by the Board

• Annual accounting and triennial valuation

processes in order to highlight issues to the
Board as they emerge

• Appointment of Willis Towers Watson as the

Group’s pension strategy advisors

Trend: No signiﬁcant change

Mitigations (examples):
• The translation impact cannot be mitigated;

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

• Transaction impact is mitigated through the

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

• Ultra is committed to complying fully with the
laws in the countries in which it operates from
a tax perspective. It seeks to achieve a
competitive tax rate by maintaining established
ﬁnancing structures where appropriate. We
manage these risks by monitoring international
developments, participating in pro-legislative
consultations where appropriate and adapting
our approach where necessary and practical

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

42 Ultra Electronics Holdings plc
Annual Report and Accounts 2015

Sustainability
making a difference to…

In the community:
Ultra’s businesses remain active in their local
communities, building positive links by
engaging with local people and local issues.
Many businesses form special relationships
with education establishments in the
surrounding communities providing interview
practice sessions, supporting lessons, careers
events and school science fairs, as well as
offering work placements and visits to
businesses as part of AS level courses. Ultra
also takes part in the nationwide initiatives on
STEM* education at a national level and
offers Arkwright scholarships, a scholarship
that 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. This is
exempliﬁed by the PALS business winning a
regional Partnerships with Education Award
as part of the EEF Future Manufacturing
Awards 2015. Sonar Systems was a runner up
in the same category. Each business manages
its own charitable budget, that it directs to
maintain and grow connections with local
communities. 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 voluntary activities. Some
noteworthy examples in 2015 include:

• Ultra’s Nuclear Control Systems business

sponsored the Dorset Enterprise and Skills
Company “Enterprise Challenge” awards.
This is a local schools programme where
small teams of students set up and run a
business over the course of four months to
help develop essential skills in business and
entrepreneurship in a practical, fun and
innovative way.

• Sonar Systems is supporting a local Code
Club, which is a charity that was set up to
establish a nationwide scheme to teach
children between the ages of 9 and 11
how to write software. Each Code Club
runs weekly for one-hour during term time
and teaches programming by having the
children write games and create
animations and websites.

• During 2015, Ultra CIS launched a

“CIS in the community” policy enabling
employees to take time out to work in
the local community and providing
matched sponsorship for events.

For more about securing the
talent pipeline, see page 46

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

*STEM (Science, Technology, Engineering & Mathematics)

…Shareholders:
Ultra aims to extend its long track record of
delivering above-average shareholder
returns. The Group’s primary objective is to
outperform the market by delivering above-
average increases in total shareholder return
and by communicating effectively, through
various means, with shareholders and the
financial community.
…Customers:
Ultra aims to be an excellent, strategic
supplier to its customers. To enable this,
Ultra’s businesses are focused on helping
customers identify their true needs whilst
developing long-term relationships, based on
performance excellence and meeting its
commitments. Ultra’s businesses have built
long-term, mutually beneﬁcial relationships
with their customers and have become part
of the customers’ extended enterprises.

Examples from 2015 that highlight Ultra’s
commitments to its broad customer base are:

• USSI’s joint venture, ERAPSCO, has been
recognised by the US Navy as a Tier 1
Superior Supplier. This honour is awarded
to the top DoD suppliers in the nation who
provide the greatest overall value to the
Department in terms of cost, schedule,
performance, quality and business relations.

• Ultra’s Controls business was complimented
when one of its major customers, MITAC,
recommended that its senior management
team visit the Controls production site in
Greenford to observe what MITAC
considered to be best practice following
the maiden ﬂight of the Mitsubishi Regional
Jet (MRJ).

• In Australia, Ultra’s Avalon business

received a written statement of recognition
from the Royal Australian naval vessel
HMAS Melbourne for its support in the
preparations for its deployment for
operation MANITOU.

…Employees:
Ultra believes that the right people are its
most important asset; the capabilities of its
employees allow the Group to innovate
continually and meet customer need. Ultra
has a strong commitment to developing
people and securing the talent pipeline,
details of which can be found in the section
Developing Ultra’s People. The Group believes
that, to ensure its continuing growth and
success, these initiatives for talent
development and people retention are
essential. However, ultimate responsibility for
individual talent development and employee
retention resides within each of Ultra’s
businesses, a number of which have launched
unique initiatives to ensure continuing
employee development and engagement.

Examples include:

• In 2015, 3eTI rolled out its “Making 3eTI a
Great Place to Work” initiative aimed at
helping employees enjoy happy and
healthy lifestyles while maintaining a good
balance between life and work. Programmes
included ﬂexible summer work weeks,
quarterly social hours and project-swap
education projects.

• Forensic Technology continues its efforts
towards maintaining its status as an
employer of choice in Canada and
benchmarked its employee engagement
related practices against those of other
Employers of Choice. Employee
engagement is a signiﬁcant part of the
businesses overall business plan and it is
currently revisiting the performance
management process and tools,
incorporating feedback from both
managers and employees.

• Ultra Electronics US was presented with
the Gold Wellness Award by the Business
Council of Fairﬁeld County, Connecticut
that recognised Ultra as a leading
company in promoting a healthy
workplace for its employees.

To read more about Ultra’s
customers, see page 2

To read more about Ultra’s people,
see pages 44 to 48

Ultra Electronics Holdings plc 43
Annual Report and Accounts 2015

…the Environment:
Ultra is committed to implementing and
enforcing effective measures to minimise the
environmental impact of its activities. All
businesses are audited biennially. In the US in
2015 ProLogic, 3Phoenix, 3eTI, ATS, Flightline
and NSPI all achieved 100% in the audit.
Additionally in the UK, CIS, ID, Sonar Systems,
PMES, PALS and Controls all maintained the
ISO14001 environmental standard.

Ultra continues its commitment to investing in
manufacturing facilities to offer increased
efﬁciencies and reduce energy consumption,
while improving productivity across the
Company. The Group also looks for its
suppliers to reduce their environmental impact.

Initiatives that have taken place within the
Group include:

• 3eTI continued its “Go Green Campaign”
encompassing two separate recycling
programmes and the use of sensor lighting.

• Controls introduced an Environmental

Newsletter.

• Maritime Systems switched to reusable
packaging for many of its plastic parts
and installed variable frequency air
handling units and an air compressor to
reduce its carbon footprint.

• NCS updated its personal development

review process to include a “Health, Safety
and Environment” section to encourage
staff to engage.

• TCS installed charging stations for

electric cars.

• Ocean Systems constructed an

environmentally-controlled transducer and
encapsulation room.

To read more about the
environment, see pages 50 to 51

…to Suppliers:
Ultra views its suppliers as an extension of
the Ultra enterprise as many businesses rely
on these suppliers for delivery of their
products and services. These are safety- or
performance-critical in their end markets so
working together is crucial. Partnership with
suppliers and customers generates innovative
and differentiated solutions which are at the
core of Ultra’s business model. Many Ultra
businesses work with their suppliers to
enable them to operate more efﬁciently.

This year Ultra’s Ocean Systems business
mentored a new supplier of energetics on a
shared contract to enable them to fulﬁl their
commitments to the contract and deliver the
product in time.

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

44 Ultra Electronics Holdings plc
Annual Report and Accounts 2015

Sustainability
Developing Ultra’s people

Without the innovative and entrepreneurial spirit of its staff,
Ultra would not be able to deliver value to customers.

The right people
Ultra is successful in innovating to meet
customer needs due to the broad range of
skills and capabilities held by the Group’s
employees. As such the Board has recognised
that the right people are the Group’s most
important asset. Therefore people and their
development are key initiatives for the Group
as it strives to achieve an efﬁcient organisation
with engaged and committed people.

Domain expertise
The key factors in delivering innovative
solutions to meet customers’ needs are Ultra’s
deep understanding of its specialist capability
areas, combined with knowledge of the users’
environment. Ultra maintains its domain
expertise by ensuring that employees maintain
expertise in their respective ﬁelds. The Group
ensures it has the right people to work with
customers to support their needs by
understanding and creating winning solutions.

“

Being on the
apprentice training
scheme gave me the
chance to work with
many different people
and learn a lot from
them, which I have
enjoyed the most.
Carly Nettleford Trainee engineer, CIS

”

How Ultra manages its people
Ultra values the autonomy of its businesses
and believes a high degree of operational
autonomy enables businesses to focus on
delivering agile and responsive solutions to
its customers.

The Managing Directors and Presidents of
Ultra’s individual businesses and their
management teams are given as much
authority and responsibility as possible. This
allows these teams to maintain the agility
and sharp focus that is typical of owner-
managed businesses.

People in action
Carly Nettleford a trainee engineer at
Ultra’s CIS business recently won the title
of Apprentice of the Year in the West
London Business Awards. Here she talks
about her time at Ultra.

Why did you choose Ultra?
I chose Ultra Electronics because I could
see there would be many opportunities for
me to learn and grow as an engineer. I
have deﬁnitely been able to do this while
working at Ultra.

What have you done here?
The great thing about doing an
apprenticeship is that you’re able to move
around different departments; therefore
I’ve had the opportunity to work on many
different projects with elements of both
electronic and mechanical engineering
principles. I have had the chance to learn
electronic CAD, radio frequency theory
and many different software and
programming packages. With all of these
skills I was able make a difference to the
projects being worked on.

How much have you
enjoyed your time at Ultra?
Being on the apprentice training scheme
gave me the chance to work with many
different people and learn a lot from
them, which I have enjoyed the most. I
have built a rapport with many of my
colleagues and it has made my time at
Ultra enjoyable.

What have you learnt?
I have learnt a lot while working at Ultra
from my colleagues and my mentor, Andy
Cambridge. I have been able to take the
theoretical knowledge that he has taught
me and from studying my HNC/HND and
apply this in the working environment.

How do you feel about
winning this award?
I am still in shock about winning the
award. I feel overwhelmed to achieve
something of such a high magnitude. I am
very happy that I could win it on behalf of
Ultra and make my parents very proud.

Ultra Electronics Holdings plc 45
Annual Report and Accounts 2015

Ultra is committed to securing the talent pipeline and developing people to ensure the continued
growth and success of the Group. Focus is placed on ensuring that the right people are in the right
roles. Furthermore businesses are responsible for and encouraged to develop their teams and
individuals continuously, which will enable people to grow with the business and not become a
constraint on the development of the Group.

Leadership: Good leadership is
extremely important to Ultra and a
number of models of leadership are
incorporated in the development and
training programmes that are delivered
around the Group.

Entrepreneurship: Being entrepreneurial
is a behaviour which underpins the
Group’s strategy. All Ultra businesses seek
to provide customers with solutions
which are different from, and better
than, those of competitors. Ultra’s
entrepreneurial culture seeks to maximise
the capability to generate excellent ideas
and the business skills needed to bring
them successfully to market.

Audacity: Audacious thinking is the
difference between incremental
improvement and business
transformation. It takes the idea of
innovation, one of Ultra’s core values, and
invites employees to think about issues in
ways which are unconstrained by existing
norms, making use of creative approaches
in every aspect of the Group’s business.

Paranoia: Paranoia, in the business
sense, is a concern and fear about
competitors and what they may do. It
also relates to concerns and fears about
things which can go wrong internally. For
Ultra, paranoia is important in focusing
its staff on maximising their knowledge
of the competitive landscape, by
constantly asking questions of the
Group’s individual businesses, customers,
teaming partners and suppliers.

Culture
Ultra is committed to keeping its culture
strong as the Group expands through organic
growth, natural staff turnover and
acquisitions. The Group believes culture is
what drives Ultra’s success and that this
includes values, role models, processes and
the behaviours of its employees. The Group’s
culture, values and behaviours are shaped by
the guiding principles, in particular the call
for “an efﬁcient organisation with engaged
and committed people”.

To achieve this, Ultra has identiﬁed four
cultural behaviours of its people that are
highly valued and encouraged. These are:
Leadership, Entrepreneurship, Audacity and
Paranoia. Together, they are known within
the Group as LEAP.

What people mean to Ultra
The broad range of skills and capabilities of
Ultra’s employees support the Group’s
success in innovating to meet customer
needs. Ultra’s aim of delivering an efﬁcient
organisation, with engaged and committed
people to meet the Group’s business
commitments, is a goal all managers work
towards and is a measure of their success.
The quality of Ultra’s leadership teams is
constantly reviewed and improved as this is
essential to the continuing growth and success
of the Group. Many companies state that
their people are the company’s most important
asset. Ultra varies this slightly: the right
people are the Group’s most important asset.

Growth through engagement
LAUNCH is a set of behaviours which the
Group has developed to facilitate customer
engagement and relationship building.

L Listen to customers

A Ask the right questions

U Understand what their “pain” is

N identify the customers’ Needs and get

their agreement

C Create a relationship, opportunity

and solution

H Holistic. Examine the bigger picture;

how can Ultra maximise the scope and
value of the opportunity?

This approach ensures Ultra understands
the real needs of its customers; in addition,
LAUNCH is a way for Ultra’s businesses to
generate long-term customer relationships
which leads to a better pipeline of
opportunities and to, ultimately, enable
growth. LAUNCH is aligned with the
Group’s approach to systems engineering
and project management.

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

46 Ultra Electronics Holdings plc
Annual Report and Accounts 2015

Sustainability
Developing Ultra’s people (continued)

Securing the talent pipeline
Ultra has been committed to developing
people ever since it was formed in 1993.
There are a number of programmes which
help the Group to attract the best people, as
well as encouraging students to develop
careers in engineering or business.

SCHOOLS
Ultra engages with local schools near many
of its businesses. Relationships with schools
and sixth form colleges take a variety of
forms: from work experience, longer work
placements, visits as part of AS level courses,
interview practice sessions, careers events
and Ultra employees supporting both lessons
and after school clubs. Examples include:

• Ultra’s Forensic Technology business

continues to run their “CSI for a day”
programme in local schools; this has been
a huge success, with one school stating it
has improved interest in science lessons as
well as encouraging more collaboration
between students.

• Businesses at the Head Ofﬁce site in

Greenford welcomed teachers from the
local Greenford High School to tour the
site as part of an initiative to inform
teachers about careers in engineering and
science, furthering the businesses
commitment of helping to encourage
students into STEM* studies and jobs.

• 3 Phoenix is an advocate of the STEM*
programme in the local North Carolina
public school system, encouraging careers
in technical ﬁelds. It has undertaken site
tours for students at local schools and also
mentored an intern doing research with
engineering staff at the facility.

*STEM (Science, Technology, Engineering & Maths)

Ultra’s focus is mainly engineering but also
includes other STEM* subjects, ﬁnance and
commercial disciplines. Ultra also sponsors
students through their last years at school via
the Arkwright Scholarship. This provides
students with support and mentoring during
their studies and has led to students electing
to undertake STEM degree courses. Ultra is a
recognised major sponsor of the scheme and
currently has eight scholars.

APPRENTICESHIPS
Many Ultra businesses have well-established
and successful apprenticeship programmes,
which have also historically provided the
Group with engineering leaders. The Group
runs apprenticeship schemes at most of its UK
businesses and currently has 48 apprentices in
training in the UK.

There have been a number of notable successes:

• Carly Nettleford, based at CIS, won

Apprentice of the Year at the West London
Business Awards.

• Lakjit Chand, from Sonar Systems, was

presented with an Apprentice Ambassador
award from the Mayor of Hillingdon in
recognition of his hard work as an
Apprentice Ambassador.

• Three apprentices from Ultra’s NCS

business were awarded honours for their
ﬁrst year at the Engineering Trust
Apprentice Awards.

UNIVERSITIES AND COLLEGES
In addition to traditional career fairs, Ultra
actively engages with lecturers and faculties
during degree courses as the Group
maintains excellent links with universities
around the world. This allows Ultra access to
leading research and enables the Group to
form relationships with students well before
graduation. The Group beneﬁts from working
with universities as it can collaborate on
innovation and recruit students who can
make a difference. Ultra currently has 10
sponsored university students and also
provides a number of work placements as
part of degree courses (49 in the UK and US
in the last year).

Ultra businesses provide opportunities for
students to work on real projects via work
placements, co-operative programmes and
internship schemes; all internships are paid

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
• PALS was ﬁrst introduced to Nick Roberts
through the Arkwright Scholarship Trust.
Following the award of his scholarship PALS
offered him work experience during every
holiday. On completion of his A Levels PALS
sponsored him at Nottingham University. This
came with a small bursary and the guarantee
of paid work during the holidays. PALS also
set his ﬁnal year project and supported him
through this. The amount of work Nick did
during his degree negated the need for him
to undertake an intern year. Nick graduated
in 2015 with a MSc in Mechanical
Engineering and started working at Ultra
full-time in September 2015.

• Ocean Systems supported a Northeastern

University student involved in the “Gordon
Institute of Engineering Leadership”
programme in which corporations sponsor
aspiring young talent, engaging them with
business-relevant “challenge” projects.
The student successfully led a small team
of Ultra employees to demonstrate initial
risk reduction activities for countermeasure
mobility. Following his graduation he was
offered and accepted a position as a full-
time employee.

• Ultra PALS won the regional Partnerships
with Education award at the 2015 EEF
Future Manufacturing Awards. This award
goes to the manufacturer that has made
the biggest strides or found new ways to
work with education providers to promote
engineering and manufacturing careers.

INSTITUTIONS
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 businesses
worldwide have a variety of links with their
local business forums and chambers of
commerce members, helping to encourage
STEM* activities.

Ultra Electronics Holdings plc 47
Annual Report and Accounts 2015

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. Ultra’s
businesses have also 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.

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

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, and is
available to all of the Group’s businesses to
support training.

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. Speciﬁc training programmes
are provided for individuals as necessary.

Businesses also look for further opportunities
to develop training outside their training
budget. For example, Ultra’s NCS employees
have used their contacts to gain experience for
the businesses apprentices that would not
usually be available. A group was taken to the
MoD site in Davenport and shown the
operations and maintenance of the submarine
as well as seeing how the Ultra equipment is
deployed. Another group visited the Advanced
Manufacturing Resource Centre (AMRC) at
the University of Shefﬁeld which focuses on
machining and materials research and provides
skills training. Here they engaged in a tour and
spent the afternoon doing practical challenges
using the practice equipment.

Engineering education
case study
This year Ultra employees were invited to
attend a meeting to offer an industry
perspective to the government on the
development of nuclear skills in
preparation for nuclear policy statements
in the run up to the general election.

Following an announcement by David
Cameron on 11 March 2015, the Nuclear
Trailblazer employer group, led by
Sellaﬁeld Sites Ltd and facilitated by the
National Skills Academy for Nuclear
(NSAN), was established to develop
standards for the nuclear sector and make
apprenticeships more attractive to
employers. Lesley Fewell, Head of Human
Resources at Ultra Electronics Nuclear
Control Systems, was invited to join the
Group representing the interests of UK
supply chain companies.

Following the review, NSAN reported that
two new apprenticeship standards for
nuclear, as developed by the Nuclear
Trailblazer employer, had been approved.

UK data
Employees

Apprentices

University placement students

Category

Unit trusts

Pension funds

Other managed funds

Sovereign wealth

Insurance companies

Private investor

Mutual fund

Investment trust

Custodians

Exchange-traded fund

Employees share scheme trustees

Charity

Local authority

Other

Holding

41,531,922

8,001,477

3,544,259

1,662,153

2,633,964

1,788,139

4,800,475

1,059,353

556,970

890,246

235,247

48,500

236,713

3,291,728

59.09

11.38

5.04

2.36

3.75

2.54

6.83

1.51

0.79

1.27

0.33

0.07

0.34

4.70

Total issued share capital

70,281,146

100.00

Shareholder analysis by size of shareholding as at 31 December 2015

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

Financial calendar

23 March 2016

7 April 2016

8 April 2016

29 April 2016

5 May 2016

1 August 2016

23 September 2016

Total number

of holdings % of holders
7.92
5.97
21.17
15.38
14.84
17.03
2.66
4.32
2.84
7.87

134
101
358
260
251
288
45
73
48
133

Total number
of shares
2,931
8,376
65,348
92,931
177,813
607,720
313,380
1,170,646
1,702,451
66,139,550

%
issued capital
0.00
0.01
0.09
0.13
0.25
0.86
0.45
1.67
2.42
94.12

1,691

100.00

70,281,146

100.00

Annual Report &
Accounts published

Ex-dividend date

Record date

Annual General
Meeting

Final dividend
payment date

Interim results
announced

Interim dividend
payment date

64 Ultra Electronics Holdings plc
Corporate Governance Report (continued)

Governance
Corporate Governance Report (continued)

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

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

• The financial statements, prepared in

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

• The Strategic Report includes a fair review of
the development and performance of the
business and the position of the Company and
the undertakings included in the consolidation,
together with a description of the principal
risks and uncertainties that they face

• The Annual Report and financial statements,
taken as a whole, are fair, balanced and
understandable and provide the information
necessary for shareholders to assess the
Company’s performance, business model
and strategy

The Annual Report (including the Strategic Report
and Directors’ responsibilities statement) on
pages 1 to 83 was approved by the Board on
26 February 2016 and signed on its behalf by:

Rakesh Sharma, Chief Executive
Mary Waldner, Group Finance Director

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

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

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

• Select suitable accounting policies and then

apply them consistently

• Make judgments and accounting estimates

that are reasonable and prudent

• State whether applicable UK Accounting

Standards have been followed subject to any
material departures disclosed and explained in
the financial statements

• Prepare the financial statements on the

going concern basis unless it is inappropriate
to presume that the Company will continue
in business

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

• Properly select and apply accounting policies

• Present information, including accounting

policies, in a manner that provides relevant,
reliable, comparable and understandable
information

• Provide additional disclosures when compliance

with the specific requirements in 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

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.

Governance
Audit Committee Report

Ultra Electronics Holdings plc 65
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.
John Hirst, Chairman of the Audit Committee

”

effectiveness of the Group’s system of internal
control, including financial reporting, and the
processes for assessing business risks and
monitoring and managing the impact of the
risks facing the Group

The Committee has written terms of reference
which include all matters recommended by the
Code. These terms of reference are reviewed
and approved by the Board annually and are
available on the Group’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.

“

Ultra is committed to
ensuring it has robust and
effective risk management
and control processes.

”

I am delighted to have assumed the role of
Chairman of the Audit Committee (the
Committee) this past year and I would like to
thank Chris Bailey for his years of leadership of
the Committee. Ultra is committed to ensuring
that it has robust and effective risk management
and control processes. As Chairman of the
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 can be
found in the Corporate Governance Report on
pages 56 to 64. An assessment of the Group’s
principal risks and uncertainties, can be found
on pages 36 to 41 and together with the going
concern and long-term viability statements, can
be found in the Strategic Report on page 27.

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 and rotational 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
2015 continued to be on the Group’s Business
Continuity and IT Disaster Recovery processes, as
well as working capital management and controls
in integrating new businesses. In addition, the
Company worked with PricewaterhouseCoopers
LLP (PwC), the Company’s internal auditor, to
improve the Company’s risk management
processes in line with the Code. Further details on
Ultra’s risk management processes can be found
on pages 61 and 62.

In 2015, the significant issues at the forefront of
the Committee’s deliberations were: valuation
and impairment testing of goodwill and
intangible assets; and accounting and disclosure
in relation to the changes to the Group’s
operations in the Middle East. The Committee
also considered the impact that the Group’s
adoption of S3 would have in enhancing the
Group’s internal controls.

I am pleased to present the Committee’s Report
for 2015.

John Hirst, Chairman of the Audit Committee

Composition
The composition of the Committee is set out on
page 58. The Chairman of the Committee has
the recent and relevant financial and accounting
experience required by the Code. He 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 53.

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

During 2015, the Chairman of the Committee
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 it’s views of the Group’s
financial management process and any matters
that they thought should be brought to the
attention of the Committee.

Role
The Committee’s main responsibilities include:

• 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 position and performance, business
model and strategy

• Reviewing the scope and effectiveness of the
external audit process, including negotiating
the terms of the external auditor’s
appointment, scope, fees and independence
and supervising any audit tender process

• Reviewing the effectiveness of the internal

audit function and the adequacy and

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

66 Ultra Electronics Holdings plc
Audit Committee Report (continued)

Governance
Audit Committee Report (continued)

Activities of the Committee during the year

Topic

Financial reporting

Risk management

Internal controls

Internal audit

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 and matters
that required the exercise of significant management judgment
The going concern statement (see page 27)
The long-term viability statement (see page 27)

Review of the principal risks, the Group’s risk appetite and risk metrics. Consideration of their
alignment to the achievement of Ultra’s strategic objectives
Assessment of the key controls in place and future planned management actions to address the risks
Approval of the updated Risk Management Framework
Further details of the approach to risk management and the new Risk Management Framework can
be found in the Corporate Governance Report on pages 61 and 62

Reports on the internal control environment and risk management and their effectiveness
Review of compliance with the Group’s Business Continuity and IT Disaster Recovery Policies
Internal Controls Improvement Status Report which summarise the results from the six monthly
Divisional Control review meetings

Internal audit plan for the year
Summary reports from the risk-based reviews
Summary reports from the rotational reviews
Progress reports on the implementation of remedial actions

Regulatory and accounting update

External auditor

EU Audit Reform and the need for audit reports to contain key risk observations from 2016
Financial reporting update
Adoption of FRS 101 Reduced Disclosure Framework

The external auditor’s engagement policy, independence and effectiveness
Review of audit and non-audit fees
The external audit plan for the year

Governance

The Committee’s terms of reference

Significant financial judgements and
financial reporting for 2015

Oman Airport IT Contract termination and
liquidation of Ithra

How the Committee addressed these judgements

The Committee considered the judgements taken in accounting for the termination event and the
liquidation including provisions for all known liabilities, revenue recognition, recoverability of assets,
the treatment of the minority interest, and the associated disclosures presented in this Annual Report.

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

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.

Retirement benefit plans

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

Internal audit
PwC are appointed by Ultra as its internal auditor.
The Committee uses internal audit as its key
resource for gaining independent assurance on the
effectiveness of the system of internal control. The
internal audit plan and resources are considered
and monitored by the Committee, together with
all internal control findings and remedial actions.

The lead partner of PwC reports directly to the
Chairman of the Committee and presents the
findings 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 effectiveness of internal audit is assessed by
the review of internal audit reports, meetings with
the Chairman of the Committee without
management being present and views from senior
management and the Group Finance Director.

External auditor
The performance, effectiveness and
independence of the Company’s auditor,
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
re-appointment of Deloitte as external auditor
should be recommended to the shareholders.
Accordingly, a resolution to re-appoint Deloitte
will be put to shareholders at the 2016 Annual
General Meeting.

Ultra Electronics Holdings plc 67
Audit Committee Report (continued)

highlighted and require explanation by the
business unit concerned. The 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. All cases of fraud would
be immediately investigated and the situation
reported to the Committee and the Board.

Whistleblowing
An independently hosted Employee Hotline
(EthicsPoint) is used to provide a process for
reporting ethical concerns. Such concerns can be
filed anonymously. 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). Activities were undertaken in 2015
to republicise EthicsPoint to increase awareness
and engender a culture where employees feel
comfortable raising ethical dilemmas. Employee
concerns are forwarded to the Chairman of the
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 2015,
13 reports were submitted (two in 2014) which
were investigated and dealt with appropriately.
Ultra views the increase in reports as an
illustration of the success of its activities in 2015
to republicise EthicsPoint and create a more
open and ethical workplace.

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 it. Within one week of joining Ultra, all
Directors and employees undertake anti-bribery
training. Further anti-bribery training is given to
targeted groups throughout the year. 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 of conduct and reporting any breaches.
The Group intranet contains a statement from
the Chief Executive regarding compliance with
Ultra’s anti-bribery policies.

The Audit Report was approved by the Board on
26 February 2016 and signed on its behalf by:

John Hirst, Chairman of the Audit Committee

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

External auditor (continued)
The senior audit partner employed by Deloitte on
the Group’s 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 and therefore a new audit
partner will be appointed in 2016. 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. In particular, the
Committee does not consider it is appropriate to
consider tendering the external audit at the same
time as recruiting and inducting a new Group
Finance Director and therefore considers it would
be appropriate to conduct an external audit
tender by no later than 2023 at which point
Deloitte would be precluded from being Ultra’s
external auditor. The Company is in compliance
with the requirements of the Statutory Audit
Services for Large Companies Market
Investigation (Mandatory Use of Competitive
Tender Processes and Audit Committee
Responsibilities) Order 2014 and the Code.

There are no contractual obligations that restrict
the Committee’s choice of external auditor.

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 services undertaken by Deloitte, Ultra
has a policy to ensure that the provision of such
services do not impair Deloitte’s independence or
objectivity. The policy states 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 due
diligence work and tax consultancy, 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
auditor 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 auditor must certify to the

Company that they are acting independently;
• in providing a non-audit service, the external

auditor should not:
– audit their own work;
– make management decisions for

the Company;

– create a mutuality of interest; or
– find themselves in the role of advocate

for Ultra;

• the Group Finance Director has authority to

commission the external auditor 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; and

• 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 senior
audit partner and senior audit managers. Key to
the overall effectiveness of the process is that
both 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 auditor 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 98 to the
Financial Statements.

The Group has a policy on employment of
former employees of the external auditor. 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, the Committee and the Board,
depending on the seniority of the appointment.

Fraud
The internal audit process carried out by PwC,
described on page 62, 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

68 Ultra Electronics Holdings plc
Remuneration Report

Governance
Remuneration Report

“

As the Chairman of the Remuneration

Committee, I am pleased to present the
Remuneration Report for the financial year
ended 31 December 2015
Martin Broadhurst, Chairman, Remuneration Committee

”

ANNUAL STATEMENT
Dear shareholder
As the 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 2015. 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 2016 and how it was implemented
in the year ended 31 December 2015.

As the Committee is not seeking to make any
changes to the Directors’ Remuneration Policy
Report for 2016, only the Annual Statement
and Annual Report on Remuneration will be
tabled for shareholder vote at the 2016 AGM.

Remuneration policy for 2016
The Directors’ Remuneration Policy, as approved
by the majority of shareholders at the 2015 AGM,
will remain unchanged and therefore will apply to
remuneration payable to Directors for 2016.

However, reflecting the Committee’s desire to
increase alignment between the Executive
Directors and shareholders, the Committee has
decided to enhance the existing approved policy
by the introduction of a two-year post-vesting
holding period which will be applied, at the
Committee’s discretion, to Long-Term Incentive
Plan (LTIP) awards made in 2016 and thereafter.
Therefore, while the LTIP vesting and performance
period will continue to be set at three years,
Executive Directors will be asked to retain the
net of tax awards until at least the fifth
anniversary of the date of grant. Consistent with
past practice, LTIP awards for 2016 will be
granted at 125% of salary for the Chief
Executive and 100% of salary for other Executive

Directors. In line with last year’s awards, 20% of
awards will vest for median TSR as measured
against the constituents of the FTSE 250
(excluding investment trusts) increasing pro-rata
to full vesting for upper quartile performance. In
addition to the TSR targets, an EPS underpin
must be achieved for awards to vest. For 2016,
the EPS underpin will be reduced from 15% over
three years to 9%, to reflect the challenging
economic environment. Malus and clawback
provisions will continue to operate.

In addition, the Committee determined that
the salary review date should be defered from
1 January to 1 April to better align it with the
Group’s financial results. Executive Directors were
not compensated for this three month deferral.
The holding period and change to the salary
review date will be incorporated formally into
the Directors’ Remuneration Policy for approval
by shareholders at the 2017 AGM (i.e. the end
of the original three-year policy period). The
Committee also elected to defer the Chairman
and other Non-Executive Directors fee review
date to 1 April.

Finally, the Committee intends to relax the
current policy in respect of the Chief Executive
not being permitted to accept outside
appointments as a non-executive director. As
such, Rakesh Sharma will be given permission to
seek one non-executive director role (in line with
the other Executive Directors) and the Directors’
Remuneration Policy will be amended at the
2017 AGM (and apply retrospectively if
necessary), subject to shareholder approval.

Performance and reward during 2015
The continuing uncertainty in Ultra’s core defence
markets led it to adopt a prudent view of annual
performance which it has delivered against.
Revenue and underlying operating profit were
£726.3m (2014: £713.7m) and £120.0m (2014:
£118.1m) respectively; underlying earnings per
share were 123.9p (2014: 123.1p); operating
cash flow was £81.3m (2014: £83.1m); and total
shareholder return was 6% (2014: 8%).
Reflecting this, the Executive Directors earned
an annual bonus for 2015 (see page 75) (no
bonus was paid for 2014). The 2013 LTIP
awards which had been due to crystalise in 2016
based on three-year TSR and EPS performance
to 31 December 2015 will not vest as a result of
performance targets not being met.

Board change
As announced, Mary Waldner tendered her
resignation from the Group in November 2015
and will leave on 16 March 2016 following the
preliminary 2015 results announcement. The
Nomination Committee is in the process of
finding a replacement and, when appointed, their
remuneration arrangements will be in line with the
policy set out in this report and will be disclosed in
full in next year’s Annual Report on Remuneration.

Shareholder engagement
I am pleased to say that our voting result at the
2015 AGM was 97.03% in favour of the
Directors’ Remuneration Policy Report and
99.06% in favour of the Annual Statement and
Annual Report on Remuneration.

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

Martin Broadhurst,
Chairman, Remuneration Committee

Revenue
£726.3m
2014: £713.7m

+1.8%

Underlying operating profit
£120.0m
2014: £118.1m

+1.6%

Underlying earnings per share
123.9p
2014: 123.1p

+0.6%

-2.2%

Operating cash flow
£81.3m
2014: £83.1m

Total shareholder return
+6%
2014: 8%

Ultra Electronics Holdings plc 69
Remuneration Report (continued)

Remuneration Report
Directors’ Remuneration Policy

The policy described in this section, which was originally approved by shareholders at the 2014 AGM, with minor amendments approved at the 2015 AGM,
remains unchanged for the year ending 31 December 2016.

Policy overview
The Group’s Remuneration Policy is to reward senior management competitively, enabling Ultra to recruit, motivate and retain executives of a high calibre,
whilst avoiding making excessive remuneration payments. The remuneration of Executive Directors and senior managers is aligned with the Group’s
objectives and the interests of shareholders.

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 the 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:
• Underlying performance of

the individual

• Underlying performance of

the business

• Underlying annual salary increases

within the overall Group

• Any changes to the scope of the
role in terms of size or complexity

• 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
UK-based company 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

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

*see footnote on page 136

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

70 Ultra Electronics Holdings plc
Remuneration Report (continued)

Remuneration Report
Directors’ Remuneration Policy (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.

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

n/a

The defined benefit scheme (which
is closed to new employees) provides
a benefit of two-thirds of a member’s
Final Pensionable Earnings if they
have completed over 20 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

Ultra Electronics Holdings plc 71
Remuneration Report (continued)

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
employment with Ultra ends

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

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 similar
sized companies

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

Notes to policy table:
(1) A description of how the Company intends to
implement the policy in 2016 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 operate 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 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) None of the employee share plans 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 2015 are
set out on page 78.

(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.

(7) While the Directors’ Remuneration Policy will
remain unchanged and therefore will apply to
remuneration payable to Directors for 2016,
reflecting the Committee’s desire to increase
alignment between the Executive Directors and
shareholders, the Committee has decided to
enhance the existing approved policy by the
introduction of a two-year post-vesting holding
period which will be applied, at the

Committee’s discretion, to LTIP awards made in
2016 and thereafter. Therefore, while the LTIP
performance period will continue to be
measured over three years, Executive Directors
will be asked to retain the net of tax awards
until at least the fifth anniversary of the date of
grant. The holding period will be incorporated
formally into the Directors’ Remuneration
Policy at the 2017 AGM (i.e. the end of the
original three-year policy period).

(8) Although the Directors’ Remuneration Policy
states that the base salary review date will
normally be 1 January, the Remuneration
Committee determined that the 2016 salary
review date should be deferred until 1 April
(and then annually thereafter) to better align it
with the Group’s financial results. Executive
Directors were not compensated for this three
month deferral to the effective date. This
change to the salary review date will be
incorporated permanently and formally into
the Directors’ Remuneration Policy at the 2017
AGM (i.e. the end of the original three year
policy 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

72 Ultra Electronics Holdings plc
Remuneration Report (continued)

Remuneration Report
Directors’ Remuneration Policy (continued)

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 (%)

Max

Target

Min

1,963

16 19

1,428

760

£’000 0

400

800

1,200

1,600

2,000

Group Finance Director
Remuneration composition levels (%)

Max

Target

Min

1,023

10 21

738

389

£’000 0

275

550

825

1,100

Group Marketing Director
Remuneration composition levels (%)

Max

Target

Min

821

10 21

592

313

£’000 0

225

450

675

900

(cid:2) Long-term share awards
(cid:2) Annual bonus

(cid:2) Pensions/benefits
(cid:2) Salary

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

1 April 2016;

(2) Benefit and pension values for 2016 have 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; and

(4) LTIP Awards assume an LTIP 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.

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 incentives
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 Executive
Directors (i.e. 100% of salary p.a.).

Long-term incentives
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 Executive 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.

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 Executive Director’s service contract:

Name

R. Sharma
M. Waldner
M. Anderson

Original date
of contract

Notice
period

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

Ultra Electronics Holdings plc 73
Remuneration Report (continued)

How shareholders’ views are taken
into account
The Committee considers shareholder feedback
received during the year. At the 2015 Annual
General Meeting, 99.06% of our shareholders
voted in favour of the Annual Statement and
Annual Report on Remuneration and 97.03%
voted for the Directors’ Remuneration Policy.

Malus and clawback policy
Consistent with best practice, Ultra operates
malus (i.e. the ability to reclaim deferred
remuneration prior to payment/vesting) and
clawback (i.e. the ability to reclaim amounts
paid) provisions in respect of the annual bonus
and LTIP. The triggers which may result in the
malus and/or clawback provisions being invoked
cover 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 appointment letters
The Non-Executive Directors have appointment
letters fixed for 12 months with no notice
period. Details of their appointment letters are in
the table below:

Name
D. Caster
M. Broadhurst
J. Hirst
Sir Robert Walmsley

Date of
renewal
22 Apr 2016
3 Jul 2016
1 Jan 2017
1 Jan 2017

Notice
period
Nil
Nil
Nil
Nil

There are no provisions in their appointment
letters 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 Committee does not
consult with employees when setting the
remuneration of Executive Directors. It uses
independent comparison metrics to benchmark
remuneration with other companies.

99.06%

Our voting result at the
2015 Annual General Meeting
was 99.06% in favour of the
Annual Statement and Annual
Report on Remuneration...

97.03%

...and 97.03% in favour of the
Directors’ Remuneration Policy

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
Annual Report on Remuneration

Implementation of the Directors’ Remuneration Policy in 2016
A summary of how the Directors’ Remuneration Policy will be applied for the year ending 31 December 2016 is set out below.

Salaries
While the normal base salary review date is 1 January, the Committee determined that the 2016 salary review date should be deferred until 1 April 2016 to
better align it with the Group’s financial results. Executive Directors were not compensated for this three month deferral to the effective date. It is intended
that this change to the salary review date will apply going forward and be incorporated permanently and formally into the Directors’ Remuneration Policy
at the 2017 AGM (i.e. the end of the original three year policy period).

Current Executive Director salary levels are as follows:

R. Sharma
M. Waldner
M. Anderson

2016
Salary
£’000

535
317
254

2015
Salary
£’000

522
317
248

Increase
awarded from
1 April 2016
%

2.5
-
2.5

Both Rakesh Sharma and Mark Anderson will receive an inflationary base salary increase of 2.5% from 1 April 2016, in line with the average increase
awarded to the workforce as a whole. As Mary Waldner announced her resignation from the Company, her salary would remain unchanged.

Directors’ pension entitlements
The Group will continue to operate a defined benefit pension scheme arrangement for Rakesh Sharma until 5 April 2016 (when the defined benefit scheme
will close) with provision based on a calculation by the scheme actuary. A full review of pension provision for Rakesh Sharma will be carried out in advance
of the next Directors’ Remuneration Policy review prior to the 2017 AGM. Mark Anderson and Mary Waldner will continue to participate in the defined
contribution scheme, receiving annual company contributions of up to 18% of salary (with Mary Waldner’s contribution pro-rated up to cessation).

Non-Executive Directors’ fees
The Chairman and other Non-Executive Directors’ fees will increase by 2.5% from 1 April 2016, in line with inflation and the average increase awarded to
the workforce.

Annual bonus for 2016
The maximum bonus for Executive Directors in 2016 will continue to be 100% of base salary.

Consistent with the prior year, a maximum of 20% of salary will be payable for the achievement of an agreed profit target, a maximum of 60% payable
for achievement of an agreed operating cash flow target, and a maximum 20% of salary will be payable for the achievement of strategic non-financial
measures. 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. As the Committee considers that commercial
sensitivities restrict the disclosure of forward-looking annual bonus targets, retrospective disclosure of the targets will be provided in next year’s Annual
Report on Remuneration.

Long-term awards to be granted in 2016
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 2016 (with the exception of Mary Waldner who is due to leave the
company in 2016).

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). For the 2016 awards, this will be
reduced from 15% over the three-year performance period to 9% over the three-year performance period to reflect the challenging economic environment.

From 2016 onwards, all awards granted to Executive Directors will also be subject to a two-year post-vesting holding period, whereby net of tax awards
vesting cannot normally be sold until at least the fifth anniversary of the date of grant.

Ultra Electronics Holdings plc 75
Remuneration Report (continued)

Total

£’000

1,197
668
513

192
20
55
55
53

Total

£’000

680
371
261

192
59
51
48

1,662

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

2015
Executive Directors
R. Sharma
M. Waldner
M. Anderson

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

Basic
salary
/fees

£’000

522
317
248

192
20
55
55
53

Benefits1

Pension2

Subtotal

Annual
performance
bonus3

LTIP4

Subtotal

£’000

26
15
19

-
-
-
-
-

189
57
45

-
-
-
-
-

737
389
312

192
20
55
55
53

460
279
201

-
-
-
-
-

460
279
201

-
-
-
-
-

-
-
-

-
-
-
-
-

Total

1,462

291

1,813

940

2,753

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 70.

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 the
lifetime allowance for the individual Director under the relevant pension scheme.

3 Annual performance bonus was £940,000.
4 The 2013 LTIP awards which had been due to crystalise in 2016 will not vest and the aggregate gain made by the Directors under the LTIP during the

year was £nil.

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

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

Basic
salary
/fees

£’000

474
302
225

192
59
51
48

Benefits1

Pension2

Subtotal

Annual
performance
bonus3

LTIP4

Subtotal

£’000

26
15
13

-
-
-
-

180
54
23

-
-
-
-

680
371
261

192
59
51
48

-
-
-

-
-
-
-

-
-
-

-
-
-
-

-
-
-

-
-
-
-

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 70.

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

year was £nil.

Annual bonus for year under review – Audited
Annual bonuses in relation to 2015 were based upon the achievement of a sliding scale of underlying profit before tax and operating cash flow targets,
as well as individual strategic objectives. Financial 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 28 and 29 for details.

The bonus targets set by the Committee for 2015 were a maximum of 20% of salary (subject to the achievement of £111.8m profit before tax and loss on
fair value movements on derivatives and amortisation of intangibles on acquisition), and a maximum of 60% of salary (subject to achieving an operating
cash flow of £77.7m after capitalised development costs, capital expenditure, purchase of long-term incentive plan shares and the Committee exercising
its discretion on movements in working capital to ensure working capital management throughout the financial year was in the short and long term
interests of the Company). The remaining 20% of the bonus potential reflected strategic goals.

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
Annual Report on Remuneration (continued)

Annual bonus for year under review – Audited (continued)
The Committee assessed the achievement of performance against each target as follows:

Underlying profit before tax

Operating cash flow

Threshold*

£’000

100,620

49,500

Maximum
£’000

111,800

77,700

Actual
achieved
£’000

112,425

81,314

Bonus
payable
%

20%

51%

*Both threshold profit and operating cash flow targets must be exceeded for any payment

In addition, the Committee assessed performance against the strategic goals which were based on the: (i) completion of an organisational efficiency review;
(ii) implementation of the segment re-organisation, (iii) key contract negotiations; (iv) enhancement of investor relations; (v) review of the Business Continuity Plans;
(vi) book to bill ratio; and (vii) performance of sales and marketing. The Committee determined that bonuses of 17.2%, 17.0% and 10.1% of salary (max
20%) should be payable to Rakesh Sharma, Mary Waldner and Mark Anderson respectively.

In assessing the strategic targets, the Committee retained discretion not to make a payment if it considered that Ultra’s financial performance was
unsatisfactory or there was an exceptional negative event during (or just after) the relevant financial year.

LTIP vesting for year under review – Audited
The LTIP awards granted in 2013 were based on performance to the year ended 31 December 2015. As disclosed in previous Annual Reports, the
performance condition for this award was as follows:

Metric

Performance condition

Total
Shareholder
Return (TSR)

TSR against constituents of the FTSE 250 Index (excluding
investment trusts). 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

Threshold
target

Stretch
target

Actual

%
Vesting

Median ranking

Upper quartile
ranking

< Median

Earnings Per
Share Underpin

In addition to the main TSR condition, an “underpin” requires
average annual growth of 5% p.a. over the performance
period. In the event that this underpin is not met, the level of
vesting falls to zero

5% per annum

n/a

Total

2013: 1.3%
2014: (3.1%)
2015: 0.6%

n/a

The award details for those Executive Directors granted 2013 LTIP awards are therefore as follows:

Executive

R. Sharma

M. Waldner

M. Anderson

Number
of shares
at grant

Number
of shares
to vest

Number
of shares
to lapse

Total

Estimated
value1
£’000

32,631

11,775

11,908

32,631

11,775

11,908

1 The estimated value of the vested shares is based on the average share price during the three months to 31 December 2015.

Share awards granted during the year – Audited

R. Sharma 1

M. Waldner1

M. Anderson1

Scheme

Date of
grant

Basis of
award

LTIP*

18 March
2015

125% of
salary

Face value

£
652,500

Vesting at
threshold

Vesting at
maximum

Performance
period

20%

100%

LTIP*

18 March
2015

100% of
salary

317,000

20%

100%

LTIP*

18 March
2015

100% of
salary

248,000

20%

100%

3 years to
31 December
2017

*Structured as a conditional award
1 In addition, Rakesh Sharma purchased 168 shares, Mary Waldner purchased 35 partnership shares and Mark Anderson purchased 105 partnership

shares under the AESOP during 2015.

Ultra Electronics Holdings plc 77
Remuneration Report (continued)

Share awards granted during the year – Audited (continued)

For awards presented overleaf, 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 2014 to 2015, and compares that to
the average remuneration of employees of the Group excluding the Chief Executive in the UK, who were employed on 1 January 2014 and 1 January
2015. This group best reflects the remuneration environment of the Chief Executive.

Salary
Taxable benefits
Bonus

*Increase from £nil to £460,000

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

10.13
4.37
*

2.26
2.50
-13.70

2015
£m

240.2
32.3
726.3
34.8

2014
£m

240.0
30.9
713.7
21.5

Change
%

0.1
4.5
1.8
62.0

1 £2.4m (2014: £1.3m) 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.

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.

No Executives accrued direct benefits under defined benefit schemes during the year. As Rakesh Sharma ceased accruing a direct benefit from 6 April 2014,
his pension provision is currently determined on an annual basis by the scheme actuary such that it is equivalent in value to the value of defined benefits
formerly accrued.

The defined benefit scheme will close from 5 April 2016. A full review of pension provision for Rakesh Sharma will be carried out in advance of the next
Directors’ Remuneration Policy review prior to the 2017 AGM.

Payments to past Directors – Audited
There were no payments made to past Directors during 2015.

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

78 Ultra Electronics Holdings plc
Remuneration Report (continued)

Remuneration Report
Annual Report on Remuneration (continued)

Statement of Directors’ shareholdings – Audited

Legally owned

LTIP
awards 1

AESOP

SAYE

2015

2014

Unvested

Restricted2 Unrestricted3

Under option

Exercised

Total

Share
ownership
guideline
met
Y/N

% Share
ownership
guidelines

Executive
Directors
R. Sharma
M. Waldner
M. Anderson

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

41,510
57
442

41,342
22
337

102,244
46,364
38,355

2,922
57
172

300,000 751,188
-
1,000
-
1,600

-
1,000
2,000
1,600

-
-
-
-
-

-
-
-

-
-
-
-
-

433
-
372

646
-
270

147,755
46,478
39,611

157%
0.4%
4%

-
-
-
-
-

300,000
-
1,000
2,000
1,600

-
-
-
-
-

Y
N
N

-
-
-
-
-

1 There were no vested LTIP share awards within the period. In addition, this interest in LTIP awards as at 31 December 2015 includes the 2013 award

(32,631 shares under award for Rakesh Sharma, 11,775 shares under award for Mary Waldner and 11,908 shares under award for Mark Anderson) which,
as a result of not meeting performance conditions to 31 December 2015, will lapse in 2016.

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. Chris Bailey stepped down from the Board on 30 April 2015.

Total shareholder return 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 seven years. The graph shows the value at the
end of 2015 of £100 invested at the start of the evaluation period, in Ultra and in the Index. The Committee considers the FTSE 250 to be 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

350

300

250

200

150

100

)
£
(
e
u
l
a
V

31 Dec 09

31 Dec 10

31 Dec 11

31 Dec 12

31 Dec 13

31 Dec 14

31 Dec 15

Ultra Electronics

FTSE 250 Index

The table below presents single figure remuneration for the Chief Executive over the past seven years, together with past annual bonus payouts and
relevant LTIP vesting figures.

R. Sharma
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 2015
31 December 2014
31 December 2013
31 December 2012
31 December 2011
31 December 2011
31 December 2010
31 December 2009

1,197
680
612
597
722
141
1,068
1,512

88
-
-
-
76
-
46
67

-
-
-
-
-
-
81
100

Ultra Electronics Holdings plc 79
Remuneration Report (continued)

Shareholder voting at the last AGM
At the 2015 Annual General Meeting, the 2014 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

2012 award
2013 March award
2013 August award
2014 award

Interests at 1 January 2015
2012 awards lapsed during the year
2015 award

Interests at 31 December 2015

Annual Statement
and Annual Report
on Remuneration

Remuneration Policy

Total number
of votes

60,014,105
567,167
60,581,272
10,139
60,591,411

% of
votes cast

Total number
of votes

% of
votes cast

99.06
0.94
100

58,779,001
1,802,054
60,581,055
10,353
60,591,408

97.03
2.97
100

M. Anderson

R. Sharma M. Waldner

7,273
11,908
-
12,240

31,421
(7,273)
14,207

24,634
26,722
5,909
32,234

89,499
(24,634)
37,379

-
-
11,775
16,430

28,205
-
18,159

38,3551

102,2441

46,3641

Market
price
of shares
granted

Crystallising
dates of
outstanding
awards

£17.05 March 2015
£17.21 March 2016
£19.46 March 2016
£18.38 March 2017

£17.79 March 2018

1 This interest in LTIP awards as at 31 December 2015 includes the 2013 award (32,631 shares under award for Rakesh Sharma, 11,775 shares under award
for Mary Waldner and 11,908 shares under award for Mark Anderson) which, as a result of not meeting performance conditions to 31 December 2015,
will lapse in 2016.

The 2012 award lapsed during the year as a result of the performance targets not being met. Ultra’s share price on 31 December 2015 was £19.76. The
range during 2015 was £16.35 to £20.26.

Directors’ interests under the All-Employee arrangements

Name of Director

R. Sharma
M. Waldner
M. Anderson

Interests as
at 1 January
2015

2,754
22
67

Shares acquired
during year

Interests as
at 31 December
2015

Shares
acquired from
1 January 2016 to
26 February 2016

Interests as at
28 February 2015

168
35
105

2,922
57
172

15
5
15

2,937
62
187

During the year, the Share Ownership Plan Trust, established and operated in connection with the AESOP, purchased 33,691 (2014: 33,401) Ultra Electronics
Holdings plc. shares, with a nominal value of £1,685 (2014: £1,670) for £593,178 (2014: £597,645).

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 the Group’s website (www.ultra-electronics.com).

Composition
Martin Broadhurst was Chairman of the Committee and Sir Robert Walmsley was a member throughout the year. Chris Bailey was a member of the
Committee until his retirement on 30 April 2015. John Hirst joined the Committee on 2 March 2015.

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

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
Remuneration Report (continued)

Remuneration Report
Annual Report on Remuneration (continued)

The role and composition of the Remuneration Committee (continued)
Advice
Wholly independent advice on executive remuneration and share schemes is received from New Bridge Street, part of Aon plc. New Bridge Street is a member
of the Remuneration Consultants Group and is a signatory to its Code of Conduct. 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 2015, 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 2015 amounted to £47,571 (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 2015 amounted to £138,795 (excluding VAT), 75% of which was related to
the closure of the defined benefit pension scheme (see page 26). 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.

The 2016 Annual General Meeting
The Committee remains of the view the current Directors’ Remuneration Policy is fair and balanced between employees and shareholders and that there is
strong alignment to the Group’s strategy. As such, the Committee encourages shareholders to vote in favour of the Annual Statement and Annual Report
on Remuneration resolution at the 2016 AGM. The Remuneration Report was approved by the Board on 26 February 2016 and signed on its behalf by:

Martin Broadhurst, Chairman of the Remuneration Committee

Directors’ Report
For the year ended 31 December 2015

Ultra Electronics Holdings plc 81
Directors’ Report

“

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 2015.
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 2015. 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 42 to 51 of the Strategic Report. The Corporate Governance Report on pages 54 to 64 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 (the Act) 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 fair review of the Group’s business and 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 41.

Results and dividends
The Group results and dividends are as follows:

Balance on retained earnings, beginning of year
Total comprehensive income for the year
Dividends: 2014 final paid of 31.1p per share

2015 interim paid of 13.8p per share
Equity-settled employee share schemes

Balance on retained earnings, end of year

2015
£’000

246,132
22,949
(21,695)
(9,637)
979

238,728

The final 2015 dividend of 32.3p per share is proposed to be paid on 5 May 2016 to shareholders on the register of members on 8 April 2016. The
interim dividend was paid on 25 September 2015, making a total of 46.1p (2014: 44.3p) per share 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 to 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 £146.6 million (2014: £157.1 million) was spent on engineering and business development of which
£110.6 million (2014: £115.9 million) was funded by customers and £36.0 million (2014: £41.2 million) by the Group.

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 2015 were 60 days (2014: 64 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 (see page 48).

Political expenditure
Neither the Company nor any of its subsidiaries have made any political donations during the year.

Directors and their interests
The Directors who served throughout the year and to the date of signing these financial statements (see biographies on page 53), and their interests in
the shares and share options of Ultra at 26 February 2016 are shown in the Annual Report on Remuneration (see pages 74 to 80).

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.

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
Directors’ Report (continued)

Directors’ Report (continued)

Branches
The Company and its subsidiaries have established branches, where appropriate, in a number of countries outside the UK. Their results are, however, not
material to the Group’s financial results.

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. A wide range of separate contracts are entered
into with these customers 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.

Purchase of own shares
During the year Ultra purchased no (2014: nil) ordinary shares and no (2014: nil) ordinary shares were distributed following vesting of awards under the
Ultra Electronics Long-Term Incentive Plan. At 31 December 2015, 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 2015).

Substantial shareholdings
As at 26 February 2016, 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
J O Hambro Capital Management Limited
Ameriprise Financial Inc
FIL Limited
Schroders plc
Artemis Investment Management LLP
Blackrock Inc

Nature of holding

Indirect
Direct
Direct & Indirect
Indirect
Indirect
Direct & Indirect
Indirect

Percentage
of ordinary
share capital

Number of 5p
ordinary shares

10.75
4.98
4.56
5.77
4.683
5.07
4.2

7,785,256
3,487,440
3,192,374
4,042,906
3,269,563
3,535,035
2,910,296

Date of
announcement

26 August 2015
10 July 2015
1 July 2015
29 June 2015
25 April 2014
23 October 2013
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 and 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
Company’s 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 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
Act and related legislation. The Articles of Association themselves may be amended by special resolution of the shareholders. The powers of Directors are
described in the ‘Terms of Reference for the Board’ which is available from the Investors’ section on the Group website (www.ultra-electronics.com).

Annual General Meeting
The next Annual General Meeting of Ultra will be held at 10.00 a.m. on 29 April 2016 at 417 Bridport Road, Greenford, Middlesex UB6 8UA. 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 auditor is 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 auditor is aware of that information.

This confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Act.

The Directors’ Report was approved by the Board on 26 February 2016 and signed on its behalf by:

Sharon Harris, Company Secretary & General Counsel
Registered Office: 417 Bridport Road, Greenford, Middlesex UB6 8UA Registered Number: 2830397

Executives and advisors

Executive Team members

Business MDs and Presidents

Rakesh Sharma
Chief Executive

Mark Anderson
Group Marketing Director

Mike Baptist
Divisional Managing Director
Communications & Security

Sharon Harris
Company Secretary & General Counsel

Carlos Santiago
Chief Operating Ofﬁcer

Graeme Stacey
Divisional Managing Director
Aerospace & Infrastructure

Bill Terry
Divisional Managing Director
Maritime & Land

Keith Thomson
Group Human Resources Director

Mary Waldner
Group Finance Director

Olugbenga Erinle
President
3eTI

Bob Judd
President
3 Phoenix

John McAlonan
President
Advanced Tactical Systems

Paul Owen
Managing Director
Airport Systems

Doug Burd
Managing Director
Avalon Systems
& Ultra Electronics, Australia

Mike Williams
Managing Director
Command & Control Systems

Gavin Newport
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 83
Annual Report & Accounts 2014

Andy Matko
Managing Director
ID

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

Mike Clayton
Managing Director
Precision Air & Land Systems

Michael Spencer
President
ProLogic

Ross Parsell
Managing Director
Sonar 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

Investec Bank plc
26 Gresham Street
London EC2V 7QP

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

84 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 of the Parent
Company’s affairs as at 31 December 2015 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, including FRS 101 “Reduced Disclosure
Framework”; 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 48.
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), including FRS 101 “Reduced Disclosure Framework”.

Going concern and the Directors’ assessment
of the principal risks that would threaten
the solvency or liquidity of the group

As required by the Listing Rules we have reviewed the Directors’ statement regarding the
appropriateness of the going concern basis of accounting and the Directors’ statement on the
longer-term viability of the Group, which are both contained within the strategic report on page 27
to the financial statements.

We have nothing material to add or draw attention to in relation to:

• the Directors’ confirmation on page 27 that they have carried out a robust assessment of the

principal risks facing the Group, including those that would threaten its business model, future
performance, solvency or liquidity;

• the disclosures on pages 37 to 41 that describe those risks and explain how they are being

managed or mitigated;

• the Directors’ statement in the statement of accounting policies on page 123 to the financial
statements about whether they considered it appropriate to adopt the going concern basis of
accounting in preparing them and their identification of any material uncertainties to the Group’s
ability to continue to do so over a period of at least twelve months from the date of approval of
the financial statements;

• the Director’s explanation on page 27 as to how they have assessed the prospects of the Group,
over what period they have done so and why they consider that period to be appropriate, and
their statement as to whether they have a reasonable expectation that the Group will be able to
continue in operation and meet its liabilities as they fall due over the period of their assessment,
including any related disclosures drawing attention to any necessary qualifications or assumptions.

We agreed with the Directors’ adoption of the going concern basis of accounting and we did not
identify any such material uncertainties. 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.

We are required to comply with the Financial Reporting Council’s Ethical Standards for Auditors and
we confirm that we are independent of the Group and we have fulfilled our other ethical
responsibilities in accordance with those standards. We also confirm we have not provided any of
the prohibited non-audit services referred to in those standards.

Independence

Ultra Electronics Holdings plc 85
Independent auditor’s report (continued)

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

Ithra related provisions
Refer to page 129 (critical accounting
judgements and key sources of estimation
uncertainty – assessment of Ithra related
provisions); and page 66 (Audit Committee
report – significant judgements considered).

During the period, the Oman Airport IT
Contract was terminated and subsequently Ithra
(a jointly owned subsidiary in Oman) was placed
into voluntary liquidation. At 31 December 2014,
the Group recognised a £37.2m provision against
contract receivables and a £9.7m provision for
other termination costs. At 31 December 2015
management continues to provide for all known
liabilities, where they can be reliably estimated.

A liquidator was apponted for Ithra and is
pursuing claims against the customer on behalf
of interested parties, consequently there
remains significant uncertainty regarding the
likely outcome of these negotations.

The material and uncertain nature of these
balances means that we consider the accuracy
of these estimated values to be a key audit risk.

Revenue recognition
Refer to page 128 (critical accounting judgements
and key sources of estimation uncertainty
– assessment of contract accounting); page 125
(accounting policies – revenue recognition); and
page 66 (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 £371.6m. 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.

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
accuracy of Ithra related provisions.

To challenge management’s judgements we have
reviewed correspondence relating to the contract
termination by the customer, and subsequently
with the liquidator appointed for Ithra. In
addition, we have reviewed legal correspondence
between the Group and its external legal counsel.

We have obtained third party evidence for all
known costs to be incurred including specific
legal and supplier liabilities.

For costs incurred during the year, we have traced
a sample back to supporting third party evidence,
and used these actual costs incurred to challenge
the accuracy of anticipated costs to come.

We have continued to assess 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.

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 a sample of billings
and costs incurred to date.

Revenue recognition continues 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

86 Ultra Electronics Holdings plc
Independent auditor’s report

Independent auditor’s report (continued)
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

Revenue recognition (continued)
• 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.

Goodwill and other intangible assets
Refer to page 129 (critical accounting judgements
and key sources of estimation uncertainty
– goodwill impairment); page 126 (accounting
policies – intangible assets); and page 66
(Audit Committee report – significant
judgements considered).

The Group recognised £375.9m of goodwill and
£173.6m of acquired intangibles at 31 December
2015. 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. This is
further heightened by the challenging economic
environment in which the Group operates and the
decline in organic revenue and organic underlying
operating profit for the Group in 2015.

The key judgements include identification of
cash generating units and challenging the level
at which management monitor goodwill for
impairment purposes given the change in
methodology in the period from an individual
CGU level to a group of CGUs, 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.

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.

Our audit work assessed the adequacy of the
design and implementation of controls over
monitoring the carrying value of goodwill and
acquired intangibles.

We challenged management’s revised approach
to the level at which goodwill is monitored for
impairment purposes through a review of the
level at which cashflows are internally reported
by management, evidence of the Group’s
capabilities through its go-to-market strategy,
and confirmation of management’s revised internal
process for monitoring goodwill for impairment.
We further challenged the risk of management bias
by recalculating the annual assessment of goodwill
impairment under the previous methodology
where goodwill was allocated to individual CGUs.

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.

With regards to the disclosures within the
Annual Report, we are satisfied that they
appropriately reflect the facts and circumstances
within management’s assessment of impairment
over goodwill and acquired intangibles, with
sufficient explanation provided for the change
in level at which goodwill is monitored.

Ultra Electronics Holdings plc 87
Independent auditor’s report (continued)

Our assessment of risks of material
misstatement (continued)

Risk

How the scope of our audit responded
to the risk

Acquisition accounting
Refer to page 129 (critical accounting
judgements and key sources of estimation
uncertainty – acquisition accounting);
page 124 (accounting policies – business
combinations); and page 66 (Audit Committee
report – significant issues considered).

During the year, the Group entered into two
business combinations, being the Electronic
Products Division of Kratos Defense & Security
Solutions and Furnace Parts LLC. In aggregate,
£172.5m was paid in respect of these 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.

Pensions
Refer to page 129 (critical accounting
judgements and key sources of estimation
uncertainty – pensions); page 125 (accounting
policies – pensions); and page 66 (Audit
Committee report – significant issues considered).

The Group operates four defined benefit
pension schemes, for which there is judgement
required in determining the valuation as
recorded at the balance sheet date, in
accordance with IAS 19 ‘Employee Benefits’. At
31 December 2015, these four schemes had a
total net IAS 19 deficit of £84.8m.

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.

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.

There was no contingent consideration on the
current year acquisitions. We confirmed this
against the signed sale and purchase agreements.

For historical acqusitions we compared the
forecast contingent consideration positions to
the post year end trading results, approved
budgets and historical levels of settlement.

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
provided assurance over the completeness of
the pension assets and the valuation for which
we further agreed a sample to publically
available asset valuations.

The risks described above have not changed from prior year, with the exception that we have no longer
included the significant risk in relation to completeness of warranty provisions due to the nature of the
Group’s warranty commitments going forwards. The description of risks should be read in conjunction
with the significant issues considered by the Audit Committee discussed on page 66.

These matters were addressed in the context of our audit of the financial statements as a whole, and
in forming our opinion thereon, and we do not provide a separate opinion on these 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

88 Ultra Electronics Holdings plc
Independent auditor’s report (continued)

Independent auditor’s report (continued)
To the members of Ultra Electronics Holdings plc

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.

Underlying pre-tax profit is a key performance measure for the Group and it is therefore an
appropriate basis on which to determine materiality. However we do adjust underlying pre-tax profit
as presented by management, by deducting 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.

On this basis, we determined materiality for the group to be £5.7 million (2014: £6.2 million), which
represents 7% (2014: 7%) of adjusted underlying pre-tax profit. The decrease in materiality is due
to a larger amortisation of acquired intangible assets in 2015 due to the acquisitions in the period.
The determined materiality equates to 2% (2014: 2%) of equity.

We agreed with the Audit Committee that we would report to the Committee all audit differences in
excess of £114,000 (2014: £124,000), as well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds. We also 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 24 (2014: 25)
locations, 14 (2014: 14) of these were subject to a full audit, whilst the remaining 10 (2014: 11) 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 24 (2014: 25) locations represent the principal business units and account for 85% (2014: 87%)
of the Group’s net assets, 90% (2014: 91%) of the Group’s revenue and 85% (2014: 91%) 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 24
(2014: 25) 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 89
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 part of the Corporate Governance Statement
relating to the Company’s compliance with certain 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). 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
26 February 2016

Respective responsibilities of directors
and auditor

Scope of the audit of the financial statements

90 Ultra Electronics Holdings plc
Group highlights

Group highlights
For the year ended 31 December 2015

Revenue
Underlying operating profit*
Operating profit
Underlying profit before tax*
Profit before tax

Underlying earnings per share*
Basic earnings per share
Dividend per share

2015
£’000

726,286
119,972
66,425
112,425
34,761

2015
pence

123.9
35.7
46.1

2014
£’000

713,741
118,066
39,543
112,034
21,462

2014
pence

123.1
29.8
44.3

Change
%

1.8
1.6
68.0
0.4
62.0

Change
%

0.6
19.8
4.1

* Ultra uses underlying figures as key performance indicators. Underlying figures are stated before the Oman contract termination and liquidation related

costs, amortisation charges relating to acquired intangibles, the S3 programme, impairment charges, 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 13.

Consolidated income statement
For the year ended 31 December 2015

Ultra Electronics Holdings plc 91
Consolidated income statement/Consolidated statement of comprehensive income

Revenue
Cost of sales

Gross profit
Other operating income
Distribution costs
Administrative expenses
Share of (loss)/profit from associate
Other operating expenses
Contingent consideration (charge)/release
Impairment charges
S3 programme
Oman contract termination costs

Operating profit
Deemed disposal of Ithra
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

6
2
7

6
7
9
10

13
13

2015
£’000
726,286
(499,510)

226,776
2,198
(1,604)
(143,007)
(581)
(2,931)
(1,101)
(8,462)
(4,863)
-

66,425
(16,447)
190
(15,407)

34,761
(9,772)

24,989

24,989
-

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)

6,498

20,799
(14,301)

35.7
35.6

29.8
29.7

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 2015

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
Reclassification of exchange differences on deemed disposal of Ithra
Loss on loans used in 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

31
11

2015
£’000

24,989

(2,530)
478

(2,052)

11,995
2,696
(12,578)
12

2,125

25,062

2014
£’000

6,498

(5,704)
1,299

(4,405)

10,974
-
(4,161)
(804)

6,009

1,604

8,102

25,190
(128)

22,407
(14,305)

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

92 Ultra Electronics Holdings plc
Consolidated balance sheet

Consolidated balance sheet
31 December 2015

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
Assets classified as held for sale

Total assets

Current liabilities
Trade and other payables
Tax liabilities
Derivative financial instruments
Liabilities classified as held for sale
Short-term provisions

Non-current liabilities
Retirement benefit obligations
Other payables
Deferred tax liabilities
Derivative financial instruments
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

2015
£’000

2014
£’000

14
15
16
17
25
23
20

18
20

23
36

23
36
26

31
21
25
23
22
26

27
28
28
28
28
28

375,885
193,123
68,183
-
5,935
426
15,239

298,960
162,512
62,569
8,105
4,494
1,117
4,694

658,791

542,451

81,816
197,387
9,169
45,474
921
8,795

73,745
190,186
1,814
41,259
1,725
-

343,562

308,729

1,002,353

851,180

(199,942)
(7,149)
(3,530)
(3,011)
(24,363)

(231,954)
(7,166)
(1,920)
-
(27,105)

(237,995)

(268,145)

(84,819)
(6,996)
(7,168)
(2,561)
(341,046)
(4,925)

(87,263)
(9,512)
(6,192)
(1,678)
(170,754)
(4,190)

(447,515)

(279,589)

(685,510)

(547,734)

316,843

303,446

3,514
61,052
(2,581)
(25,908)
42,038
238,728

316,843
-

3,498
56,131
(2,581)
(13,330)
27,219
246,132

317,069
(13,623)

316,843

303,446

The financial statements of Ultra Electronics Holdings plc, registered number 2830397, were approved by the Board of Directors and authorised for
issue on 26 February 2016.

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 2015

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
Loan syndication costs
Repayments of borrowings
Proceeds from borrowings
Increase in loan to associate
Repayment of obligations under finance leases

Net cash from 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 93
Consolidated cash ﬂow statement

Note

2015
£’000

2014
£’000

47,778

68,717

190
5,343
(4,597)
1,466
(1,761)
(172,539)
724

108
1,619
(8,362)
55
(9,289)
(111,285)
6,737

(171,174)

(120,417)

4,937
(31,332)
(1,347)
(160,532)
317,586
-
-

129,312

5,916
41,259
(1,701)

45,474

2,231
(29,722)
(1,495)
(68,331)
162,387
(1,654)
(63)

63,353

11,653
30,570
(964)

41,259

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

94 Ultra Electronics Holdings plc
Consolidated statement of changes in equity

Consolidated statement of changes in equity
For the year ended 31 December 2015

Equity attributable to equity holders of the parent

Balance at 1 January 2015
Profit for the year
Other comprehensive
income for the year

Total comprehensive

income for the year
Deemed disposal of Ithra
Equity-settled employee

share schemes

Dividend to shareholders
Tax on share-based

payment transactions

Share
capital
£’000

3,498
-

-
-

16
-

Share
premium
account
£’000

56,131
-

-
-

4,921
-

Reserve for
own shares
£’000

(2,581)
-

Hedging
reserve
£’000

(13,330)
-

Translation
reserve
£’000

27,219
-

Retained
earnings
£’000

246,132
24,989

Non
controlling
interest
£’000

Total equity
£’000

(13,623)
-

303,446
24,989

-
-

(12,578)

14,819

(2,040)

(128)

(12,578)
-

14,819
-

-
-

22,949
-

967
(31,332)

(128)
13,751

25,062
13,751

-
-

5,904
(31,332)

316,843

Balance at 31 December 2015

3,514

61,052

(2,581)

(25,908)

42,038

238,728

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

3,490
-

53,908
-

(2,581)
-

(9,169)
-

16,240
-

258,609
20,799

682
(14,301)

321,179
6,498

8
-

2,223
-

-
-

(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

Ultra Electronics Holdings plc 95
Notes to accounts – Group

Notes to accounts – Group
31 December 2015

1 Segment information

For management purposes, the Group is organised into three operating segments – Aerospace & Infrastructure, Communications & Security and
Maritime & Land. 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
Aerospace & Infrastructure
Communications & Security
Maritime & Land
Eliminations

Consolidated revenue

All inter-segment trading is at arm’s length.

2015

Total
£’000

202,104
244,953
315,152
(35,923)

Inter
segment
£’000

8,880
5,692
21,351
(35,923)

External
revenue
£’000

198,597
224,449
290,695
-

Inter
segment
£’000

13,345
8,129
13,917
(35,391)

2014

As restated*

Total
£’000

211,942
232,578
304,612
(35,391)

726,286

713,741

External
revenue
£’000

193,224
239,261
293,801
-

726,286

Underlying operating profit
Amortisation of intangibles arising on acquisition
Adjustments to deferred consideration net of acquisition costs
S3 programme
Impairment charges (see note 6)

Operating profit/(loss)
Deemed disposal of Ithra (see note 7)
Investment revenue
Finance costs

Profit before tax
Tax

Profit after tax

The S3 programme is the Group’s Standardisation & Shared Services programme.

Underlying operating profit
Amortisation of intangibles arising on acquisition
Adjustments to deferred consideration net of acquisition costs†
Oman contract termination costs (see note 7)
Impairment charges (see note 14)

Operating (loss)/profit
Investment revenue
Finance costs

Profit before tax
Tax

Profit after tax

Aerospace Communications
& Security
£’000

& Infrastructure
£’000

Maritime
& Land
£’000

28,641
(3,129)
(91)
(460)
(2,693)

22,268

40,424
(22,130)
(9,306)
(3,895)
(5,769)

(676)

50,907
(5,547)
(19)
(508)
-

44,833

Aerospace Communications
& Security
£’000

& Infrastructure
£’000

29,593
(3,901)
(406)
(46,878)
(7,355)

(28,947)

37,017
(17,209)
5,293
-
-

25,101

Maritime
& Land
£’000

51,456
(7,681)
(386)
-
-

43,389

2015

Total
£’000

119,972
(30,806)
(9,416)
(4,863)
(8,462)

66,425
(16,447)
190
(15,407)

34,761
(9,772)

24,989

2014

As restated*

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 was released in 2014 relating to the GigaSat earn-out agreement for which the 2014 targets were not met.

GigaSat is in the Communications & Security division.

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 the year the Group amended its internal organisation to better reflect the markets that the Group addresses so that business groupings better reflect its capabilities,
evolving product offerings and market facing segments. As a result of this, the composition of the Group’s reportable segments has changed. As such, in line with IFRS 8, the
corresponding information for the prior year has been restated. Previously results were reported as Aircraft & Vehicle Systems, Information & Power Systems and Tactical & Sonar
Systems, they are now reported as Aerospace & Infrastructure, Communications & Security and Maritime & Land.

96 Ultra Electronics Holdings plc
Notes to accounts – Group (continued)

1 Segment information (continued)

Capital expenditure, additions to intangibles, depreciation and amortisation

Aerospace & Infrastructure
Communications & Security
Maritime & Land

Total

Capital expenditure and
additions to intangibles
(excluding goodwill and
acquired intangibles)

2015
£’000

2,498
1,915
1,945

6,358

2014
£’000

As restated*

7,882
4,994
4,775

17,651

Depreciation
and amortisation

2015
£’000

7,074
27,815
10,697

45,586

2014
£’000

As restated*

8,655
21,890
12,484

43,029

The 2015 depreciation and amortisation expense includes £34,627,000 of amortisation charges (2014: £32,202,000) and £10,959,000 of
property, plant and equipment depreciation charges (2014: £10,827,000).

Total assets by segment

Aerospace & Infrastructure
Communications & Security
Maritime & Land

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

Aerospace & Infrastructure
Communications & Security
Maritime & Land

Unallocated

Consolidated total liabilities

2015
£’000

2014
£’000

As restated*

233,949
460,980
245,499

940,428
61,925

241,927
320,390
238,454

800,771
50,409

1,002,353

851,180

2015
£’000

2014
£’000

As restated*

79,791
71,162
92,573

243,526
441,984

99,464
81,591
97,434

278,489
269,245

685,510

547,734

Unallocated liabilities represent derivatives at fair value, current and 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

2015
£’000

211,641
74,592
16,690
323,883
99,480

2014
£’000

227,419
70,186
15,051
296,736
104,349

726,286

713,741

During the year there were two direct customers (2014: two), that individually accounted for greater than 10% of the Group’s total turnover. Sales
to these customers in 2015 were £80.6m and £134.0m (2014: £79.6m and £144.0m) across all segments.

Ultra Electronics Holdings plc 97
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

2015
£’000

223,076
341,943
84,238
3,173

652,430
6,361

2014
£’000

221,461
215,030
88,205
12,144

536,840
5,611

2015
£’000

373,408
453,780
105,755
7,485

940,428
61,925

2014
£’000

376,744
291,203
113,856
18,968

800,771
50,409

658,791

542,451

1,002,353

851,180

Additions to Property,
Plant & Equipment
and intangible assets
(excluding acquisitions)

2015
£’000

4,031
1,834
413
80

6,358
-

6,358

2014
£’000

9,876
4,805
2,537
433

17,651
-

17,651

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 15)
Impairment charges (see note 6)
Adjustments to contingent consideration net of acquisition related costs
S3 programme
Oman contract termination costs (see note 7)

Underlying operating profit

Profit before tax
Amortisation of intangibles arising on acquisition (see note 15)
Impairment charges (see note 6)
Adjustments to contingent consideration net of acquisition related costs
Unwinding of discount on provisions (see note 10)
Loss on fair value movements of derivatives (see note 23)
Net interest charge on defined benefit pensions (see note 10)
S3 programme
Deemed disposal of Ithra (see note 7)
Oman contract termination costs (see note 7)

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
S3 programme
Acquisition related payments

Underlying operating cash flow

2015
£’000

66,425
30,806
8,462
9,416
4,863
-

2014
£’000

39,543
28,791
7,355
(4,501)
-
46,878

119,972

118,066

34,761
30,806
8,462
9,416
641
3,988
3,041
4,863
16,447
-

21,462
28,791
7,355
(4,501)
1,172
7,243
3,634
-
-
46,878

112,425

112,034

71,339
(4,597)
1,466
(1,761)
5,343
2,233
7,291

81,314

96,067
(8,362)
55
(9,289)
1,619
-
2,982

83,072

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 128 for further details.

3 Revenue

An analysis of the Group’s revenue is as follows:

Sales of goods
Revenue from long term contracts

2015
£’000

354,719
371,567

2014
£’000

326,613
387,128

726,286

713,741

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)

4 Other operating income

Amounts included in other operating income were as follows:

Foreign exchange gains

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 8)
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 14)
Impairment of acquired intangible assets (see note 15)
Impairment of loan to associate (see note 17)
Government grant income (see note 24)
Net foreign exchange gain
Profit 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 (2014: £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

2015
£’000

2,198

2015
£’000

1,220
1,711

2,931

2015
£’000

220,379
240,243
10,959
1,220
33,407
-
5,769
2,693
(3,714)
(2,509)
(559)

1,518
12,139
35,126
915

2015
£’000

206
709

915

24
3
-
360
-

387

2014
£’000

4,748

2014
£’000

780
369

1,149

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

2014
£’000

183
597

780

-
10
-
436
15

461

Ultra Electronics Holdings plc 99
Notes to accounts – Group (continued)

7 Deemed disposal of Ithra

On 4 March 2015, ‘Ithra’ (“Ultra Electronics in collaboration with Oman Investment Corporation LLC”), the legal entity established with the sole
purpose of delivering the Oman Airport IT contract, was placed into voluntary liquidation. A liquidator was appointed and is pursuing claims against
the customer on behalf of the interested parties. Ithra, upon liquidation, no longer meets the IFRS 10 criteria for consolidation as a subsidiary of the
Group and is, consequently, a deemed disposal as at 4 March 2015.

During 2014 the full expected cost of the Oman contract termination of £46,878,000 was charged to the consolidated income statement and impacted
the Group's profit for the year in 2014. The loss attributable to the Oman Investment Corporation (‘OIC’) non-controlling interest of £14,301,000 was
credited to reserves as mandated by IFRS 10 para B94. Upon deemed disposal, the existing non-controlling interest of £13,751,000 is not permitted to
be debited back against reserves, even though the cost has already been reflected in full on the face of the 2014 income statement, and is consequently
recycled through the income statement, together with £2,696,000 of foreign exchange losses recorded in the translation reserve over the life of the
entity. The net charge booked to exceptional Oman termination related costs in the 2015 income statement is as follows:

Contract termination provisions
Non-controlling interest elimination
Release of translation reserve

Oman termination related costs

8 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

2015
£’000

-
13,751
2,696

16,447

2014
£’000

46,878
-
-

46,878

2015
£’000

209,228
19,796
11,219

2014
£’000

209,639
18,518
11,828

240,243

239,985

2015
Number

2,149
1,746
322
626

4,843

2014
Number

1,875
1,936
304
672

4,787

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.

9 Investment revenue

Bank interest

10 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

2015
£’000

190

2015
£’000

649
7,088

7,737
3,041
641
3,988

2014
£’000

108

2014
£’000

662
5,478

6,140
3,634
1,172
7,243

15,407

18,189

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)

11 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
Derecognition of deferred tax assets
UK tax rate change

Total deferred tax credit

Total tax charge

2015
£’000

6,555
(2,245)

4,310

9,435
(620)

8,815

2014
£’000

9,145
(722)

8,423

8,373
(875)

7,498

13,125

15,921

(6,505)
1,799
1,353

(3,353)

9,772

(957)
-
-

(957)

14,964

Corporation tax in the UK is calculated at 20.25% (2014: 21.5%) 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

2015
£’000

2014
£’000

(804)

478

1,299

495

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

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 20.25% (2014: 21.5%)
Tax effects of:
Income/expenses that are not taxable/allowable in determining taxable profits
Effect of change in UK tax rate
Losses for which no deferred tax asset recognised
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

2015
£’000

34,761

7,039

597
1,353
1,237
1,799
528
(2,781)

9,772

2014
£’000

(153)

(127)

2014
£’000

21,462

4,614

606
-
-
5,391
6,395
(2,042)

14,964

Ultra Electronics Holdings plc 101
Notes to accounts – Group (continued)

12 Dividends

Amounts recognised as distributions to equity holders in the year:

Final dividend for the year ended 31 December 2014 of 31.1p (2013: 29.5p) per share
Interim dividend for the year ended 31 December 2015 of 13.8p (2014: 13.2p) per share

Proposed final dividend for the year ended 31 December 2015 of 32.3p (2014: 31.1p) per share

2015
£’000

21,695
9,637

31,332

22,625

2014
£’000

20,528
9,194

29,722

21,685

The 2015 proposed final dividend of 32.3p per share is planned to be paid on 5 May 2016 to shareholders on the register at 8 April 2016. It was
approved by the Board after 31 December 2015 and has not been included as a liability as at 31 December 2015.

13 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
Loss 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 charges (net of tax)
Oman contract termination costs (net of tax)
S3 programme (net of tax)
Deemed disposal of Ithra (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

Underlying profit before tax
Tax rate applied for the purposes of underlying earnings per share

14 Goodwill

Cost
At 1 January
Exchange differences
Recognised on acquisition of subsidiaries
Other changes

At 31 December

2015
pence

123.9

123.8

35.7

35.6

2015
£’000

2014
pence

123.1

122.8

29.8

29.7

2014
£’000

24,989

20,799

24,989
3,180
21,195
641
8,403
2,425
6,270
-
3,281
16,447
-

86,831

20,799
5,794
20,417
1,172
(4,960)
2,851
7,355
46,878
-
-
(14,301)

86,005

2015
Number of
shares

2014
Number of
shares

70,056,025
89,021

69,864,755
158,862

70,145,046

70,023,617

2015
£’000
112,425

2014
£’000
112,034

22.77%

23.23%

2015
£’000

2014
£’000

348,598
8,627
70,579
362

293,988
6,471
47,601
538

428,166

348,598

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)

14 Goodwill (continued)

Accumulated impairment losses
At 1 January
Exchange differences
Impairment of goodwill

Carrying amount at 31 December

2015
£’000

2014
£’000

(49,638)
(2,643)
-

(41,873)
(410)
(7,355)

375,885

298,960

Other changes in 2015 relate to the re-assessment of initial fair values. 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.

Goodwill is allocated to the Group’s Cash Generating Units (CGUs) which comprise its individual business units. Goodwill is initially allocated, in the
year a business is acquired, to CGUs expected to benefit from the acquisition. Subsequent adjustments are made to this allocation to the extent
operations to which goodwill relates are transferred between CGUs. The size of a CGU varies but is never larger than a reportable operating segment.

In 2015 the Group amended its internal organisation to better reflect the markets that the Group addresses so that business groupings reflect its
capabilities, evolving product offerings and market-facing-segments. The market-facing-segments are; Aerospace, Infrastructure, Nuclear,
Communications, C2ISR, Maritime, Land and Underwater Warfare. The reporting structure has been altered in a way that changes the composition
of one or more CGUs to which goodwill has been allocated, and consequently goodwill has been reallocated to these market-facing-segments.
These represent the lowest level at which the goodwill is monitored for internal management purposes. Goodwill has been allocated to CGU
groupings as set out below:

Aerospace
Infrastructure
Nuclear

Aerospace & Infrastructure

Communications
C2ISR

Communications & Security

Maritime
Underwater Warfare

Maritime & Land

Total – Ultra Electronics

2015
Discount rate
%

2014
Discount rate
%

10.4
10.4
10.4

10.8
11.8
11.8

10.4 to 12.9 10.8 to 11.8
10.4 to 12.9 10.8 to 12.5

10.4

10.8
10.4 to 12.9 10.8 to 13.7

2015
£’000

32,310
28,971
17,305

78,586

87,393
107,524

2014
£’000
As restated
32,193
29,224
13,685

75,102

86,343
38,137

194,917

124,480

31,690
70,692

102,382

30,618
68,760

99,378

375,885

298,960

As a result of this change in internal operation, the composition of the Group’s reportable segments has changed. As such, in line with IFRS 8, the
corresponding information for the prior year has been restated. Previously results were reported as the following divisions; Aircraft & Vehicle Systems,
Information & Power Systems and Tactical & Sonar Systems. They are now reported as Aerospace & Infrastructure, Communications & Security and
Maritime & Land.

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 plan, 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 2015 varied between 10.4% and 12.9% (2014: 10.8% to 13.7%). 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 historic 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-2020 growth assumption from 2.5% to nil.
(ii) apply a 20% reduction to forecast operating profits in each year of the modelled cash inflows.
(iii) consider specific market factors as noted above.

Ultra Electronics Holdings plc 103
Notes to accounts – Group (continued)

14 Goodwill (continued)

Certain of these sensitivity scenarios give rise to a potential impairment in Infrastructure. Headroom, which represents the value derived from the key
growth assumptions in the Infrastructure value-in-use calculations, is £7.2m. Sensitivity (ii) results in a £0.5m impairment in Infrastructure; the CGU
grouping is sensitive to the ability of the remaining operations to win sufficient new customers over the medium term.

For all other CGUs, the value in use calculations exceed the CGU carrying values in the sensitivity scenarios.

During the prior-year, 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 was recorded in administrative expenses in 2014. Following the impairment charge, the carrying value of goodwill for the
Blue Sky Group CGU was £nil. As set out in note 2, the £7.4m impairment charge was included in 2014 as part of the non-underlying operating results
of the Group. Blue Sky Group is within the Aerospace & Infrastructure operating segment.

15 Other intangible assets

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

Cost
At 1 January 2014
Foreign exchange differences
Acquired on acquistion of
subsidiary undertakings

Additions
Transfers from inventories
Disposals

At 1 January 2015

Foreign exchange differences
Acquired on acquistion of
subsidiary undertakings

Additions
Reclassified as held for sale
Disposals

163,166
7,083

31,905
-
-
-

202,154

5,893

42,789
-
-
-

72,135
3,177

16,156
-
-
-

91,468

2,741

19,115
-
-
-

23,966
669

2,306
-
-
-

26,941

621

3,321
-
-
-

At 31 December 2015

250,836

113,324

30,883

2,386
95

2,366
-
-
-

4,847

23,120
645

20,237
663

305,010
12,332

-
5,020
1,335
-

448
4,269
-
(45)

53,181
9,289
1,335
(45)

30,120

25,572

381,102

(33)

632

532

10,386

2,832
-
-
-

7,646

-
939
(5,264)
(3,192)

-
822
-
(397)

68,057
1,761
(5,264)
(3,589)

23,235

26,529

452,453

Accumulated amortisation
At 1 January 2014
Foreign exchange differences
Disposals
Charge

(91,657)
(3,863)
-
(17,268)

(35,988)
(1,716)
-
(8,652)

(23,014)
(634)
-
(2,313)

(1,038)
(54)
-
(558)

(14,104)
(221)
-
(780)

(13,764)
(380)
45
(2,631)

(179,565)
(6,868)
45
(32,202)

At 1 January 2015

(112,788)

(46,356)

(25,961)

(1,650)

(15,105)

(16,730)

(218,590)

Foreign exchange differences
Reclassified as held for sale
Impairment charges
Disposals
Charge

(3,691)
-
(5,769)
-
(19,710)

(1,577)
-
-
-
(8,828)

(442)
-
-
-
(1,460)

(47)
-
-
-
(808)

(270)
2,338
-
3,192
(1,220)

(244)
-
-
397
(2,601)

(6,271)
2,338
(5,769)
3,589
(34,627)

At 31 December 2015

(141,958)

(56,761)

(27,863)

(2,505)

(11,065)

(19,178)

(259,330)

Carrying amount
At 31 December 2015

At 31 December 2014

108,878

89,366

56,563

45,112

3,020

980

5,141

3,197

12,170

15,015

7,351

8,842

193,123

162,512

‘Other intangibles’ represents software, patents and trademarks. Of the £7,351,000 (2014: £8,842,000) net book value, £448,000 (2014: £504,000)
related to patents and trademarks. The amortisation of intangible assets charge is included within administrative expenses. The impairment charge was
incurred in the SOTECH business due to the reduced US domestic legal intercept business following the repeal of the US Patriot Act. The remaining
intangible assets are carried at their value-in-use. Intangible assets, other than goodwill, are amortised over their estimated useful lives, typically as follows:

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

Customer relationships

Intellectual property

Profit in acquired order book

Other acquired

Development costs

Other intangibles:

Software

Patents and trademarks

5 to 21 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

104 Ultra Electronics Holdings plc
Notes to accounts – Group (continued)

16 Property, plant and equipment

Cost
At 1 January 2014
Foreign exchange differences
Acquisitions
Additions
Disposals

At 1 January 2015

Foreign exchange differences
Acquisitions
Additions
Classified as held for sale
Disposals

At 31 December 2015

Accumulated Depreciation
At 1 January 2014
Foreign exchange differences
Charge
Disposals

At 1 January 2015

Foreign exchange differences
Charge
Classified as held for sale
Disposals

At 31 December 2015

Carrying amount
At 31 December 2015

At 31 December 2014

Land and Buildings

Freehold
£’000

Short
leasehold
£’000

Plant and
machinery
£’000

Total
£’000

143,566
3,097
4,963
8,362
(4,127)

20,777
538
383
579
(1,057)

92,478
2,230
1,787
6,800
(3,070)

21,220

100,225

155,861

531
376
1,408
-
(43)

2,056
7,144
3,055
(1,751)
(2,782)

2,312
12,666
4,597
(1,751)
(5,223)

30,311
329
2,793
983
-

34,416

(275)
5,146
134
-
(2,398)

37,023

23,492

107,947

168,462

(5,534)
(72)
(1,121)
-

(8,672)
(331)
(2,059)
1,062

(70,214)
(1,717)
(7,647)
3,013

(84,420)
(2,120)
(10,827)
4,075

(6,727)

(10,000)

(76,565)

(93,292)

246
(1,623)
-
1,891

(305)
(2,037)
-
(1)

(1,361)
(7,299)
827
2,675

(1,420)
(10,959)
827
4,565

(6,213)

(12,343)

(81,723)

(100,279)

30,810

27,689

11,149

11,220

26,224

23,660

68,183

62,569

Freehold land amounting to £6,464,000 (2014: £3,502,000) has not been depreciated. Included within Land and Buildings is £nil (2014: £nil) of assets
in the course of construction.

17 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 (loss)/profit recognised

2015
£’000

2014
£’000

-
-

2015
£’000

3,511
(581)

15,085
(6,980)

8,105

2014
£’000

41,340
1,957

The Group’s interest in associate is represented by its 49% holding of ordinary shares in Al Shaheen Adventure LLC (“ASA”), a Company
incorporated in the UAE. The Group has significant influence over the entity but does not control it, consequently ASA has been accounted using
the equity method of accounting. The associate’s year end is 31 December 2015.

During the year Ultra received an interim cash dividend of £5,343,000 and will receive a further final dividend of £2,530,000 upon the receipt by
ASA of certain outstanding third-party trade receivables, or 30 June 2017, whichever is earlier. The declared final dividend has been recorded by the
Group in other receivables due in less than 1 year. On 30 December 2015, the Group reached agreement to transfer the whole of its 49% equity
interest in ASA to Emirates Advanced Investments Group (“EAI”).

The carrying amount of the Group’s investment in ASA and loan receivable balance (see note 33) have been written down to £nil at 31 December 2015
to reflect the fair value of the remaining interest. Consequently, a non-underlying impairment charge of £2,693,000 has been recorded in 2015 as
disclosed in note 6.

18 Inventories

Raw materials and consumables
Work in progress
Finished goods and goods for resale

Ultra Electronics Holdings plc 105
Notes to accounts – Group (continued)

2015
£’000

51,561
19,598
10,657

81,816

2014
£’000

44,226
18,462
11,057

73,745

The amount of any write down of inventory recognised as an expense in the year was £3,168,000 (2014: £3,051,000).

19 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 £56,643,000 (2014: £68,391,000).

20 Trade and other receivables

Non-current

Trade receivables
Provisions against receivables
Amounts due from contract customers (note 19)

Current
Trade receivables
Provisions against receivables

Net trade receivables
Amounts due from contract customers
Provisions against amounts due from contract customers

Net amounts due from contract customers (note 19)
Other receivables
Prepayments and accrued income

2015
£’000

2014
£’000

96,856
(59,729)

82,662
(70,138)

37,127

12,524

1,568,778

1,546,394

2015
£’000

-
-
15,239

15,239

2015
£’000

93,016
(959)

92,057
81,617
-

81,617
9,328
14,385

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

197,387

190,186

Trade receivables do not carry interest. The average credit period on sale of goods is 28 days (2014: 35 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

2015
£’000

20,039
1,067
591
292

21,989

Related
provision
£’000

(315)
(76)
(276)
(292)

(959)

Total
£’000

19,724
991
315
-

21,030

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

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.

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)

20 Trade and other receivables (continued)

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
(Decrease)/Increase in provision for trade receivables regarded as potentially uncollectable

Balance at end of year

2015
£’000

1,043
(24)
217
(277)

959

2015
£’000

6,884
(6,884)

2014
£’000

1,605
9
546
(1,117)

1,043

2014
£’000

-
6,884

6,884

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 7, the Oman
Airport IT contract has been terminated. Specific provisions were 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.

21 Trade and other payables

Amounts included in current liabilities:
Trade payables
Amounts due to contract customers (note 19)
Other payables
Accruals and deferred income

Amounts included in non current liabilities:
Amounts due to contract customers (note 19)
Other payables
Accruals and deferred income

The Directors consider that the carrying amount of trade and other payables approximates to their fair value.

22 Borrowings

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

2015
£’000

70,701
58,104
27,157
43,980

2014
£’000

92,855
69,257
23,924
45,918

199,942

231,954

1,625
570
4,801

6,996

881
5,607
3,024

9,512

2015
£’000

2014
£’000

289,521
47,236
4,289

120,177
44,849
5,728

341,046

170,754

-
341,046

-
170,754

341,046

170,754

Ultra Electronics Holdings plc 107
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

2015
Total
£’000

1,347

6,091

Level 2
£’000

6,091

2014
Total
£’000

2,842

3,598

Current assets/(liability) Non-current assets/(liability)
2014
£’000

2015
£’000

2014
£’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:

(3,530)

921

(1,920)

1,725

(2,561)

426

(1,678)

1,117

Cash and cash equivalents
Currency derivatives used for hedging
Amounts due from contract customers
Other receivables
Trade receivables
Prepayments and accrual income

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
Government loans
Trade payables
Amounts due to contract customers
Deferred consideration
Other payables
Accruals

The Directors consider that the carrying amount for all financial liabilities approximates to their fair value.

2015
£’000

45,474
1,347
96,856
9,328
92,057
14,385

2015
£’000

6,091

289,521
47,236
4,289
70,701
59,729
4,676
27,727
29,153

2014
£’000

41,259
2,842
82,662
10,547
91,969
9,702

2014
£’000

3,598

120,177
44,849
5,728
92,855
70,138
6,108
29,531
28,222

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)

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 three facilities in
place. The first provides £100 million of revolving credit and was due to expire in December 2017; during the year the terms were amended to extend
the expiry date to August 2019 and to reduce the applicable margin to match that of the £200 million revolving credit facility. The second facility,
which was put in place in August 2014 provides £200 million of revolving credit which expires in August 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 USD225 million term loan
facility, which expires in August 2019, was put in place at the time of the Herley acquisition. The same covenants are in place across the three facilities.

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% (2014: 1.00%) over base or contracted rate.

At 31 December 2015, the Group had available £159,756,000 (2014: £177,956,000) 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. In 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:

2015
Bank loans and overdrafts
Loan notes
Government loans
Trade payables
Currency derivatives used for hedging
Deferred consideration
Accruals

2014
Bank loans and overdrafts
Loan notes
Government loans
Trade payables
Currency derivatives used for hedging
Deferred consideration
Accruals

Within
1 year
£’000

4,923
1,701
-
70,701
3,530
869
27,178

1,563
1,615
-
92,855
1,920
3,459
25,196

1 to
2 years
£’000

4,242
1,701
-
-
1,634
3,221
842

1,563
1,615
-
-
1,678
2,234
1,853

2 to
5 years
£’000

299,095
48,902
-
-
927
586
860

125,971
48,045
-
-
-
415
967

Over
5 years
£’000

-
-
4,289
-
-
-
273

-
-
5,728
-
-
-
206

Total
£’000

308,260
52,304
4,289
70,701
6,091
4,676
29,153

129,097
51,275
5,728
92,855
3,598
6,108
28,222

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 2015, the net fair value of the Group’s currency derivatives is estimated to be a liability of approximately £4,744,000 (2014: liability
£756,000), comprising £1,347,000 assets (2014: £2,842,000) and £6,091,000 liabilities (2014: £3,598,000). The loss on derivative financial
instruments included in the Group’s consolidated income statement for the period was £3,988,000 (2014: loss £7,243,000).

Ultra Electronics Holdings plc 109
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.

2015
US dollars/Sterling

Euro/other currencies

Total

2014
US dollars/Sterling

Euro/other currencies

Total

Not
exceeding
1 year
£’000

Between
1 year and
5 years
£’000

49,682

4,590

54,272

56,470

7,332

63,802

73,379

7,745

81,124

46,771

3,889

50,660

Over
5 years
£’000

Total
£’000

123,061

1,740

14,075

137,136

103,241

2,604

13,825

117,066

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. The value of the net investment hedge was US$325m (2014: US$120m).

Interest rate risk
During the year the Group entered into interest rate swaps to manage its exposure to interest rate movements on its bank borrowings. The interest rate
swaps, denominated in US dollars, have been entered into to achieve an appropriate mix of fixed and floating rate exposure reflecting the Group’s
policy. The swaps mature in July 2019 and have a fixed swap rate, including the bank margin, of 1.232%. The floating rates are US dollar LIBOR. At the
year end the nominal amounts of the interest rate swaps were US dollar 120m (2014: nil). The hedging contracts fix US dollar 120m of borrowings to
December 2016, reducing to US Dollar 90m by December 2017, US dollar 60m by December 2018 and to US dollar 45m by July 2019.

The interest rate swaps were designated effective cash flow hedges and the change in fair value is charged to equity. At 31 December 2015,
the net fair value of interest rate swaps was £198,000 (2014: nil). The amount recycled from the income statement during the year was £nil
and has been charged to interest cost in the year (2014: £nil).

The fair value will be realised in the income statement on a quarterly basis over the next 3.5 years. The Group also has US dollar 70m of fixed
rate debt with Pricoa at an interest rate of 3.60%, due for repayment in July 2018 and January 2019.

The interest rate swaps and fixed rate Pricoa debt were 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:

2015
Cash and cash equivalents
Loan notes
Unsecured bank loans
Government loans

2014
Cash and cash equivalents
Loan notes
Unsecured bank loans
Government loans

Effective
interest
rate

0.43%
3.60%
1.69%
4.43%

0.31%
3.60%
1.28%
4.43%

Total
£’000

45,474
47,236
289,521
4,289

41,259
44,849
120,177
5,728

Within
1 year
£’000

45,474
-
-
-

41,259
-
-
-

1 to 2 years
£’000

2 to 5 years
£’000

5+ years
£’000

-
-
-
-

-
47,236
289,521
-

-
44,849
120,177
-

-
-
-
4,289

-
-
-
5,728

Market risk sensitivity analysis
Interest rate risk
During 2015 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 2015. There is no significant difference between the
amount recharged to the income statement and equity in the year.

2015
Interest rate sensitivity

2014
Interest rate sensitivity

Profit
before tax
£’000

1% change

(1,870)

(1,043)

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)

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

2015
Transaction
P&L translation
Foreign exchange derivatives

5,792
1,734
(12,825)

5,792
415
(12,825)

Profit
before
tax
£’000

(5,792)
(1,734)
11,307

Equity
£’000

(5,792)
(415)
11,307

Profit
before
tax
£’000

Equity
£’000

Profit
before
tax
£’000

Equity
£’000

14,481
4,334
(36,043)

14,481
1,037
(36,043)

(14,481)
(4,334)
27,665

(14,481)
(1,037)
27,665

Total foreign exchange

(5,299)

(6,618)

3,781

5,100

(17,228)

(20,525)

8,850

12,147

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)

(6,815)
(1,998)
9,759

946

(6,815)
(1,994)
9,759

17,038
4,996
(37,623)

17,038
4,985
(37,623)

(17,038)
(4,996)
28,065

(17,038)
(4,985)
28,065

950

(15,589)

(15,600)

6,031

6,042

24 Government grants and loans

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 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.

Following delays on some of the UETCS programme, an extension of the funding is under negotiation. The revised repayment profile and
re-assessment of the discount rate has resulted in a reduction of the loan element and increase in the grant element during the year and a reduction
in capitalised development.

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
Re-assessment as grant income
Reduction in capitalised development
Interest charged to finance costs
Foreign exchange differences

Fair value of SADI loan carried forward

Government grants credited to profit in the year

SADI
Other†

†Ultra Electronics Limited received a £163,000 (2014: £222,000) grant from the Technology Strategy Board in the year.

2015
£’000

5,728
662
(2,249)
(784)
953
(21)

4,289

2015
£’000

3,551
163

3,714

2014
£’000

4,337
687
-
-
823
(119)

5,728

2014
£’000

1,709
222

1,931

Ultra Electronics Holdings plc 111
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 2014
Credit/(charge) to income
Credit/(charge) to other

comprehensive income

Charge direct to equity
Exchange differences
Arising on acquisition

At 1 January 2015

Credit/(charge) to income
Credit/(charge) to other

comprehensive income

Charge direct to equity
Exchange differences
Arising on acquisition

At 31 December 2015

Non current assets
Non current liabilities

Accelerated†
tax
depreciation
£’000

Employee
share
options
costs
£’000

(16,629)
3,386

-
-
(121)
(8,373)

(21,737)

9,595

-
-
499
(3,416)

(15,059)

699
(127)

-
(153)
-
-

419

140

-
12
-
-

571

Derivatives
£’000

Retirement
benefit
obligations
£’000

(1,298)
1,449

17,324
(1,016)

-
-
-
-

151

808

-
-
-
-

1,299
-
-
-

17,607

(2,715)

478
-
-
-

Goodwill
£’000

(735)
(832)

-
-
(169)
-

(1,736)

(5,452)

-
-
(380)
(167)

959

15,370

(7,735)

Other
£’000

5,564
(1,903)

-
-
278
(341)

3,598

1,063

-
-
-
-

4,661

2015
£’000

5,935
(7,168)

(1,233)

Total
£’000

4,925
957

1,299
(153)
(12)
(8,714)

(1,698)

3,439

478
12
119
(3,583)

(1,233)

2014
£’000

4,494
(6,192)

(1,698)

†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 £11.3 million (2014: £9.5 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 reduced from 21% to 20% on 1 April 2015.

26 Provisions

At 1 January 2015
Created
Reversed
Utilised
Classified as held for sale
Unwinding of discount
Exchange differences

At 31 December 2015

Included in current liabilities
Included in non-current liabilities

Warranties
£’000

Contract
related
provisions
£’000

4,616
1,749
(1,151)
(1,242)
(227)
-
40

3,785

2,247
1,538

3,785

26,679
4,976
(3,355)
(3,522)
-
641
84

25,503

22,116
3,387

25,503

Total
£’000

31,295
6,725
(4,506)
(4,764)
(227)
641
124

29,288

24,363
4,925

29,288

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. 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: £514,000 of the provision was utilised in the year when the 2015 Forensic Technology earn-out target was met. As at
31 December 2015 the remaining contingent consideration provision is £3,428,000 (2014: £3,276,000), 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

112 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.

2015

£’000

No.

2014

£’000

90,000,000

4,500

90,000,000

4,500

70,281,146

3,514

69,962,055

3,498

319,091 ordinary shares having a nominal value of £15,955 were allotted during the year under the terms of the Group’s various Share Option Schemes.
The aggregate consideration received was £4,937,000.

Share options
During the year to 31 December 2015, 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 2015, share options outstanding under the Savings Related Share Option Schemes were as follows:

Options granted

2013 – US scheme

2014 – US scheme

2015 – US scheme

2012 – Canadian scheme

2013 – Canadian scheme

2014 – Canadian scheme

2015 – Canadian scheme

2009 – UK 5 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

2015 – UK 3 year scheme

2015 – UK 5 year scheme

Number of shares
2014

2015

Option
price (£)

Exercise
dates

41,145

34,611

45,195

15,196

2,918

8,649

11,684

2,777

15,685

4,849

28,159

22,418

15,657

15,915

11,320

15,303

7,936

51,191

35,730

29,802

3,113

9,204

1,622

9,567

3,995

16,847

24,047

30,602

26,539

16,869

17,979

13,193

17.16

15.94

14.85

13.79

16.80

16.13

16.12

11.48

15.54

13.33

13.85

16.80

16.13

16.12

September 2015 - December 2015

September 2016 - December 2016

September 2017 - December 2017

September 2015 - March 2016

October 2016 - April 2017

October 2017 - April 2018

December 2018 - June 2019

December 2014 - June 2015

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

December 2018 - June 2019

December 2020 - June 2021

Ultra Electronics Holdings plc 113
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 2015, share options outstanding under the Company Share Option Plan were as follows:

Options granted

Number of shares
2014

2015

Option
price (£)

2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

-
968
3,858
2,261
2,564
9,386
13,902
12,237
45,095
29,289
16,070

2,472
968
3,858
2,261
4,922
14,278
22,455
29,484
58,075
34,377
-

7.28
10.32
12.07
12.00
11.90
14.83
16.97
17.10
17.18
18.29
17.31

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
March 2018 - March 2025

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 2015, share options outstanding under the Executive Share Option Scheme were as follows:

Options granted

2008
2009
2010
2011
2011
2012
2013
2014
2015

Number of shares
2014

2015

Option
price (£)

-
21,759
40,555
76,160
-
112,255
141,767
176,015
152,819

16,408
50,632
46,608
112,534
8,183
167,258
181,251
196,303
-

12.00
11.90
14.83
16.97
15.70
17.10
17.18
18.29
17.31

Exercise
dates

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
March 2018 - March 2022

4. Long-Term Incentive Plan
Details in relation to the Ultra Electronics Long-Term Incentive Plan 2007 awards to Executive Directors are included in the Directors’ Remuneration
report on pages 68 to 80. In April 2015 LTIPs were awarded to nominated employees. The awards will vest in March 2018 upon achievement of
certain performance targets and are conditional upon continued employment.

5. All Share Based Payment Arrangments
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 (£)

2015

13.10
9.21
7.38
15.62
14.89

Number
of options

2015

1,573,266
467,218
(232,588)
(94,066)
(160,418)

Weighted
average
exercise
price (£)

2014

12.34
13.04
12.83
3.70
14.17

Number
of options

2014

1,456,124
427,995
(25,877)
(136,892)
(148,084)

12.45

1,553,412

13.10

1,573,266

16.11

359,872

14.93

283,013

The Group recognised total expenses of £967,000 (2014: £1,783,000) 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 £17.92. The fair value of
options granted during the year that are expected to vest was £2,878,631 (2014: £1,725,239).

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)

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 2012, 2013, 2014, and 2015 March LTIP schemes are measured by use of the Black Scholes option pricing model using the
following assumptions:

Share save*

CSOP*

ESOS*

LTIP*†

Weighted average share price (£)
Weighted average exercise price (£)
Expected volatility %
Expected option life (years)
Risk-free interest rate %
Expected dividends %

17.04
15.89
22.4
3.5
0.8
2.4

17.40
17.36
25.0
6
1.6
1.8

17.41
17.38
24.2
5
1.2
2.3

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

2015

17.10
n/a
18.7
3
0.7
0.0

LTIP*

2014

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.
†April 2015 LTIP.

For the 2012, 2013, 2014 and 2015 March 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 %

2015

n/a
17.79
3.0
21.9
-
0.7

2014

n/a
17.83
3.0
23.1
-
1.0

Figures in the above table show an average across the schemes.

The weighted average fair value of options granted during the year was £6.57 (2014: £4.44).

The weighted average remaining contractual life of share options was 3.6 years (2014: 3.7 years).

28 Equity

Balance at 1 January 2014
Total comprehensive

income for the year
Equity-settled employee

share scheme

Dividends to shareholders

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

Non
controlling
interests
£’000

Total
equity
£’000

682

321,179

-
-

(4,161)

10,979

15,589

(14,305)

8,102

-
-

1,656
(29,722)

-
-

3,887
(29,722)

Balance at 1 January 2015

3,498

56,131

(2,581)

(13,330)

27,219

246,132

(13,623)

303,446

Total comprehensive

income for the year
Deemed disposal of Ithra
Equity-settled employee

share scheme

Dividends to shareholders

-
-

16
-

-
-

4,921
-

-
-

(12,578)
-

14,819
-

22,949
-

(128)
13,751

25,062
13,751

-
-

979
(31,332)

-
-

5,916
(31,332)

316,843

Balance at 31 December 2015

3,514

61,052

(2,581)

(25,908)

42,038

238,728

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 2015, the number of own
shares held was 235,245 (2014: 235,245).

29 Notes to the cash flow statement

Operating profit
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of intangible assets
Impairment charges
Cost of equity-settled employee share schemes
Adjustment for pension funding
Profit on disposal of property, plant and equipment
Share of loss/(profit) from associate
(Decrease)/increase in provisions

Operating cash flow before movements in working capital
Decrease in inventories
(Increase)/decrease in receivables
Decrease 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 from movement in debt and finance leasing

Change in net debt arising from cash flows
Loan syndication costs
Amortisation of finance costs of debt
Other non-cash movements
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

Ultra Electronics Holdings plc 115
Notes to accounts – Group (continued)

2015
£’000

2014
£’000

66,425

39,543

10,959
34,627
8,462
967
(8,015)
(559)
581
(2,073)

111,374
6,607
(2,261)
(44,381)

10,827
32,202
7,355
1,783
(8,448)
(3)
(1,957)
2,564

83,866
(4,443)
73,977
(57,333)

71,339

96,067

(17,252)
(6,309)

(22,899)
(4,451)

47,778

68,717

2015
£’000

5,916
(157,054)

(151,138)
1,347
(649)
(872)
(14,765)

(166,077)
(129,495)

2014
£’000

11,653
(94,817)

(83,164)
1,495
(662)
-
(5,007)

(87,338)
(42,157)

(295,572)

(129,495)

2015
£’000

2014
£’000

45,474
(341,046)

41,259
(170,754)

(295,572)

(129,495)

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

2015
£’000

515

2014
£’000

720

b) Lease commitments
At 31 December 2015, 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

2015
£’000

12,475
35,001
10,096

57,572

2014
£’000

11,980
33,305
17,029

62,314

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)

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 Forensic Technology group has a defined benefit scheme. During 2015 a consultation
took place with the members on a proposal to close the UK defined benefit scheme to future benefit accrual from 5 April 2016. Following the end of
the consultation and discussion with the Trustee, it was announced to members on 1 February 2016 that the Company had agreed with the Trustee
the terms under which the scheme is to be closed and that the proposed closure would go ahead.

Defined contribution schemes
The total cost charged to income in respect of the defined contribution schemes was £4,765,000 (2014: £4,696,000).

Defined benefit schemes
All the defined benefit schemes were actuarially assessed at 31 December 2015 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 2015 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
2015

3.75%
3.05%
2.05%
3.30%
2.85%
1.90%

Canada
2015

Switzerland
2015

3.75%
3.05%
2.05%
3.30%
n/a
n/a

0.80%
0.80%
0.80%
1.00%
n/a
n/a

UK
2014

3.65%
3.05%
2.05%
3.30%
2.85%
1.90%

Canada
2014

3.65%
3.05%
2.05%
3.30%
3.05%
n/a

Switzerland
2014

1.50%
1.40%
1.40%
1.00%
1.40%
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
3.65% would increase the scheme’s liabilities by 1.4% and 1.9% respectively. If the members’ life expectancy were to increase by 1 year, the scheme
liabilities would increase by 3.3%. The average duration of the scheme liabilities is 20 years (2014: 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

2015

2014

22 years
24 years
24 years
26 years

Ultra Electronics Holdings plc 117
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

UK
2015
£m

4.9
0.5
11.2

(8.2)

8.4

Canada
2015
£m

Switzerland
2015
£m

0.1
0.1
0.3

(0.3)

0.2

0.3
-
0.1

(0.1)

0.3

Total
2015
£m

5.3
0.6
11.6

(8.6)

8.9

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

Of the current service cost for the year, £3.9 million (2014: £3.8 million) has been included in cost of sales, and £1.4 million (2014: £1.3 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:

UK
2015
£m

Canada
2015
£m

Switzerland
2015
£m

Fair value of scheme assets
Present value of scheme liabilities

224.5
(307.7)

Scheme deficit
Related deferred tax asset

Net pension liability

(83.2)
15.1

(68.1)

8.6
(9.3)

(0.7)
0.1

(0.6)

4.5
(5.4)

(0.9)
0.2

(0.7)

Total
2015
£m

237.6
(322.4)

(84.8)
15.4

(69.4)

Movements in the present value of defined benefit obligations during the year were as follows:

UK
2015
£m

Canada
2015
£m

Switzerland
2015
£m

Present value of obligation

at 1 January
Current service cost
Interest cost
Actuarial gains and losses
Exchange difference
Liabilities assumed on business

combinations

Benefits paid

Present value of obligation

(306.5)
(4.9)
(11.2)
5.9
-

-
9.0

(11.1)
(0.1)
(0.3)
0.1
1.3

-
0.8

(4.1)
(0.3)
(0.1)
(0.6)
(0.3)

-
-

Total
2015
£m

(321.7)
(5.3)
(11.6)
5.4
1.0

-
9.8

UK
2014
£m

220.8
(306.5)

(85.7)
17.1

(68.6)

UK
2014
£m

(270.2)
(4.9)
(12.0)
(25.7)
-

-
6.3

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)

Canada
2014
£m

Switzerland
2014
£m

(10.2)
(0.1)
(0.4)
(1.6)
0.3

-
0.9

-
(0.1)
-
(0.2)
0.2

(4.0)
-

Total
2014
£m

234.4
(321.7)

(87.3)
17.6

(69.7)

Total
2014
£m

(280.4)
(5.1)
(12.4)
(27.5)
0.5

(4.0)
7.2

at 31 December

(307.7)

(9.3)

(5.4)

(322.4)

(306.5)

(11.1)

(4.1)

(321.7)

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 assumed on business

combinations

Benefits paid

UK
2015
£m

220.8

8.2
(8.0)
-
13.0
(0.5)

-
(9.0)

Fair value at 31 December

224.5

Canada
2015
£m

Switzerland
2015
£m

9.9

0.3
-
(1.3)
0.5
-

-
(0.8)

8.6

3.7

0.1
0.1
0.3
0.3
-

-
-

4.5

Total
2015
£m

234.4

8.6
(7.9)
(1.0)
13.8
(0.5)

-
(9.8)

UK
2014
£m

185.0

8.4
21.0
-
13.2
(0.5)

-
(6.3)

237.6

220.8

Canada
2014
£m

9.3

0.4
0.6
(0.3)
0.8
(0.1)

-
(0.8)

9.9

Switzerland
2014
£m

-
0.2
(0.1)
0.1
-

3.6
(0.1)

3.7

Total
2014
£m

194.3

8.8
21.8
(0.4)
14.1
(0.6)

3.6
(7.2)

234.4

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)

31 Retirement benefit schemes (continued)

Scheme assets were as follows:

Fair value:
Equities
Bonds
Property
Other assets
Other investment funds

UK
2015
£m

74.3
-
14.0
0.4
135.8

224.5

Canada
2015
£m

Switzerland
2015
£m

3.5
4.5
-
0.6
-

8.6

1.3
2.2
0.5
0.5
-

4.5

Total
2015
£m

79.1
6.7
14.5
1.5
135.8

237.6

UK
2014
£m

55.6
65.5
11.3
14.4
74.0

220.8

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
2015
£m

(8.0)

0.2

5.7

(2.1)

Canada
2015
£m

Switzerland
2015
£m

(0.1)

0.2

0.1

(0.1)

(0.5)

Total
2015
£m

(7.9)

UK
2014
£m

21.0

(2.3)

5.4

(2.5)

(23.4)

(4.7)

Canada
2014
£m

Switzerland
2014
£m

4.2
4.0
-
1.7
-

9.9

1.0
1.8
0.4
0.5
-

3.7

Canada
2014
£m

Switzerland
2014
£m

0.6

(0.2)

(1.4)

(1.0)

0.2

(0.2)

Total
2014
£m

60.8
71.3
11.7
16.6
74.0

234.4

Total
2014
£m

21.8

(2.5)

(25.0)

(5.7)

Cumulative actuarial losses, net of deferred tax, recognised in the consolidated statement of comprehensive income at 31 December 2015 were
£54.1 million (2014: £52.1 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

2015
£m

(322.4)
237.6

(84.8)

-
-%

(7.9)
(3.3%)

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%)

The amount of contributions expected to be paid to defined benefit schemes during the 2016 financial year is £10.8m. For the UK scheme this
includes an additional deficit payment of £9.0m agreed with the Trustee. This will be followed by £9.0m per annum for the following 7.5 years to
fund the scheme deficit.

32 Acquisitions

Acquisitions during the year
In aggregate, consideration of £171.8m 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

172,539
(724)

171,815

Aggregate assets and liabilities acquired comprised intangible assets of £68.1m, property, plant and equipment of £12.7m, cash of £0.7m,
inventories of £17.7m, net receivables of £16.5m and payables of £13.8m.

If all the acquisitions had occurred on 1 January 2015 the revenue for the Group would have been £769.8m and operating profit would have been £67.6m.

With respect to prior year acquisitions, fair value adjustments totalling net £0.4m 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 119
Notes to accounts – Group (continued)

32 Acquisitions (continued)

Electronic Products Division of Kratos Defense & Security Solutions – Herley
On 21 August 2015, the Group acquired the entire share capital of the Electronic Products Division (“EPD”) of Kratos Defense & Security Solutions,
now known as Ultra Electronics Herley, for initial cash consideration of £161.5m. A further £3.2m was paid in January 2016.

Ultra Electronics Herley is a leading designer and producer of RF and microwave integrated systems and subsystems for use in EW, radar, communication,
missile, flight test and simulation applications. It is a sole-source provider of proprietary technology on numerous established strategic platforms, including
P-8A Poseidon, Trident II D5 missile, F-16 Fighting Falcon, Eurofighter, AMRAAM missile, and EA-18G Growler. Ultra Electronics Herley is also well-positioned
for opportunities on the F-35 Joint Strike Fighter and on multiple, next-generation strategic national defence and security programmes. The company
has a proven track record of more than 20 years of successful participation on major defence programmes and long-standing relationships with a
diverse international customer base. Ultra Electronics Herley operates within Ultra’s Communications & Security Division.

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

-
12,622
724
14,064
15,777
(9,535)

33,652

£’000

61,928
-
-
3,048
-
(1,927)

63,049

£’000

61,928
12,622
724
17,112
15,777
(11,462)

96,701
67,970

164,671

The net revenue and profit contributions from Ultra Electronics Herley were approximately £24.4m and £4.3m respectively in the year from the date
of acquisition to 31 December 2015.

The goodwill arising on the acquisition is attributable to the assembled workforce of Ultra Electronics Herley, the immediate access to certain
technology/know-how and US Navy programmes and the strategic premium to gain access to the market niche relative to an organic entry.

Acquisition costs of £5.3m 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 £55.5m.

Furnace Parts LLC
On 14 October 2015, the Group acquired the entire share capital of the Furnace Parts LLC for cash consideration of £7.8m.

Furnace Parts is a developer and supplier of thermocouple-based temperature sensors for high performance and demanding applications in the
nuclear and process control sectors. The acquisition will extend Ultra’s specialist temperature sensing capabilities in both US and international
markets. The business will be integrated into Ultra’s Nuclear Sensors & Process Instrumentation business based in Round Rock, Texas within Ultra’s
Aerospace and Infrastructure Division.

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

-
44
596
721
(653)

708

£’000

6,129
-
-
-
(1,638)

4,491

£’000

6,129
44
596
721
(2,291)

5,199
2,609

7,808

The net revenue and profit contributions from Furnace Parts were approximately £1.0m and £0.2m respectively in the year from the date of
acquisition to 31 December 2015.

The goodwill arising on the acquisition is attributable to the strategic premium to gain access to Furnace Parts market and technology relative to an
organic entry.

Acquisition costs of £0.1m 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

120 Ultra Electronics Holdings plc
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 75 to 78.

Short-term employee benefits
Post-employment benefits
Share-based payments

2015
£’000

4,927
422
1,016

6,365

2014
£’000

3,241
423
905

4,569

Transactions with associate
At 31 December 2015, a loan of £nil (2014: £2,428,000) was due from Al Shaheen Adventure LLC (ASA), the Group’s 49% equity-accounted
investment (see note 17).

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 former subsidiary ‘Ultra Electronics in
Collaboration with Oman Investment Corporation’, incorporated in the Sultanate of Oman, that had a material non-controlling interest held by
Oman Investment Corporation (’OIC’). On 4 March 2015 the entity was placed into voluntary liquidation and no longer meets the IFRS 10 criteria for
consolidation as a subsidiary of the Group (see note 7).

Non-controlling interest percentage

Net (liabilities)

Carrying amount of non-controlling interest

Revenue
Loss

Total comprehensive income for the year

Profit allocated to non-controlling interest
Loss incurred by Ultra upon deemed disposal of Ithra
Other comprehensive income allocated to non-controlling interest

35 Contingent liabilities

2015
£’000

-
-

-
13,751
(128)

2014
£’000

30%

(45,410)

13,623

11,650
(47,670)

(47,670)

(14,301)
-
(4)

The Group has entered into a number of guarantee and performance bond arrangements in the normal course of business totalling £70.6m
(2014: £59.6m).

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 addition, the Group is, from time to time, party to legal proceedings and claims which arise in the ordinary course of business. In
particular, as set out in note 7, the Oman Airport IT contract was terminated in February 2015. This has given rise to significant uncertainty regarding
the likely outcome of negotiations in respect of this termination event, and it is not possible at this early stage to reliably estimate the outcome.

36 Assets classified as held for sale

The Group is in advanced discussions to dispose of a small non-core part of the Communications & Security division. These operations, which are expected
to be sold within 12 months, have been classified on the balance sheet as assets and liabilities held for sale. The proceeds of disposal are expected
to substantially exceed the book value of the related net assets and accordingly no impairment losses have been recognised on the classification of
these operations as held for sale. The major classes of assets and liabilities comprising the operations classified as held for sale are as follows:

Intangible fixed assets
Property, plant and equipment
Inventories
Trade and other receivables

Total assets classified as held for sale

Trade and other payables
Provisions

Total liabilities classified as held for sale

Net assets of disposal group

2015
£’000

2,926
924
1,374
3,571

8,795

(2,784)
(227)

(3,011)

5,784

Ultra Electronics Holdings plc 121
Notes to accounts – Group (continued)

37 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 59
• Contractual arrangements – see Directors’ Report on page 82
• Details of independent directors – see Corporate Governance Report on page 53
• Substantial shareholders – see Directors’ Report on page 82

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).

38 Related undertakings

The Company owns either directly or indirectly the ordinary share capital of the following undertakings:

Company name
3 Phoenix Inc

3e Technologies International Inc

Aardvark Electronic Components Limited

AEP Networks Asia Pacific SDN BHD

AEP Networks Australia Pty Ltd

AEP Networks Inc

AEP Networks Limited

Al Shaheen Adventure LLC (see note 17)

Audiosoft Limited

Audix Broadcast Limited

Blue Sky Group (International) Limited

Dascam Consulting Limited

DF Group Limited

EMS Development Corporation

ERAPSCO

EW Simulation Technology Limited

Extec Integrated Systems Limited

Flightline Electronics Inc

Forensic Technology (Europe) Limited

Forensic Technology AEC Thailand Ltd

Forensic Technology Inc.

Forensic Technology Mexico S. de RL. de C.V

Forensic Technology-Tecnologia Forense Ltda

Furnace Parts LLC

Giga Communications Limited

GIGASAT, INC.

Gigasat. Asia Pacific Pty Ltd

Herley Industries Inc

Herley-CTI Inc

Power Magnetics and Electronic Systems Limited

Projectina AG

Prologic Inc

Special Operations Technology Inc (SOTECH)

Stapor Research Inc

Country
incorporated
United States

United States

United Kingdom

Malaysia

Australia

United States

Ireland

United Kingdom

United Arab Emirates

United Kingdom

Cyprus

United Kingdom

United States

United Kingdom

United States

Ireland

Thailand

United States

Mexico

Brazil

United States

United Kingdom

United States

Australia

United States

United Kingdom

Switzerland

United States

%
owned
100%

100%

49%

100%

50%

100%

Direct/Indirect
(Group interest)
Indirect (Group interest)

Indirect (Group interest)

Direct

Indirect (Group interest)

Direct

Indirect (Group interest)

Direct

Indirect (Group interest)

Direct

Indirect (Group interest)

Direct

Indirect (Group interest)

Direct

Indirect (Group interest)

Direct

Indirect (Group interest)

Direct

Indirect (Group interest)

Direct

Indirect (Group interest)

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
Notes to accounts – Group (continued)

38 Related undertakings (continued)

Company name
Transmag Power Transformers Limited

UE Dormant One

Ultra Electronics (Qatar) LLC

Ultra Electronics (USA) Group Inc

Ultra Electronics Advanced Tactical Systems Inc

Ultra Electronics Airport Systems (South Africa) (Proprietary) Limited

Ultra Electronics Airport Systems Inc

Ultra Electronics Australia Pty Limited

Ultra Electronics Avalon Systems Pty Limited

Ultra Electronics Canada Inc.

Ultra Electronics Card Systems Inc

Ultra Electronics Connecticut LLC

Ultra Electronics Defense Inc

Ultra Electronics DNE Technologies Inc

Ultra Electronics Enterprises (USA) LLC

Country
incorporated
United Kingdom

United Kingdom

%
owned
100%

100%

Qatar

United States

South Africa

United States

Australia

Canada

United States

Direct/Indirect
(Group interest)
Direct

Direct

Indirect (Group interest)

Direct

Indirect (Group interest)

Direct

Indirect (Group interest)

Direct

Indirect (Group interest)

Direct

Indirect (Group interest)

Direct

Indirect (Group interest)

Direct

Indirect (Group interest)

Direct

Indirect (Group interest)

Direct

Indirect (Group interest)

Direct

Indirect (Group interest)

49%

100%

70%

100%

50%

100%

Ultra Electronics Forensic Technology Inc./Les Technologies Ultra Electronics Forensic Inc.

Canada

Ultra Electronics Hong Kong Holdings Limited 傲創電子香港控股有限公司

Ultra Electronics ICE, Inc.

Hong Kong

United States

Ultra Electronics in collaboration with Oman Investment Corporation LLC (in liquidation)

Oman

Ultra Electronics Inc.

Ultra Electronics Investments (USA) LLC

Ultra Electronics Jersey Unlimited

Ultra Electronics Limited

Ultra Electronics Maritime Systems Inc

Ultra Electronics Measurement Systems Inc

Ultra Electronics Netherlands (CAD) B.V.

Ultra Electronics Netherlands B.V.

Ultra Electronics Netherlands Finance Coöperatief W.A.

Ultra Electronics Ocean Systems Inc

Ultra Electronics Pension Trustee Company Limited

Ultra Electronics Precision Air and Land Systems Inc

Ultra Electronics Secure Intelligence Systems Inc

Ultra Electronics TCS Inc.

Ultra Electronics Technology (Beijing) Co Ltd.

Ultra Electronics Tisys

Ultra Electronics TopScientific Aerospace Limited

UnderSea Sensor Systems Inc

Vados Systems Limited

Varisys Limited

W & D Holdings Ltd

Weed Instrument Company Inc

Wood & Douglas Limited

United States

Jersey

United Kingdom

Canada

United States

Netherlands

United States

United Kingdom

United States

Canada

China

France

Hong Kong

United States

United Kingdom

United States

United Kingdom

The principal activity of the trading subsidiary undertakings is the design, development and manufacture of electronic systems for the
international defence and aerospace markets.

Ultra Electronics Holdings plc 123
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:
• Annual Improvements to IFRS: 2011-2013 cycle

The following standards were also adopted in the current year and have had the impact as set out below.
• None

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 2018.

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 Strategic Report on page 27.

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.

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.

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)

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 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.

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 or groups of 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.

Ultra Electronics Holdings plc 125
Statement of accounting policies in respect of the Group’s consolidated financial statements (continued)

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.

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.

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

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.

126 Ultra Electronics Holdings plc
Statement of accounting policies in respect of the Group’s consolidated financial statements (continued)

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.

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.

Ultra Electronics Holdings plc 127
Statement of accounting policies in respect of the Group’s consolidated financial statements (continued)

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.

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.

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

Derivative financial instruments (continued)
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, such as the S3 programme, are presented separately.
• Disposals of entities or investments in associates or joint ventures, or impairments of related assets are presented separately.
• The amortisation of intangible assets arising on acquisitions and impairment of goodwill or intangible assets 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.

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.

Ultra Electronics Holdings plc 129
Statement of accounting policies in respect of the Group’s consolidated financial statements (continued)

Critical accounting judgements and key sources of estimation uncertainty (continued)
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 2015 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 14.

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 AND DEEMED DISPOSAL OF ITHRA
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 31 December 2014 balance sheet date and consequently the termination was considered to be an adjusting post balance sheet event
for 2014 in accordance with IAS 10.

There remains significant uncertainty regarding the likely outcome of negotiations with the Sultanate of Oman, Ministry of Transport & Communications, or
whether agreement can be reached without the need to enter a formal arbitration or judicial process.

As set out in note 7, on 4 March 2015, ‘Ithra’ (“Ultra Electronics in collaboration with Oman Investment Corporation LLC”), the legal entity established
with the sole purpose of delivering the Oman Airport IT contract, was placed into voluntary liquidation. A liquidator was appointed and is pursuing
claims against the customer on behalf of the interested parties. Ithra, upon liquidation, no longer meets the IFRS 10 criteria for consolidation as a
subsidiary of the Group and is, consequently, a deemed disposal as at 4 March 2015.

Trade debtors and amounts recoverable on contracts were assessed for recoverability and allowances made for estimated irrecoverable amounts in the
2014 financial statements. Upon the liquidation of Ithra, the provisions and gross receivables are now presented as a net position. Specific provisions were
also booked in 2014 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. The Group continues to provide for all known remaining liabilities as at 31 December 2015. Material
items have been disclosed separately within the financial statements. Disclosure is provided on the consolidated income statement and in note 7 regarding
the 2015 deemed disposal of Ithra, and on the consolidated income statement and in note 2 regarding the non-underlying 2014 £46.9m contract
termination cost, comprising the £37.2m provision charge booked against contract receivables balances (see note 20) and other termination provisions
of 2014 £9.7m.

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
Company balance sheet /Company statement of changes in equity

Company balance sheet
31 December 2015

Fixed assets
Property, plant and equipment
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
Share capital
Share premium account
Profit and loss account
Own shares

Shareholders’ funds

Note

39
40

2015
£’000

2014
£’000

571
865,336

711
709,228

865,907

709,939

21,858
-

21,858

24,125
-

24,125

(111,453)

(145,442)

(89,595)

(121,317)

776,312
(336,757)

588,622
(165,026)

439,555

423,596

3,514
61,052
377,570
(2,581)

3,498
56,131
366,548
(2,581)

439,555

423,596

46
47
47
47

The financial statements of Ultra Electronics Holdings plc, registered number 02830397, were approved by the Board of Directors and authorised for
issue on 26 February 2016.

On behalf of the Board
R. Sharma, Chief Executive
M. Waldner, Finance Director

The accompanying notes are an integral part of this balance sheet.

Company statement of changes in equity
31 December 2015

Balance at 1 January 2015
Retained profit for the year

Total comprehensive income for the year
Dividends paid
Issue of new shares
Share based payments

Balance at 31 December 2015

Balance at 1 January 2014
Retained loss for the year

Total comprehensive income for the year
Dividends paid
Issue of new shares
Share based payments

Balance at 31 December 2014

Called
up share
capital
£’000

3,498
-

-
-
16
-

3,514

3,490
-

-
-
8
-

Share
premium
account
£’000

56,131
-

-
-
4,921
-

Profit
and loss
account
£’000

366,548
41,387

41,387
(31,332)
-
967

Own
shares
£’000

(2,581)
-

-
-
-
-

Total
£’000

423,596
41,387

41,387
(31,332)
4,937
967

61,052

377,570

(2,581)

439,555

53,908
-

-
-
2,223
-

414,528
(20,041)

(20,041)
(29,722)
-
1,783

(2,581)
-

-
-
-
-

469,345
(20,041)

(20,041)
(29,722)
2,231
1,783

3,498

56,131

366,548

(2,581)

423,596

Notes to accounts – Company
31 December 2015

39 Property, plant and equipment

Cost
At 1 January 2014
Additions

At 1 January 2015
Additions

At 31 December 2015

Accumulated depreciation
At 1 January 2014
Charge

At 1 January 2015
Charge

At 31 December 2015

Net book value
At 31 December 2015

At 31 December 2014

40 Investments

Ultra Electronics Holdings plc 131
Notes to accounts – Company

Plant and
machinery
£’000

2,026
8

2,034
5

2,039

1,147
176

1,323
145

1,468

571

711

a) Principal subsidiary undertakings
The Company owns either directly or indirectly 100% of the ordinary share capital of a number of subsidiary undertakings as set out in note 38.

b) Investment in subsidiary undertakings

At 1 January 2015
Additions
Impairments

At 31 December 2015

Total
£’000

709,228
185,661
(29,553)

865,336

The additions in the year related to further investment in an intermediate holding company. The impairments arise following review of the recoverability
of investments within the corporate Company structure.

41 Debtors

Amounts falling due within one year:
Amounts due from subsidiary undertakings
Deferred tax assets
Other receivables
Prepayments and accrued income

2015
£’000

20,906
37
694
221

21,858

2014
£’000

21,060
43
2,691
331

24,125

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
Notes to accounts – Company (continued)

42 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 (2014: nil).

43 Creditors: amounts falling due within one year

Bank loans and overdraft
Amounts owed to subsidiary undertakings
Other payables
Accruals and deferred income

2015
£’000

43
(6)

2015
£’000

2014
£’000

308
(265)

2014
£’000

2015
£’000

33,844
64,579
9,980
3,050

2014
£’000

37,851
93,750
11,914
1,927

111,453

145,442

The bank loans are unsecured. Interest was predominantly charged at 1.00% (2014: 1.00%) over base or contracted rate.

44 Creditors: amounts falling due after more than one year

Borrowings

2015
£’000

2014
£’000

336,757

165,026

336,757

165,026

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.

45 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

2015
£’000

33,844

2014
£’000

37,851

(33,844)

(37,851)

289,521
47,236

120,177
44,849

336,757

165,026

The loan notes are unsecured and due for repayment in 2018 and 2019. Interest was charged at 3.60% (2014: 3.60%).

46 Called-up share capital

The movements are disclosed in note 27 of the Group financial statements.

Ultra Electronics Holdings plc 133
Notes to accounts – Company (continued)

47 Equity reserve

The profit and loss account includes £179,642,000 (2014: £195,462,000) which is not distributable. A net foreign exchange gain of £9,103,000
was taken to reserves in the year. Further details in respect of dividends are presented in note 12 to the Group financial statements and share based
payments in note 27 to the Group financial statements.

The Company holds 235,245 own shares (2014: 235,245).

48 Related parties

Transactions with the related party Al Shaheen Adventure LLC are set out in note 17 of the Group accounts and transactions with ‘Ultra Electronics
in collaboration with Oman Investment Corporation’ are set out in note 34 of the Group accounts.

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

134 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 FRS101 Reduced Disclosure Framework. The
transition from the previously applicable United Kingdom accounting standards is not considered to have resulted in any material re-statements. No profit and
loss account is presented for the Company, as permitted by section 408 of the Companies Act 2006. As permitted by FRS101, the Company has taken
advantage of the disclosure exemptions available under that standard in relation to share-based payments, financial instruments, capital management,
presentation of a cash-flow statement and certain related party transactions. The Company’s retained profit for the year is disclosed in note 47.

Fixed assets and depreciation
Property, plant and equipment 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 participates in a defined benefit plan that shares risks between entities under common control. The details of this UK scheme, for which
Ultra Electronics Limited is the sponsoring employer, are set out in note 31 of the Group accounts. There is no contractual agreement or stated policy for
charging the net benefit cost to Ultra Electronics Holdings plc.

Investments
Fixed asset investments are shown at cost less provision for impairment. Assessment of impairments requires estimates to be made of the value in use of
the underlying investments. These value in use calculations are dependant on estimates of future cash flows and long-term growth rates.

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
Remuneration of the Directors, who are considered to be the key management personnel of the Company, is disclosed in the audited part of the
Directors’ Remuneration Report on pages 75 to 79.

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
Aerospace & Infrastructure
Communications & Security
Maritime & Land

Total revenue

Underlying operating profit1
Aerospace & Infrastructure
Communications & Security
Maritime & Land

Total underlying operating profit1

Margin1

Profit before tax
Profit after tax

Operating cash flow 2
Free cash flow before dividends, acquisitions and financing3
Net debt at year-end 4

Underlying earnings per share (p) 5
Dividend per share (p)

Ultra Electronics Holdings plc 135
Five-year review

2011
£m

229.3
228.7
273.7

731.7

37.2
42.8
41.7

2012
£m

226.6
268.9
265.3

760.8

45.1
32.9
43.8

2013
£m

230.4
237.7
277.1

745.2

46.2
27.5
48.0

2014
£m

198.6
224.4
290.7

713.7

29.6
37.0
51.5

2015
£m

193.2
239.3
293.8

726.3

28.7
40.4
50.9

121.7

121.8

121.7

118.1

120.0

16.6%

16.0%

16.3%

16.5%

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

34.8
25.0

81.3
43.1
(295.6)

123.9
46.1

Average employee numbers

4,206

4,430

4,274

4,787

4,843

1 Before acquisition-related costs, amortisation of intangibles arising on acquisition, the S3 programme, impairment charges and Oman contract

termination and liquidation related 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, the S3 programme, impairment charges, fair value movement on

derivative financial instruments, defined benefit pension interest charges and unwinding of discount on provisions.

*During the year the Group amended its internal organisation to better reflect the markets that the Group addresses so that business groupings better
reflect its capabilities, evolving product offerings and market facing segments. As a result of this, the composition of the Group’s reportable segments has
changed. As such, in line with IFRS 8, the corresponding information for the prior years have been restated. Previously results were reported as Aircraft &
Vehicle Systems, Information & Power Systems and Tactical & Sonar Systems, they are now reported as Aerospace & Infrastructure, Communications &
Security and Maritime & Land.

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

136 Ultra Electronics Holdings plc
Annual Report and Accounts 2015

Footnote
underlying operating proﬁt before Oman contract
termination and liquidation related costs, amortisation
of intangibles arising on acquisition, impairment of
goodwill and adjustments to contingent consideration
net of acquisition related costs. IFRS operating proﬁt
was £66.4m (2014: £39.5m).

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 contract
termination and liquidation related 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
35.7p (2014: 29.8p).

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 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 order intake excludes the removal of the
Oman order book in 2014 and includes orders from
acquisitions since acquisition date.

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.

underlying earnings per share is before
acquisition-related costs, amortisation of intangibles
arising on acquisition, the S3 programme, impairment
charges, fair value movement on derivative financial
instruments, defined benefit pension interest charges
and unwinding of discount on provisions.