The previously disclosed separate hedging reserve and translation reserve have been combined and prior periods restated on a consistent basis.2019 and 2018 balances for cash and cash equivalents and borrowings have been restated to meet the presentational requirements of IAS 32 with respect to the Group’s cash-pooling arrangements. The
net debt and net assets position is unchanged. Certain 2019 deferred tax balances have been reclassified from current to non-current to meet the requirements of IAS 1. The previously disclosed separate
hedging reserve and translation reserve have been combined and prior periods restated on a consistent basis. See note 35.213800E68EATZGAJIP642020-01-012020-12-31213800E68EATZGAJIP642019-01-012019-12-31213800E68EATZGAJIP642020-12-31213800E68EATZGAJIP642019-12-31213800E68EATZGAJIP642018-12-31213800E68EATZGAJIP642019-01-012019-12-31ifrs-full:IssuedCapitalMember213800E68EATZGAJIP642019-01-012019-12-31ifrs-full:SharePremiumMember213800E68EATZGAJIP642019-01-012019-12-31ifrs-full:CapitalRedemptionReserveMember213800E68EATZGAJIP642019-01-012019-12-31ifrs-full:TreasurySharesMember213800E68EATZGAJIP642019-01-012019-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800E68EATZGAJIP642019-01-012019-12-31ifrs-full:RetainedEarningsMember213800E68EATZGAJIP642019-01-012019-12-31ifrs-full:NoncontrollingInterestsMember213800E68EATZGAJIP642020-01-012020-12-31ifrs-full:IssuedCapitalMember213800E68EATZGAJIP642020-01-012020-12-31ifrs-full:SharePremiumMember213800E68EATZGAJIP642020-01-012020-12-31ifrs-full:CapitalRedemptionReserveMember213800E68EATZGAJIP642020-01-012020-12-31ifrs-full:TreasurySharesMember213800E68EATZGAJIP642020-01-012020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800E68EATZGAJIP642020-01-012020-12-31ifrs-full:RetainedEarningsMember213800E68EATZGAJIP642020-01-012020-12-31ifrs-full:NoncontrollingInterestsMember213800E68EATZGAJIP642018-12-31ifrs-full:IssuedCapitalMember213800E68EATZGAJIP642018-12-31ifrs-full:SharePremiumMember213800E68EATZGAJIP642018-12-31ifrs-full:CapitalRedemptionReserveMember213800E68EATZGAJIP642018-12-31ifrs-full:TreasurySharesMember213800E68EATZGAJIP642018-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800E68EATZGAJIP642018-12-31ifrs-full:RetainedEarningsMember213800E68EATZGAJIP642018-12-31ifrs-full:NoncontrollingInterestsMember213800E68EATZGAJIP642018-12-31ifrs-full:IssuedCapitalMemberifrs-full:PreviouslyStatedMember213800E68EATZGAJIP642018-12-31ifrs-full:SharePremiumMemberifrs-full:PreviouslyStatedMember213800E68EATZGAJIP642018-12-31ifrs-full:PreviouslyStatedMemberifrs-full:CapitalRedemptionReserveMember213800E68EATZGAJIP642018-12-31ifrs-full:TreasurySharesMemberifrs-full:PreviouslyStatedMember213800E68EATZGAJIP642018-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMemberifrs-full:PreviouslyStatedMember213800E68EATZGAJIP642018-12-31ifrs-full:RetainedEarningsMemberifrs-full:PreviouslyStatedMember213800E68EATZGAJIP642018-12-31ifrs-full:NoncontrollingInterestsMemberifrs-full:PreviouslyStatedMember213800E68EATZGAJIP642018-12-31ifrs-full:PreviouslyStatedMember213800E68EATZGAJIP642019-12-31ifrs-full:IssuedCapitalMember213800E68EATZGAJIP642019-12-31ifrs-full:SharePremiumMember213800E68EATZGAJIP642019-12-31ifrs-full:CapitalRedemptionReserveMember213800E68EATZGAJIP642019-12-31ifrs-full:TreasurySharesMember213800E68EATZGAJIP642019-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800E68EATZGAJIP642019-12-31ifrs-full:RetainedEarningsMember213800E68EATZGAJIP642019-12-31ifrs-full:NoncontrollingInterestsMember213800E68EATZGAJIP642019-12-31ule:IncreaseDecreaseDueToChangesInAccountingPolicyRequiredByIfrs16Memberifrs-full:IssuedCapitalMember213800E68EATZGAJIP642019-12-31ule:IncreaseDecreaseDueToChangesInAccountingPolicyRequiredByIfrs16Memberifrs-full:SharePremiumMember213800E68EATZGAJIP642019-12-31ule:IncreaseDecreaseDueToChangesInAccountingPolicyRequiredByIfrs16Memberifrs-full:CapitalRedemptionReserveMember213800E68EATZGAJIP642019-12-31ule:IncreaseDecreaseDueToChangesInAccountingPolicyRequiredByIfrs16Memberifrs-full:TreasurySharesMember213800E68EATZGAJIP642019-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMemberule:IncreaseDecreaseDueToChangesInAccountingPolicyRequiredByIfrs16Member213800E68EATZGAJIP642019-12-31ifrs-full:RetainedEarningsMemberule:IncreaseDecreaseDueToChangesInAccountingPolicyRequiredByIfrs16Member213800E68EATZGAJIP642019-12-31ifrs-full:NoncontrollingInterestsMemberule:IncreaseDecreaseDueToChangesInAccountingPolicyRequiredByIfrs16Member213800E68EATZGAJIP642019-12-31ule:IncreaseDecreaseDueToChangesInAccountingPolicyRequiredByIfrs16Member213800E68EATZGAJIP642020-12-31ifrs-full:IssuedCapitalMember213800E68EATZGAJIP642020-12-31ifrs-full:SharePremiumMember213800E68EATZGAJIP642020-12-31ifrs-full:CapitalRedemptionReserveMember213800E68EATZGAJIP642020-12-31ifrs-full:TreasurySharesMember213800E68EATZGAJIP642020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800E68EATZGAJIP642020-12-31ifrs-full:RetainedEarningsMember213800E68EATZGAJIP642020-12-31ifrs-full:NoncontrollingInterestsMemberiso4217:GBPiso4217:GBPxbrli:shares
Innovating today
for a safer tomorrow.
Ultra Annual Report
and Accounts 2020
Ultra
Annual Report and Accounts 2020
Innovating today
for a safer tomorrow
DELIVERING OUR PURPOSE
We develop the mission-critical solutions
in support of a safer tomorrow
Through innovative problem solving, using sustainable
capabilities and evolving technologies, we deliver outstanding
solutions to our customers’ most complex problems in
defence, security, critical detection and control environments.
By partnering with our customers, we provide the insight,
technology and services they need to perform at their best
and to help them make the world a safer place.
Our top customers
We work with the world’s major prime contractors
and directly with the US DoD and UK MoD.
Our top 10 contracts accounted for 21% of
our 2020 revenue (2019: 14%) and our top 10
platforms (excluding sonobuoy sales) accounted
for 18% of revenue (2019: 13%).
DoD
24%
MoD
7%
Lockheed Martin
5%
BAE Systems
5%
Boeing
4%
Northrop Grumman
4%
Pratt & Whitney
4%
General Dynamics
3%
Australia DoD
2%
US Bureau of Alcohol, Tobacco,
Firearms and Explosives
2%
Raytheon
2%
Rolls-Royce
1%
Thales
1%
GE
1%
Our markets
Maritime
46%
C4ISR/EW
28%
Critical detection and control markets
26%
Ultra operates mainly as a Tier 3 (sub-system) and
occasionally a Tier 2 systems provider, in the
Maritime, C4ISR/EW (Command, Control,
Communications, Computers (C4) Intelligence,
Surveillance and Reconnaissance (ISR)/Electronic
Warfare (EW)), military and commercial aerospace,
nuclear and industrial sensors markets.
We use both research and development to
provide innovative, mission-specic bespoke
technological solutions to our customers’ most
complex problems.
Direct defence sales to the US Department of
Defense (DoD) accounted for 23.6% and UK
Ministry of Defence (MoD) 6.6% of Group revenue
in 2020 (2019: 29%). Indirect sales to the DoD and
MoD accounted for an additional 26% (2019: 24%).
Our global reach
Ultra’s core markets are the ‘ve-eyes’ nations; the
USA, Canada, UK, Australia and New Zealand. This
gives us access to the largest addressable defence
budgets in the world.
North America
64%
UK
18%
Mainland Europe
8%
Australia and NZ
4%
Rest of the World
6%
Ultra
Annual Report
and Accounts 2020
1
Strategic report
Governance
Financial statements
Our 2024 objectives
As part of our Focus; Fix; Grow transformation to become
ONE Ultra, we identied ve key stakeholder groups.
We sought feedback from each group before we embarked
on our transformation. This feedback formed the basis of our
strategy and 2024 goals:
DELIVERING FOR ALL OUR STAKEHOLDERS
Employees
Create a dynamic, inclusive and
inspiring work environment that
attracts, develops and retains
the best diverse talent pool
Customers
To partner with customers,
delivering innovative solutions
that create ‘win-win’ outcomes
for all parties
Suppliers
Develop Group-wide partners
with like-minded values that
provide best-value solutions,
technical innovation and
support mutual success,
fairness and respect
Communities
To conduct business in an
ethical, safe and sustainable way,
acting as a positive force and
making an active contribution
to our communities
Investors
Deliver outstanding through-
cycle value for shareholders,
through eective execution
of Ultra’s strategy
Millie Midwinter-Lean,
Ultra Precision Control Systems
“ Ultra has given me the
opportunity to grow as a young
engineer, and really let me
explore a range of dierent
career options. It’s highly
motivating being surrounded
by such intelligent, innovative
and caring people.”
See more on
p22-23
Ultra
Annual Report
and Accounts 2020
2
FOCUS
FIX
GROW
ONE ULTRA
DELIVERING THROUGH FOCUS; FIX; GROW
Good progress in 2020.
Accelerating into 2021.
2020 was the rst of our multi-year transformation journey
as we FOCUS on the things we’re good at (applications
engineering in the design, development and production of
the key elements of mission-critical, intelligent and highly
regulated systems); FIX the basics and unlock our potential
to GROW faster.
We have made good progress across all our transformation
workstreams. In 2021 we’ll be advancing elements of our
Focus; Fix; Grow programme to accelerate the realisation
of our ONE Ultra goal to deliver exceptional value for all
our stakeholders.
Ultra
Annual Report
and Accounts 2020
3
Strategic report
Governance
Financial statements
1. Innovation
Invest in innovation aligned to
customer needs
2. Customer
Strengthen sales capability and
processes, market intelligence and
customer relationships. Improve
project delivery, on-time delivery,
productivity and cost eectiveness
3. People & culture
Embed our ONE Ultra operating
model. Improve organisation
health, diversity and inclusion,
talent bench strength and function,
and leadership capability
4. Continuous improvement
Develop the culture, standard
tools and capability to continually
improve our processes
5. Transformation
Deliver the transformation
programmes on time and to
budget. Prioritise resources across
the organisation
6. Health & safety,
environment and compliance
Align businesses to common
environmental, energy and safety
standards. Improve the health
and safety global programme
across Ultra
See more on
p13
Our 2021 priorities
Strategic report
06
Six things that make us excited about Ultra
08
Our Strategic Business Units
11
Our growth story
14
ONE Ultra strategic progress
18
Chief Executive’s report
22
Working with our stakeholders (and s172)
26
Our business model
28
Key performance indicators
30
Our target markets
32
Strategic Business Unit review
38
A Positive Force: our commitment to a
sustainable future
54
Principal risks and uncertainties
60
Financial review
Governance
66
Chairman’s governance report
68
Our Board
74
Our Executive Team
78
Our Board in action
82
Nomination Committee report
84
Audit Committee report
88
Directors’ remuneration report
92
Annual report on remuneration
102
Directors’ report
Financial statements
105
Independent auditor’s report
114
Consolidated income statement
115
Consolidated statement of comprehensive
income
116
Consolidated balance sheet
117
Consolidated cash ow statement
118
Consolidated statement of changes
in equity
119
Notes to accounts – Group
156
Statement of accounting policies – Group
165
Company balance sheet
166
Company statement of changes in equity
167
Notes to accounts – Company
171
Statement of accounting policies – Company
173
Glossary
Shareholder information
174
Five-year review
176
Business addresses
Contents
Performance highlights
Highlights
Ultra
Annual Report
and Accounts 2020
4
Order book
£1.1bn
+4.0%
(2019: £1.0bn)
Revenue
£859.8m
+4.2%
(2019: £825.4m)
Statutory operating prot
£106.3m
+12.8%
(2019: £94.2m)
Underlying operating prot
*
£126.1m
+6.7%
(2019: £118.2m)
Statutory basic earnings per share
118p
+12.3%
(2019: 105.1p)
Underlying earnings per share
*
130.6p
+9.3%
(2019: 119.5p)
Statutory cash generated by operations
£142.6m
+24.1%
(2019: £114.9m)
Underlying operating cash ow
*
£116.1m
+33.8%
(2019: £86.8m)
Underlying operating cash conversion
*
92%
(2019: 73%)
Dividend per share
56.9p
+5.0%
(2019: 54.2p)**
ONE ULTRA, DELIVERING
Further strategic progress
+
Key programme wins
Delivering growth
+
Third consecutive year of organic
revenue growth
+
Strong order book development
+
Market outperformance
Robust performance
+
Solid execution, despite Covid-19
+
Margin progression and
excellent return on invested
capital (ROIC)
+
Increased dividend
Transformation on track
+
Good progress on Focus; Fix;
Grow change programme
Exciting potential
+
Record order book, good visibility
+
Stable markets with Ultra well
positioned in growth segments
+
Targeted technology investment
+
Transformation benets
accelerating
Forward-looking statement
This Annual Report contains certain forward-looking
statements with respect to the operations, strategy,
performance, nancial condition and growth opportunities
of the Group. By their nature, these statements involve
uncertainty and are based on assumptions and involve risks,
uncertainties and other factors that could cause actual
results and developments to dier materially from those
anticipated. The forward-looking statements reect
knowledge and information available at the date of
preparation of this Annual Report and, other than in
accordance with its legal and regulatory obligations,
the Company undertakes no obligation to update
these forward-looking statements. Nothing in this
Annual Report should be construed as a prot forecast.
*
Underlying and organic measures, as quoted throughout
the strategic report, are reconciled to statutory measures
in note 2 (pages 122-123) and dened on pages 163-164.
** when including the 2019 nal dividend that was
withdrawn as a precautionary measure due to the
Covid-19 pandemic and paid on 18 September 2020
as an additional interim dividend.
Ultra
Annual Report
and Accounts 2020
5
Strategic report
Governance
Financial statements
2020 was a year that demonstrated the underlying strength of
Ultra, and the capabilities and dedication of our outstanding people.
Through the extraordinary eorts of the whole Ultra team, we
made good strategic progress and achieved our third consecutive
year of strong organic growth. We made good progress on
our ONE Ultra transformation and, as a result, we delivered or
exceeded most of our stakeholder objectives. These would have
been excellent outcomes in any year, but against a background
of pandemic-driven disruption and turmoil, it was an exceptional
performance.
We enter 2021 with a record order book, giving us strong
visibility, and we remain well positioned in key growth areas to
support customers’ evolving priorities. We continue to increase
our technology investment, expanding the areas in which
we can provide eective customer solutions. Our ONE Ultra
transformation programme is having a positive impact on both
growth opportunities and operational eciency, and with strong
2020 delivery, we are condent enough to accelerate several of our
transformation actions in 2021. This should see us begin to realise
year-on-year net benets in 2022, a year ahead of plan.
This excellent performance gives us further condence in Ultra’s
exciting potential and our ability to deliver exceptional value for all
stakeholders over the longer term.
Simon Pryce
Chief Executive
Ultra
Annual Report
and Accounts 2020
6
Six things that make us excited about Ultra
1.
An agile player
in growing markets
+
Long-cycle defence markets with
stable through-cycle growth
+
Well positioned to grow above core
defence markets
+
Maritime ve-year CAGR 2–4%
+
Intelligence & Communications
ve-year CAGR 3–5%
+
Other security and critical detection
and control ve-year CAGR 2–4%
+
Opportunities for share gain and
expansion into adjacent and new
markets
3.
Well positioned to
capture segment growth
Ultra’s core capabilities relevant
to future customer priorities:
+
Combating near-peer threats
+
Countering asymmetric threats
+
Doing more with less
+
Accelerating detect to deploy
+
Mission-enabling sensing
+
Quantum extreme value
statistical analysis
See more on
p8-10
2.
Sustainable technology
and cost advantage
+
Strong technology base, well aligned
to future areas of growth
+
Leading software, data processing
and algorithm capability
+
Application engineering of mission-
critical sensing and control systems
+
Development spend (customer and
internally funded) c.20% of revenue
+
Materially lower fully absorbed
engineering cost per hour vs
traditional primes
Ultra
Annual Report
and Accounts 2020
7
Strategic report
Governance
Financial statements
4.
Robust business model
+
Good visibility from long-term contracts
and lag to US defence outlays
+
Asset light with broad technology,
platform and product exposure
+
Well diversied with our top 10 contracts
accounting for 21% of 2020 revenue
+
Strong installed base with stable
aftermarket and services revenue
5.
Transformation programme
to accelerate growth and
improve operational
performance
+
Launched in January 2020, multi-year
investment with costs taken ‘above
the line’
+
Opportunity for medium-term
margin improvement and increased
investment to support growth
+
ONE Ultra will deliver accelerated
growth, performance improvement
and operational leverage
6.
High return model with
strong cash ow
+
Through-cycle cash conversion
of 90–100%
+
Low capital business model,
with long-term ROIC for existing
businesses of over 20%
+
Capital allocation model supporting
dividend growth
See more on
p64
See more on
p11-15
See more on
p26-27
FOCUS
FIX
GROW
ONE ULTR
A
Ultra
Annual Report
and Accounts 2020
8
Ultra at a glance
Our Strategic Business Units
Maritime
We deliver leading multi-mission
solutions to protect our ‘ve-eyes’
navies.
Our market-leading mission systems
deliver dominance in the maritime
domain. Our broad portfolio of
capabilities is operational on eets
across the allied navies worldwide.
We develop advanced specialist
systems to deliver warghting edge in
the modern maritime and underwater
battlespace. These provide critical
operational advantages to our defence
customers across surface, sub-surface
and unmanned platforms.
Core capabilities
2021 addressable markets
(Total accessible market in all accessible countries)
Sonobuoy Systems
World-leaders in the manufacture
and supply of sonobuoys and
anti-submarine warfare (ASW)
processing to navies worldwide.
Our range of multi-static active
(MSA) acoustics use patterns of
active source and passive receive
sonobuoys and advanced signal
processing techniques to enhance
submarine detection probability
and increase area coverage.
Sonar Systems
Our underwater warfare systems
overcome the unique challenges
of the undersea environment. Our
solutions span: integrated hull and
variable depth sonar systems for
manned and unmanned platforms;
torpedo defence systems;
deployable underwater sensors;
and electronic warfare systems.
Naval Systems & Sensors
Our systems and sub-systems are
designed to protect allied navies
from emerging threats and ensure
a critical operational advantage. We
provide acoustic and sonar systems,
torpedo defence and radar sensor
solutions.
Signature Management & Power
We are proven turnkey system
developers of traditional
degaussing, advanced degaussing
and high temperature degaussing
systems and power conversion
solutions for naval applications
including electromagnetic analysis
for naval platforms and ranges. We
provide a range of proven, high-
performance solutions for surface
and sub-surface applications
including field support that ensures
a mission-critical advantage for our
warfighters.
£388m
2020: £380m
£59m
2020: £58m
£543m
2020: £524m
£309m
2020: £299m
Reported Sales for the year
to 31 December 2020
(46% of Group Sales)
£391.8m
Organic sales growth
+12.3%
Statutory operating profit
£55.9m
Underlying operating profit
£58.6m
Underlying operating margin
15.0%
Competitive advantages
+
Thought leadership and proven design and delivery capability
across a broad suite of anti-submarine warfare, sonar, radar
and force protection capabilities
+
Compelling market position in high-integrity underwater
sensing systems and solutions
+
Strong legacy platform presence and positions on current and
future naval ‘five-eyes’ programmes of significance including
Virginia class submarine (USA), Dreadnought, Type 23 & Type
26 (UK), CSC (Canada) and Hunter class (Australia)
+
Key multi-level relationships with ‘five-eyes’ naval customers
+
Long-standing support and partnerships with major
platform primes
+
Deep-domain knowledge, an agile and innovative approach
and a culture of continuous improvement enable us to
offer cutting-edge, cost-competitive solutions across
our capability suite
Strategic focus
+
Increased investment in innovation and disruptive
technologies
+
Deliver efficiency improvements and continuous improvement
+
Increase customer satisfaction by improving on-time delivery
and programme execution
+
Grow market share in ‘five-eyes’ nations
+
Increased focus on aftermarket support
+
Improve safety awareness, culture and performance
Ultra
Annual Report
and Accounts 2020
9
Strategic report
Governance
Financial statements
Intelligence & Communications
We deliver the intelligence that informs
decision-making in the most challenging
environments through mission-critical,
multi-domain communications,
command and control, cyber security
and electronic warfare.
Our innovative solutions provide
information advantage through the
intelligent application of integrated
technologies, combined with through-
life support service, ensuring those
operating in high-threat environments
have the intelligence they need to carry
out their missions safely and eectively.
Core capabilities
2021 addressable markets
(Total accessible market in all accessible countries)
Communications
Our tactical communications include
multi-domain solutions that are
protected from the threat of data
compromise or jamming. High-
capacity tactical radio and advanced
waveforms enable accurate timeline
exchange of voice, video and data
for military and government
customers worldwide.
Command, Control and
Intelligence (C2I)
Proven Command and Control (C2)
technologies deliver information
advantage in near real-time,
allowing quick and informed
decisions based on an accurate
picture of the situation on the
ground. Ultra delivers information
advantage across the operating
environment, enhanced by the
application of leading-edge artificial
intelligence (AI), machine learning
(ML) and cross-domain intelligence
capabilities.
Cyber
Delivering advanced, high-grade
cryptography, key management and
security solutions that provide the
highest level of protection against
intrusion. Ultra’s capabilities deliver
information assurance with
ground-breaking technological
solutions.
Specialist Radio Frequency
We support improved threat
detection and identification, as well
as improved enemy engagement
through the execution of complex
and critical operations at all levels
of the command structure. Our
products are key enablers for a
variety of advanced systems,
including radar warning, surface
ship situational awareness and
digital electronics warfare systems.
£245m
2020: £239m
£1.0bn
2020: £965m
£962m
2020: £918m
£1.1bn
2020: £1.1bn
Reported Sales for the year
to 31 December 2020
(28% of Group Sales)
£241.0m
Organic sales growth
+8.6%
Statutory operating profit
£23.7m
Underlying operating profit
£33.5m
Underlying operating margin
13.9%
Competitive advantages
+
Industry-leading expertise in resilient, secure communications
networks & cryptography, and advanced artificial intelligence/
by 4.0% in our Critical Detection & Control due to
the previously mentioned Covid-19 impact on
sales. Underlying operating margins in this
Business Unit however, grew to 15.0% (2019:
14.4%), reflecting good cost control, favourable
transactional FX and good sales mix in our
Forensics business. Statutory operating profit in
Critical Detection & Control declined by 4.8%, and
statutory operating margin increased to 13.2%
(2019: 12.7%).
Overall, statutory operating margin was 12.4%
(2019: 11.4%). The group underlying operating
margin of 14.7% was better than we expected. As
planned, we increased transformation investment
by over £5m to £8m and increased our investment
in internal research and development organically
by £2.8m to 3.7% of sales (2019: 3.6%). The cost
increases in transformation and R&D were partly
offset by lower than expected indirect costs due
to Covid-19-related changes to travel and
marketing spending. These costs are expected
to normalise during 2021.
Underlying profit before tax (PBT) increased by
8.7% to £114.5m. We made a net gain on the
disposal of two small non-core businesses, partly
offset by a legacy provision relating to one of the
businesses sold. Statutory PBT increased by 14%
to £103.7m, reflecting the underlying performance
as well as decreased amortisation charges.
Underlying earnings per share (EPS) increased by
9.3% to 130.6p (2019: 119.5p), reflecting the
increase in underlying profit and a slight reduction
in the underlying tax rate. As a result, statutory
EPS increased 12.3% to 118.0p.
Statutory cash generated by operations increased
to £142.6m (2019: £114.9m) and underlying
operating cash conversion was excellent at 92%
(2019: 73%). This was partially due to the
increasing order book, which led to customer
advances. In addition, collection of receivables was
strong, unbilled receivables decreased and capital
expenditure was lower than planned due to our
new enterprise resource planning (ERP) strategy.
Through the extraordinary efforts of the whole
Ultra team, we made good strategic progress
and achieved another year of strong organic
growth. We also delivered or exceeded most of
our stakeholder objectives. These would have
been excellent outcomes in any year, but against
a background of pandemic-driven disruption and
turmoil, it was an exceptional performance.
Simon Pryce
Chief Executive
Ultra
Annual Report
and Accounts 2020
19
Strategic report
Governance
Financial statements
During 2020 we moved firmly into the execution phase of Ultra’s
transformation, with good progress throughout the year across
all workstreams in our Focus; Fix; Grow change programme:
FOCUS
FIX
GROW
Transformation progress
WORKSTREAM
GOALS
PROGRESS IN 2020
Operating
Model
+
Improved customer alignment
+
Better functional support
+
Relevant data, improved decision-
making, disciplined allocation of
scarce resources
Our new strategy was launched at the beginning of 2020 and this now guides all prioritisation
and resource allocation decisions.
The operating model design work to best support strategy execution was completed during the
year. This included a new organisational structure, launched on 1 January 2021, completing our
migration from an aggregation of individual site-based businesses to a collaborative Group.
We revised and relaunched delegated authorities and empowerment guidelines to improve
the speed and quality of decision-making, while improving visibility and oversight.
We introduced and enhanced a suite of standard operational metrics to better focus on actions
and outcomes, and to better measure and monitor progress against our stakeholder goals.
We also introduced a process for aligning individual and corporate objectives across the
organisation, no longer just based on outcomes but also on how they are achieved, with
behaviours measured against our ASPIRE values.
Site
Excellence
+
Improved and optimised
working environment
+
Increased sustainability
+
Better working practices
We made good progress in optimising our footprint, closing a production site in Rochester,
New York, and beginning plant closures in Wake Forest, North Carolina and one of our facilities
at Greenford in the UK. We also approved plans to invest in two of our existing sites in Canada
in 2021 to support future growth.
We introduced Group-wide changes in working practices to create greater agility and flexibility,
while improving footprint utilisation, and ultimately efficiency, cost and our impact on the
environment.
All sites have been updated to reflect the Group re-branding, and the launch of our vision,
mission, and values. We have also invested in shop floor layout improvements, partly in
response to the pandemic but also to upgrade and improve the working environment.
Operational
and Functional
Excellence
+
Improved utilisation, efficiency,
productivity and delivery
+
Better collaboration to improve
customer outcomes
+
Global standards where there
is a benefit from having them
+
Improved business partnering
and decision support
We made excellent progress on projects focused on improving our HR, finance, IT, project
management and sales processes.
We have reviewed our marketing and sales processes and identified material opportunities
to improve through better use of the Group’s extensive customer knowledge. We also further
enhanced and improved risk assessment and management in our bid processes.
During the year, we piloted a standardised customer feedback process to get better,
independent, and more immediate information on customer needs and support.
We completed the redesign and standardisation of our HR processes across the Group during
the year. We selected a new Global human resource information system (HRIS) to be
implemented across the Group, which will go live in Q2 2021.
We made good progress expanding and standardising our chart of accounts and replacing
our financial consolidation system. This will enhance our data quality and fidelity, and improve
control and performance management. We are also improving several local finance
administrative processes in advance of developing standard finance processes in 2021.
Procurement
+
More reliable supply chain
+
Better scale benefits
+
Transparent data and standard
procurement processes
+
Better supplier collaboration
and management
A Group Head of Procurement was appointed and is creating a centralised procurement
function, responsible for standardising procurement processes and practices and key
category management.
In parallel, we have focused on aggregating demand in a small number of key categories to
improve supplier collaboration and management as well as achieving economies of scale in 2021.
Our internal capability to build high complexity, low volume printed circuit boards is also being
enhanced to optimise design for manufacture and supply chain risk management.
Continued overleaf
Ultra
Annual Report
and Accounts 2020
20
Ultra’s underlying profit growth, the amortisation
of intangibles and low capital intensity meant that
ROIC increased to 20.0% in 2020 (2019: 17.8%).
Covid-19
Ultra’s flexibility and performance through the
pandemic demonstrates the strength of our
business model, and the exceptional commitment
and resilience of our people in addressing
numerous customer, production, supply chain
and other issues to continue to deliver for all our
stakeholders. While most facilities experienced
some disruption, all remained open and
productive throughout the year.
We have not sought to benefit from any material
local or national Covid-19 stimulus (such as
furlough or tax deferral) and, although we
continue to monitor and adapt to the changing
situation in all our markets, we do not anticipate
doing so.
Chief Executive’s report
continued
Transformation: on track
continued
We also provided immediate and much needed
support to our local communities most impacted
by the pandemic through our ONE Ultra Covid-19
fund. To date we have donated over $200,000 to
our local communities across the world.
Summary & outlook
2020 was a year that demonstrated the underlying
strength of Ultra and the capabilities and
dedication of our outstanding people.
Through the extraordinary efforts of the whole of
the Ultra team, we made good strategic progress
and achieved our third consecutive year of strong
organic growth. We made good progress on our
ONE Ultra transformation and, as a result, we
delivered or exceeded most of our stakeholder
objectives. These would have been excellent
outcomes in any year, but against a background of
pandemic-driven disruption and turmoil, it was an
exceptional performance.
We enter 2021 with a record order book giving us
strong visibility and we are very well positioned in
key growth areas, and to support customers’
evolving priorities. We continue to increase our
technology investment, expanding the areas in
which we can provide effective customer
solutions. Our ONE Ultra transformation
programme is having a positive impact on both
growth opportunities and operational efficiency,
and with strong 2020 delivery, we are confident
enough to accelerate several of our
transformation actions in 2021. This should see
us begin to realise year-on-year benefits in 2022,
a year ahead of plan.
This excellent performance gives us further
confidence in Ultra’s exciting potential and
our ability to deliver exceptional value for all
stakeholders over the longer term.
WORKSTREAM
GOALS
PROGRESS IN 2020
ONE Ultra
Culture
+
Investing in people
+
Innovation
+
Working environment
+
Continuous improvement
Our new common vision, mission and values were agreed, launched and embedded in 2020.
A leadership capability assessment was also completed. Assessment tools, performance
management processes and remuneration structures have now been aligned to our
ONE Ultra strategy and values.
Leadership training programmes commenced in 2020 to support our new ONE Ultra
behaviours. We were particularly pleased with the result of our all-employee engagement
score, which increased to 75.5%. We were able to use feedback from this engagement survey
and, as a response to the pandemic, have introduced new ways of working to support more
flexible and agile working across Ultra.
The new organisational structure has also created opportunities for us to enhance our bench
strength and promote our best people. By the end of 2020, nearly 40% of Ultra’s top talent
were new or new in role. One in three of this group are female, and women now make up over
25% of Ultra’s top management.
Technology
Enablement
+
Improved collaboration
+
More efficient IT infrastructure
+
Standard processes supported
by standard applications
New foundational IT infrastructure was selected in 2020, and is currently being implemented
globally. These technologies support data standardisation initiatives and the widespread
process improvements taking place across the Group. This will enable more effective
information exchange and collaborative working.
A Group Chief Technology Officer was appointed during the year to monitor technology
trends, improve efficiency, and remove duplication from the Group’s development efforts.
We are already seeing better alignment of our internal R&D investments with our customers’
future needs.
Ultra
Annual Report
and Accounts 2020
21
Strategic report
Governance
Financial statements
Bonny Stairs
brought in her own
sewing machine from home to sew
face masks from leftover material
from a local company in Halifax,
Nova Scotia, for the production staff
and people in the office at Ultra
Sonar Systems. We can’t thank
Bonny enough for the hard work,
time and effort she put in,
so everyone feels safe and
stays healthy.
Our
Ultra Forensic Technology
Strategic Business Unit (SBU)
used personal time and money to
produce and distribute 3D printed
protective face shield frames for
front-line medical workers. We
would like to thank Paul Murphy,
Firearm Examiner at our Largo,
Florida office, and Bruno Sylvain,
Senior Software Developer at our
Montreal office in Canada.
At
Ultra Naval Systems
in the USA,
employees decided to help our
communities by using surplus 3D
printer capacity to manufacture
respirators and face shields.
Between March and May 2020, 650
respirators and 120 face shields and
masks had been printed, assembled,
and delivered to front-line workers in
desperate need of critical PPE.
Ultra C2I’s
Link-16 Alaska (LAK) Field
Installation Team completed a major
retrofit of the deployed systems in
Alaska during the pandemic. The
team addressed unique challenges
and conditions throughout their
time due to Covid-19 restrictions,
such as difficulties with
transportation, and changes in
shifts and schedules.
The team was required to upgrade
the final eight LAK sites located in
some of the most remote locations
in Alaska – accessible only by charter
aircraft. Normally, this would have
been an eight-week programme but,
in order to meet critical timelines,
the team was asked – and agreed
– to do this in four weeks. Despite
all the challenges and changing
requirements, and because of their
dedication, ingenuity, and
endurance, the team completed
the installations one day ahead
of schedule.
Ultra heroes
Our first priority during the
pandemic has been to keep our
people as safe and healthy as
possible while continuing to deliver
for our other stakeholders.
During this unprecedented and
intensely challenging year, many
of our colleagues have been on
the front-line responding to the
pandemic and have demonstrated
exceptional resilience, great spirit
and care for one another, our
customers and our communities.
As a result of their exceptional
efforts, apart from a day or two
here and there, all facilities remained
open and productive throughout
the year, and there was no
significant disruption to product
or programme delivery.
We’d like to thank our ‘Ultra Heroes’
for everything they’ve done and how
they’ve responded to the challenge
of Covid-19 while continuing to
pursue our ONE Ultra
transformation agenda. We’ve had
over 130 Ultra Heroes who have
been recognised by their colleagues
over the course of 2020. Here are
just a few of these.
We couldn’t be prouder of every one
of our people during 2020 who have
kept Ultra delivering for all our
stakeholders.
In a world where connectivity is
essential, we would also like to thank
our global IT teams, who have been
working around the clock to keep
us all connected in a new virtual
environment.
We are proud to have assisted the
UK Government with its “Ventilator
Challenge UK” (VCUK), helping to
produce as many ventilators as
possible to support the NHS in
treating people impacted by
Covid-19. VCUK saw numerous
employees come together in difficult
circumstances from across our
businesses in the UK. We had only
one objective in mind: to find quick
and effective solutions to any issues
that arise daily.
WE ARE
Dedicated
Ventilator Challenge UK
Over the course of Spring and
Summer 2020, our team of
dedicated employees helped
the Consortium with:
+
Technical solutions, providing
concessions and supporting data
+
Performing test coverage analysis
and suggesting process
improvements
+
Setting up build lines for the
manufacture, testing and
programming of key Printed
Circuit Board assembly
+
Providing support and guidance
in best practice for configuration
control and compliance of complex
processes and supply chains.
It was a great example of ONE Ultra
working tirelessly together as a
single team for a common cause:
delivering solutions to complex
and ever-evolving problems.
Thank you to all our teams involved!
Ultra
Annual Report
and Accounts 2020
22
Working with our stakeholders and s172
In accordance with the reporting requirements of
the UK Corporate Governance Code 2018 and the
Companies (Miscellaneous Reporting) Regulations
2018 for a separately identifiable section 172
(s172) statement, this section shows how the
Directors have performed their duty under s172
of the Companies Act 2006 to promote the
success of the Company, having regard to the
long-term consequences and the interests of all
Ultra’s stakeholders when making their decisions.
Details of how we have engaged with our
stakeholders, addressing our long-term goals
for each, are set out on pages 22 and 23.
On pages 24 and 25 we set out the principal
decisions taken by the Board in 2020, show how
these contribute to the success of Ultra and
describe how stakeholders were considered,
as well as the likely consequences of those
decisions over the longer-term.
2024 goal:
Create a dynamic, inclusive and
inspiring work environment that attracts, develops
and retains the best diverse talent pool.
2020 focus areas
+
Building the talent pipeline
+
Strengthening leadership and functional
capability
+
Compelling reward and recognition
+
Succeed through diversity
+
Create a winning culture
+
Transform our business
Key 2021 measures
+
Continuously improving our engagement score
+
Reducing voluntary turnover
+
Conducting an increased number of Ultra Way
Sprints (continuous improvement events) per
site, per month
How Ultra engages
+
UltraView engagement survey including action
plan follow-up with all employees
+
Engagement Pulse survey in between full survey
+
Employee feedback sessions with managers
+
Leadership conferences (virtual in 2020)
+
Weekly newsletter and Ultranet sharing platform
+
Monthly town hall meetings
+
Leadership training programmes
+
Board and Executive Team site visits
+
Ethics Committee site visits
+
Strategic Business Unit roadshows
+
Ultra Way continuous improvement Sprints
Supporting our people
pages 40-48
Workforce engagement
page 80
Board engagement
Direct
+
Our CEO and CFO held several townhall
meetings with Q&A
+
‘Ask the CEO’ emails
+
Daniel Shook and Ken Hunzeker met certain
employees at a site visit to Herley, Lancaster, USA
+
Victoria Hull and Geeta Gopalan, engaged with
50 of our women leaders as part of our
Strategies for Success programme
Indirect
+
Received and discussed collated feedback from
manager and employee group sessions
regarding our Code of Conduct and re-branded
Speak Up platform
+
Received and discussed feedback reports and
recommendations from transformation focus
groups
+
Received and discussed feedback from our
independent Ethics Committee
2024 goal:
To partner with customers, delivering
innovative solutions that create ‘win–win’
outcomes for all parties.
2020 focus areas
+
Being the customers’ supplier of choice in our
areas of strategic focus
+
Partnering to understand customer problems
and priorities and creating valued solutions
that the customer is prepared to pay for
+
Delivering on our commitments and
exceeding customer expectations
+
Being agile, flexible and responsive to
customer needs
+
Valuing creative investment in strategic
research and development to innovate in
support of customer needs
Key 2021 measures
+
Launch of our new customer feedback tool
to monitor customer satisfaction
+
Labour productivity
+
Cost of Poor Quality
+
On-Time Delivery improvement
+
Product Vitality Index (the percentage of
revenue driven by products developed in the
last five years)
How Ultra engages
+
Group-wide multi-channel engagement
around organisational design changes
+
Ongoing customer relationship management
to ensure our customers’ needs are met
+
Central SBU engagement with key influencer
relationships
+
Piloted a standardised customer feedback
process – to be rolled out in 2021
ONE Ultra strategy
pages 12-15
Board engagement
Direct
+
Our CEO engages directly with key customers
and returns feedback to the Board in his Board
reports
Indirect
+
Received customer feedback from Business
presentations from SBU/OBU Leads
+
Customers’ needs considered prior to
approval of new sales policy, standardised
customer feedback and the Group technology
roadmap, aimed to align Ultra’s internal R&D
with customer future needs
Employees
Customers
ONE Ultra strategy: pages
12-15
Transformation investment: pages
19-20
Supporting our people:
pages
40-48
Workforce engagement: page
80
ONE Ultra strategy: pages
14-15
Protecting our planet: pages
49-53
Transform our business: pages
45-46
Ethics Committee:
page
75
Audit Committee report: pages
84-87
Stakeholder goals: pages
14-15
Investor engagement: page
81
Further information on how s172 has
been applied by the Board can be found
as follows:
The likely consequences of any decision
in the long term
The interests of the company’s employees
The need to foster the company’s business
relationships with suppliers, customers
and others
The impact of the company’s operations
on the community and environment
The desirability of the company maintaining
a reputation for high standards of business
conduct
The need to act fairly between members
of the company
Ultra
Annual Report
and Accounts 2020
23
Strategic report
Governance
Financial statements
2024 goal:
Develop Group-wide partners with
like-minded values that provide best-value
solutions, technical innovation and support mutual
success, fairness and respect.
2020 focus areas
+
Taking a long-term and partnering approach to
supply chain development
+
Focusing on lowest total cost of supply (including
quality, delivery and inventory)
Key 2021 measures
+
Total cost of procurement (direct and indirect
procurement costs) reduced
+
Late supplier deliveries reduced
How Ultra engages
+
Ongoing supplier relationship management
through our procurement teams, to ensure our
customers’ needs are met
+
Creating a dialogue with our key suppliers –
sharing our vision for procurement
transformation and listening to our suppliers’
feedback on how we can work together for
mutual success
+
Taking a global view of strategic categories
which allows us to collaborate with suppliers
across businesses and countries creating bigger
opportunities
ONE Ultra strategy
pages 12-15
Board engagement
Direct
+
Reviewed supplier needs including payment
practices and working capital movements,
particularly in light of the pandemic and changes
in customer advanced payments during the year
Indirect
+
Received a presentation on the procurement
transformation business case that identifies our
Group-wide approach to category management
and supplier partnerships
2024 goal:
To conduct business in an ethical, safe
and sustainable way, acting as a positive force and
making an active contribution to our communities.
2020 focus areas
+
Aligning behind an Ultra-wide sustainability plan
that is actioned, monitored, measured and
regularly reviewed
+
Ensuring we are a positive force in all our local
communities where we operate
+
Acting at all times in an ethical, safe and
sustainable way in accordance with our
ASPIRE values
+
Encouraging and supporting our employees
to contribute to community work and support
Key 2021 measures
+
Reducing 2021 carbon emissions by 10% (2020
not a reliable base due to Covid-19)
+
Improving our reporting of near-miss health and
safety reports to increase four times so we have
better data and information on areas we need to
improve. Importantly, this measure is not just for
employees but also visitors, suppliers and
contractors who are on Ultra sites
How Ultra engages
+
Community engagement on a wide-scale
following the launch of our Covid-19 fund. This
resulted in the development of local community
support frameworks where we operate
+
Community activities, initiatives and donations
channelled via our Group CSR Committee –
with 17 members across all our businesses
and locations
Strategic report
page 21
Giving back
page 53
Board engagement
Indirect
+
Received a presentation from our CSR
Committee Chair on the Company’s CSR
initiatives and developments in 2020 prior
to approving Ultra’s CSR policy and strategy,
including 2021 objectives and initiatives
+
Received feedback reports on how the
Company’s Covid-19 fund had helped our
communities
+
Investor feedback around CSR themes and
disclosure was presented and discussed
2024 goal:
Deliver outstanding through-cycle
value for shareholders, through eective execution
of Ultra’s strategy.
2020 focus areas
+
Clearly defining and communicating our ONE
Ultra strategy for outstanding value-creation
+
Clarifying and delivering Ultra’s parenting
advantage opportunities
+
Taking understood and managed risk within
strategic guidelines to deliver growth above
target market
+
Defining strategic key performance indicators
(KPIs) and setting/communicating targets to
monitor delivery
+
Disciplined capital allocation, within a clear policy
that includes return hurdles, leverage levels and
dividend policy
Key 2021 measures
+
Improve order book and sales growth
+
Improve ROIC
+
Improve working capital and inventory turns
How Ultra engages
+
Results roadshows and investor meetings
with CEO, CFO and Investor Relations
+
Annual General Meeting
+
Investor calls and briefings
Our business model
pages 26-27
Investor engagement
page 81
Board engagement
Direct
+
Private and institutional investor meetings
organised with Directors as requested
+
Investor presentations by the Chief Executive
Officer and Chief Financial Officer throughout
the year
Indirect
+
Public webcasts and investor materials on new
Group website are now clearer and easier to find
+
Considered the needs of our investors when
reviewing capital allocation and our dividend
policy over the course of the year, particularly
in light of the global pandemic
Communities
Investors
Suppliers
Ultra
Annual Report
and Accounts 2020
24
Principal Board decisions
in 2020
Working with our stakeholders
continued
Stakeholder considerations
As a critical supplier, the Board was mindful of
the fact that, while our operations need to
continue to deliver mission-critical systems for
our customers, looking after the health and
well-being of our people is always our first
priority. A special Board meeting was called to
discuss operations, including continuity planning
and scenario analysis as well as the potential
mitigating actions that could be taken to reduce
the impact of the pandemic on the business. In
assessing the potential scenarios and mitigating
actions, the Board considered the potential
impact on all relevant stakeholder groups,
including the health and safety implications for
relevant employees of keeping the Group’s
critical facilities open and operating.
The Board also considered whether to pay the
previously proposed final dividend for 2019 and
concluded that until the financial impact of the
pandemic was fully understood it would be
prudent to postpone it. This resulted in the
withdrawal of the Board’s recommendation of a
final 2019 dividend of 39.2p per share from the
2020 Annual General Meeting. However, once
the limited impact of the pandemic became
clearer, mindful of the interests of its
stakeholders, including shareholders, the Board
was comfortable to declare an interim 2020
dividend of 15.4p per share and an additional
interim dividend of 39.2p per share (equivalent
to the initially proposed final 2019 dividend). A
$220,000 Covid-19 fund to support our local
communities was also provided.
Supply chain risks were also reviewed as a result
of Covid-19 and Brexit, considering the financial
health of suppliers and their ability to continue
supporting Ultra in the longer-term. The vast
majority of our suppliers were able to meet our
supply demands, although there was marginal
impact within the supply chain in some areas.
Long-term implications
All our facilities were able to continue operating
effectively as a result of our Covid-19 actions with
minimal impact on delivery of our customers’
solutions. Our employees were able to continue
working in Covid-19 safe environments, or from
home, with no furlough or job losses as a result
of Covid-19. A global home-working policy was
created and approved, which aims to allow
office-based employees greater flexibility in how
they work post-pandemic. Whilst accelerated by
the pandemic, this also responded to feedback
from our employee engagement survey.
Additional security measures and technologies
were deployed to further enhance the security
of our networks and protect our employees’ and
customers’ information.
Our continued operations ensured good cash
flow and the continuation of good supplier
relationships through our review of payment
practices and working capital movements in
our capital allocation decision-making.
The intended value of dividends to investors was
maintained, although delayed, resulting in
investors receiving the returns expected
from Ultra.
The Chair, in conjunction with the Company
Secretary, sets the agenda for each Board
meeting to ensure that the requirements of
section 172 of the Companies Act 2006 are
considered and met through a combination
of the following:
+
Board papers ensure that longer-term
consequences and stakeholder considerations
are addressed where relevant.
+
Consistent approach to minute taking when
section 172 factors are being considered.
+
Regular review of progress against our
stakeholder goals, which are set out on
pages 14 and 15.
Continuity of operations throughout
the Covid-19 pandemic
Ultra
Annual Report
and Accounts 2020
25
Strategic report
Governance
Financial statements
Sustainability plan
Stakeholder considerations
The Board recognises the importance of
minimising the impact of the Company’s
operations on the communities in which we
operate and the environment. As such, the
Board approved Ultra’s sustainability plan (see
page 38), including goals for 2021 and 2024
across three key pillars:
+ Supporting our people
+ Protecting our planet
+ Giving back
The Board also supported the CSR
Committee’s approach to enhanced
Environmental, Social and Governance (ESG)
reporting goals to ensure we communicate
better with our stakeholders regarding this
area. As a result, we will be publishing a new
Sustainability Report to ensure our
stakeholders are better informed of our
sustainability activities and initiatives, and
enable us to provide enhanced reporting on
progress against ESG/CSR objectives on an
annual basis.
Long-term implications
The Board are mindful that Ultra’s CSR
progress is a key part of our ONE Ultra strategy
to deliver value for all our stakeholders.
Through our sustainability plan, described
further on pages 38-53, employees can help to
deliver value within the communities in which
they live and work in over the long term
through Ultra’s Giving Back framework.
Our environmental footprint goals will also
help us to protect our local and global
communities.
Organisational design
Stakeholder considerations
The Board played an active role in reviewing
and monitoring progress on Ultra’s HR strategy
(see page 40) including contributing to the
organisational design changes and the
development of leadership succession
plans as the Group refocused to ‘five-eyes’
defence markets.
The Board also approved and supported
the appointment of a Head of Diversity and
Inclusion (D&I) to lead Group D&I initiatives.
Leadership training was launched for new
teams post the organisational design changes
to ensure all Ultra’s leaders had the skills and
demonstrated the behaviours needed to
support our ONE Ultra strategy and our
ASPIRE values.
Long-term implications
All of our HR process improvements agreed
by the Board contribute to Ultra’s goal to
create a dynamic, inclusive and inspiring work
environment that attracts, develops and retains
the best diverse talent pool. The strategy will
enhance Ultra’s employee value proposition
and, in turn, will benefit our employees and will
enable us to better attract and retain the talent
that we need to enable us to achieve our
strategic objectives over the long term.
The new organisational design is a fundamental
part of enabling our ONE Ultra vision and will
allow much better cross-business collaboration
and a more joined-up approach to customers,
ultimately delivering value for our investors.
Transformation
Stakeholder considerations
The Board reviewed our transformation
progress, including performance against 2020
and 2024 goals, at each Board meeting and at
the Board strategy day in July 2020.
The Board used data from the transformation
feedback sessions to inform decision-making
about future projects and spend as part of the
budgeting process. Feedback relating to
employee workloads led to prioritisation of
certain projects and de-prioritisation of others.
In addition, the Board put a process in place to
monitor the quantity of change happening at
any one time and the impact it would have on
different functional teams.
The Board also agreed that Ultra should
invest in new IT infrastructure to support
communications and collaboration.
Consideration was given to site moves in line with
our site excellence transformation workstream,
seeking to minimise redundancies and offering
relocation support. The Board was mindful of the
interests of employees when considering site
moves and how to cause the least disruption to
staff. As a result of Ultra’s already large site
presence, the Board believes there will be
minimal impact for other stakeholders except
increased efficiency for customers.
Customer feedback was used to match their
requirements against the Group technology
roadmap, which was presented to the Board,
to ensure we are investing in technologies
that will fulfil our customers’ future needs,
ensuring these meet their own sustainability
commitments, while generating value for Ultra.
Long term-implications
The main purpose of our transformation
programme is to position Ultra to enable
it to deliver its ONE Ultra goals and create
long-term value for all our stakeholders.
See pages 12-15 for more detail.
Ultra
Annual Report
and Accounts 2020
26
Our business model
How we create value for our stakeholders
Detect
Distil
Direct
Deploy
Design
What we do
We are a trusted partner in the key elements
of mission-critical & intelligent systems.
We
design
high-integrity sensors that operate in
harsh environments to
detect
discrete data points
in a sea of noise. Our cutting-edge processing
capabilities will then
distil
these data points into
relevant, often mission-critical parcels of information.
We use secure, encrypted forms of proprietary
communication to
direct
the parcels of information
between the data source to users at central locations
and operators at the tactical edge where our suite of
competencies will help identify the most appropriate
response to
deploy
.
Our purpose
Our Company purpose to ‘Innovate today for a
safer tomorrow’ lies at the heart of Ultra’s value
proposition and everything we do. Innovation is what
enables us to develop outstanding solutions to the
complex problems our customers share with us,
and deliver the technologies that help create a
safer tomorrow. We deliver this purpose through
innovation in our technologies and our openness
to searching for new ways to deliver outstanding
solutions to our customers’ most complex problems
in defence, security, critical detection and control
environments. It’s by providing them with the insight,
technology and services they need to perform at
their best that we help them make the world a safer
place, tackling some of the biggest challenges the
world is facing.
Ultra
Annual Report
and Accounts 2020
27
Strategic report
Governance
Financial statements
Our value proposition
What makes us different
+
An agile player in growing markets with
opportunities for share gain
+
Sustainable technology and cost advantage
+
We work in the priority growth areas of
defence spend
+
Capabilities to address areas of future
customer focus:
–
Maritime, near-peer threats, particularly ASW
–
Multi-domain, real-time, on-demand, secure
information delivery in a contested environment
–
Delivering greater functionality and capability
in a continually reducing size, weight and
power envelope
–
Leading software, data processing and
algorithm capability
+
Robust business model with good visibility from
long-term contracts and a lag to US defence outlays
+
Asset-light and well diversified
Ultra’s strategy and goals are based around our
ve stakeholder groups:
Employees
Customers
Suppliers
Communities
Investors
For each group Ultra has a value-creation goal
and yearly targets to align the organisation behind
our multi-stakeholder value-generation goals.
Who we work with
We work with the world’s major prime contractors
and directly with the US DoD and UK MoD.
Direct defence sales to the US DoD and UK MoD
accounted for 30% of our revenue in 2020.
Indirect sales to the DoD and MoD accounted for
an additional 26%. We have high visibility of future
revenues with 71% opening order cover for 2021
and 59% of our current year revenue generated
by over-time contracts. Typically, such contracts
will progress through a development stage, then
low-rate initial production, sometimes followed
by full-rate production and aftermarket sales.
Where we operate
+
‘Five-eyes’ defence (USA, UK, Canada,
Australia and New Zealand) in maritime,
communications and intelligence domains
+
Other defence markets where we can apply
modular solutions
+
Other selected, highly regulated and harsh
environment detection and control markets
Working with our stakeholders
pages 22-25
Ultra
Annual Report
and Accounts 2020
28
FINANCIAL
Key performance indicators
How we measure our success
+
We are actively overseeing performance of our
Operating Business Units, with improving
operational oversight driving operational
performance.
+
Below are the KPIs we will focus on in 2021 to
support our long-term goals. This year we have
added an additional Environmental KPI to reduce
2021 emissions. This helps us achieve our 2024
community goal of conducting our business in a
more sustainable way.
+
Each Strategic Business Unit reports a monthly
balanced scorecard to the Executive Team for
review. These include KPIs against our 2024
goals, aimed at improving performance for
employees, customers, suppliers, communities
and investors.
+
Our first resource allocation priority is re-
investment into innovation through technology,
people and capabilities to ensure we meet our
purpose of innovating for a safer tomorrow.
Organic and underlying measures are defined on
pages 163 and 164. See note 2 for reconciliations
to equivalent statutory measures.
Organic
order book
growth
Organic
revenue
growth
Through-
cycle cash
conversion
ROIC
Organic
underlying
operating
profit
growth
*
What is it and how are we doing?
KPI
Associated risks
(Principal risks in bold)
Associated
stakeholder goal
Relevance to Executive
Remuneration
Organic order book growth compared with the prior year
was +5.9% (2019: +10.7%).
Organic revenue growth compared with the prior year was
+5.2% (2019: +6.8%).
Underlying 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.
A revised and simplified ROIC measure was established in
2019. This is calculated as underlying operating profit as a
percentage of invested capital (average of opening and
closing balance sheets). Invested capital is defined as net
assets of the Group, excluding net debt and lease liability,
pension obligations, tax and derivatives. This allows ROIC to
be calculated on the operating assets of the business within
the control of management.
Organic underlying operating growth compared with the
prior year was +6.2% (2019: +2.9%).
Business
Interruption
Business
Interruption
Business
Interruption
Business
Interruption
Governance,
Compliance
& Controls
Governance,
Compliance
& Controls
Governance,
Compliance
& Controls
Pensions
Bid and
Contract Risk
Bid and
Contract Risk
Bid and
Contract Risk
Defence sector
cycle risk
Investors
Investors
Investors
Investors
Investors
Programme
Risk
Programme
Risk
Programme
Risk
Geopolitical
Risk
Geopolitical
Risk
Defence Sector
Cycle Risk
Delivering
Change
Delivering
Change
Delivering
Change
Delivering
Change
16
17
18
19
20
10.7%
5.2%
16.8%
0.4%
5.9%
18
19
20
17.8%
16.2%
20.0%
16
17
18
19
20
6.8%
2.2%
-3.3%
-4.1%
5.2%
16
17
18
19
20
2.9%
-4.3%
-7.2%
0.2%
6.2%
16
17
18
19
20
73%
79%
97%
92%
92%
Deliver outstanding,
through-cycle value for
shareholders through effective
execution of Ultra’s strategy.
Deliver outstanding,
through-cycle value for
shareholders through effective
execution of Ultra’s strategy.
Deliver outstanding,
through-cycle value for
shareholders through effective
execution of Ultra’s strategy.
Deliver outstanding,
through-cycle value for
shareholders through effective
execution of Ultra’s strategy.
Deliver outstanding,
through-cycle value for
shareholders through effective
execution of Ultra’s strategy.
Strategic objectives
criteria
Long Term
Incentive Plan
criteria
Average Working
Capital Turn in
annual bonus
criteria
Long Term
Incentive Plan
criteria
Long Term
Incentive Plan and
annual bonus
criteria
Ultra
Annual Report
and Accounts 2020
29
Strategic report
Governance
Financial statements
OPERATIONAL
Employee
engagement
survey
On time
delivery
Health
and safety
Internal
R&D*
What is it and how are we doing?
KPI
Associated risks
(Principal risks in bold)
Associated stakeholder goal
Relevance to
Executive Remuneration
Our overall Engagement Score achieved in our global
employee engagement survey
Percentage of production contracts delivered on time from
the Group.
The number of reportable accidents per 1,000 employees.
Previously shown as a percentage of sales, although
changed to absolute amount invested in internal R&D
to better reflect growth.
Business
Interruption
Governance,
Compliance
& Controls
Governance,
Compliance
& Controls
Health, Safety
& Environment
Health, Safety
& Environment
Health, Safety
& Environment
Employees
Employees
Communities
Communities
Customers
Customers
Customers
Programme
Risk
Delivering
Change
Talent Retention
& Recruitment
Talent Retention
& Recruitment
Talent Retention
& Recruitment
Security and
Cyber Risk
19
20
70.0%
75.5%
19
20
18.19
15.60
19
20
76.2%
82.8%
18
19
20
0.7%
0.6%
0.5%
16
17
18
19
20
£29.6m
£28.1m
£29.9m
£34.1m
£31.8m
Bid and
Contract Risk
Market
share
Reducing
emissions
Market share of our addressable markets. Our core focus is
on the Maritime and Intelligence & Communications markets.
Our addressable market share (measured using revenue in
the year) in Maritime is 30% (2019: 21%) and in Intelligence &
Communications 7% (2019: 8%), in Critical Detection &
Control our Market Share was 13% (2019: not measured)
Reducing Scope 1 to 3 greenhouse gas (GHG) emissions
relative to 2019 baseline (Scope 1 and 2 only) for tCO
2
e/£m.
Balanced Reward
Ultra’s Directors’
remuneration policy is
designed to encourage
delivery of the Group’s ONE
Ultra strategy and creation
of value for all our
stakeholders in a
sustainable way, aligned to
our purpose of innovating
for a safer tomorrow. The
main elements of the
remuneration policy are:
1. Fixed pay
Base salary levels are reviewed
annually by the Remuneration
Committee, taking into account
Company performance,
individual performance, levels
of increase for the broader
population and market pay
conditions.
2. Annual bonus
Annual bonus performance
measures include:
+
Profit (40%)
+
Average Working Capital
Turn (45%)
+
Strategic objectives (15%)
The strategic objectives include
a range of specific, measurable
targets aligned with our
stakeholder groups that focus
on delivering business results,
improving organisational
health, creating efficiencies,
driving strategic growth,
and leadership.
3. Long-Term Incentive Plan
The LTIP performance
measures are aligned to
our strategic objective
performance metrics over
a three-year performance
period. Vested LTIP awards
are subject to malus and
clawback. The four measures
are equally weighted to provide
a balance between being agile
and having a longer-term focus.
The LTIP measures are:
+
Total Shareholder Return
+
Return on invested capital
+
Organic Underlying
Operating Profit growth
+
Organic Revenue growth
4. Shareholding targets
Executive Directors are
required to build and maintain
a shareholding in the Company
with a value of two times salary.
This encourages further
alignment with shareholders.
Product
Risk
Product
Risk
Bid and
Contract Risk
Create a dynamic, inclusive and inspiring work
environment that attracts, develops and retains
the best diverse talent pool.
Create a dynamic,
inclusive and inspiring
work environment that
attracts, develops and
retains the best diverse
talent pool.
Partner with customers as preferred suppliers
delivering innovative solutions that create ‘win–win’
outcomes for all parties.
Partner with customers as preferred suppliers
delivering innovative solutions that create ‘win–win’
outcomes for all parties.
Partner with customers as preferred suppliers
delivering innovative solutions that create ‘win–win’
outcomes for all parties.
To conduct business in
an ethical, safe and
sustainable way, acting as
a positive force and making
an active contribution to
our communities.
To conduct business in an ethical, safe and
sustainable way, acting as a positive force and
making an active contribution to our communities.
Strategic objectives
criteria
Strategic objectives
criteria
Strategic objectives
criteria
Strategic objectives
criteria
Strategic objectives
criteria
Strategic objectives
criteria
*
This measure will be removed in 2021 and replaced with a solution vitality index measure to ensure we are investing in the right areas at the right times
Ultra
Annual Report
and Accounts 2020
30
Our target markets
Maritime
Five-year expected market CAGR: 2–4%
Market trends
Heightened levels of global submarine activity
are driving demand growth in both ASW systems
and broader underwater systems infrastructure.
Additionally, ‘five-eyes’ customers have
announced a number of naval renewal and
recapitalisation programmes, including enlarging
the US fleet, introducing the Type 32 frigate into
the UK Royal Navy and the acquisition of up to
15 new vessels in Canada as part of the Canadian
Surface Combatant programme. These, and
other similar programmes, will continue to drive
demand for ASW capabilities, sonar systems and
sub-systems, signature management and power
systems and surface radar technologies for the
rest of this decade.
Strategy developments
Ultra continues to win important positions in these
growing markets, with notable recent successes
including surface-ship ASW aboard the three
variants of the UK Global Combat Ship: the UK RN
Type 26, the Canadian Surface Combatant, and
the Australian Hunter Class (SEA5000), with Ultra
supporting each individual nation’s unique
requirements. Complementing the ASW
capabilities of these vessels, Ultra has also
significantly expanded our surface ship self-
defence offerings with the multi-year award of
the US–based towed torpedo countermeasure
system, NIXIE. This is complementary to our
existing UK-based S2170 torpedo detection
system and our family of expendable torpedo
countermeasures for both the ‘five-eyes’ and
international markets.
In addition to these successes in our domestic
markets, Ultra is continuing to develop innovative
capabilities in support of maritime missions for
unmanned platforms, including in the application
of artificial intelligence and machine learning for
greater automation of functions such as sonar
and radar signal detection and automation of
winching operations. Additionally, Ultra is
investing in innovations for sub-systems that will
counter near-peer threats and advanced mission
technology equipment that will have to operate in
increasingly denied and contested environments,
broadening our presence with increased
capability in the rapidly evolving underwater
battlespace.
Much of our business serves our core target
market of ‘five-eyes’ defence, with specific
focus on the Maritime (multi-mission) and
C4ISR/EW* (multi-domain) sub-segments.
The key drivers for these focus areas are,
ultimately, the defence budgetary
environments in the ‘five-eyes’ nations of
the USA, UK, Canada, Australia and New
Zealand, overlaid by threat-specific funding
allocations and the ability of other allied
nations to benefit from the technologies
and capabilities borne by ‘five-eyes’
customers. Most of the balance of our
business supports nuclear power
generation, military and civil aerospace,
and law enforcement markets worldwide.
Defence budgets
The outlook for defence budgets in our core
geographical end markets remains robust in
the short to medium term, with good near-term
budgetary visibility, particularly in the USA
and UK, underpinned in the medium term
by heightened threat levels from near-peer
adversaries, ongoing counter-terror activities
and the requirement for substantial
recapitalisations in some capability areas.
While the effects of the change in administration
in the USA are yet to be fully understood, and
the fiscal impact of the Covid-19 pandemic has
not yet been quantified, we do not expect either
to have a material impact on defence spending
in the medium term. Further, the pace of
investment and technological advancement by
near-peer adversaries has altered the
battlespace of the future, increasing the
importance of further investment in the
strategic focus areas of our Maritime and
Intelligence & Communications Strategic
Business Units.
We therefore remain confident that budgetary
allocations in our areas of strategic focus will
continue to trend upwards as a proportion of
overall spend.
Defence trends
The pace of innovation driven by technological
advancement and near-peer adversaries’
increasing sophistication and development
of capabilities continues to revolutionise the
battlespace. The ascendance of new strategies
and the overriding need to accelerate ‘detect to
deploy’ are all impacting procurement trends,
platform upgrade needs and future
architectures. Battlespace architectures of the
future will incorporate not only next-generation
mission technology but platforms, often
unmanned, that will alter dynamics across
the battlespace.
Ultra’s technology and capabilities in the
maritime domain, and multi-domain C4ISAR-EW
remain uniquely well positioned to provide
mission-critical solutions, both on existing and
next-generation platforms across a diverse
threat spectrum that help keep personnel out
of harm’s way. Ultra is also accelerating its
investment in data aggregation, transport,
autonomy and multi-domain intelligence, which
will be vital in providing solutions for customers
institutional investors and individual shareholders.
Relations, who provides day-to-day contact with
our investors. The CEO, and the CFO supplement
Ultra
Annual Report
and Accounts 2020
82
Nomination Committee report
Dear Shareholder,
I am pleased to present the Nomination
Committee (“Committee”) report for the year
ended 31 December 2020. This report should be
read in conjunction with the compliance report
on page 67 which shows how the Company has
complied with the UK Corporate Governance
Code 2018.
There have been many changes to the Board, and
indeed the Executive Team, in recent years and
our Leadership Team has continued to evolve,
as it always will. As a Nomination Committee,
our priorities for the year were:
+
Assessing the balance of experience, skills,
knowledge and diversity of our Board, and
developing role descriptions for new Non-
Executive Directors.
+
Ongoing succession planning considerations
for the Board and Senior Leadership Team.
+
Receiving feedback on the annual performance
evaluation process of the Board, and utilising the
information to make informed decisions
regarding skills, knowledge, experience and
diversity criteria.
+
Screening candidates for the Non-Executive
Director vacancy and making a recommendation
to the Board regarding the appointment of a
new Non-Executive Director.
+
Reviewing the membership of the Board’s
Committees and making recommendations to
the Board regarding Committee appointments.
+
Reviewing the Non-Executive Directors’ time
commitments to ensure they can attribute the
necessary time to their roles.
How the Nomination Committee operates
The Nomination Committee operates with a
forward-looking agenda, prepared in conjunction
with the Company Secretariat, to ensure the
Committee’s duties are fullled on a timely
basis in accordance with the Group nancial
reporting cycle.
Sir Robert Walmsley stepped down from the
Board as Senior Independent Director following
the conclusion of the Company’s Annual General
Meeting on 13 May 2020. The Nomination
Committee elected to recommend to the Board
that Victoria Hull full the role of Senior
Independent Director of the Company, due to
her experience outside of Ultra and tenure on the
Board since 2017. Victoria subsequently became
Senior Independent Director following Sir Robert’s
departure from the Board on 13 May 2020.
Last year I reported that a search was underway
for a Non-Executive Director with defence and/or
military experience to join our Board. Due to our
signicant presence in North America, the
Nomination Committee, and indeed the Board,
agreed that a Non-Executive Director based in
North America would be advantageous to us as
a Board, and to the Company on the whole.
Following an extensive search with the assistance
of executive search agency Russell Reynolds
Associates, based in Washington DC, USA, a
rigorous and thorough interview process was
undertaken reviewing a list of strong candidates
from a wide range of backgrounds. The external
search rm engaged has no other connection with
the Company or individual Directors. Candidates
were assessed using objective criteria with due
regard to the benet of diversity on the Board,
while ensuring candidates had the requisite time
available to devote to the position and no conicts
of interest. Following our interview process I am
very pleased to report that Lieutenant General
(retired) Ken Hunzeker joined our Board on 1 July
2020, and was appointed to our Nomination, Audit
and Remuneration Committees.
This year, our Board will continue to evolve as
Martin Broadhurst is approaching his nine-year
tenure on the Board and would not be viewed as
independent thereafter in accordance with the
Code. Martin has been a valued Board member
throughout his tenure, and we have been
extremely grateful for his knowledge and
expertise, in addition to his historic knowledge of
Ultra. It is unfortunate that we will lose him as a
Non-Executive Director but we will adhere to the
Code and bring on at least one new Non-Executive
Director later this year.
In December 2020, the Committee again reviewed
the composition of the Board, giving due regard to
the structure, size and diversity of our Board and
the experience our Non-Executive Directors have.
We have engaged external search advisers to
provide us with a diverse pool of candidates for
the Non-Executive Director vacancy to join our
Board when Martin Broadhurst steps down.
Following our review, Geeta Gopalan will take over
as Chair of the Remuneration Committee with
eect from 1 July 2021, when Martin steps down.
Geeta has extensive nancial experience and
experience of Remuneration Committees and we
are pleased that Geeta can take on the role, and
are satised that she can dedicate the time
necessary to divulge her responsibilities as
Remuneration Committee Chair.
As noted above, over the mid to long term we will
consider bringing on an additional Independent
Non-Executive Director, which would bring our
Board to nine Directors. We will keep this under
review while we conduct our search for Martin’s
replacement.
MEMBERS
Tony Rice
Martin Broadhurst
Geeta Gopalan
Victoria Hull
Ken Hunzeker (appointed 1 July 2020)
Daniel Shook
Attendance at meetings is detailed in the
table on page 76. The Committee’s terms
of reference are available at ultra.group
MAIN RESPONSIBILITIES
+
Regularly review the structure, size
and composition of the Board.
+
Succession planning for Board and Senior
Management positions, ensuring the
leadership needs of the Company are met
to compete eectively in the marketplace
+
Be responsible for identifying and
nominating for the approval of the Board,
candidates to ll Board vacancies as and
when they arise, taking into account the
balance of skills, knowledge, experience
and diversity of the Board
+
Review the time commitment required from
Non-Executive Directors annually, taking
into account Board evaluation feedback
+
Review the independence of Non-Executive
Directors and any potential conict of
interest for Board members
Ultra
Annual Report
and Accounts 2020
83
Strategic report
Governance
Financial statements
Board evaluation
The Committee reviewed the results of the Board
external evaluation process, notably the areas that
related to the composition of the Board and
succession planning, and the feedback was used
when reviewing the balance of skills, knowledge,
experience and diversity on the Board in
succession planning discussions described above.
Leadership succession
There has been a great deal of work on
organisational design and succession planning
throughout the Ultra Group to ensure that, as part
of our transformation agenda, we have the right
Senior Leaders within the organisation to lead
Ultra through our change programme, as
described in detail on pages 40-41.
There have been many changes to the Executive
Team in recent years. Now these are rmly settled,
Executive Team and Senior Leader succession
planning will be a focus for the Committee in 2021.
Diversity
Ultra is committed to treating everyone with
fairness, dignity and respect. We recognise that
high-performing teams benet from diversity.
Selection, development, promotion and reward
will be based on merit without regard to personal
characteristics including, but not limited to,
gender, race, colour, religion, sex, sexual
orientation, citizen status, national origin,
age, disability or genetic information.
The Nomination Committee, and the Board as a
whole, receives feedback and updates regarding
diversity and inclusion initiatives, and oversees
progress against these initiatives to ensure Ultra
maintains a diverse and inclusive workplace.
We were disappointed to see a marginal increase
in our gender pay gap, yet as the number of
females remains relatively low, we realise that it
only takes a small change to aect the statistics.
We envisage that this trend will be reversed in the
mid term through our comprehensive people
strategy and diversity initiatives.
As a Committee we are very pleased with the
positive steps the Company has taken to address
diversity and inclusion in the workplace, together
with the gender pay gap, and are comfortable that
the approaches taken are appropriate. Further
information on the Company’s initiatives and
results can be found on pages 42-44.
We will continue to monitor progress in this area
and hope to see demonstrable results with
increased gender and diversity balance among
the Senior Leadership Team in the future, together
with a fall in the gender pay gap.
There has been a great deal of
work on organisational design
and succession planning
throughout the Ultra Group
to ensure that, as part of our
transformation agenda, we have
the right Senior Leaders within
the organisation to lead Ultra
through our change
programme.
We promote equality of opportunity and
demonstrate this in our approach to recruiting
new Board members, actively seeking candidates
from a diverse range of backgrounds including
gender, tenure, skills, experience and
backgrounds in addition to softer traits such as
personality. This will remain a key focus area for
us and when considering Board and succession
planning, notwithstanding that all appointments
will be based on merit and candidates’ experience
and business acumen.
See pages 70-71 for more information on our
existing Board diversity.
Ultra
Annual Report
and Accounts 2020
84
Audit Committee report
Dear Shareholder,
I am pleased to present the Audit Committee
report for the year ended 31 December 2020.
This report should be read in conjunction with the
compliance report on page 67 which shows how
the Company has complied with the UK Corporate
Governance Code 2018.
2020 was my rst full year as Chair of the Audit
Committee and during the year I continued to build
my knowledge of Ultra’s businesses and business
leaders, albeit virtually in most cases. I was
fortunate to be able to visit in August 2020 the
Herley site in Lancaster, PA with our new
Audit Committee member, Ken Hunzeker, who
I welcome to the Committee. The main
responsibilities and activities of the Audit
Committee are set out in this report.
Regarding the Committee’s membership, the Board
considers all Committee members to be
Independent Non-Executive Directors. I am
currently Finance Director for another FTSE plc and
have previously held diverse nance roles in several
large multinational companies, therefore the
Committee, and the Board, is satised that I have the
requisite recent and relevant nancial experience to
Chair the Audit Committee. Additionally, all Audit
Committee members have competence relevant to
the sector in which the Company operates. The
biographies of the Committee members can be
found on pages 68-69.
During the year, Committee members have actively
supported and challenged management in several
areas including the development of the internal
control framework, contract accounting and risk
reserves, management of key controls in a
remote-working environment, and the ongoing
transformation programme. The Committee
remains pleased with management’s visible
commitment to advancing the organisation’s
overall control environment.
How the Audit Committee operates
The Audit Committee operates with a forward-
looking agenda, prepared in conjunction with
the Group Financial Controller and Company
Secretariat team, to ensure the Committee’s duties
are fullled on a timely basis in accordance with the
Group nancial reporting cycle. The agenda is
reviewed and updated as necessary during the
year to deal with matters as they arise which are
outside of the annual agenda.
The Committee held four scheduled meetings
throughout the year. The Chair of the Board, Chief
Executive Ocer, Chief Financial Ocer, Group
Financial Controller, Chief Risk Ocer, the external
Auditor (Deloitte) and internal Auditor (PwC)
attended parts of these meetings by invitation.
The Committee held separate meetings with the
external auditor and internal auditor without
management present, and the Audit Committee
Chair also met with the external auditor, internal
auditor and the Chief Financial Ocer and his team
outside the formal Committee sessions.
MEMBERS
Daniel Shook (Chair)
Martin Broadhurst
Geeta Gopalan
Victoria Hull
Ken Hunzeker (appointed 1 July 2020)
Attendance at meetings is detailed in the
table on page 76. The Committee’s terms
of reference are available at ultra.group
MAIN RESPONSIBILITIES
As a Committee we are committed to
supporting the Board in the following areas:
+
Oversee the Group’s risk management
systems, including nancial controls
+
Agree the internal and external audit plans
+
Review all signicant accounting
judgements
+
Monitor the integrity of all formal reports
and announcements relating to the
Company’s nancial performance, and
consider any signicant judgements by
management
+
Recommend the half and full year nancial
results to the Board
+
Appoint the internal auditors, oversee
the appointment of the external auditors
and maintain an appropriate relationship
with the internal and external auditors
of the Group
+
Report the ndings and recommendations
of the internal and external auditors to the
Board, and
+
Review the independence and eectiveness
of the internal and external auditors
External auditor
Deloitte LLP (“Deloitte”) was re-appointed as the
Company’s external auditor in 2020. In accordance
with professional practice guidelines, Alex
Butterworth, who has acted as Lead Partner since
2016, will rotate o the audit team following
completion of the 2020 audit and Jonathan
Thomson will take over as Lead Partner. To ensure a
smooth handover, Jonathan Thomson has been
heavily involved in the audit process for this period
and attended all Committee meetings relating to
the 2020 audit.
The Committee has primary responsibility for
recommending the re-appointment of the external
auditor to the Board before the resolution is put to
shareholders at the Company’s Annual General
Meeting and recommends the re-appointment of
Deloitte for the 2021 reporting period. The
Committee believes that it is in the best interest of
its members for Deloitte to remain as external
auditor over the short term to leverage their
knowledge and experience of the Company whilst
we are going through a period of change. Once we
are suciently advanced through our ONE Ultra
transformation programme, the Committee will
lead an audit tender process by no later than 2023,
which will be the maximum term that Deloitte can
remain as auditors, and will ensure there is a
sucient pool of high calibre rms to tender given
the recent independence requirements.
External auditor independence and objectivity
In its assessment of the independence of the
external auditor, the Committee reviews the
independence and objectivity of the Company’s
auditor through a combination of:
+ Open dialogue with the auditor
+ Analysis of judgements and ndings
+ Review of non-audit services
It is the policy of the Group that non-audit services
provided by Deloitte are restricted to reporting
required by law or regulation, review of interim
nancial information, reporting on regulatory
returns, reporting on government grants,
reporting on internal nancial controls when
required by law or regulation, and extended audit
or assurance work that is authorised by those
charged with governance performed on nancial
or performance information or controls where this
work is closely linked with the audit work. The policy
prohibits due diligence assessments of potential
acquisitions, consultancy services associated with
nancial restructuring, remuneration consultancy,
tax planning, Internal Audit and actuarial services.
The Audit Committee has decided that non-audit
fees in excess of £50,000, in aggregate, in any
nancial year will be referred in advance to the
Chair of the Audit Committee for approval.
In 2020 Deloitte provided non-audit services fees of
£3k (2019: £11k) representing 0.2% (2019: 1%) of the
total audit fees. The Committee considers that
certain non-audit services, in accordance with the
policy above, should be provided by the external
auditor, because its existing knowledge of the
Ultra
Annual Report
and Accounts 2020
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Governance
Financial statements
ACTIVITY DURING 2020
Financial statements and accounting policies
+
Review management’s signicant
issues and judgements
+
Review the Group’s nancial
statements and the formal
announcement on the Group’s
nancial performance
+
Review the Group’s going concern
and long-term viability statement
assumptions
+
Considered and recommended to the Board for approval the annual and interim nancial statements and related
results announcements
+
Discussed key accounting policies and practices adopted by the Group
+
Reviewed key accounting judgements and matters that required the exercise of signicant management
judgement (see section on Signicant Judgements considered on page 86)
+
Reviewed underlying assumptions and the rigour of the testing underpinning the going concern statement and
long-term viability statement (as set out on page 58) prior to approving them
Risk management and internal controls framework
+
Review and provide oversight of
the Group’s risk management and
internal controls processes
+
Assess the eectiveness of the
Group’s system of internal control
and risk management
+
Considered reports on the risk management and internal controls environment and its eectiveness
+
Discussed half-yearly internal controls reports from business reviews, together with actions arising from ndings
+
Reviewed the principal risks, the Group’s risk appetite and risk metrics and considered their alignment to the
achievement of Ultra’s strategic objectives
+
Assessed the key controls in place and agreed future management actions to mitigate risks
+
Considered reports on known or suspected fraud
+
Oversaw in-depth reviews of specic controls areas including nancial controls/fraud, anti-bribery and corruption
and programme management
+
Monitored the development of the nance function under the new CFO and met with key nance leads as part of
business reviews to further assess the controls environment
+
Further details of the approach to risk management can be found on pages 54-57.
External audit, engagement and policy
+
Review the scope and eectiveness
of the external audit process
+
Negotiate the terms of the external
auditor’s appointment, the scope,
fees and independence
+
Ensure an eective audit partner
rotation process
+
Considered Deloitte’s external audit planning report prior to the commencement of the 2020 audit
+
Received reports from the external auditor on the outcomes of their audit process and the external audit plan
for the year and discussed ndings and improvement areas
+
Discussed Deloitte’s letter to management and management responses to that letter
+
Reviewed the independence and eectiveness of the Auditor, in conjunction with audit and non-audit fees, and
recommended the re-appointment of Deloitte as auditor
+
Reviewed lead partner candidate options and selected new Deloitte lead partner
+
Approved a revised external auditor’s engagement policy taking into account new FRC standards
Internal Audit
+
Review the eectiveness of the
Internal Audit function
+
Discuss control issues identied
by Internal Audit
+
Agreed the Internal Audit plan for the year, monitored eectiveness of the Internal Audit against the plan and
reviewed the eectiveness of Internal Audit through oversight of a questionnaire-based eectiveness review with
stakeholders
+
Considered summary reports from the risk-based and rotational reviews and progress reports on the implementation
of remedial actions, noting the progress made in the control environment within the Group’s businesses
Other
+
Review tax strategy
+
Approved the Company’s tax policy
business makes it the most ecient and eective
way for non-audit services to be carried out. Before
commissioning non-audit services, the Chief
Financial Ocer or the Chair of the Committee, as
appropriate, must ensure there is no issue as
regards to independence and objectivity and other
potential providers are adequately considered.
Audit eectiveness
The audit scope, approach and areas of focus are
agreed well in advance of the audit to ensure a
mutual understanding of expectations and
timeframes. Following the 2019 audit, key learnings
were identied and fed into the 2020 audit planning
process to ensure ongoing continuous
improvement.
In order to review the audit eectiveness
throughout the year, the Committee considered:
+
The quality of the audit reports and ancillary
documents provided by the external Auditor;
+
Feedback from the Chief Financial Ocer and his
senior nance teams throughout the Group; and
+
The Committee’s collective views from meetings
held with the external Auditor.
Based on these collective reviews, the Committee
concluded that Deloitte had applied appropriate
robust and objective challenge throughout the
audit process and were satised with the
performance of the external Auditor.
Employment of former external auditors
Any employment of former employees of external
auditors would be considered on a case-by-case
basis and would take into account the Auditing
Practices Board’s Ethical Standards on such
appointments. Such appointments require
approval by a combination of the Chief Financial
Ocer, Audit Committee and Board, depending
on the seniority of the appointment.
Risk management and internal controls
Risk management and internal controls was a key
focus area for the Committee in 2020 following on
from work carried out in 2019 by the newly
appointed Chief Risk Ocer. In addition to the usual
risk management and controls agenda items
Ultra
Annual Report
and Accounts 2020
86
SIGNIFICANT JUDGEMENTS CONSIDERED
Audit Committee report
continued
covered in Committee meetings throughout the
year, a fourth Committee meeting was held during
the year, dedicated solely to risk management and
internal controls, which enabled the Committee to
do a deep dive into the risk management and
internal controls processes, analyse results and
identify areas for continuous improvement. At the
meeting, the Committee also received brieng and
training from the Group’s insurance brokers on
peer group risk management best practice. This
additional risk management and internal controls
meeting is now a scheduled meeting on the Audit
Committee’s annual agenda.
During the year a new risk management framework
was rolled out throughout the Group, led by the
Company’s Chief Risk Ocer, to ensure a consistent
approach to risk management across all Ultra
businesses. Strategic risk assessments were carried
out with the businesses based on the 2020 strategy
reviews. The risk framework and Group risk register
were reviewed by the Committee and the Board.
The focus on risk management will be maintained
in 2021.
The Group’s internal controls framework includes
appropriate nancial, operational and compliance
controls, and risk management processes, which
together ensure the appropriate oversight of
nancial reporting processes, including the
preparation of consolidated Group accounts.
The control environment within Ultra comprises
the following:
+
Group policies
+
Group delegation of authorities
+
Monthly nancial control checklists
+
Six-monthly control review meetings
+
Risk registers at Business Unit and Group level
+
Sta training
+
Internal Audit (provided by PwC)
+
Speak Up platform for external support of
whistleblowing reporting
+
SBU review of monthly OBU performance
+
SBU level performance reviews
+
Executive Team oversight and challenge
+
Group Board and Committee oversight
and challenge
+
Other regulatory assurance activities
The arrangements include procedures to ensure
the maintenance of records which accurately and
fairly reect transactions to enable the preparation
of nancial statements in accordance with
International Financial Reporting Standards (IFRS).
They also require reported data to be reviewed and
reconciled, with appropriate monitoring internally
and by the Audit Committee to ensure the integrity
of the nancial statements.
The Managing Directors and Presidents, the
Finance Directors and the Vice Presidents Finance
of each business are required to give a formal
written representation to the Board each year to
conrm that they accept responsibility for
maintaining eective internal controls and that they
The Audit Committee considered the areas of most signicant accounting judgement and disclosure both prior to and during the course of the
2020 year-end external audit.
Judgement area
Committee assessment
Long-term contract
accounting
A signicant proportion of Group revenue arises from long-term contracts, where revenue and prot recognition is based on
estimates. The Committee was updated on progress on key programmes. The Committee considered the key sources of
estimation uncertainty with respect to forecast cost to complete estimates. The Committee considered the disclosures made in
the Annual Report with respect to revenue recognition including the related accounting policies and key sources of estimation
uncertainty. The Committee discussed and engaged with the external auditor when considering all these matters. See disclosure
in note 3, and in the statement of accounting policies on pages 156-164.
Valuation and
impairment testing
of goodwill and
intangible assets
Recognising the scale of the Group’s goodwill and intangible xed asset balances, the Committee discussed a report and analysis
from management and considered whether, given the future prospects of the acquired businesses, the value of goodwill held on
the balance sheet remains appropriate. The Committee reviewed the methodology and assumptions used to support the
balance sheet carrying values of these assets, including the discount rates applied, the reduction in future growth rate and the
change in the model to run into perpetuity after the end of the strategic plan period, rather than for 10 years as had been the
case previously. The Committee noted that the cash ows used were derived from the 2021 budget and strategic plan (which in
their role as members of the Board, Committee members had previously reviewed). The Committee considered the sensitivity of
the asset valuations to changes in assumptions. The methodology for impairment testing used by the Group is set out in note 13
to the Group accounts. No impairments were identied as a result of the review. The Committee had previously considered the
impact to the current cash-generating unit (CGU) groupings arising from the 1 January 2020 change in operating segments. The
Committee discussed and engaged with the external auditor when considering all these matters.
Taxation
The Committee considered a report from management on recent developments relating to the European Commission decision
that the UK Controlled Foreign Companies rules are partial State Aid and other uncertain tax positions related to intra-Group
nancing. The Committee considered the Group’s key tax accounting judgements with respect to the assessment, measurement
and recognition of uncertain tax positions and the associated disclosures in respect of these matters. The Committee discussed
and engaged with the external auditor when considering all these matters. See disclosure in note 10.
Conduct of business
matters and Oman
Airport IT contract
The Committee was updated on the investigations associated with conduct of business matters and the status of matters arising
relating to the Oman Airport IT contract (see note 33 on page 152). The Committee considered the judgements relating to these
matters and disclosure in the Annual Report with respect to the contingent liabilities. The Committee discussed and engaged
with the external auditor when considering these matters.
Dened benet
pension scheme
The Committee considered the actuarial assumptions used for the scheme valuation, the sensitivity of the valuation to changes
in those assumptions, current funding level of the pension scheme and the liabilities of the dened benet pension scheme.
The Committee discussed and engaged with the external auditor when considering all these matters. See disclosure in note 29.
Ultra
Annual Report
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87
Strategic report
Governance
Financial statements
have disclosed full details of any fraud or suspected
fraud within their business.
Every six months, each Divisional Finance Director
meets the Chief Financial Ocer and discusses the
internal controls processes and issues for each
business in their division. This includes:
+
Self-assessment against the nance manual
+
Balance sheet and controls reviews, including
reviews of reconciliations
+
Outstanding internal and external audit points
+
Segregation of duties
Summary results from these reviews are
discussed in the Internal Controls Improvement
Status Report, which is presented to the Audit
Committee twice a year.
The internal controls environment was
strengthened in 2020 with further standardisation
of policies and processes and additional measures
aimed at enhanced commercial capability and
oversight within the businesses. In particular,
additional emphasis has been placed on the
delivery of improvement actions arising from
formal control reviews, including Internal Audit
reports. A Financial Policy and Compliance
Controller also joined Ultra in Q3 2020.
The principal risks reported in this Annual Report
are a prioritised distillation from a corporate level
register of key risks. The Committee assessed
these emerging and key risks facing the Company
in December 2020 and reviewed the risk control
and monitoring frameworks in place to eectively
manage those risks.
Following a detailed review of the risk activities
and risk reporting processes during the year, no
signicant failings or weaknesses were identied
in the review process, however this will always be
an area of continuous improvement. As such, the
focus for 2021 will be on assessing the speed of
impact of key risks in addition to the scale of
impact, testing of controls as well as improving
Group-wide understanding of the three lines of
defence risk model and mapping of assurance
around risk controls and monitors.
Internal Audit
PwC acts as Ultra’s internal auditor. The use of an
experienced external rm provides independent
assurance on the eectiveness of the system of
internal control. A risk-based approach is taken
by the Company in determining its Internal Audit
plan, ensuring that the plan is clearly linked to
the Company’s strategy and is exible enough to
highlight and address emerging risks as well as
testing controls on recognised risks. The Internal
Audit plan and resources are considered and
monitored by the Committee, together with all
internal control ndings and remedial actions.
Any newly acquired operating business is audited
within a year of its acquisition date. Where required,
additional audits are identied during the year in
response to changing priorities and requirements.
The Lead Partner from PwC reports directly to the
Chair of the Committee and presents the ndings
to the Committee biannually. Progress reports on
follow-up remedial actions are reported regularly to
the Committee. PwC conrms whether appropriate
action has been taken to address the risks when it
next visits the business concerned.
The eectiveness of Internal Audit is assessed by
the review of Internal Audit reports, meetings with
the Chair of the Committee without management
being present, an Internal Audit eectiveness
review questionnaire process with stakeholders,
and views from senior management and the
Chief Financial Ocer.
Fraud
The Committee is responsible for the oversight
of the risks of fraud and the design and
implementation of internal controls to prevent
and detect fraud. The Committee monitors the
procedures in place to detect fraudulent activities
through the risk management and internal controls
framework and biannual controls reviews.
There is a fraud reporting process in place that
forms part of the monthly business performance
reporting cycle. Any fraudulent activity detected
or alleged would be promptly reported to the
Board and auditors would be informed
accordingly. It is believed that the internal control
framework in place, reinforced by regular audits
and promotion by executive leadership as part of
the new Code of Conduct, provides reasonable
assurance against substantial frauds being carried
out. The Committee believes there to be a low risk
of signicant misstatement of Ultra’s nancial
statements as a result of fraud.
Whistleblowing
The Company has an independent, anonymous
and condential, whistleblowing hotline, externally-
hosted by NAVEX Global. To promote awareness of
the platform, the former ‘EthicsPoint’ platform was
re-branded as ‘Speak Up’ and relaunched in July
2020 in conjunction with a new Code of Conduct for
the Company. Every Board member, employee and
consultant is required to undertake training on the
Code of Conduct with clear messaging to speak up
if any wrongdoing is suspected. Importantly, there
is a clear message that the Company will not except
any retaliation in any form against someone who
reports any concern or violation in good faith.
Subject to any classied and/or security restrictions,
all “Speak Up” feedback is sent to Ultra’s Senior
Independent Director and, ultimately, to the Board.
The Ethics Oversight Committee also receives any
reports made via “Speak Up”. All reports are
thoroughly investigated and corrective action is taken
if necessary. Further promotion of the “Speak Up”
platform is planned in 2021 to ensure all employee
are aware of this channel to raise concerns. The
Committee was pleased with the re-launch and is
satised that the whistleblowing procedures and
follow-up investigative processes within the Company
are practical and appropriate for the Company.
Anti-bribery & corruption
The Company has a zero-tolerance approach to
bribery and corruption anywhere in the world. This
message is emphasised in the Company’s new
Code of Conduct, which also includes practical
examples of corrupt behaviour that is not tolerated,
and points employees to specic policies containing
more information on aspects of anti-bribery and
corruption (ABC). As part of internal controls
enhancements during the year, to ensure the
Company’s ABC policies aligned with the
Company’s new Code and Values, the previous
anti-bribery corruption policy, gifts and hospitality
policy and selection and management of
intermediaries policy were consolidated into a
single ABC Manual, which was approved by the
Board and re-launched in Q3 2020. The Company
has implemented an annual review cycle in respect
of the ABC Manual.
The Company’s Board members, ocers and
other workers were required to complete
interactive, tailored, online ABC training provided
by NAVEX Global. Core training was mandated for
all, with more advanced modules for those within
the Company operating in a higher-risk
environment. All of our Directors completed the
advanced ABC training modules. Third-party Risks
training was mandated for workers responsible for
managing intermediaries and associated persons.
In addition to this enhanced training, bespoke
in-person and virtual ABC training was delivered
by the Company’s lawyers to senior management
team members responsible for ABC oversight
across their businesses.
The Internal Audit function conducted a review of
the Company’s ABC policies and procedures in
2020 and ABC controls have formed part of the
controls environment reviewed by Internal Audit
in Business Unit reviews. ABC compliance with
the manual will be a specic controls focus area
from 2021.
Statement of compliance
The Company conrms that it complied throughout
the year with the provisions of the Competition and
Markets Authority’s Statutory Audit Services for
Large Companies Market Investigation (Mandatory
Use of Competitive Tender Processes and Audit
Committee Responsibilities) Order 2014 and the UK
Corporate Governance Code 2018.
Fair, balanced and understandable statement
The Audit Committee, having reviewed the
documents and having been additionally advised
by the external auditors, is satised that the
disclosures, as well as the processes and controls
underlying its production, were appropriate and
recommended to the Board that the Annual Report
and Financial Statements 2020 are fair, balanced
and understandable. Furthermore, they provide
the information necessary for shareholders
and other stakeholders to validly assess the
Company’s position and performance,
business model and strategy.
Ultra
Annual Report
and Accounts 2020
88
PRINCIPAL ACTIVITIES OF THE COMMITTEE
+
Agreed the proposed Remuneration
Policy in accordance with legislation,
UK Corporate Governance Code and
emerging best practice
+
Consulted with key shareholders on the
proposed Remuneration Policy prior to
the AGM
+
Evaluated the performance conditions in
all executive incentive plans in light of the
impact of Covid-19 in 2020 and beyond
and the progress made against Ultra’s
transformation strategy
+
Reviewed the annual gender pay gap data
and employee terms and conditions in the
organisation as a whole
+
Conducted annual governance checks
including reviewing dilution limits,
shareholding levels against the Policy
+
Took input from the Board on ESG
considerations
+
Conducted a competitive tendering process
and appointed a new independent
Remuneration Committee adviser
+
Reviewed the outcome of the CEO pay ratio
calculation and considered year-on- year
changes
+
Decided the annual pay increase for
the CEO and CFO as well as the
Executive team
+
Reviewed the outcome of salary, bonus
and long-term incentives for the senior
management group
Directors’ remuneration report
Dear Shareholder,
On behalf of the Board, I am pleased to present
our Directors’ remuneration report for the
financial year ended 31 December 2020. This
report should be read in conjunction with the
compliance report on page 67 which shows how
the Company has complied with the UK Corporate
Governance Code 2018.
Overview of the year
At the start of the year, the Committee finalised
the proposed Directors’ Remuneration Policy (the
“Policy”) which was presented to investors for a
binding vote at the 2020 Annual General Meeting.
The Committee consulted the Group’s key
investors and shareholder bodies regarding the
proposed Policy and I would like to thank
shareholders for their input to, and support of,
our Policy which, along with the advisory vote
on the Remuneration Report, was approved by
shareholders. The Committee believes the Policy
aligns incentives and creates retention for
management in the delivery of our long-term
business strategy and stakeholder objectives,
and has operated as intended during 2020.
Despite a year of great uncertainty in the world,
I am delighted that we have continued to make
positive progress against our goals under the
Focus; Fix; Grow strategy and in many cases our
expectations have been exceeded. We recognise
the hard work and resilience over the year of the
Executive Team and all of our employees to
produce a strong set of outcomes for all
stakeholders. Among our key financial measures,
we saw very positive improvement from
management actions: Organic revenue growth
exceeded target at 5.2% and organic profit growth
was 6.2%. The average working capital turn
(AWCT), which is a key measure of capital
efficiency and a key metric of the bonus plan,
showed strong improvement and exceeded the
stretch target. Management also delivered strong
organic growth in our order book of 5.9%. In the
view of the Committee these are an excellent set
of results, which deliver near maximum payment
against performance targets in the annual bonus.
The Committee also considered the impact of
the Covid-19 pandemic, which created disruption
and turmoil that impacted every aspect of our
business, including customers, operations and
the safety of our employees. The Committee is
satisfied that the issues have been managed well.
The Committee also considered its approach to
target setting and award opportunity for 2021 at
length and reviewed multiple inputs, including key
risks and opportunities, management projections,
investor guidelines and expectations, and
analysts’ consensus. Ultra has not needed to
benefit from any material local or national
Covid-19 stimulus (such as furlough or tax
deferral), reduce salaries, or make any Covid-19-
related layoffs. We paid an additional 2020 interim
dividend equivalent to the planned 2019 final
Despite a year of great uncertainty in
the world, I am delighted that we have
continued to make positive progress
against our goals under the Focus; Fix;
Grow strategy and, in many cases, our
expectations have been exceeded.
Martin Broadhurst
Chair of the Remuneration Committee
MEMBERS
Martin Broadhurst (Chair)
Geeta Gopalan
Victoria Hull
Daniel Shook
Sir Robert Walmsley (until 13 May 2020)
Ken Hunzeker (from 1 September 2020)
Attendance at meetings is detailed in the
table on page 76. The Committee’s terms
of reference are available at ultra.group
Ultra
Annual Report
and Accounts 2020
89
Strategic report
Governance
Financial statements
Remuneration outcomes
for 2020
Annual bonus
The annual bonus focuses on the delivery of
stretching underlying profit growth and AWCT
targets. Reflecting the significant progress against
our strategic goals, these measures have
exceeded target and, in the case of AWCT,
exceeded the maximum. A number of strategic
objectives were set, which were met or exceeded.
In combination, this has resulted in annual bonus
payments at 99.43% of maximum. The Committee
spent time considering whether the formulaic
outcome was appropriate in the context of
overall Group performance and Ultra’s broader
stakeholder experience. In the light of strong
performance in challenging circumstances and
the level of leadership shown by the Executive
Directors, it has determined the outcomes are
appropriate. A full review can be found on
page 93.
LTIP
The Long-Term Incentive Plan (LTIP) granted
in March 2018 was subject to achievement of
performance conditions. This award had four
performance conditions – relative total
shareholder return (TSR), return on invested
capital (ROIC), organic revenue growth and
organic underlying operating profit growth –
with each measure having equal weighting.
At the time that the 2018 awards were granted,
Transformation costs were classified as non-
underlying and did not impact the Company’s
reported underlying profit. However, reflecting
the ongoing Focus; Fix; Grow transformation
agenda, Ultra has changed the accounting
convention such that transformation costs are
taken ‘above the line’ and therefore impact
underlying profit. The Committee spent time
considering the impact of this change, noting that
the targets at the point the awards were made
were set without knowing the amount of those
costs or that the accounting approach would
change. An overall vesting of 85% of the maximum
award was achieved when adjustment was made
for the transformation costs (detail shown on
page 94). If this adjustment had not been made,
the vesting level would have been 67.7%.
Against a background of good stakeholder
outcomes across the measurement period, and a
strong management performance, the Committee
concluded that it would be equitable, consistent
and appropriate to adjust for the change in
accounting treatment.
Implementation of policy for 2021
The Committee considered salary increases for
the CEO and CFO and took into account several
factors, including general workforce increases and
the excellent performance of the incumbents, and
decided on increases of 2.5% for each. Ultra has
dividend and our share price has generally been
maintained at, or above, pre-pandemic levels.
Given the impact of Covid-19 has been managed
and our strategic targets remain valid, we do not
believe it is necessary or appropriate to adjust
opportunities, measures or targets as a result
of Covid-19.
In addition, the Committee continues to be
actively informed on progress with HR initiatives
benefiting the workforce as a whole. These can
be reviewed in more detail in the ‘Supporting
our people’ section on pages 40-46.
We have the same reward philosophy across the
whole of Ultra and this underpins all our reward
programmes, aligning the Executive Directors
with the wider workforce. We communicate the
application of our reward philosophy to all
employees through a cascade approach. We hold
updates on reward with around 170 of the global
senior management team two or three times a
year, and more regularly with the HR Community,
to ensure that they have the information to
present to employees and answer their questions
on the shop floor at regular ‘Town Hall’ sessions
within individual businesses.
The Committee has also received information on
gender pay gap and CEO pay ratio data, which has
been a factor in its decision-making.
Our approach to reward
The Committee seeks to ensure that the
remuneration we offer attracts and retains the
best talent and is structured to provide the
appropriate focus on both short-term and
long-term goals.
In accordance with our Policy, fixed pay is aimed
at a competitive level against similar companies.
Variable remuneration is a combination of both
short- and long-term incentives which are linked
to delivery of our strategy.
We set stretching targets to incentivise and
reward sustainable profitable growth, disciplined
working capital management and long-term value
creation for our stakeholders. Our Remuneration
at a glance section on the following two pages
demonstrates how our key strategic performance
indicators align with our incentive arrangements.
Our Executive Directors have service contracts
with a notice period of one year which the
Committee considers appropriately reflects
current market practice and the interests of
the Group.
maintained a healthy merit increase budget of
3% for the workforce as a whole (higher in some
jurisdictions where specific market conditions may
require it) and recognises the hard work of all
employees in delivering so strongly in a difficult
year, for which we are grateful.
The Committee reviewed internal and external
metrics in determining the targets for the LTIP
metrics and has increased both the threshold
and stretch for the organic operating profit and
organic revenue growth measures from those set
for the 2020 awards. The Committee believes the
targets for all of the measures to be challenging
against the data reviewed.
After consideration of the CFO’s performance, and
the growth in the role, particularly considering the
strides made against the transformation agenda,
the Committee decided to reflect this by
approving a market competitive level of both
annual bonus opportunity of 150% (125% in 2020)
and a LTIP of 150% (125% in 2020).
The CEO’s pension opportunity will be reduced by
a further 2% to 14% in 2021. The Policy, approved
in 2020, stated the Committee’s intention to
reduce the percentage rate to the prevailing rate
for UK employees by the end of this policy period.
We note investor guidance that this should be
accomplished by the end of 2022, and will consider
this further during the year. We have not stated a
fixed plan to effect the reduction as work on the
employee value proposition may change the
workforce pension entitlement.
Board changes
Sir Robert Walmsley retired from the Board at
the AGM on 13 May 2020 and we thank him for
his valued contributions to the Committee. Ken
Hunzeker joined the Committee on 1 September
2020 and we look forward to benefiting from his
experience and perspective in future.
Closing remarks
This is my last Remuneration Report as Chair of
the Committee as I will be stepping down from
the Board on 1 July 2021. It has been an honour to
serve as Chair over the last seven years and I am
grateful for the excellent input and advice from
Committee members and all who support the
work of the Committee.
The Committee will continue to operate in
accordance with our Policy under the new
Committee Chair.
Martin Broadhurst
Chair of the Remuneration Committee
Ultra
Annual Report
and Accounts 2020
90
Directors’ remuneration report
continued
Remuneration at a glance
Performance outcomes for year ending 31 December 2020
Name
Metric
Metric achieved
Simon Pryce
Jos Sclater
2020 bonus
1
PBT
3
(40%)
39.43%
% of max
99.43%
99.43%
AWCT (45%)
45.0%
4
% of base salary
149.1%
124.3%
Strategic objectives (15%)
15.0%
4
£
£1,016,606
£528,233
2018 LTIP
TSR (25%)
25.0%
4
% of max. award vesting
85.0%
n/a
ROIC (25%)
19.5%
No. of vested shares
61,181
n/a
Organic underlying operating profit growth (25%)
17.4%
Estimated £
2
£1,280,525
n/a
Organic revenue growth (25%)
23.1%
1 One-third of bonus deferred in shares for three years
2 Estimated value on vesting has been calculated using a share price of £20.93 being the average closing share price over the three months to 31 December 2020
3 Underlying profit before tax
4 Metric achieved in full
Summary of Remuneration Policy and implementation for 2021
The table below provides an overview of the Remuneration Policy (‘Policy’) and its application for 2021. The Policy was approved by shareholders at the May 2020
AGM. The full Policy is set out in our 2019 Report and Accounts which can be found on our website (ultra.group)
Name
Purpose and how it supports strategy
Simon Pryce
Jos Sclater
Base salary
(effective 1 April 2021)
Recognise the market value of the role and individual’s
skills, experience and performance to ensure we can
attract and retain talent
£698,640
£435,625
Benefits and pension
To provide benefits consistent with role and competitive
post-retirement benefits or cash allowance equivalent
to ensure overall package is market competitive
14%
7.5%
Annual bonus
Drives and rewards annual performance on both financial
and non-financial metrics
Maximum opportunity (% of salary)
Target is 50% of maximum
150%
150%
Performance metrics
85% financial/15% non-financial
Deferral
One-third deferred into
shares for three years
LTIP
Drive and reward the main strategic objective of delivering
long-term value creation. Aligns Executive Directors’
interests with those of shareholders
Grant level (% of salary)
200%
150%
Performance metrics
Four performance metrics,
equally weighted
Share ownership
requirements
To provide alignment of interests between
Executive Directors and shareholders
% of salary
200%
200%
Time horizon of package
2021
2022
2023
2024
2025
Base salary
Benefits and pension
Annual bonus
LTIP
Deferral/Holding period
Deferral
In accordance with the Policy, 33% of bonus awarded is deferred in Ultra shares for three years during which cash dividends are payable. Executive Directors are
required to retain 100% of post-tax shares received on vesting of the deferred bonus and from the LTIP until shareholding requirements are met. Malus and
clawback provisions apply to both the bonus and LTIP.
Holding periods
A two-year post-vesting holding period applies to all awards which is enforced through sale restriction in our share plans portal. This method of enforcement
applies from 2021 onwards to all applicable vestings including prior years. A post-employment holding period is applicable to shares vesting under the LTIP and
deferred bonus plan granted in 2020 and beyond, equivalent to 100% of salary for one year. The Company has obtained written agreement from the Executive
Directors that they agree, and commit to, the post-employment holding requirements which are also a stated requirement in grant documentation.
Ultra
Annual Report
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91
Strategic report
Governance
Financial statements
Linking pay with strategy
We aim to deliver long-term, sustainable value
creation for all our stakeholders through our
Focus; Fix; Grow strategy
The Committee believes that executives’ reward
should balance the need to be agile and having a
longer-term focus, with strong alignment to the
KPIs and strategic priorities of the Group. The
Committee believes that the measures in the
incentive plans provide the right balance between
these aims.
The Remuneration Policy and implementation
in the context of the principles of the UK
Corporate Governance Code 2018 (“Code”)
The Committee believes the current Policy and
implementation are consistent with the six factors
outlined in the Code.
+
Clarity
– remuneration arrangements are
transparent and the Committee engages
regularly with shareholders
+
Simplicity
– the purpose, structure and strategic
alignment of each element of pay is
uncomplicated, and operationally easy to
understand
+
Risk
– there is an appropriate mix of fixed and
variable pay, and financial and non-financial
objectives. The Committee has the discretion
to override formulaic outcomes, and malus
and clawback provisions are in place
+
Predictability
– the range of possible pay
outcomes is set out in the performance scenario
charts on the right
+
Proportionality
– executives are incentivised
to achieve stretching targets over a one- and
three-year period with clear links to the delivery
of the Group’s strategy
+
Alignment with culture
– the Policy has been
designed to support the delivery of the Group’s
long-term strategy, and the interests of its
shareholders and employees. As set out above,
the performance metrics used to determine
variable pay outcomes directly align with our
strategy with individual performance considered
in the context of the Group’s ASPIRE values.
Malus and Clawback allow for adjustment of
outcomes for failure to act in accordance with
company purpose, values and strategy. Further
information regarding how our executive
remuneration is linked to our strategy can be
found on pages 22 and 23.
Remuneration scenarios for Executive Directors
The charts on the right show the value of the
package each of the Executive Directors would
receive based on 2021 base salary, benefits and
2021 annual bonus and LTIP awards, assuming
the following scenarios.
LTIPAnnual Bonus
AWCT
45%
TSR
25%
ROIC
25%
Organic
revenue
growth
25%
Strategic
15%
Organic
profit
growth
40%
Average Working Capital Turn
focuses on cash returns and
business efficiency.
TSR directly measures shareholder
returns relative to the FTSE 250. It
provides alignment between
executives and shareholders.
ROIC demonstrates how well the
Company is performing and being
managed over the medium to
long term.
Organic revenue growth targets
provides an indication of the rate
at which the Group’s business
activity is expanding.
Organic profit growth
demonstrates that the additional
revenue is being gained without
profit margins being compromised.
Organic profit growth is a key
internal performance measure
which demonstrates that the
additional revenue is being
gained without profit margins
being compromised.
Individual strategic objectives
focus on key enablers to drive
forward the strategy such as
engagement, succession
planning and transformation.
Organic
profit
growth
25%
0%
100%
Maximum + 50%
share growth
MaximumTargetMinimum
C
hief
Executiv
e
£
’0
00
Long-term
variable pay
Fixed pay
100%
39%
25%
36%
25%
32%
43%
21%
26%
53%
3,961
3,262
2,109
817
Annual
variable pay
C
hief
Financial Officer
£
’0
00
Long-term
variable pay
Fixed pay
Annual
variable pay
Maximum + 50%
share growth
MaximumTargetMinimum
100%
41%
28%
31%
27%
36%
36%
23%
31%
46%
2,119
1,792
1,171
485
Notes:
Fixed pay includes 2021 annual salary, and actual benefits and pension. For the Chief Executive the pension has been calculated
at 14% of base salary.
Minimum: Fixed pay only
Target: Fixed pay, target bonus and expected value of LTIP
Maximum: Fixed pay, maximum bonus and maximum vesting under LTIP
Maximum + 50% share price: Maximum plus 50% share price growth on LTIP
Ultra
Annual Report
and Accounts 2020
92
Annual Report on Remuneration
The Remuneration Committee presents its
Annual Report on Directors’ Remuneration which
is set out in this section. Decisions taken on
remuneration during the year are in line with
our Directors’ Remuneration Policy, which was
approved at our AGM in May 2020.
The role and composition of
the Remuneration Committee
Role
The Remuneration Committee is responsible
for recommending to the Board the Policy
for Executive Directors and for setting the
remuneration package for each Executive
Director. The Committee also has input into the
remuneration arrangements of the Executive
Team in conjunction with the Chief Executive and
has oversight of the Policy and remuneration
packages for other senior leaders, in particular
the variable elements. The Committee ensures
that remuneration conditions for the senior
team and the organisation as a whole are
clear and consistent.
The Committee aims to align the Policy with the
overall strategy of the Group, ensuring that
remuneration reflects the interests of our
shareholders and other stakeholders governed
by the Policy and our philosophy and values.
During the year, the Committee had four
scheduled meetings. A review is undertaken of
activities annually to ensure that the Committee
continues to meet its terms of reference (available
on our website) and fulfil its duties.
Composition
Martin Broadhurst was Chair of the Committee
and Geeta Gopalan, Dan Shook and Victoria Hull
were members throughout the year. Sir Robert
Walmsley stepped down from the Committee
as at 13 May 2020 and Ken Hunzeker joined
the Committee on 1 July 2020. The
General Counsel and Company Secretary is the
Secretary to the Committee. The Chair and Chief
Executive attend meetings by invitation except
where matters directly relating to their own
remuneration are discussed. Additionally,
the Committee may receive presentations on
specific topics from the Chief Human Resources
Officer, the Chief Financial Officer and the
Independent Adviser.
Advice
Until 31 May 2020, the Committee received
independent advice on executive remuneration
and share schemes from the executive
compensation practice at Aon plc. Following Aon’s
withdrawal from this line of business on 31 May
2020, the Committee undertook a competitive
re-tender process after which it appointed A&M as
its independent adviser. Both Aon and A&M are
members of the Remuneration Consultants Group
and are signatories to its Code of Conduct. Aon
received fees for advice given to the Committee in
2020 of £31,481 (excluding VAT) and A&M received
fees of £52,662 (excluding VAT) charged on a time
and materials basis.
During 2020, insurance broking services were also
provided to the Group by other subsidiaries of Aon
plc and the Committee considers these completely
separate from the advice given to it.
In addition, the Committee consults the Chief
Executive with regard to the remuneration and
benefits offered to the Executive Team (other than
in relation to his own remuneration) and also
receives specialist input from the Chief Human
Resources Officer and his team.
Single figure of total remuneration (audited)
Basic salary/fees
£’000
Benefits
£’000
Pension
£’000
Total fixed
remuneration
£’000
Annual
performance
bonus
4
£’000
LTIP
£’000
Total variable
remuneration
£’000
Total
£’000
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
5
2019
6
2020
2019
2020
2019
S Pryce
2,3,5
677
665
20
20
114
120
811
805
1,017
787
1,281
–
2,297
787
3,109
1,592
J Sclater
1,2,3
425
28
17
1
32
2
474
31
528
–
–
125
528
125
1,002
156
T Rice
202
194
–
–
–
–
202
194
–
–
–
–
–
–
202
194
M Broadhurst
64
63
–
–
–
–
64
62
–
–
–
–
–
–
64
58
G Gopalan
56
55
–
–
–
–
56
55
–
–
–
–
–
–
56
53
V Hull
61
55
–
–
–
–
61
55
–
–
–
–
–
–
61
53
K Hunzeker
7
28
–
–
–
–
–
28
–
–
–
–
–
–
–
28
–
D Shook
64
21
–
–
–
–
64
21
–
–
–
–
–
–
64
–
Sir R Walmsley
8
23
63
–
–
–
–
23
62
–
–
–
–
–
–
23
62
Notes
1
Jos Sclater was appointed to the Board on 9 December 2019.
2
Benefits: car benefit, life assurance and private medical insurance. No other benefits are payable.
3
Pensions: Simon Pryce received a cash supplement of 16% of base salary from June 2020 (reduced from 18%). Jos Sclater received a cash supplement of 7.5% of base salary.
4
One-third of bonus is deferred into shares for three years.
5
The LTIP value shows shares that will vest to Simon Pryce in July 2021. The value on vesting has been calculated using a share price of £20.93 being the average closing share price over the three months
to 31 December 2020. The proportion of the value of the LTIP that is attributable to share price appreciation is 27.8%.
6
Jos Sclater’s 2019 LTIP and 2019 total remuneration have been restated to include his Recruitment Award made on 10 December 2019 which was omitted last year. This award vests subject to continued
employment. Details of the award can be found in table 3.
7
Ken Hunzeker was appointed to the Board on 1 July 2020.
8
Sir Robert Walmsley stood down from the Board on 13 May 2020.
Ultra
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Strategic report
Governance
Financial statements
Annual bonus for the year under review (audited)
The maximum bonus opportunity for the Chief Executive and Chief Financial Officer for 2020 was 150% of salary and 125% of salary respectively. As outlined
elsewhere in this report, the Group has performed extremely well over the year and this has resulted in near maximum outcomes on the financial measures.
The financial measures comprise 85% of the overall bonus opportunity. The Committee does not consider that there are any factors which would lead it to
consider an adjustment to the formulaic outcome of the financial measures. The overall outcome is shown in Table 1.
Each Executive Director was also given challenging role-specific objectives, which make up the remaining 15% of the bonus opportunity. A series of objectives
were set under the four headings for each Executive Director shown below in Table 2. The Committee reviewed performance against each of the specific actions
to determine level of attainment by category. The detailed actions have not been disclosed as they continue to be commercially sensitive.
Table 1
Annual bonus for the year under review (audited)
Measure
Weighting
Threshold
4
Maximum
4
Performance
achieved
4
Percentage of
maximum
outcome
Overall bonus
Simon Pryce
PBT
1
40%
£98.7 m
£111.9 m
£111.7 m
98.57 %
AWCT
2
45%
7.30
7.85
10.1
100 %
99.43%
Strategic
3
15%
n/a
n/a
Exceeds
100 %
Jos Sclater
PBT
1
40%
£98.7 m
£111.9 m
£ 111.7 m
98.57%
AWCT
2
45%
7.30
7.85
10.1
100 %
99.43%
Strategic
3
15%
n/a
n/a
Exceeds
100 %
1
Underlying profit before tax
2
Average working capital turn
3
Role-specific strategic objectives
4
Targets were set at budgeted constant foreign exchange rates. No bonus is payable for threshold performance
Table 2
– Strategic objectives and performance
Simon Pryce
Strategic SMART objectives were set against each of the following key headings
Outcome
Delivering Business Results
+
Strategy & Stakeholder KPIs and order book growth
Meets
Deliver Eciency & Productivity
+
Execution of key transformation initiatives & enhanced reporting
Exceeds
Drive strategic growth
+
Customer engagement and technology investment
Exceeds
Improve organisational health
+
ESG and sustainability plan, engineering talent development
Exceeds
Leadership
+
Development programmes for critical and high potential employees
Exceeds
Overall rating
Exceeds
The Committee agreed that there was extremely strong delivery of both the strategic objectives set out above, and in dealing with specific unexpected
challenges faced by the business in the light of the Covid-19 external environment. Considering this, the overall performance of the business, and the ‘exceeds’
performance rating, means full payment on this component of the bonus plan was warranted.
Ultra
Annual Report
and Accounts 2020
94
Jos Sclater
Strategic SMART objectives were set against each of the following key headings
Outcome
Delivering Business Results
+
Transformation project development and realisation
Exceeds
Deliver Eciency & Productivity
+
Finance & IT transformation projects to affect standardisation and efficiency
Exceeds
Drive strategic growth
+
Risk management framework and financial balanced scorecards
Exceeds
Improve organisational health
+
Improve financial engagement score
Exceeds
Leadership
+
Build and Develop finance and transformation teams
Exceeds
Overall rating
Exceeds
The Committee agreed that performance overall was excellent and major progress had been made against all key objectives under the CFO’s leadership. The
Committee also considered delivery of additional major projects, for example, driving the implementation of continuous improvement initiatives across Ultra,
that had not been included in objectives at the start of the year, and awarded an overall ‘exceeds expectations’ rating resulting in full payment of this component
of the bonus plan.
The Committee determined that the following bonuses would be payable to the Executive Directors. One-third of the bonus paid will be deferred into shares for
three years. The deferred payment will be subject to malus and clawback in accordance with the rules of the plan.
Director
% of maximum
% of salary
Cash bonus
£’000
Deferred bonus
£’000
Total bonus
£’000
Simon Pryce
99.43
149.1
677,771
338,835
1,016,606
Jos Sclater
99.43
124.3
352,173
176,060
528,233
LTIP vesting for the year under review (audited)
The 2018 LTIP, vested as shown below. Simon Pryce is the only current Director holding a 2018 LTIP award.
As outlined in the Chairman’s statement, at the point the 2018 awards were granted, transformation costs were classified as non-underlying and did not
impact the Company’s reported underlying profit. Reflecting the transformation agenda, Ultra has changed the accounting convention such that
transformation costs are taken above the line and therefore impact underlying profit. The Committee spent time considering the impact of this change, noting
that the targets at the point the awards were made were set without knowing the accounting approach would change. As previously noted, the Committee
determined it would be appropriate for it to exercise its discretion to adjust for these costs. This accounting change also impacts the 2019 awards. While the
Committee will consider the vesting of the award at the time, it is intended to apply the same approach as the 2018 award including adjustment for any material
benefits from transformation impacting the result (since it was too early for such benefits to impact the 2018 award outcome).
Weighting
Threshold
3
Stretch
Outturn
% Vesting
TSR
Measured against the constituents of the FTSE 250
(excluding investment trusts)
25%
Median
Upper quartile
Upper quartile
25.0%
ROIC
Average ROIC calculated on an annual basis over the
three-year performance period
2
25%
15%
25%
22.2%
19.5%
Organic operating prot growth
1
25%
2%
5%
3.9%
17.4%
Organic revenue growth
1
25%
2%
5%
4.7%
23.1%
Total
85.0%
1
See page 172 for definition of organic measures. Awards vest in a straight-line basis between threshold and stretch. Growth rates are averaged over the three-year period. The above outturns reflect the
adjustment for transformation costs.
2
ROIC is defined as underlying operating profit expressed as a percentage of average invested capital (calculated as an average of the opening and closing balance sheets). Average invested capital was
calculated as net assets (after adjusting for exchange rate fluctuations) adjusted for amortisation and impairment charges arising on acquired intangible assets and goodwill, and the add-back of other
non-underlying performance items impacting the balance sheet.
3
20% of LTIP vests at threshold
Annual Report on Remuneration
continued
Ultra
Annual Report
and Accounts 2020
95
Strategic report
Governance
Financial statements
The details of the vesting are shown in the table below:
Executive Director
Number of
shares at grant
Number of
shares to lapse
Number of
shares to vest
Simon Pryce
71,978
10,797
61,181
As disclosed in last year’s report, former Director Amitabh Sharma was deemed a good leaver and, in accordance with his exit terms, a pro-rated number of
shares will vest, based on the time worked during the performance period and reflecting the above performance outturn.
Share awards granted during the year (audited)
LTIP awards were granted to Simon Pryce and Jos Sclater in 2020. Details of the awards are shown in the table below.
Scheme
Date of grant
Basis of award
Face value
£’000
2
Number of
shares
3
Vesting at
threshold
Vesting at
maximum
Performance period
Simon Pryce
1
LTIP
04/06/2020
200%
of salary
1,364
10,410
20%
100%
3 years to 31 December 2022
17/03/2020
72,867
20%
100%
3 years to 31 December 2022
Jos Sclater
LTIP
17/03/2020
125% of salary
531
32,453
20%
100%
3 years to 31 December 2022
1
As disclosed in last year’s report, an award over a further 10,410 shares was made to Simon Pryce, following shareholder approval of the new Remuneration Policy and related amendments to the LTIP at the
AGM, taking the total grant to 200% of base salary. The additional award was granted using the same share price as the award granted to him on 17 March 2020.
2
Face value is calculated at the grant date of the 17 March 2020 awards, using a closing middle-market price of the day preceding the date of grant. This share price was also used to calculate the award granted
on 4 June 2020, (see table 3).
3
All awards were granted as nil cost options.
For the awards under the LTIP scheme above, four performance metrics apply which are equally weighted. These are shown in the table below.
Performance measures
Weighting
Targets
Vesting %
Total shareholder return (TSR)
1
25%
TSR ranking of the Group against a comparator group
Below threshold
Below median
0%
Threshold
Median
5%
Stretch
Upper quartile or above
25%
Return on invested capital (ROIC)
2
25%
Return on invested capital
Below threshold
<15%
0%
Threshold
15%
5%
Stretch
25%
25%
Organic operating prot growth
3
25%
Annual growth in organic operating prot
Below threshold
<2%
0%
Threshold
2%
5%
Stretch
5%
25%
Organic revenue growth
3
25%
Annual growth in organic revenue
Below threshold
<2%
0%
Threshold
2%
5%
Stretch
5%
25%
1
Measured against constituents of the FTSE 250 (excluding investment trusts). Awards vest on a straight-line basis between threshold and stretch.
2
The ROIC measure will be the average ROIC calculated on an annual basis over the three-year performance period where ROIC is defined for the Group as underlying operating profit expressed as a
percentage of average invested capital (calculated as an average of the opening and closing balance sheets). Invested capital is the net assets of the Group excluding net debt and lease liability, pension
obligations, tax and derivatives. Awards will vest on a straight-line basis between threshold and stretch.
3
Growth targets are expressed as annual growth rates and averaged over the three-year period. Awards vest on straight-line basis between threshold and target. See page 172 for definition of organic
measures.
Payments to past Directors (audited)
Amitabh Sharma stepped down from the Board in December 2019, in accordance with his departure agreement disclosed last year, he received pay-in-lieu of
notice in 2020 totalling £356,700. No other payments were made to past Directors in 2020.
External appointments
Simon Pryce is a Non-Executive Director of Electrocomponents plc. During 2020 he earned fees of £70,000 in respect of this appointment. No other Executive
Directors held external appointments in 2020.
Ultra
Annual Report
and Accounts 2020
96
Annual Report on Remuneration
continued
Statement of Directors’ and former Directors’ shareholdings (audited)
Details of Directors’ interests in share-based incentives are shown in tables 3 to 6 below.
Table 3
Directors’ interests under the Ultra Electronics discretionary share plans
Director
Date of grant
Actual share
price at grant
at 31/12/19
Granted
Vested
Lapsed
at 31/12
/20
Earliest vesting of
outstanding
awards
Simon Pryce
LTIP
04/06/2020
1
16.37
–
10,410
–
–
10,410
17/03/2023
17/03/2020
16.37
–
72,867
–
–
72,867
17/03/2023
16/04/2019
15.26
65,366
–
–
–
65,336
16/04/2022
02/07/2018
2
16.17
71,978
–
–
–
71,978
02/07/2021
Deferred bonus
17/03/2020
16.37
–
9,616
–
–
9,616
17/03/2023
16/04/2019
15.26
4,151
–
–
–
4,151
16/04/2022
Jos Sclater
3
LTIP
17/03/2020
16.37
–
32,453
–
–
32,453
17/03/2023
10/12/2019
20.66
25,714
–
–
–
25,714
16/04/2022
Recruitment award
10/12/2019
20.66
2,016
–
2,016
–
2,016
10/12/2020
10/12/2019
20.66
2,016
–
–
–
2,016
10/12/2021
10/12/2019
20.66
2,018
–
–
–
2,018
10/12/2022
1
As disclosed in last year’s report and as outlined on page 95 of this report, Simon Pryce was granted an additional award after the AGM on the same vesting terms as the award granted on 17 March 2020,
following shareholder approval of the new Remuneration Policy and related amendments to the LTIP. The number of shares was based on the same share price as the 17 March 2020 grant.
2
As outlined on page 94 the performance period of this award ended on 31/12/2020 with 85% of this award due to vest on 02/07/2021.
3
As disclosed on appointment, Jos Sclater’s recruitment award vests in equal tranches over three years subject to continued employment at the vesting date. The first tranche vested on 9 December 2020 but
has not been exercised.
Table 4
Directors’ beneficial shareholdings at 31 December 2020
Director
Shareholding (number of
shares beneficially held) as at
31 December 2020
3
Simon Pryce
22,023
Jos Sclater
80
Tony Rice
20,000
Martin Broadhurst
2,100
Geeta Gopalan
0
Victoria Hull
1,684
Ken Hunzeker
1
2,000
Daniel Shook
2,500
Sir Robert Walmsley
2
3,000
1
Ken Hunzeker joined the Board on 1 July 2020.
2
Sir Robert Walmsley stood down on 13 May 2020 and shareholding shown is that at his departure date.
3
There were no changes to the Directors’ interests between 1 January 2021 and 4 March 2021.
Statement on shareholding requirements
Under the Policy, Executive Directors are required to build up and maintain a shareholding equivalent to 200% of their base salary. As at 31 December neither of
the Executive Directors had achieved the requirement. As the Chief Executive and Chief Financial Officer had negligible vested share incentives at 31 December
2020, the Committee considers this acceptable and will continue to monitor progress towards achieving the shareholding requirement. The Chief Executive’s
position will be strengthened with the vesting of his 2018 LTIP in July 2021.
Director
Shareholding requirement
% of base salary
Current holding
% of base salary
1
Requirement met
Current holding % of base
salary (including awards
unvested and subject to
continued employment)
2
Simon Pryce
200%
67.6%
No
90.9%
Jos Sclater
200%
0.4%
No
16.8%
1
Current holding has been calculated using a share price of £20.93 being the average closing price over the three months to 31 December 2020.
2
Includes deferred bonus awards and, in the case of Jos Sclater, his Recruitment Award on a net of tax basis. These awards vest subject to continued employment. Details of these awards can be found
in table 3.
Ultra
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and Accounts 2020
97
Strategic report
Governance
Financial statements
Table 5
Directors’ interests under the all-employee share plan
Director
Interests as at
1 January
2020
1
Shares
acquired
during
the year
Interests as at
31 December
2020
Shares
acquired from
1 January
2020 to
8 March 2021
Interests
as at 8 March
2021
Simon Pryce
131
92
223
23
246
Jos Sclater
–
80
80
23
103
1
Last year’s figure of 138 erroneously included seven shares purchase in January; this has now been corrected.
Table 6
Directors’ interests under the Save As You Earn share plan
Director
Interests as at
1 January
2020
Shares
acquired
during
the year
Interests as at
31 December
2020
Shares
acquired from
1 January
2020 to
8 March 2020
Interests
as at 8 March
2021
Simon Pryce
830
–
830
–
830
Jos Sclater
–
–
–
–
–
Change in remuneration of Directors and employees
The following table illustrates the change (as a percentage) in elements of the Directors’ remuneration from 2019 to 2020 and compares that to a comparator
group of employees of the Group in the UK, excluding the Directors. This Group has been selected as it best reflects the remuneration environment of
the Directors.
Base salary/
fee change
Taxable
benefits
change
Bonus
change
Executive Directors
Simon Pryce
2%
-4%
29%
Jos Sclater
1
0%
0%
n/a
Non-Executive Directors
Tony Rice
2
4%
n/a
n/a
Martin Broadhurst
1%
n/a
n/a
Geeta Gopalan
2%
n/a
n/a
Victoria Hull
3
10%
n/a
n/a
Ken Hunzeker
4
n/a
n/a
n/a
Daniel Shook
5
0%
n/a
n/a
Sir Robert Walmsley
6
-63%
n/a
n/a
Comparator Group
Parent company employees
7
n/a
n/a
n/a
UK employees
8
4%
6%
42%
1
Jos Sclater joined the Board on 9 December 2019. His base salary and benefits entitlement did not change between 2019 and 2020 and thus 0% is shown rather than a formulaic calculation.
2
Tony Rice became Chair of the Board on 28 January 2019.
3
Victoria Hull became Senior Independent Director on 13 May 2020.
4
Ken Hunzeker joined the Board on 1 July 2020.
5
Daniel Shook joined the Board on 1 September 2019. There was no change in the full year equivalent fee and thus 0% is shown rather than the formulaic calculation.
6
Sir Robert Walmsley stood down on 13 May 2020.
7
The regulations require disclosure of the change in remuneration of the employees of the parent company. As the parent company has only 9 senior level employees other than the Directors above, it would
not be representative to provide a percentage change in their pay.
8
As the parent company has few employees, the Remuneration Committee has decided to voluntarily disclose the percentage change in remuneration of all UK employees of the Group.
Ultra
Annual Report
and Accounts 2020
98
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:
2020
£m
2019
£m
Change
%
Staff costs
1
288.0
267.9
7.5
Dividends
2
40.4
38.4
5.2
Revenue
3
859.8
825.4
4.2
Statutory profit before tax
3
103.7
91.0
14.0
1
£1.3m (2019: £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
Revenue and statutory profit before tax are included to add further context to annual spend.
Pay comparisons
Below we present the ratio of the CEO’s remuneration compared with representative UK employees utilising option A for the calculation, in accordance with the
Companies (Miscellaneous Reporting) Regulations 2018 para 19D. Option A was chosen as it is the most statistically accurate. In addition, and to more accurately
reflect the composition of the Group, with over half of our employees located overseas, we have included the ratio for our worldwide workforce in 2020.
The calculations for the relevant representative employees have been made as at 31 December 2020. To provide the comparable figure for bonus we have used
the expected 2020 bonus although this was not paid at the time of calculation. Additionally, we adjusted the data to reflect full-time equivalent salaries for those
employed on a part-time basis and in so doing we assumed a standard 37-hour week. No elements of remuneration have been omitted.
Year
Method
Data set
25th
percentile
pay ratio
Median pay
ratio
75th
percentile
pay ratio
2020
Option A
UK
92:1
74:1
41:1
2020
Option A
Global
76:1
63:1
41:1
2019
Option A
UK
54:1
37:1
27:1
2019
Option A
Global
50:1
31:1
19:1
Our pay philosophy across the Group is based on a set of core principles including managing reward by reference to external competitor benchmarks and
individual performance in role. Eligibility for short- and long-term incentives is determined consistently by seniority. The CEO receives a significant proportion of
his reward in the form of variable pay, and as such, his total reward may vary substantially year by year depending on the Group’s performance. The Committee
believes the median pay ratio is consistent with the Group’s pay philosophy and progression policies.
The employees in the sample do not typically participate in a performance-based long-term incentive and receive more of their reward as fixed pay. The
increase in the ratio for 2020 compared to 2019 reflects the vesting of the 2018 LTIP in the 2020 CEO figure.
The table below shows the total pay, benefits and salary for each quartile of the UK sample.
£
25th
percentile
50th
percentile
75th
percentile
Total pay and benefits
30,915
44,146
60,963
Salary
28,616
39,106
55,052
Annual Report on Remuneration
continued
Ultra
Annual Report
and Accounts 2020
99
Strategic report
Governance
Financial statements
Total shareholder return (TSR) table and CEO remuneration
The graph below shows the TSR performance of Ultra in comparison with the FTSE 250 Index over the past 10 years. The graph shows the value over the
measurement period of £100 invested at the start of the period in Ultra and in the Index. The Committee considers the FTSE 250 to be the relevant Index
for the TSR comparison as it is a member of the Index and the membership represents a broad range of UK-quoted companies.
£0
£50
£100
£150
£200
£250
£300
£350
FTSE 250
31/12/2010
31/12/2012
31/12/2014
31/12/2016
31/12/2018
31/12/2020
Ultra Electronics
This graph shows the value, by 31 December 2020, of £100 invested in Ultra Electronics on 31 December 2010, compared with the value of £100 invested
in the FTSE 250 Index on the same date.
The other points plotted are the values at intervening financial year ends.
The table below shows the remuneration of the CEO over this period.
Director
Year ended
Total remuneration
£’000
Annual bonus %
of max. payout
LTIP % of
max. payout
S Pryce
31 December 2020
3,109
99%
85%
S Pryce
31 December 2019
1,592
95%
–
S Pryce
1
31 December 2018
750
71%
–
D Caster
2
31 December 2018
284
–
–
D Caster
3
31 December 2017
81
–
–
R Sharma
4
31 December 2017
765
–
–
R Sharma
31 December 2016
1,194
82%
–
R Sharma
31 December 2015
1,197
88%
–
R Sharma
31 December 2014
680
–
–
R Sharma
31 December 2013
612
–
–
R Sharma
31 December 2012
597
–
–
R Sharma
5
31 December 2011
722
76%
–
D Caster
6
31 December 2011
141
–
–
1
CEO from 18 June 2018.
2
Executive Chair to 18 June 2018.
3
Executive Chair from 10 November 2017.
4
CEO to 10 November 2017.
5
CEO from 21 April 2011.
6
CEO to 21 April 2011.
Ultra
Annual Report
and Accounts 2020
100
Statement of shareholder voting
At the 2020 AGM, shareholders were asked to vote on the Directors’ Remuneration Policy and the 2019 Directors’ Remuneration Report which received the
following votes:
Director’s Remuneration Policy
Total number
of votes
% of votes cast
Votes for
50,910,945
81.51%
Votes against
11,545,822
18.49%
Total votes cast (for and against)
62,456,767
100%
Votes withheld
1,160,704
Total votes cast
63,617,471
Director’s Remuneration Report
Total number
of votes
% of votes cast
Votes for
52,498,868
86.22%
Votes against
8,390,183
13.78%
Total votes cast (for and against)
60,889,051
100%
Votes withheld
2,728,420
Total votes cast
63,617,471
Implementation of the Directors’ Remuneration Policy in 2021
A summary of how the proposed Policy will be applied for the year ending 31 December 2021 is set out below.
Salary increases
Salary increases are effective from 1 April 2021. The increases for both the Chief Executive and Chief Financial Officer are less than the budgeted increase for the
workforce as a whole which was 3.0%. Executive Directors’ salaries effective 1 April 2021 are shown below.
2021 salary
£’000
2020 salary
£’000
Increase
awarded from
1 April 2021
S Pryce
699
682
2.5%
J Sclater
436
425
2.5%
Annual bonus for 2021
The maximum bonus for the Executive Directors in 2021 will be 150% of base salary. One-third of any bonus payable will be deferred into shares for three years
and subject to malus and clawback.
The structure of the 2021 bonus is unchanged from 2020 and will include up to 40% of the maximum payable for the achievement of an agreed profit target, up
to 45% payable for the achievement of an agreed improvement in average working capital turn (AWCT) and up to 15% payable for the achievement of individual
strategic objectives. The objectives for 2021 will be fewer and centred around key strategic and stakeholder priorities as described on pages 22 and 23.
The Committee has reviewed the targets against the financial measures to ensure they are stretching, given the internal growth plans and external market
dynamics. The Committee discussed whether to amend the strike and maximum targets for both metrics as a percentage of target and concluded that it was
appropriate to keep the same range for 2021. The Committee will keep this under review during 2021 as business conditions develop and consider whether an
amendment is appropriate for 2022.
We have not disclosed actual targets as we consider the targets to be commercially sensitive. We will disclose them retrospectively in the 2021 report.
No bonus will be paid if the Committee considers the Group’s financial performance to be unsatisfactory or there is a negative event which, in line with the
Policy, would require the Committee to adjust the formulaic outcome.
Directors’ pension entitlements
Simon Pryce and Jos Sclater receive an annual cash allowance in lieu of a Company pension contribution. In 2020 Simon Pryce’s pension contribution was 16% of
base salary (reduced from 18% in 2019) and this will be reduced further in 2021 to 14% of base salary. Jos Sclater has a pension contribution rate of 7.5%, which is
aligned with that currently available for the majority of the UK workforce. The Committee is committed to reducing Simon Pryce’s pension to the workforce level
by the start of 2023.
Long-term awards to be granted in 2021
The Committee intends to grant an annual LTIP award in shares to the value of 200% of base salary to the Chief Executive and 150% to the Chief Financial Officer
during 2021. The measures and targets that will apply to the awards are shown in the table below. The Committee reviewed internal and external metrics in
determining the targets for threshold and stretch. In light of this review, the Committee has increased both the threshold and stretch of the organic underlying
operating profit and organic revenue growth measures from those set for the 2020 awards. The Committee did not adjust the ROIC threshold despite an
outcome in 2020 of 20% (see note 2); the Committee considered that it was not reasonable to maintain the same high level of increase given the improvements
already made. The Committee believes the targets for all of the measures to be challenging against the data reviewed.
Annual Report on Remuneration
continued
Ultra
Annual Report
and Accounts 2020
101
Strategic report
Governance
Financial statements
Long-term awards to be granted in 2021
continued
Performance measures
Weighting
Targets
Vesting %
Total shareholder return (TSR)
1
25%
TSR ranking of the Group against a comparator group
Below threshold
Below median
0%
Threshold
Median
5%
Stretch
Upper quartile or above
25%
Return on invested capital (ROIC)
2
25%
Return on invested capital
Below threshold
<15%
0%
Threshold
15%
5%
Stretch
25%
25%
Organic operating prot growth
3
25%
Annual growth in organic operating prot
Below threshold
<4%
0%
Threshold
4%
5%
Stretch
8%
25%
Organic revenue growth
3
25%
Annual growth in organic revenue
Below threshold
<2.5%
0%
Threshold
2.5%
5%
Stretch
6%
25%
1
Measured against constituents of the FTSE 250 (excluding investment trusts). Awards vest on a straight-line basis between threshold and stretch.
2
The ROIC measure will be the average ROIC calculated on an annual basis over the three-year performance period where ROIC is calculated as underlying operating profit expressed as a percentage
of invested capital (average of opening and closing balance sheets). Invested capital is the net assets of the Group, excluding net debt and lease liability, pension obligations, tax and derivatives.
3
Growth targets are expressed as annual growth rates and averaged over the three-year period. See pages 163, 164 & 172 for definitions of organic measures. Awards vest in a straight-line basis between
threshold and stretch.
Non-Executive Directors
The level of the Chairman’s fee will increase to £235,000 from £202,000 with effect from 1 April 2021. This is the first increase since 2017 and adjusts the fee
to a competitive level. In addition, the base Non-Executive Director fee will increase to £59,000 and the Senior Independent Director and Committee Chair fees
to £10,000.
Fee levels with effect from 1 April 2021 are as follows:
Fees £’000
Chair
235
Non-Executive Director (base fee)
59
Senior Independent Director (additional fee)
10
Committee Chair (additional fee)
10
All Non-Executive Directors have letters of appointment in place with remaining terms as follows, subject to re-appointment at the Company’s Annual General
Meeting:
Letter of appointment end date
Tony Rice
AGM 2022
Martin Broadhurst
02/07/2021
Victoria Hull
27/04/2023
Geeta Gopalan
27/04/2023
Daniel Shook
01/09/2022
Ken Hunzeker
01/07/2023
2021 Annual General Meeting
The Committee encourages shareholders to vote in favour of the Directors’ remuneration report at the 2021 AGM. The Directors’ remuneration report was
approved by the Board on 9 March 2021 and signed on its behalf by:
Martin Broadhurst
Chair of the Remuneration Committee
Ultra
Annual Report
and Accounts 2020
102
Directors’ report
for the year ended 31 December 2020
The Directors of the Company present their report
statements for the year ended 31 December 2020.
Results and dividends
The Group results for the year ended 31
December 2020 are set out on page 4 of the
strategic report.
An interim dividend of 15.4 pence per share (2019:
15.0 pence per share) was paid on 18 September
2020. An additional interim dividend of 39.2 pence
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. 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 Directors operate in accordance
with a Schedule of Matters Reserved for the Board,
which is available from the Investors’ section on the
Group website (ultra.group).
Ultra
Annual Report
and Accounts 2020
103
Strategic report
Governance
Financial statements
Additional disclosure requirements
The following information which is required to be included in the Directors’ report and forms part of this report may be found elsewhere in the Annual Report
as follows.
Information
Location
Business review
Strategic report: pages 32-37
Future developments
Strategic report: pages 30-31
Corporate social responsibility
Strategic report: pages 38-53
Workforce engagement
Strategic report: pages 22 and Governance report: page 80
Customer and supplier relationships
Strategic report: pages 22-23
The environment and greenhouse gas emissions
Strategic report: pages 49-52
Principal risks and uncertainties facing the Group
Strategic report: pages 54-57
Business ethics and employment practices
Strategic report: pages 38-48 and Governance report pages 75 and 80
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
+
taken as a whole, are fair, balanced and
understandable and provide the information
necessary for shareholders to assess the
Company’s position, performance, business
model and strategy
By order of the Board
Louise Ruppel
General Counsel and Company Secretary
Directors’ report
continued
Ultra
Annual Report
and Accounts 2020
105
Strategic report
Governance
Financial statements
Independent auditor’s report
To the members of Ultra Electronics Holdings plc
1. Opinion
In our opinion:
+
the nancial statements of Ultra Electronics Holdings plc (the ‘parent company’) and its subsidiaries (the ‘group’) give a true and fair view of the state of the
group’s and of the parent company’s aairs as at 31 December 2020 and of the group’s prot for the year then ended;
+
the group nancial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the
Companies Act 2006 and International Financial Reporting Standards (IFRSs) as adopted by the European Union;
+
the parent company nancial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including
Financial Reporting Standard 101 “Reduced Disclosure Framework”; and
+
the nancial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the nancial statements which comprise:
+
the consolidated income statement;
+
the consolidated statement of comprehensive income;
+
the consolidated and parent company balance sheets;
+
the consolidated and parent company statements of changes in equity;
+
the consolidated cash ow statement;
+
the statement of accounting policies; and
+
the related notes 1 to 48.
The nancial reporting framework that has been applied in the preparation of the group nancial statements is applicable law, international accounting
standards in conformity with the requirements of the Companies Act 2006, and IFRSs as adopted by the European Union. The nancial reporting framework
that has been applied in the preparation of the parent company nancial statements is applicable law and United Kingdom Accounting Standards, including
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards
are further described in the auditor’s responsibilities for the audit of the nancial statements section of our report.
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the nancial statements
in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest entities, and we have fullled our other
ethical responsibilities in accordance with these requirements. The non-audit services provided to the group and parent company for the year are disclosed
in note 6 to the nancial statements. We conrm that the non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the
parent company.
We believe that the audit evidence we have obtained is sucient and appropriate to provide a basis for our opinion.
3. Summary of our audit approach
Key audit matters
The key audit matters that we identied in the current year were:
+
Revenue and prot recognition;
+
Valuation of goodwill and intangible assets; and
+
Dened benet pensions liabilities valuation.
Within this report, key audit matters are identied as follows:
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality
The materiality that we used for the group nancial statements was £5.7m which was determined on the
basis of underlying prot before tax.
Scoping
We focused our group audit scope primarily on the audit work at 16 locations, 12 of these were subject to a
full audit, whilst the remaining 4 were subject to specied audit procedures where the extent of our testing
was based on our assessment of the risks of material misstatement. These 16 locations accounted for 91% of
group revenue and 91% of underlying prot before tax.
Signicant changes in our approach
Our audit has been responsive to the impact of Covid-19, for example in relation to the key audit matters as
described further below and in how we have conducted our audit remotely, but otherwise there have been
no signicant changes to our audit approach in comparison to the prior period. All components that were
subject to full scope procedures in FY19 remained so in FY20, but we made some changes to our specied
scope audits for rotational purposes.
Ultra
Annual Report
and Accounts 2020
106
Independent auditor’s report
To the members of Ultra Electronics Holdings plc
continued
4. Conclusions relating to going concern
In auditing the nancial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the nancial
statements is appropriate.
Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt the going concern basis of accounting
included the following main procedures:
+
Consideration of the Group’s latest nancial performance and position and year on year trend;
+
Challenge of key assumptions in management’s forecast model including assessment of the historical accuracy of forecasts prepared by management,
reasonability with respect to the wider macroeconomic and industry conditions, and obtaining evidence of order backlog and contract wins;
+
Assessment of credit facility headroom and covenant compliance through review of the original agreements and evaluation against the year-end and forecast
positions; and
+
Challenge of management’s sensitivity analysis both mechanically and in the suitability of their sensitised assumptions as being reective of reasonable
worst case.
Based on the work we have performed, we have not identied any material uncertainties relating to events or conditions that, individually or collectively,
may cast signicant doubt on the group’s and parent company’s ability to continue as a going concern for a period of at least twelve months from when
the nancial statements are authorised for issue.
In relation to the reporting on how the group has applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in
relation to the directors’ statement in the nancial statements about whether the directors considered it appropriate to adopt the going concern basis
of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most signicance in our audit of the nancial statements of the current
period and include the most signicant assessed risks of material misstatement (whether or not due to fraud) that we identied. These matters included
those which had the greatest eect on: the overall audit strategy, the allocation of resources in the audit; and directing the eorts of the engagement team.
These matters were addressed in the context of our audit of the nancial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Ultra
Annual Report
and Accounts 2020
107
Strategic report
Governance
Financial statements
5.1. Revenue and prot recognition
Key audit matter description
The group recognised revenue of £859.8m in 2020 (2019: £825.4m), with sales recognised on both an
over-time (£503.7m) and on a point-in-time (£356.1m) basis in accordance with ‘IFRS 15: Revenue from
contracts with customer’.
We identied a key audit matter related to the risk that, from either error or fraud, that revenue and prot is
recognised incorrectly based on judgements within the cost to complete estimate of signicant contracts, or
due to incorrect treatment of contracts, which include unusual or onerous terms.
We consider that those contracts with a design phase have a heightened risk of cost escalation due to
extended or unforeseen eort necessary to achieve contract milestones.
Further, given the bespoke nature and the length of time to develop and manufacture many of Ultra’s
products and solutions, the contracts between Ultra and its customers can contain complex terms or
contract variations and therefore there is also a risk that revenue is not recognised in accordance with
such terms.
Refer to page 156 (key sources of estimation uncertainty – contract revenue and prot recognition); page
considered); and page 129 (note 13 of the Financial Statements).
Ultra
Annual Report
and Accounts 2020
108
How the scope of our audit responded
to the key audit matter
We obtained an understanding of the relevant controls over the monitoring of the carrying value of goodwill.
Substantive procedures performed included:
+
Challenging the 5 year growth rate assumptions in the strategic plan period. Agreeing opportunities to
evidence and assessing accuracy of management’s historical forecasting accuracy;
+
Testing the long term growth rate assumption against the long term economic outlook and benchmarking
it against the rate used by Ultra’s peers;
+
With the involvement of our valuation specialists, benchmarking the discount rate against independently
available data, together with performing peer group analysis;
+
Having challenged the assumptions, we assessed whether 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 (both performance and WACC) based on our work
performed on the key assumptions;
+
Calculated revised sensitised scenarios based on our own interpretation of reasonable worst case
scenarios (including a severe downside sensitivity of no growth from FY20 actuals);
+
Assessed management’s Group NPV against Enterprise Value.
With regards to the disclosures within the nancial statements, we assessed whether they appropriately
reect the facts and circumstances within management’s assessment of impairment over goodwill and
acquired intangibles.
Key observations
We are satised that headroom exists over the carrying value of the Energy division and therefore no
impairment has been recognised. We raised a nding to management in relation to the discount rates
applied in the impairment model which was subsequently corrected by management.
5.3. Dened benet pension liabilities valuation
Key audit matter description
The group operates dened benet pension schemes in the UK, Switzerland and Canada. At 31 December
2020 the dened benet pension scheme obligation was £441.1m (2019: £403.0m) which resulted in a net
IAS 19: ‘Employment Benets’ decit of £71.9m (2019: £73.4m). The UK scheme accounted for 96% of this net
decit.
There is a risk that the assumptions used in determining the dened benet obligation for the UK scheme
are not appropriate, resulting in an inappropriate pension valuation which would have a material impact on
the nancial statements. The most sensitive assumption is the discount rate, and so this is where our eorts
were most heavily focussed. Additional focus areas included work around the Ination Risk Premium, given
RPI reform, and IFRIC 14 considerations.
Refer to page 156 (key sources of estimation uncertainty – retirement benet plans); page 161 (accounting
policies – pensions); and page 86 (Audit Committee report – signicant issues considered), and pages 148
to 152 (note 29 of the Financial Statements).
How the scope of our audit responded
to the key audit matter
We obtained un understanding of the relevant controls over the accounting for dened benet
pension scheme.
With the involvement of our pension specialists we assessed the appropriateness of the assumptions
through benchmarking to industry data and comparison with the peer group. Discount rate, ination risk
premium and IFRIC 14 considerations were tested by understanding Ultra assumptions and methodology
against IAS 19 and comparing against a reasonable range. This range was determined by comparison
against 6 leading actuarial rm methodologies, or where available, third party economic data.
We reviewed the suitability of the methodology used to value the dened benet pension
scheme obligation.
Key observations
Our assessment concluded that Ultra’s pension assumptions overall lie within our acceptable range.
Independent auditor’s report
To the members of Ultra Electronics Holdings plc
continued
Ultra
Annual Report
and Accounts 2020
109
Strategic report
Governance
Financial statements
6. Our application of materiality
6.1. Materiality
We dene materiality as the magnitude of misstatement in the nancial statements that makes it probable that the economic decisions of a reasonably
knowledgeable person would be changed or inuenced. We use materiality both in planning the scope of our audit work and in evaluating the results
of our work.
Based on our professional judgement, we determined materiality for the nancial statements as a whole as follows:
Group nancial statements
Parent company nancial statements
Materiality
£5.7m (2019: £5.1m)
£2.3m (2019: £1.4m)
Basis for determining materiality
5% (2019: 5%) of underlying prot before tax
Underlying prot before tax is reconciled to
statutory prot before tax in note 2 of the
nancial statements.
Parent company materiality was determined based
on 1% of company only net assets and capped at
40% of the group materiality.
Rationale for the benchmark applied
Underlying prot before tax is a key performance
measure for the group and the users of the
nancial statements; therefore is an appropriate
basis on which to determine materiality.
The parent company is non-trading, and we
therefore consider that net assets is the most
appropriate metric to determine materiality.
Underlying PBT
Underlying PBT
114.5m
Group materiality
Group materiality £5.7m
Component materiality
range £1.6m to £2.2m
Audit Committee reporting
threshold £0.285m
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected misstatements exceed
the materiality for the nancial statements as a whole.
Group nancial statements
Parent company nancial statements
Performance materiality
70% (2019: 70%) of group materiality
70% (2019: 70%) of parent company materiality
Basis and rationale for determining
performance materiality
Factors we considered include:
+
our past experience of the audit and our risk assessment, including our assessment of the group’s
overall control environment;
+
there were no signicant changes to the business in the period, there was limited nancial impact on
the business as a result of changes in the macroeconomic environment, and there was a suitable level
of stability within the Company’s management team;
+
the relatively low number of signicant audit risks and fraud risks in the business identied through
our detailed risk assessment;
+
the relatively low number of uncorrected and corrected misstatements in prior periods, and
management’s past willingness to investigate and correct such misstatements identied;
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit dierences in excess of £285k (2019: £255k), as well as dierences below
that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identied
when assessing the overall presentation of the nancial statements.
Ultra
Annual Report
and Accounts 2020
110
7. An overview of the scope of our audit
7.1. Identication and scoping of components
Our Group scoping was performed taking account of the following considerations:
The Group is divided into 25 operating components (2019: 28) spread predominantly across four key territories – the UK, US, Canada and Australia. Each
component sits within one of three operating segments, with central oversight provided from management located in the UK and all results are consolidated
the Group level.
Scoping has remained broadly consistent with the prior year. Through our audit we have performed 12 (2019: 12) full scope audits, 4 specied procedure audits
(2019: 4), along with 9 (2019: 12) components being reviewed centrally at the Group level. This is consistent with our prior year scoping when accounting for the
reduced total components.
In addition, the Group disposed of one component during 2020 (with the 2 disposals in the previous year making up the total reduction in units from year on
year) – Flightline. This was audited centrally at the Group level, consistent with our audit approach from the prior year.
Components were selected based on their contribution to the consolidated revenue and underlying prot before tax for the Group. Of the 12 full scope audits
identied, 3 were considered to be signicant components to the Group based on their revenue and underlying prot before tax contribution.
Revenue
Full audit scope
81%
Specied audit procedures
10%
Review at Group level
9%
Prot before tax
Full audit scope
82%
Specied audit procedures
9%
Review at Group level
9%
7.2. Working with other auditors
Each component in scope was subject to an audit materiality level between £1.6 million and £2.2 million (2019: £1.4m and £2.1m). This audit work on all
components was performed by Deloitte member rms under the direction and supervision of the Group audit team. At group level we also tested the
consolidation process and performed analytical procedures to assess whether there were any signicant risks of material misstatement within the
aggregated nancial information of the remaining components, not subject to full scope audit or audit of specied account balances.
We communicated the results of our risk assessment exercise to the component auditors and instructed them on the areas of signicant risk, the procedures
to be performed and timing of their reporting to us. We also provided direction on enquiries made by the component auditors through online and telephone
conversations. For overseas entities, a le review was performed to verify the work performed by the teams was in line with both the scope and standard
required by the Group audit team. All the ndings identied were discussed with the component auditor in detail and further procedures to be performed
were issued where relevant.
In previous years the Group audit team followed a programme of planned visits that has been designed so that on a rotational basis the Senior Statutory
Auditor, or a senior member of the Group audit team visited each of the primary operating component, including each of the signicant components on an
annual basis. However, in the current global climate and due to travel restrictions imposed as a result of Covid-19 this was not possible. This didn’t impact the
outcome of our work, as we still were able to perform sucient group oversight via regular virtual communication and review of component les.
Independent auditor’s report
To the members of Ultra Electronics Holdings plc
continued
Ultra
Annual Report
and Accounts 2020
111
Strategic report
Governance
Financial statements
8. Other information
The other information comprises the information included in the annual report, other than the nancial
statements and our auditor’s report thereon. The directors are responsible for the other information
contained within the annual report. Our opinion on the nancial statements does not cover the other
information and, except to the extent otherwise explicitly stated in our report, we do not express any
form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the nancial statements or our knowledge obtained in the
course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to
determine whether this gives rise to a material misstatement in the nancial statements themselves. If,
based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the nancial statements and for being
satised that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of nancial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the nancial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern,
disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the
group or the parent company or to cease operations, or have no realistic alternative but to do so.
10. Auditor’s responsibilities for the audit of the nancial statements
Our objectives are to obtain reasonable assurance about whether the nancial statements as a whole are free from material misstatement, whether due
to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to inuence the economic decisions of users taken on the basis
of these nancial statements.
A further description of our responsibilities for the audit of the nancial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.
11. Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above,
to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities,
including fraud is detailed below.
11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, we
considered the following:
+
the nature of the industry and sector, control environment and business performance including the design of the group’s remuneration policies, key drivers
for directors’ remuneration, bonus levels and performance targets;
+
results of our enquiries of management and the audit committee about their own identication and assessment of the risks of irregularities;
+
any matters we identied having obtained and reviewed the group’s documentation of their policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;
+
the matters discussed among the audit engagement team, including signicant component audit teams and involving relevant internal specialists, including
tax, pensions, valuations, industry specialists and IT specialists regarding how and where fraud might occur in the nancial statements and any potential
indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identied the greatest
potential for fraud in the following area: revenue and prot recognition. In common with all audits under ISAs (UK), we are also required to perform specic
procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory frameworks that the group operates in, focusing on provisions of those laws and regulations
that had a direct eect on the determination of material amounts and disclosures in the nancial statements. The key laws and regulations we considered in this
context included the UK Companies Act, Listing Rules, pension legislation, and tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct eect on the nancial statements but compliance with which may
be fundamental to the group’s ability to operate or to avoid a material penalty. This included compliance with International Trade Law and International Trac in
Arms Regulations (ITAR).
Ultra
Annual Report
and Accounts 2020
112
11.2. Audit response to risks identied
As a result of performing the above, we identied revenue and prot recognition as a key audit matter related to the potential risk of fraud. The key audit matters
section of our report explains the matter in more detail and also describes the specic procedures we performed in response to that key audit matter.
In addition to the above, our procedures to respond to risks identied included the following:
+
reviewing the nancial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws and
regulations described as having a direct eect on the nancial statements;
+
enquiring of management, the audit committee and external legal counsel concerning actual and potential litigation and claims;
+
performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud;
+
reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with HMRC; and
+
in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments; assessing
whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the business rationale of any signicant
transactions that are unusual or outside the normal course of business.
We also communicated relevant identied laws and regulations and potential fraud risks to all engagement team members including internal specialists
and all component audit teams, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
Report on other legal and regulatory requirements
12. Opinions 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.
In our opinion, based on the work undertaken in the course of the audit:
+
the information given in the strategic report and the directors’ report for the nancial year for which the nancial statements are prepared is consistent
with the nancial statements; and
+
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have
not identied any material misstatements in the strategic report or the directors’ report.
13. Corporate Governance Statement
The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance
Statement relating to the group’s compliance with the provisions of the UK Corporate Governance Code specied for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially
consistent with the nancial statements and our knowledge obtained during the audit:
+
the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identied (set
out on page 58);
+
the directors’ explanation as to its assessment of the group’s prospects, the period this assessment covers and why the period is appropriate (set out on page 58);
+
the directors’ statement on fair, balanced and understandable (set out on page 87);
+
the board’s conrmation that it has carried out a robust assessment of the emerging and principal risks (set out on pages 54-57);
+
the section of the annual report that describes the review of eectiveness of risk management and internal control systems (set out on pages 54-59); and
+
the section describing the work of the audit committee (set out on pages 84-87).
Independent auditor’s report
To the members of Ultra Electronics Holdings plc
continued
Ultra
Annual Report
and Accounts 2020
113
Strategic report
Governance
Financial statements
14. Matters on which we are required to report by exception
14.1. 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 nancial statements are not in agreement with the accounting records
and returns.
We have nothing to report in respect
of these matters.
14.2. 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 in respect
of these matters.
15. Other matters which we are required to address
15.1. Auditor tenure
Following the recommendation of the audit committee, we were appointed by the board of directors on 17 April 2003 to audit the nancial statements for the
year ending 31 December 2003 and subsequent nancial periods. The period of total uninterrupted engagement including previous renewals and
reappointments of the rm is 18 years, covering the years ending 31 December 2003 to 31 December 2020.
15.2. Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with ISAs (UK).
16. Use of our report
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.
Alexander Butterworth ACA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Reading, United Kingdom
9 March 2021
Ultra
Annual Report
and Accounts 2020
114
Note
2020
£m
2019
£m
Revenue
3
859.8
825.4
Cost of sales
(609.0)
(586.3)
Gross prot
250.8
239.1
Other operating income
4
0.9
1.0
Administrative expenses
(140.6)
(138.5)
Other operating expenses
5
(1.5)
(6.0)
Signicant legal charges and expenses
2
(3.3)
(1.4)
Operating prot
6
106.3
94.2
Gain/(loss) on disposals
30
5.6
(0.9)
Investment income
8
3.7
11.3
Finance costs
9
(11.9)
(13.6)
Prot before tax
103.7
91.0
Tax
10
(19.9)
(16.4)
Prot for the year
83.8
74.6
Attributable to:
Owners of the Company
83.8
74.5
Non-controlling interests
–
0.1
Earnings per ordinary share (pence)
Basic
12
118.0
105.1
Diluted
12
117.7
104.9
The accompanying notes are an integral part of this consolidated income statement. All results are derived from continuing operations.
Consolidated income statement
For the year ended 31 December 2020
Ultra
Annual Report
and Accounts 2020
115
Strategic report
Governance
Financial statements
Note
2020
£m
2019
£m
Prot for the year
83.8
74.6
Items that will not be reclassied to prot or loss:
Actuarial loss on dened benet pension schemes
29
(9.3)
(9.3)
Tax relating to items that will not be reclassied
10
2.9
1.6
Total items that will not be reclassied to prot or loss
(6.4)
(7.7)
Items that are or may be reclassied to prot or loss:
Exchange dierences on translation of foreign operations
(11.2)
(17.5)
Transfer from prot and loss on cash ow hedge
–
(0.3)
Gains on loans used in net investment hedges
1.5
3.1
Tax relating to items that are or may be reclassied
10
–
0.1
Total items that are or may be reclassied to prot or loss
(9.7)
(14.6)
Other comprehensive expense for the year
(16.1)
(22.3)
Total comprehensive income for the year
67.7
52.3
Attributable to:
Owners of the Company
67.7
52.2
Non-controlling interests
–
0.1
The accompanying notes are an integral part of this consolidated statement of comprehensive income.
Consolidated statement of comprehensive income
For the year ended 31 December 2020
Ultra
Annual Report
and Accounts 2020
116
Note
2020
£m
2019
(restated)
£m
2018
(restated)
£m
Non-current assets
Goodwill
13
363.0
365.9
377.8
Other intangible assets
14
82.2
92.7
113.9
Property, plant and equipment
15
66.6
64.2
62.6
Leased assets
16
33.6
36.1
–
Deferred tax assets*
24
13.6
23.0
18.7
Derivative nancial instruments
22
2.1
1.7
0.1
Trade and other receivables
19
12.9
13.7
22.6
574.0
597.3
595.7
Current assets
Inventories
17
103.6
90.7
88.6
Trade and other receivables
19
188.5
205.4
205.2
Current tax assets*
24
8.8
6.5
8.1
Cash and cash equivalents*
114.4
110.5
135.1
Derivative nancial instruments
22
5.8
3.2
0.3
Assets classied as held for sale
30
–
11.5
30.6
421.1
427.8
467.9
Total assets
995.1
1,025.1
1,063.6
Current liabilities
Trade and other payables
20
(199.3)
(192.3)
(212.2)
Current tax liabilities*
24
(5.9)
(1.5)
(5.0)
Derivative nancial instruments
22
(0.2)
(0.5)
(5.5)
Borrowings*
21
(38.3)
(36.5)
(214.6)
Liabilities classied as held for sale
30
–
(5.3)
(8.6)
Short-term provisions
25
(19.6)
(16.6)
(13.3)
(263.3)
(252.7)
(459.2)
Non-current liabilities
Retirement benet obligations
29
(73.1)
(73.3)
(73.0)
Other payables
20
(12.0)
(11.8)
(14.9)
Deferred tax liabilities*
24
(15.0)
(19.5)
(10.5)
Derivative nancial instruments
22
(0.1)
(0.2)
(1.0)
Borrowings
21
(161.9)
(228.8)
(78.0)
Long-term provisions
25
(5.0)
(8.2)
(6.2)
(267.1)
(341.8)
(183.6)
Total liabilities
(530.4)
(594.5)
(642.8)
Net assets
464.7
430.6
420.8
Equity
Share capital
26
3.6
3.5
3.6
Share premium account
205.5
203.2
201.0
Capital redemption reserve
0.4
0.4
0.3
Reserve for own shares
(1.4)
(1.4)
(2.6)
Translation reserve*
32.5
42.2
56.8
Retained earnings
224.1
182.6
161.7
Equity attributable to owners of the Company
464.7
430.5
420.8
Non-controlling interests
–
0.1
–
Total equity
464.7
430.6
420.8
The nancial statements of Ultra Electronics Holdings plc, registered number 02830397, were approved by the Board of Directors and authorised for issue on
9 March 2021. The accompanying notes are an integral part of this consolidated balance sheet.
On behalf of the Board,
S. PRYCE
, Chief Executive Ocer
J. SCLATER
, Chief Financial Ocer
*
2019 and 2018 balances for cash and cash equivalents and borrowings have been restated to meet the presentational requirements of IAS 32 with respect to the Group’s cash-pooling arrangements. The
net debt and net assets position is unchanged. Certain 2019 deferred tax balances have been reclassied from current to non-current to meet the requirements of IAS 1. The previously disclosed separate
hedging reserve and translation reserve have been combined and prior periods restated on a consistent basis. See note 35.
Consolidated balance sheet
As at 31 December 2020
Ultra
Annual Report
and Accounts 2020
117
Strategic report
Governance
Financial statements
Note
2020
£m
2019
£m
Net cash ow from operating activities
27
130.0
94.6
Investing activities
Interest received
0.3
0.7
Purchase of property, plant and equipment
(13.4)
(14.9)
Proceeds from disposal of property, plant and equipment
0.2
0.1
Expenditure on product development and other intangibles
(8.7)
(8.0)
Disposal of subsidiary undertakings
30
5.3
22.4
Net cash (used in)/from investing activities
(16.3)
0.3
Financing activities
Issue of share capital
2.3
3.3
Share buy-back (including transaction costs)
–
(8.6)
Dividends paid
(38.7)
(36.7)
Dividends paid to non-controlling interest
(0.1)
–
Loan syndication costs
–
(0.3)
Repayments of borrowings
(76.2)
(315.2)
Proceeds from borrowings
11.1
259.9
Principal payment on leases
(9.0)
(7.8)
Net cash used in nancing activities
(110.6)
(105.4)
Net increase/(decrease) in cash and cash equivalents
27
3.1
(10.5)
Net cash and cash equivalents and bank overdrafts at beginning of year
27
82.2
96.3
Eect of foreign exchange rate changes
(1.2)
(3.6)
Net cash and cash equivalents and bank overdrafts at end of year
27
84.1
82.2
Bank overdrafts are netted with cash and cash equivalents because they form an integral part of the Group’s cash management within the cash pooling
arrangements. The accompanying notes are an integral part of this consolidated cash ow statement.
Consolidated cash ow statement
For the year ended 31 December 2020
Ultra
Annual Report
and Accounts 2020
118
Equity attributable to equity holders of the parent
Share
capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Reserve for
own shares
£m
Translation
reserve*
£m
Retained
earnings
£m
Non-
controlling
interest
£m
Total
equity
£m
Balance at 1 January 2019
3.6
201.0
0.3
(2.6)
56.8
161.7
–
420.8
Adoption of IFRS 16
–
–
–
–
–
(2.0)
–
(2.0)
Restated total equity at 1 January 2019
3.6
201.0
0.3
(2.6)
56.8
159.7
–
418.8
Prot for the year
–
–
–
–
–
74.5
0.1
74.6
Other comprehensive income for the year
–
–
–
–
(14.6)
(7.7)
–
(22.3)
Total comprehensive income for the year
–
–
–
–
(14.6)
66.8
0.1
52.3
Equity-settled employee share schemes
–
2.2
–
–
–
1.9
–
4.1
Transfer from own shares
–
–
–
1.2
–
(1.2)
–
–
Tax on share-based payment transactions
–
–
–
–
–
0.7
–
0.7
Shares purchased in buyback
(0.1)
–
0.1
–
–
(8.6)
–
(8.6)
Dividend to shareholders
–
–
–
–
–
(36.7)
–
(36.7)
Balance at 31 December 2019
3.5
203.2
0.4
(1.4)
42.2
182.6
0.1
430.6
Prot for the year
–
–
–
–
–
83.8
–
83.8
Other comprehensive income for the year
–
–
–
–
(9.7)
(6.4)
–
(16.1)
Total comprehensive income for the year
–
–
–
–
(9.7)
77.4
–
67.7
Equity-settled employee share schemes
0.1
2.3
–
–
–
2.6
–
5.0
Tax on share-based payment transactions
–
–
–
–
–
0.2
–
0.2
Non-controlling interest distribution
–
–
–
–
–
–
(0.1)
(0.1)
Dividend to shareholders
–
–
–
–
–
(38.7)
–
(38.7)
Balance at 31 December 2020
3.6
205.5
0.4
(1.4)
32.5
224.1
–
464.7
* The previously disclosed separate hedging reserve and translation reserve have been combined and prior periods restated on a consistent basis.
Consolidated statement of changes in equity
For the year ended 31 December 2020
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and Accounts 2020
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Strategic report
Governance
Financial statements
1 Segment information
For management purposes, the Group is organised into three operating segments: Maritime, Intelligence & Communications and Critical Detection & Control.
These segments were changed from 1 January 2020, consequently the prior year segmental information has been restated in accordance with IFRS 8. The
operating segments are consistent with the internal reporting as reviewed by the CEO who is deemed to be the Chief Operating Decision-Maker. See the
Business Unit reviews on pages 32–37 for further information.
2020
2019
External
revenue
£m
Inter-
segment
£m
Total
£m
External
revenue
£m
Inter-
segment
£m
Total
£m
Revenue
Maritime
391.8
18.9
410.7
353.0
14.9
367.9
Intelligence & Communications
241.0
3.5
244.5
224.8
3.5
228.3
Critical Detection & Control
227.0
9.0
236.0
247.6
8.2
255.8
Eliminations
–
(31.4)
(31.4)
–
(26.6)
(26.6)
Consolidated revenue
859.8
–
859.8
825.4
–
825.4
All inter-segment trading is at arm’s length.
2020
Maritime
£m
Intelligence &
Communications
£m
Critical
Detection &
Control
£m
Unallocated
£m
Total
£m
Underlying operating prot
58.6
33.5
34.0
–
126.1
Amortisation of intangibles arising on acquisition
(0.5)
(8.9)
(3.2)
–
(12.6)
Signicant legal charges and expenses
(see note 2)
–
–
–
(3.3)
(3.3)
Acquisition and disposal-related costs
(see note 2)
(0.2)
(0.9)
–
–
(1.1)
Restructuring costs related to disposal
(see note 2)
(2.0)
–
(0.8)
–
(2.8)
Operating prot/(loss)
55.9
23.7
30.0
(3.3)
106.3
Gain on disposals
5.6
Investment income
3.7
Finance costs
(11.9)
Prot before tax
103.7
Tax
(19.9)
Prot after tax
83.8
Signicant legal charges and expenses are the charges arising from investigations and settlements of litigation that are not in the normal course of business;
unallocated items are specic corporate level costs that cannot be allocated to a specic Strategic Business Unit.
Notes to accounts – Group
For the year ended 31 December 2020
Ultra
Annual Report
and Accounts 2020
120
Notes to accounts – Group
For the year ended 31 December 2020
continued
1 Segment information
continued
2019
Maritime
£m
Intelligence &
Communications
£m
Critical Detection
& Control
£m
Unallocated
£m
Total
£m
Underlying operating prot
52.5
30.2
35.5
–
118.2
Amortisation of intangibles arising on acquisition
(8.2)
(10.0)
(3.5)
–
(21.7)
Signicant legal charges and expenses
(see note 2)
–
–
(0.2)
(1.2)
(1.4)
Acquisition and disposal-related costs
(see note 2)
(0.4)
(0.2)
(0.3)
–
(0.9)
Operating prot/(loss)
43.9
20.0
31.5
(1.2)
94.2
Loss on disposals and held for sale
(0.9)
Investment income
11.3
Finance costs
(13.6)
Prot before tax
91.0
Tax
(16.4)
Prot after tax
74.6
Capital expenditure, additions to intangibles and leased assets, depreciation and amortisation
Capital expenditure and
additions to leased assets and
intangibles (excluding goodwill
and acquired intangibles)
Depreciation and
amortisation
2020
£m
2019
£m
2020
£m
2019
£m
Maritime
15.0
13.9
10.6
17.9
Intelligence & Communications
8.4
14.9
17.8
19.8
Critical Detection & Control
5.0
7.0
9.1
9.9
Total
28.4
35.8
37.5
47.6
The 2020 depreciation and amortisation expense includes £18.6m of amortisation charges (2019: £28.6m), £10.4m of property, plant and equipment
depreciation charges (2019: £9.7m) and £8.5m of leased asset depreciation charges (2019: £9.3m).
Total assets by segment
2020
£m
2019
(restated)
£m
Maritime
260.2
262.0
Intelligence & Communications
336.2
357.6
Critical Detection & Control
254.0
260.6
850.4
880.2
Unallocated*
144.7
144.9
Consolidated total assets*
995.1
1,025.1
Unallocated assets represent current and deferred tax assets, derivatives at fair value and cash and cash equivalents.
*
2019 balances for cash and cash equivalents and borrowings have been restated to meet the presentational requirements of IAS 32 with respect to the Group’s cash-pooling arrangements. Separately,
certain 2019 deferred tax balances have been reclassied from current to non-current to meet the requirements of IAS 1. See note 35.
Ultra
Annual Report
and Accounts 2020
121
Strategic report
Governance
Financial statements
1 Segment information
continued
Total liabilities by segment
2020
£m
2019
(restated)
£m
Maritime
126.8
122.8
Intelligence & Communications
92.3
93.6
Critical Detection & Control
66.9
68.5
286.0
284.9
Unallocated*
244.4
309.6
Consolidated total liabilities*
530.4
594.5
Unallocated liabilities represent derivatives at fair value, current and deferred tax liabilities, retirement benet obligations, overdrafts, bank loans and loan notes.
Revenue by destination
The following table provides an analysis of the Group’s sales by geographical market:
2020
£m
2019
£m
North America
546.5
502.5
United Kingdom
158.4
171.1
Rest of World
89.9
95.9
Mainland Europe
65.0
55.9
859.8
825.4
During the year, there was one direct customer (2019: one) that individually accounted for greater than 10% of the Group’s total turnover. Sales to this customer
in 2020 were £203.2m (2019: £182.4m) across all segments.
Other information (by geographic location)
Non-current assets
Total assets
Capital expenditure and
additions to leased assets and
intangibles (excluding goodwill
and acquired intangibles)
2020
£m
2019*
£m
2020
£m
2019*
£m
2020
£m
2019
£m
United Kingdom
159.2
157.8
298.7
315.6
10.5
11.8
USA
309.1
320.9
412.0
425.5
14.5
16.6
Canada
84.3
88.5
131.8
129.9
3.1
7.1
Rest of World
5.7
5.5
7.9
9.2
0.3
0.3
558.3
572.7
850.4
880.2
28.4
35.8
Unallocated*
15.7
24.6
144.7
144.9
–
–
574.0
597.3
995.1
1,025.1
28.4
35.8
Ultra
Annual Report
and Accounts 2020
122
2 Additional non-statutory performance measures
To present the underlying performance of the Group on a consistent basis year on year, additional non-statutory performance indicators are used. This analysis
of the Group’s operating results is presented to provide readers with additional performance indicators that are prepared on a non-statutory basis. It includes
the key performance indicators (KPIs) for return on invested capital (ROIC) and organic growth in order book, revenue and underlying operating prot. 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 dened by all companies and may not be
comparable with similarly titled measures and disclosures by other organisations. The free cash ow denition has been revised to deduct the principal
payments on leases, the 2019 comparative has been restated. The non-statutory disclosures should not be viewed in isolation or as an alternative to the
equivalent statutory measure. See pages 163 – 164 for further details and denitions. The non-statutory performance measures are calculated as follows:
2020
£m
2019
£m
Operating prot
106.3
94.2
Amortisation of intangibles arising on acquisition
(see note 14)
12.6
21.7
Signicant legal charges and expenses
*
3.3
1.4
Acquisition and disposal-related costs
1.1
0.9
Restructuring costs related to disposal
(see note 30)
2.8
–
Underlying operating prot
126.1
118.2
Depreciation of property, plant and equipment
(see note 15)
10.4
9.7
Depreciation of leased assets (
see note 16)
8.5
9.3
Amortisation of internally generated intangible assets
(see note 14)
1.4
2.9
Amortisation of software, patents and trademarks
(see note 14)
4.6
4.0
EBITDA
151.0
144.1
Prot before tax
103.7
91.0
Amortisation of intangibles arising on acquisition
(see note 14)
12.6
21.7
Acquisition and disposal related costs
1.1
0.9
Gain on fair value movements of derivatives
(see note 22)
(3.4)
(10.6)
(Gain)/loss on disposals net of £2.8m restructuring costs
(see note 30)
(2.8)
0.9
Signicant legal charges and expenses
*
3.3
1.4
Underlying prot before tax
114.5
105.3
Cash generated by operations
(see note 27)
142.6
114.9
Principal payments on nance leases
(9.0)
(7.8)
Purchase of property, plant and equipment
(13.4)
(14.9)
Proceeds on disposal of property, plant and equipment
0.2
0.1
Expenditure on product development and other intangibles
(8.7)
(8.0)
Signicant legal charges and expenses
*
1.5
1.9
Disposal-related restructuring costs
(see note 30)
1.6
–
Acquisition and disposal-related payments
1.3
0.6
Underlying operating cash ow
116.1
86.8
Underlying operating cash conversion (KPI)
92%
73%
*
Signicant legal charges and expenses are the charges arising from investigations and settlement of litigation that are not in the normal course of business.
Notes to accounts – Group
For the year ended 31 December 2020
continued
Ultra
Annual Report
and Accounts 2020
123
Strategic report
Governance
Financial statements
2 Additional non-statutory performance measures
continued
2020
£m
2019
†
£m
Net cash ow from operating activities
130.0
94.6
Interest received
0.3
0.7
Purchase of property, plant and equipment
(13.4)
(14.9)
Proceeds on disposal of property, plant and equipment
0.2
0.1
Expenditure on product development and other intangibles
(8.7)
(8.0)
Principal payments on nance leases
†
(9.0)
(7.8)
Free cash ow
99.4
64.7
Net assets
464.7
430.6
Net debt
(see note 27)
85.8
154.8
Retirement benet obligations
(see note 29)
73.1
73.3
Net derivative nancial instruments
(see note 22)
(7.6)
(4.2)
Net tax assets
(1.5)
(8.5)
Total invested capital
614.5
646.0
Average invested capital
630.3
665.0
Underlying operating prot
126.1
118.2
ROIC (KPI)
20.0%
17.8%
†
The free cash ow denition has been revised to deduct the principal payments on leases, the 2019 comparative has been restated.
Earnings per share
The reconciliation from statutory earnings to underlying earnings, as used for the underlying earnings per share metric, is set out in note 12.
Organic measures
Organic growth for order book, revenue and underlying operating prot is calculated as follows:
Order book
Revenue
Underlying operating prot
£m
% impact
£m
% impact
£m
% impact
2019
1,022.9
825.4
118.2
Currency translation
(16.9)
-1.7
(4.1)
-0.5
(0.6)
-0.5
Disposals
(0.7)
-0.1
(3.9)
-0.5
1.1
+0.9
2019 (for organic measure)
1,005.3
817.4
118.7
Organic growth (KPI)
58.9
+5.9
42.4
+5.2
7.4
+6.2
2020
1,064.2
+4.0
859.8
+4.2
126.1
+6.7
Ultra
Annual Report
and Accounts 2020
124
3 Revenue
An analysis of the Group’s revenue is as follows:
2020
2019
Maritime
£m
Intelligence &
Communications
£m
Critical
Detection &
Control
£m
Total
£m
Maritime
£m
Intelligence &
Communications
£m
Critical
Detection &
Control
£m
Total
£m
Point in time
100.4
119.0
136.7
356.1
85.6
96.3
155.0
336.9
Over time
291.4
122.0
90.3
503.7
267.4
128.5
92.6
488.5
391.8
241.0
227.0
859.8
353.0
224.8
247.6
825.4
The estimate of future costs on over-time contracts is a critical accounting estimate as set out on pages 156 – 157. Across the aggregated portfolio of over
time contracts open at 31 December 2020, a 1% increase in estimated costs to complete the portfolio equates to £5.3m (2019: £5.1m). The impact on revenue
would depend on the margin and percentage of completion of any given contract within the portfolio; however, when taken in aggregate, it is not likely to
exceed £5.3m.
£Nil revenue (2019: £1.0m) was recognised during the year ended 31 December 2020 in respect of performance obligations satised or partially satised in
previous periods.
The table below notes the revenue expected to be recognised in the future that is related to performance obligations that are unsatised (or partially
unsatised) at the reporting date.
2021
£m
2022
£m
2023 and
beyond
£m
Total
£m
Point in time revenue
212.7
62.4
35.0
310.1
Over-time revenue
409.2
196.1
148.8
754.1
4 Other operating income
Amounts included in other operating income were as follows:
2020
£m
2019
£m
Foreign exchange gains
0.9
1.0
0.9
1.0
Foreign exchange gains and losses are impacted by gains or losses on foreign exchange transactions and revaluation of currency assets and liabilities.
5 Other operating expenses
Amounts included in other operating expenses were as follows:
2020
£m
2019
£m
Foreign exchange losses
1.5
6.0
1.5
6.0
Notes to accounts – Group
For the year ended 31 December 2020
continued
Ultra
Annual Report
and Accounts 2020
125
Strategic report
Governance
Financial statements
6 Operating prot
Operating prot is stated after charging/(crediting):
2020
£m
2019
(restated)
£m
Raw materials and other bought-in inventories expensed in the year
303.6
260.3
Sta costs
(see note 7)
288.0
267.9
Depreciation of property, plant and equipment
(see note 15)
10.4
9.7
Depreciation of leased assets
(see note 16)
8.5
9.3
Amortisation of internally generated intangible assets
(see note 14)
1.4
2.9
Amortisation of software, patents and trademarks
(see note 14)
4.6
4.0
Amortisation of acquired intangible assets
(see note 14)
12.6
21.7
Government grant income
(see note 23)
(0.2)
(0.3)
Net foreign exchange gain
(2.1)
(5.9)
Loss on disposal of property, plant and equipment
0.1
0.1
Short-term lease rentals
0.1
0.3
Low-value asset lease rentals
0.2
0.1
Income from property subletting
(0.7)
(0.7)
Research and development costs*
31.5
28.6
Auditor’s remuneration for statutory audit work (including expenses)
1.4
1.3
Analysis of auditor’s remuneration
2020
£m
2019
£m
Fees payable for the audit of the annual accounts
0.5
0.4
Fees payable for the audit of subsidiaries
0.9
0.9
Total for statutory Group audit services
1.4
1.3
Total non-audit services in 2020 were £3,000 (2019: £11,000). The Company-only audit fee included in the Group audit fee shown above was £20,000
(2019: £20,000).
*
The 2019 Research and development cost has been restated to oset associated tax credits.
7 Sta costs
Particulars of employees (including Executive Directors) are shown below. Employee costs during the year amounted to:
2020
£m
2019
£m
Wages and salaries
250.8
233.6
Social security costs
24.6
22.6
Pension costs
12.6
11.7
288.0
267.9
The average monthly number of persons employed by the Group during the year was as follows:
2020
Number
2019
Number
Production
1,813
1,690
Engineering
1,463
1,376
Selling
209
214
Support services
768
809
4,253
4,089
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.
Ultra
Annual Report
and Accounts 2020
126
8 Investment income
2020
£m
2019
£m
Bank interest
0.3
0.7
Fair value movement on derivatives
(see note 22)
3.4
10.6
3.7
11.3
9 Finance costs
2020
£m
2019
£m
Amortisation of nance costs of debt
0.6
0.7
Interest on bank loans, overdrafts and other loans
8.3
9.5
Finance charge on leases
1.7
1.5
Total borrowing costs
10.6
11.7
Retirement benet scheme nance cost
1.3
1.9
11.9
13.6
10 Tax
2020
£m
2019
£m
UK taxes
Corporation tax
5.2
3.2
Adjustment in respect of prior years
(0.5)
(2.4)
4.7
0.8
Overseas taxes
Current taxation
11.9
10.1
Adjustment in respect of prior years
(5.2)
(1.7)
6.7
8.4
Total current tax
11.4
9.2
Deferred tax
Origination and reversal of temporary dierences
7.5
7.0
Derecognition of deferred tax assets
–
0.2
Recognition of deferred tax liability on overseas retained earnings
0.8
–
UK tax rate change
0.2
–
Total deferred tax charge
8.5
7.2
Total tax charge
19.9
16.4
Corporation tax in the UK is calculated at 19.0% (2019: 19.0%) of the estimated assessable prot for the year. UK deferred tax at the balance sheet date has been
calculated at 19.0% (2019: 17.0%), however the UK Government has very recently announced that the rate of UK corporation tax will rise from 19.0% to 25.0%
with eect from 1 April 2023; we will provide further details of the expected impacts in future announcements. In other territories current tax is calculated at the
rates prevailing in the respective jurisdictions and deferred tax has been calculated at enacted tax rates that are expected to apply to the period when assets are
realised or liabilities are settled. US deferred tax balances at 31 December 2020 have been calculated at 24.0% (2019: 24.0%).
In addition to the amount charged to the income statement, the following amounts relating to tax have been recognised directly in other comprehensive
income:
Deferred tax
2020
£m
2019
£m
Arising on income and expenses recognised in other comprehensive income:
Actuarial gain on dened benet pension schemes
(1.8)
(1.6)
Tax rate changes
(1.1)
–
Revaluation of interest rate hedge
–
0.1
Total income tax credit recognised directly in other comprehensive income
(2.9)
(1.5)
Notes to accounts – Group
For the year ended 31 December 2020
continued
Ultra
Annual Report
and Accounts 2020
127
Strategic report
Governance
Financial statements
10 Tax
continued
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:
2020
£m
2019
£m
Deferred tax
IFRS 16 adjustment
–
(0.6)
Change in estimated excess tax deductions related to share-based payments
0.2
(0.7)
Total income tax recognised directly in equity
0.2
(1.3)
The dierence between the total current tax shown above and the amount calculated by applying the standard rate of UK corporation tax to the prot before
tax is as follows:
2020
£m
2019
£m
Group prot before tax
103.7
91.0
Tax on Group prot at standard UK corporation tax rate of 19.00% (2019: 19.00%)
19.7
17.3
Tax eects of:
Income/expenses that are not taxable/allowable in determining taxable prots
1.6
2.2
Eect of change in tax rates
0.3
–
Derecognition of deferred tax assets
–
0.2
Expenses for which no deferred tax asset recognised
(0.5)
0.4
Dierent tax rates of subsidiaries operating in other jurisdictions
3.8
3.0
CFC exemption
(1.8)
(2.6)
Current and deferred tax on intra-group dividends
1.2
–
Deferred tax dierences on temporary dierences
0.4
(0.1)
Patent Box
(0.8)
(0.5)
Adjustments in respect of prior years
(4.0)
(3.5)
Tax expense for the year
19.9
16.4
Included within the tax reconciliation are a number of non-recurring items, principally non-tax deductible one-o costs which uctuate from year to year.
The prior year adjustment in 2020 relates principally to the use of deferred interest deductions in the 2019 US federal income tax return as a result of the
Coronavirus Aid, Relief, and Economic Security (CARES) Act. A deferred tax liability has been recognised for the withholding tax that will be incurred on future
dividends from our Canadian subsidiaries. The dierences attributable to the UK CFC exemption, Patent Box and higher overseas tax rates are expected to
recur in the future (the level of prots in overseas jurisdictions and changes to the UK and overseas tax rates will aect the size of these dierences).
The Group is subject to enquiries and audits by tax authorities in which it operates. The Group considers material tax uncertainties on their individual merits in
accordance with IFRIC 23 and, where appropriate, makes provisions in respect of the potential tax liabilities or restriction of tax benets that may arise. As at 31
December 2020, the Group holds provisions for such potential issues of £3.4m (2019: £2.2m). These provisions relate to multiple issues, across the jurisdictions
in which the Group operates. As the outcome relating to tax matters can be uncertain until a conclusion is reached with the relevant tax authority or through a
legal process, the amount ultimately paid may dier materially from the amount accrued.
The company has beneted in the current year, and previous years, from a certain exemption in the UK Controlled Foreign Company (CFC) rules. We have
previously reported that Ultra was potentially aected by the European Commission decision that the group nancing partial exemption (FCPE), in the UK
controlled foreign company (CFC) rules as they applied up to 31 December 2018, could constitute illegal State Aid. On 26 February 2021, HMRC notied Ultra
of their view that Ultra is not a beneciary of State Aid, as dened in the EC decision and we believe this concludes the matter.
Various emergency Covid tax reliefs were introduced around the world that entitled Ultra to defer corporation tax and indirect tax payments and social security
contributions. Payments of £6.1m were initially deferred of which £5.6m had been repaid at the balance sheet date. In addition the US Coronavirus Aid, Relief,
and Economic Security Act made temporary changes to the US Internal Revenue Code which allowed the Group to deduct previously deferred US interest
expense resulting in a prior year tax credit of £3.7m.
Ultra
Annual Report
and Accounts 2020
128
11 Dividends
Amounts recognised as distributions to equity holders in the year:
2020
£m
2019
£m
Additional interim dividend of 39.2p per share (equivalent to the postponed nal dividend), and nal dividend for the year ended 31
December 2018 of 37.0p per share
27.8
26.1
Interim dividend for the year ended 31 December 2020 of 15.4p (2019: 15.0p) per share
10.9
10.6
38.7
36.7
Proposed nal dividend for the year ended 31 December 2020 of 41.5p (2019: 39.2p) per share
29.5
27.8
The 2020 proposed nal dividend of 41.5p per share is proposed to be paid on 14 May 2021 to shareholders on the register at 9 April 2021. It was approved by
the Board after 31 December 2020 and has not been included as a liability as at 31 December 2020.
12 Earnings per share
2020
pence
2019
pence
Basic underlying (see below)
130.6
119.5
Diluted underlying (see below)
130.3
119.4
Basic
118.0
105.1
Diluted
117.7
104.9
The calculation of the basic, underlying and diluted earnings per share is based on the following data:
2020
£m
2019
£m
Earnings
Earnings for the purposes of basic earnings per share being prot for the year
83.8
74.5
Underlying earnings
Prot for the period
83.8
74.5
Amortisation of intangibles arising on acquisition (net of tax)
9.8
16.9
Acquisition and disposal-related costs (net of tax)
0.7
0.1
Prot on fair value movements of derivatives (net of tax)
(2.8)
(8.8)
(Gain)/loss on disposals net of £2.8m restructuring costs, per note 30 (net of tax)
(1.7)
0.9
Signicant legal charges and expenses (net of tax)
3.0
1.1
Earnings for the purposes of underlying earnings per share
92.8
84.7
The adjustments to prot are explained in note 2.
The weighted average number of shares is given below:
2020
Number
of shares
2019
Number
of shares
Number of shares used for basic earnings per share
71,026,681
70,893,867
Eect of dilutive potential ordinary shares – share options
179,001
93,523
Number of shares used for fully diluted earnings per share
71,205,682
70,987,390
2020
£m
2019
£m
Underlying prot before tax
(see note 2)
114.5
105.3
Tax rate applied for the purposes of underlying earnings per share
19.0%
19.4%
During 2020, the Company purchased and cancelled nil (2019: 634,996) shares. See note 26.
Notes to accounts – Group
For the year ended 31 December 2020
continued
Ultra
Annual Report
and Accounts 2020
129
Strategic report
Governance
Financial statements
13 Goodwill
2020
£m
2019
£m
Cost
At 1 January
424.3
438.5
Exchange dierences
(7.9)
(10.6)
Disposals
(8.9)
(0.3)
Reclassied from/(to) held for sale
(see note 30)
3.3
(3.3)
At 31 December
410.8
424.3
Accumulated impairment losses
At 1 January
(58.4)
(60.7)
Disposals
8.9
–
Exchange dierences
1.7
2.3
At 31 December
(47.8)
(58.4)
Carrying amount at 31 December
363.0
365.9
From 1 January 2020, the cash-generating unit (CGU) groupings were revised to reect the new Strategic Business Unit (SBU) structure of the Group.
+
The Aerospace and Energy CGUs are unchanged.
+
Forensic Technology, which was within the C2ISR CGU grouping, is a new standalone CGU to reect the business becoming an SBU from 1 January 2020.
C$45.0m of goodwill was assigned to this CGU based on the proportion of net present value of future cash ows from Forensic Technology relative to the
rest of C2ISR.
+
The remainder of C2ISR (i.e. excluding Forensic Technology) and the Communications CGU grouping were combined into one Intelligence & Communications
CGU grouping to reect that goodwill in the Intelligence & Communications SBU is now monitored at this level.
+
Maritime and Underwater Warfare were combined into one Maritime CGU grouping to reect that goodwill in the Maritime SBU is now monitored at this level.
Consequently, the Group’s SBUs, which represent CGU groupings, are: Aerospace, Energy, Forensic Technology, Intelligence & Communications and
Maritime. These represent the lowest level at which the goodwill is monitored for internal management purposes. Goodwill is allocated to CGU groupings
as set out below:
2020
Pre-tax
discount rate
%
2019
Pre-tax
discount rate
%
2020
£m
2019
£m
Aerospace
10.2 – 11.2
10.9 – 12.1
32.5
32.6
Energy
10.2 – 11.2
10.9 – 12.1
17.9
18.3
Forensic Technlogy
10.7
12.4
25.6
25.9
Intelligence & Communications
10.2 – 11.2
10.9 – 12.4
178.2
178.3
Maritime
10.2 – 11.2
10.9 – 12.9
108.8
110.8
Total – Ultra Electronics
363.0
365.9
Ultra
Annual Report
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130
13 Goodwill
continued
Goodwill is initially allocated, in the year a business is acquired, to the CGU group expected to benet from the acquisition. Subsequent adjustments are made to
this allocation to the extent that operations, to which goodwill relates, are transferred between CGU groups. The size of a CGU group varies but is never larger
than a reportable operating segment.
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 ows
derived from the most recent nancial budgets and strategic plans, representing the best estimate of future performance. These plans, which have been
approved by the Board, include detailed nancial forecasts and market analysis covering the expected development of each CGU over the next ve years. The
cash ows into perpetuity are also included and assume a growth rate of 2.0% per annum (2019: 2.5% for the following 10 years only).
The key assumptions used in the value-in-use calculations are those regarding the discount rate, future revenues, growth rates, forecast gross margins,
underlying operating prot
*
and underlying operating cash conversion
*
. Management estimates the discount rate using pre-tax rates that reect current
market assessments of the time value of money and risks specic to the Group, being the Weighted Average Cost of Capital (WACC). The WACC is then risk-
adjusted to reect risks specic to each business. The pre-tax discount rate used during 2020 was 10.2% for UK (2019: 10.9%), 10.7% for Canada (2019: 12.4%),
11.2% for USA (2019: 12.1%) and 11.2% for Australia (2019: 12.9%). Future revenues are based on orders already received, opportunities that are known and
expected at the time of setting the budget and strategic plans and future growth rates. Budget and strategic plan growth rates are based on a combination of
historical experience, available Government spending data, and management and industry expectations of the growth rates that are expected to apply in the
major markets in which each CGU operates, and included consideration of Covid-19 impacts during the budget review cycle. Forecast gross margins reect past
experience, factor in expected eciencies to counter inationary pressures, and also reect likely margins achievable in the period. Longer-term growth rates,
applied into perpetuity at the end of the strategic planning period, are set at 2.0% (2019: 2.5% for the following 10 years only). Ultra considers the long-term
growth rate to be appropriate for the sectors in which it operates, taking into consideration greater defence spending uncertainty and the possible impacts of
climate change.
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, and hence continued prot and cash generation.
Sensitivity analysis, which included consideration of the potential impacts of Brexit, has been performed on the value-in-use calculations to:
(i) reduce the post-2025 growth assumption from 2.0% to nil;
(ii) increase the discount rates by 3.0%
(iii) apply a 20% reduction to forecast operating prots in each year of the modelled cash inows; and
(iv) consider specic market factors as noted above.
The value-in-use calculations exceed the CGU carrying values after applying sensitivity analysis.
*
See note 2.
Notes to accounts – Group
For the year ended 31 December 2020
continued
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Governance
Financial statements
14 Other intangible assets
Acquired intangibles
Internally
generated
capitalised
development
costs
£m
Software,
patents and
trademarks
£m
Total
£m
Customer
relationships
£m
Intellectual
property
£m
Prot in
order book
£m
Other
acquired
£m
Cost
At 1 January 2019
215.1
103.5
33.2
7.7
29.7
36.4
425.6
Foreign exchange dierences
(4.6)
(2.3)
(0.6)
(0.1)
(0.6)
(0.9)
(9.1)
Additions
–
–
–
–
1.1
6.9
8.0
Reclassied as held for sale
–
–
–
–
(0.3)
–
(0.3)
Reclassication from tangible xed assets
(see note 15)
–
–
–
–
–
1.4
1.4
Disposals
(8.1)
–
(3.2)
–
–
(0.2)
(11.5)
At 1 January 2020
202.4
101.2
29.4
7.6
29.9
43.6
414.1
Foreign exchange dierences
(3.4)
(1.8)
(0.4)
(0.1)
(0.4)
(0.7)
(6.8)
Additions
–
–
–
–
0.2
8.5
8.7
Reclassied from held for sale
(see note 30)
–
–
–
–
0.3
–
0.3
Reclassication from tangible xed assets
(see note 15)
–
–
–
–
–
0.4
0.4
Disposals
–
–
–
–
(0.4)
(2.1)
(2.5)
At 31 December 2020
199.0
99.4
29.0
7.5
29.6
49.7
414.2
Accumulated amortisation
At 1 January 2019
(155.3)
(73.0)
(33.2)
(4.8)
(20.1)
(25.3)
(311.7)
Foreign exchange dierences
3.6
1.9
0.6
0.1
0.5
0.7
7.4
Reclassied as held for sale
–
–
–
–
0.2
–
0.2
Disposals
8.1
–
3.2
–
–
0.2
11.5
Reclassication from tangible xed assets
(see note 15)
–
–
–
–
–
(0.2)
(0.2)
Charge
(12.2)
(8.6)
–
(0.9)
(2.9)
(4.0)
(28.6)
At 1 January 2020
(155.8)
(79.7)
(29.4)
(5.6)
(22.3)
(28.6)
(321.4)
Foreign exchange dierences
2.8
1.6
0.4
0.1
0.4
0.5
5.8
Reclassied from held for sale
(see note 30)
–
–
–
–
(0.2)
–
(0.2)
Disposals
–
–
–
–
0.4
2.0
2.4
Charge
(7.3)
(4.7)
–
(0.6)
(1.4)
(4.6)
(18.6)
At 31 December 2020
(160.3)
(82.8)
(29.0)
(6.1)
(23.1)
(30.7)
(332.0)
Carrying amount
At 31 December 2020
38.7
16.6
–
1.4
6.5
19.0
82.2
At 31 December 2019
46.6
21.5
–
2.0
7.6
15.0
92.7
Of the £38.7m net book value within customer relationships, £21.3m related to Herley and £9.4m related to Forensic Technology, with estimated weighted
average remaining lives of 10.1 years and 7.5 years respectively. Of the £16.6m net book value within intellectual property, £8.4m related to Herley and £4.0m
related to Forensic Technology, with estimated weighted average remaining lives of 5.0 years and 6.0 respectively. Of the £19.0m (2019: £15.0m) net book value
within the software, patents and trademarks category, £0.1m (2019: £0.2m) related to patents and trademarks. The amortisation of intangible assets charge is
included within administrative expenses. Intangible assets, other than goodwill, are amortised over their estimated useful lives, typically as follows:
Customer relationships
5 to 21 years
Intellectual property
5 to 10 years
Prot in acquired order book
1 to 3 years
Other acquired
1 to 5 years
Development costs
2 to 10 years
Other intangibles:
Software
3 to 5 years
Patents and trademarks
10 to 20 years
Ultra
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132
15 Property, plant and equipment
Land and buildings
Plant and
machinery
£m
Total
£m
Freehold
£m
Short
leasehold
£m
Cost
At 1 January 2019
43.2
22.5
93.3
159.0
Foreign exchange dierences
(0.5)
(0.4)
(2.2)
(3.1)
Additions
0.7
2.1
12.1
14.9
Disposals
–
(0.1)
(2.3)
(2.4)
Reclassied to software
(see note 14)
–
–
(1.4)
(1.4)
Reclassication
(0.7)
0.6
0.1
–
Reclassied to held for sale
–
(0.2)
(2.7)
(2.9)
At 1 January 2020
42.7
24.5
96.9
164.1
Foreign exchange dierences
(0.6)
(0.4)
(1.4)
(2.4)
Additions
0.6
1.3
11.5
13.4
Disposals
(0.1)
–
(13.2)
(13.3)
Reclassied to software
(see note 14)
–
–
(0.4)
(0.4)
Reclassied from held for sale
(see note 30)
–
0.1
1.5
1.6
At 31 December 2020
42.6
25.5
94.9
163.0
Accumulated depreciation
At 1 January 2019
(9.5)
(16.5)
(70.4)
(96.4)
Foreign exchange dierences
0.1
0.2
1.5
1.8
Charge
(1.1)
(1.8)
(6.8)
(9.7)
Disposals
–
0.1
2.3
2.4
Reclassied to software
(see note 14)
–
–
0.2
0.2
Reclassication
0.7
(0.6)
(0.1)
–
Reclassied to held for sale
–
0.2
1.6
1.8
At 1 January 2020
(9.8)
(18.4)
(71.7)
(99.9)
Foreign exchange dierences
0.2
0.4
0.8
1.4
Charge
(1.1)
(1.9)
(7.4)
(10.4)
Disposals
0.1
–
12.9
13.0
Reclassied from held for sale
(see note 30)
–
–
(0.5)
(0.5)
At 31 December 2020
(10.6)
(19.9)
(65.9)
(96.4)
Carrying amount
At 31 December 2020
32.0
5.6
29.0
66.6
At 31 December 2019
32.9
6.1
25.2
64.2
Freehold land amounting to £7.4m (2019: £7.6m) has not been depreciated. Included within Land and Buildings is £nil (2019: £nil) of assets in the course
of construction.
Notes to accounts – Group
For the year ended 31 December 2020
continued
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Governance
Financial statements
16 Leased assets
The Group’s leases relate to real estate, vehicles, printers & copiers, and other equipment. The Group therefore splits the leases between the following
categories: land and buildings, and plant and machinery.
Land and
buildings
£m
Plant and
machinery
£m
Total
£m
Cost
At 1 January 2019
–
–
–
Adoption of IFRS 16
34.4
1.4
35.8
Foreign exchange dierences
(0.9)
–
(0.9)
Additions
12.9
–
12.9
Disposals
(1.8)
–
(1.8)
Reclassied to held for sale
(1.4)
–
(1.4)
At 1 January 2020
43.2
1.4
44.6
Foreign exchange dierences
(1.0)
–
(1.0)
Additions
6.1
0.2
6.3
Disposals
(1.3)
–
(1.3)
Reclassied from held for sale
(see note 30)
1.4
–
1.4
At 31 December 2020
48.4
1.6
50.0
Accumulated depreciation
At 1 January 2019
–
–
–
Foreign exchange dierences
0.1
–
0.1
Charge
(8.7)
(0.6)
(9.3)
Disposals
0.4
–
0.4
Reclassied to held for sale
0.3
–
0.3
At 1 January 2020
(7.9)
(0.6)
(8.5)
Foreign exchange dierences
0.3
–
0.3
Charge
(8.0)
(0.5)
(8.5)
Disposals
0.5
0.1
0.6
Reclassied from held for sale
(see note 30)
(0.3)
–
(0.3)
At 31 December 2020
(15.4)
(1.0)
(16.4)
Carrying amount
At 31 December 2020
33.0
0.6
33.6
At 31 December 2019
35.3
0.8
36.1
As permitted under IFRS 16 paragraph 6, the Group has elected not to recognise leases that are less than one year in length or are for a low-value asset (<£3.5k)
on the balance sheet. These leases are expensed on a straight-line basis as short-term leases or leases of low-value assets. This expense is included in note 6.
The nance charge on leases is included in note 9. Cash outow in relation to leases is included in note 27. Some of our property that we lease is sublet to
external parties; sublet income received on any of the above leases is also included in note 6.
17 Inventories
2020
£m
2019
£m
Raw materials and consumables
58.3
51.9
Work in progress
35.0
31.4
Finished goods and goods for resale
10.3
7.4
103.6
90.7
The amount of any write-down of inventory recognised as an expense in the year was £3.1m (2019: £2.1m).
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134
18 Over-time contract balances
Amounts receivable from over-time contract customers relates to work performed and revenue recognised on agreed contracts prior to the customer
being invoiced.
The movement in the year of amounts receivable from over-time contract customers was as follows:
Total
£m
As at 1 January 2019
103.6
Foreign exchange dierences
(1.1)
Revenue earned net of billings
(11.2)
Reclassied to held for sale
(0.6)
As at 1 January 2020
90.7
Foreign exchange dierences
(1.5)
Revenue earned net of billings
(6.5)
Other
(3.3)
As at 31 December 2020
79.4
Other movements relate to adjustments to revenue recognised in a prior period.
Amounts payable to over-time contract customers relate to payments received from customers in relation to the contract prior to the work being completed
and the revenue recognised.
The movement in the year of amounts payable to over-time contract customers was as follows:
Total
£m
As at 1 January 2019
(63.5)
Foreign exchange dierences
1.0
Cash advances net of revenue recognised
(14.1)
Other
1.0
Reclassied to deferred income
2.4
Reclassied to held for sale
5.9
As at 1 January 2020
(67.3)
Foreign exchange dierences
0.5
Cash advances net of revenue recognised
(12.4)
Other
0.5
Reclassied to deferred income
2.3
As at 31 December 2020
(76.4)
Within the opening 2020 balance of £67.3m, £59.7m was utilised during the period.
Notes to accounts – Group
For the year ended 31 December 2020
continued
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Financial statements
19 Trade and other receivables
2020
£m
2019
£m
Non-current
Amounts receivable from over-time contract customers
(see note 18)
12.9
13.7
12.9
13.7
2020
£m
2019
£m
Current
Trade receivables
101.5
108.4
Loss allowance against receivables
(1.4)
(1.8)
Net trade receivables
100.1
106.6
Amounts receivable from over-time contract customers
(see note 18)
66.5
77.0
Other receivables
6.2
7.7
Prepayments
10.6
10.1
Accrued income
5.1
4.0
188.5
205.4
Trade receivables do not carry interest. The average credit period on sale of goods is 27 days (2019: 30 days).
The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.
The ageing prole of trade receivables was as follows:
2020
£m
Related
loss allowance
£m
Total
£m
2019
£m
Related
loss allowance
£m
Total
£m
Current
78.3
–
78.3
89.4
–
89.4
1 to 3 months
20.2
–
20.2
13.4
–
13.4
4 to 6 months
1.1
–
1.1
2.8
–
2.8
7 to 9 months
0.4
(0.1)
0.3
0.6
(0.1)
0.5
Over 9 months
1.5
(1.3)
0.2
2.2
(1.7)
0.5
Total
101.5
(1.4)
100.1
108.4
(1.8)
106.6
The Group makes loss allowances against its trade receivables and amounts receivable from over-time contract customers based on expected credit losses at
an amount equal to lifetime expected credit losses based on prior experience and relevant forward-looking factors.
The Group recognises a loss allowance of 100% against all receivables over a year past due. For amounts receivable from over-time contract customers and
other receivables the expected credit loss allowance is immaterial.
Movement in the loss allowance for trade receivables was as follows:
2020
£m
2019
£m
Current
Balance at beginning of year
1.8
3.9
Foreign exchange dierences
–
–
Increase in loss allowance for trade receivables regarded as potentially uncollectable
0.4
0.5
Decrease in loss allowance for trade receivables recovered during the year or provision utilised
(0.8)
(2.6)
Balance at end of year
1.4
1.8
Ultra
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136
19 Trade and other receivables
continued
Credit risk
Credit risk is dened as the risk that a counterparty will default on its contractual obligations resulting in nancial loss to the Group. The Group mitigates this
risk of nancial loss by only dealing with creditworthy counterparties.
While the Group has elements of concentration of credit risk, with exposure to a number of large counterparties and customers, the customers are mainly
Government agencies or multinational organisations with whom the Group has long-term business relationships. The Group’s assessment is that credit risk in
relation to ‘ve-eyes’ Government customers and leading defence primes or subcontractors to Governments is extremely low as the probability of default is not
signicant; the provision for expected credit losses is immaterial in respect of receivables from these customers.
Ongoing credit evaluation is performed on the nancial condition of accounts receivable and, when appropriate, action is taken to minimise the Group’s credit
risk.
The carrying amount of nancial assets recorded in the nancial statements (see note 22), net of any allowances for losses, represents the Group’s maximum
exposure to credit risk.
20 Trade and other payables
2020
£m
2019
£m
Amounts included in current liabilities:
Trade payables
44.4
49.9
Amounts due to over-time contract customers
(see note 18)
68.2
57.5
Other payables
19.9
22.2
Accruals
46.2
37.8
Deferred income
20.6
24.9
199.3
192.3
Amounts included in non-current liabilities:
Amounts due to over-time contract customers
(see note 18)
8.2
9.8
Deferred income
3.8
2.0
12.0
11.8
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
21 Borrowings
2020
£m
2019
(restated)
£m
Amounts due in less than one year:
Bank loans and overdrafts*
30.3
28.3
Lease liability
8.0
8.2
38.3
36.5
Amounts due after more than one year:
Bank loans
19.0
83.8
Unsecured loan notes
101.0
102.5
Government loans
(see note 23)
12.2
9.5
Lease liability
29.7
33.0
161.9
228.8
Total borrowings:
Amount due for settlement within 12 months*
38.3
36.5
Amount due for settlement after 12 months
161.9
228.8
200.2
265.3
Included in total borrowings are syndication costs of £1.4m (2019: £2.0m), which are amortised over the duration of the loan. The Group’s main nancial
covenants are that the ratio of net consolidated total borrowings/EBITDA is less than three, and that the net interest payable on borrowings is covered at least
three times by EBITA.
Notes to accounts – Group
For the year ended 31 December 2020
continued
*
2019 balances for cash and cash equivalents and borrowings have been restated to meet the presentational requirements of IAS 32 with respect to the Group’s cash-pooling arrangements. See note 35.
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Financial statements
22 Financial instruments and nancial risk management
Derivative nancial instruments
Exposure to currency and interest rate risks arises in the normal course of the Group’s business. Derivative nancial instruments are used to hedge exposure to
all signicant uctuations in foreign exchange rates and interest rates.
Fair value measurements recognised in the balance sheet
The following table provides an analysis of nancial 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).
+
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
All of Ultra’s nancial instruments have been assessed as Level 2 or Level 3. Further details on the Canadian Government Strategic Aerospace and Defence
Initiative (SADI) loan, which is classied as Level 3, are set out in note 23.
Level 3
£m
Level 2
£m
2020
Total
£m
Financial assets at fair value
Foreign exchange derivative nancial instruments (through prot and loss)
–
7.9
7.9
Total
–
7.9
7.9
Financial liabilities at fair value
Government loan
(see note 23)
12.2
–
12.2
Foreign exchange derivative nancial instruments (through prot and loss)
–
0.3
0.3
Total
12.2
0.3
12.5
Level 3
£m
Level 2
£m
2019
Total
£m
Financial assets at fair value
Foreign exchange derivative nancial instruments (through prot and loss)
–
4.9
4.9
Total
–
4.9
4.9
Financial liabilities at fair value
Government loan
(see note 23)
9.5
–
9.5
Foreign exchange derivative nancial instruments (through prot and loss)
–
0.7
0.7
Total
9.5
0.7
10.2
Current assets/(liabilities)
Non-current assets/(liabilities)
2020
£m
2019
£m
2020
£m
2019
£m
Financial assets/(liabilities) carried at fair value through prot or loss
Foreign exchange currency liabilities
(0.2)
(0.5)
(0.1)
(0.2)
Foreign exchange currency assets
5.8
3.2
2.1
1.7
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138
22 Financial instruments and nancial risk management
continued
Financial assets
The nancial assets of the Group were as follows:
2020
£m
2019
(restated)
£m
Cash and cash equivalents*
114.4
110.5
Currency derivatives used for hedging and interest rate swap
7.9
4.9
Trade receivables
100.1
106.6
Accrued income
5.1
4.0
The Directors consider that the carrying amount for all nancial assets approximates to their fair value.
Financial liabilities
The nancial liabilities of the Group were as follows:
2020
£m
2019
(restated)
£m
Currency derivatives used for hedging
0.3
0.7
Bank loans and overdrafts*
49.3
112.1
Unsecured loan notes
101.0
102.5
Government loans
12.2
9.5
Lease liabilities
37.7
41.2
Trade payables
44.4
49.9
Deferred consideration
2.3
2.3
Accruals
46.2
37.8
Other payables
19.9
22.2
The Directors consider that the carrying amount for all nancial liabilities, except for the unsecured loan notes, approximates to their fair value. For the
unsecured loan notes, the derived fair value has been determined as £110.6m (2019: £108.0m) which compares to the carrying amount of £101.0m (2019:
£102.5m). The fair value of the unsecured loan notes has been derived from indicative quotes for borrowings of similar amounts, terms and maturity periods
and is classied as level 2 within the fair value hierarchy.
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. On 7 November 2017, the Group obtained a
£300m revolving credit facility, £50m has an expiry date of November 2023 and £250m has an expiry date of November 2024. The facility incorporates an
uncommitted £150m accordion. The facility is denominated in Sterling, US Dollars, Canadian Dollars, Australian Dollars and Euros and is used for balance
sheet and operational needs. The Group repaid a US$165m term loan in the prior year.
All bank loans are unsecured. Interest was predominantly charged at 0.65% (2019: 0.90%) over base or contracted rate. At 31 December 2020, the Group had
available £280m (2019: £214m) of undrawn, committed revolving credit facilities.
At 31 December 2020, the Group also has unsecured loan notes in issue to Prudential Investment Management Inc (Pricoa) of £50m with an expiry date of
October 2025 (2019: £50m), and US$70m with an expiry date of January 2026 and January 2029 (2019: US$70m).
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 (TCS), 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 23.
The Group has a net £5m overdraft (gross £75m) across its UK GBP bank accounts, as well as a separate US$2.5m overdraft. These are available for short-term
working capital requirements.
Credit risk
The credit risk on liquid funds and derivative nancial instruments is considered to be limited because the counterparties are banks with investment-grade
ratings assigned by international credit rating agencies. Cash is deposited across a number of dierent banks in the main territories in which the Group is based.
Notes to accounts – Group
For the year ended 31 December 2020
continued
*
2019 balances for cash and cash equivalents and borrowings have been restated to meet the presentational requirements of IAS 32 with respect to the Group’s cash-pooling arrangements. See note 35.
The contractual maturity of currency derivatives has been restated to reect the gross cash outow in accordance with IFRS 7 paragraph B11D.
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139
Strategic report
Governance
Financial statements
22 Financial instruments and nancial risk management
continued
The following table details the Group’s remaining undiscounted contractual maturity for its nancial liabilities:
Within 1 year
£m
1 to 2 years
£m
2 to 5 years
£m
Over 5 years
£m
Total
£m
2020
Bank loans and overdrafts
30.4
0.1
19.0
–
49.5
Unsecured loan notes
3.8
3.8
60.9
54.4
122.9
Government loans
3.4
0.1
5.0
3.7
12.2
Trade payables
44.4
–
–
–
44.4
Currency derivatives used for hedging – cash outow
11.1
3.8
0.5
–
15.4
Currency derivatives used for hedging – cash (inow)
(10.9)
(3.7)
(0.5)
–
(15.1)
Deferred consideration
–
–
2.3
–
2.3
Accruals
46.2
–
–
–
46.2
Other payables
19.9
–
–
–
19.9
(restated)
Within 1 year
£m
1 to 2 years
£m
2 to 5 years
£m
Over 5 years
£m
Total
£m
2019
Bank loans and overdrafts*
29.8
1.5
87.3
–
118.6
Unsecured loan notes
3.8
3.8
11.5
109.3
128.4
Government loans
–
2.2
3.9
3.4
9.5
Trade payables
49.9
–
–
–
49.9
Currency derivatives used for hedging – cash outow*
24.2
12.1
2.9
–
39.2
Currency derivatives used for hedging – cash (inow)
(23.7)
(12.0)
(2.8)
–
(38.5)
Deferred consideration
–
–
2.3
–
2.3
Accruals
37.8
–
–
–
37.8
Other payables
22.2
–
–
–
22.2
The contractual maturity of currency derivatives stated above is the gross outow relating to the derivative liabilities, per the requirements of IFRS 7 paragraph
B11D. To enable readers to understand the overall position, the gross cash inow associated with these liabilities is also presented.
The following table details the Group’s contractual undiscounted cash inows/(outows) for its lease liabilities and lease subletting:
Within 1 year
£m
1 to 2 years
£m
2 to 5 years
£m
Over 5 years
£m
Total
£m
2020
Lease liabilities
(9.6)
(8.0)
(17.6)
(7.2)
(42.4)
Subletting income
0.5
0.2
–
–
0.7
2019
Lease liabilities
(10.0)
(9.1)
(19.0)
(9.8)
(47.9)
Subletting income
0.7
0.6
0.2
–
1.5
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 21,
cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in the
consolidated 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, Euros and Canadian Dollars.
At 31 December 2020, the net fair value of the Group’s currency derivatives is estimated to be an asset of approximately £7.6m (2019: asset £4.2m), comprising
£7.9m assets (2019: £4.9m) and £0.3m liabilities (2019: £0.7m). The gain on derivative nancial instruments included in the Group’s consolidated income
statement for the period was £3.4m (2019: gain £10.6m).
Ultra
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and Accounts 2020
140
22 Financial instruments and nancial risk management
continued
The net notional or net contracted amounts of foreign currency-related forward sales contracts, classied by year of maturity are shown below.
Weighted
average
hedge
rate
Not
exceeding
1 year
£m
Between
1 year and
5 years
£m
Over
5 years
£m
Total
£m
2020
Sell US Dollars, purchase GBP
1.29
92.8
36.4
–
129.2
Other currencies
n/a
(1.2)
(1.4)
–
(2.6)
Total
91.6
35.0
–
126.6
2019
Sell US Dollars, purchase GBP
1.29
104.0
53.9
–
157.9
Other currencies
n/a
(0.1)
(6.9)
–
(7.0)
Total
103.9
47.0
–
150.9
The notional amount is the sterling equivalent of the net currency amount purchased or sold by Ultra. Ultra is net seller of USD.
Net investment hedges
Of the Group’s US denominated borrowings of $70m, $29m (2019: $23m) was designated as a net investment hedge at the year-end. The net value of the
external US borrowings does not exceed the net investments in the US companies and meets the conditions required to qualify as an eective hedge.
The hedging gain taken to other comprehensive income in the year was £1.5m (2019: £3.1m). The total cumulative amount recorded within the translation
reserve at 31 December 2020 in respect of ongoing net investment hedges is £(55.0)m (2019: (£56.5m)). No hedge ineectiveness was recognised in the
income statement.
Interest rate risk
The Group has US$70m of xed rate debt with Pricoa at an interest rate of 4.54%, which is due for repayment in January 2026 and January 2029, and £50m of
xed rate debt with Pricoa at an interest rate of 2.87%, which is due for repayment in October 2025. The revolving credit facility is at oating rates of interest.
The eective interest rates and repricing dates of the Group’s nancial assets and liabilities were as follows:
Eective
interest rate
Total
£m
Within 1 year
£m
1 to 2 years
£m
2 to 5 years
£m
5+ years
£m
2020
Cash and cash equivalents net of bank overdrafts
0.27%
84.1
84.1
–
–
–
Loan notes
3.71%
101.0
–
–
50.0
51.0
Unsecured bank loans
0.67%
19.0
–
–
19.0
–
Government loans
4.43%
12.2
3.4
0.1
5.0
3.7
2019
Cash and cash equivalents net of bank overdrafts
0.70%
82.2
82.2
–
–
–
Loan notes
3.73%
102.5
–
–
–
102.5
Unsecured bank loans
1.74%
83.8
–
–
83.8
–
Government loans
4.43%
9.5
–
2.2
3.9
3.4
Bank overdrafts are netted with cash and cash equivalents because they form an integral part of the Group’s cash management within the cash pooling arrangements, the interest exposure is on the
net balance.
Market risk sensitivity analysis
Interest rate risk
During 2020, the Group’s net borrowings were predominantly at xed 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 2020. There is no signicant dierence between the amount recharged to the income
statement and equity in the year.
Notes to accounts – Group
For the year ended 31 December 2020
continued
Ultra
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and Accounts 2020
141
Strategic report
Governance
Financial statements
22 Financial instruments and nancial risk management
continued
Prot before tax
£m
2020
1% change
Interest rate sensitivity
(0.7)
2019
Interest rate sensitivity
(1.4)
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% weakening of GBP
10% strengthening of GBP
25% weakening of GBP
25% strengthening of GBP
Prot before
tax
£m
Equity
£m
Prot before
tax
£m
Equity
£m
Prot before
tax
£m
Equity
£m
Prot before
tax
£m
Equity
£m
2020
Transaction
11.8
11.8
(11.8)
(11.8)
35.3
35.3
(35.3)
(35.3)
P&L translation
9.2
7.6
(9.2)
(7.6)
23.0
22.8
(23.0)
(22.8)
Foreign exchange derivatives
(3.3)
(3.3)
16.6
16.6
(25.1)
(25.1)
27.4
27.4
Total foreign exchange
17.7
16.1
(4.4)
(2.8)
33.2
33.0
(30.9)
(30.7)
2019
Transaction
7.6
7.6
(7.6)
(7.6)
22.9
22.9
(22.9)
(22.9)
P&L translation
7.8
7.3
(7.8)
(7.3)
19.5
21.9
(19.5)
(21.9)
Foreign exchange derivatives
(6.3)
(6.3)
12.8
12.8
(27.2)
(27.2)
23.2
23.2
Total foreign exchange
9.1
8.6
(2.6)
(2.1)
15.2
17.6
(19.2)
(21.6)
23 Government grants and loans
The Group, through its Canadian subsidiaries Ultra Electronics Tactical Communication Systems (TCS) 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, C$31.8m was provided to TCS and will be reimbursed over the period to 2032. Up to
C$8m will be provided to UEMS and reimbursed over the period 2021 to 2033. The benet of the below-market rate of interest has been calculated as the
dierence between the proceeds received and the fair value of the loans and has been credited to prot in the year.
The fair value of the loans has been calculated using a market interest rate for a similar instrument. The valuation used the discounted cash ow method and
considered the value of expected payments using a risk-adjusted discount rate; the discount rate used was 18% for TCS and 15% for UEMS. For TCS, the amount
repayable depends on future revenue growth of the TCS business to 2032 and will be between zero and x1.5 of the amounts received up to a maximum of
C$47.7m. For UEMS, the amount repayable depends on future revenue growth of the UEMS business from 2021 to 2033 and will be between x1.0 and x1.5 of the
amounts received up until the end of the funding period. As at 31 December 2020, C$4.0m (2019: C$3.5m) had been received by UEMS. UEMS is requesting a
four-year extension to the programme, which has been agreed in principle and is pending execution of the extension.
The signicant unobservable inputs for this Level 3 nancial instrument are: (i) whether, and by how much, TCS/UEMS revenues will grow during the periods to
2032/2033, and (ii) the specic years in which revenue will grow. There are signicant inherent uncertainties in management’s ability to forecast revenue over
the following 13 years, particularly in later years. For TCS, if the compound annual revenue growth rate over the period from 2020 to 2032 was 3.0% higher than
assumed in the valuation model, then the net present value of the liability as at 31 December 2020 would increase by C$3.7m (£2.1m). If the forecast revenue
growth occurs in earlier years than envisaged, then the net present value of the liability will increase; if the revenue growth increases were to occur one year
earlier than assumed in the valuation model, then the net present value of the liability as at 31 December 2020 would increase by C$1.4m (£0.8m).
TCS has also beneted from an Investissement Quebec (IQ) research and development programme, whereby IQ shared in the cost of research and
development of certain specied new products. Under this arrangement, from 2010 to 2014 IQ nanced C$8.8M of eligible costs associated with these specied
projects. The funding is repayable under a royalty arrangement over the period of 2014 to 2021, based on sales of specied products. As there is no minimum
repayment, funding received in respect of the IQ programme has been included in the income statement. Royalties repaid have also been included as costs in
the income statement in the period where they have been incurred.
Ultra
Annual Report
and Accounts 2020
142
23 Government grants and loans
continued
Amounts recognised in the nancial statements in respect of these programmes were as follows:
2020
£m
2019
£m
Fair value of loan brought forward
9.5
10.4
Contributions
–
(2.8)
Amounts charged to nance costs
2.9
1.8
Foreign exchange dierences
(0.2)
0.1
Fair value of loan carried forward
12.2
9.5
Government grants credited to prot in the year
2020
£m
2019
£m
Canadian Government
0.2
0.3
24 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.
Accelerated
tax
depreciation
*
£m
Employee
share options
costs
£m
Derivatives
£m
Retirement
benet
obligations
£m
Goodwill
£m
Other
£m
Total
£m
At 1 January 2019
(4.5)
–
1.0
12.6
(11.6)
10.7
8.2
Credit/(charge) to income
(1.9)
0.6
(1.7)
(1.7)
(1.4)
(1.0)
(7.1)
Credit/(charge) to other comprehensive income
–
–
–
1.6
–
–
1.6
Credit direct to equity
(0.6)
0.7
–
–
–
1.2
1.3
Exchange dierences
0.2
–
–
–
0.1
(0.6)
(0.3)
Reclassication
–
–
–
–
–
(0.2)
(0.2)
At 1 January 2020
(6.8)
1.3
(0.7)
12.5
(12.9)
10.1
3.5
Credit/(charge) to income
(0.4)
0.1
(0.6)
(1.8)
(3.5)
(2.1)
(8.3)
Credit to other comprehensive income
–
–
–
2.9
–
–
2.9
Credit/(charge) direct to equity
–
0.2
–
–
–
–
0.2
Exchange dierences
0.4
–
–
–
0.3
(0.2)
0.5
Eect of change in tax rates
(0.2)
0.1
(0.1)
0.4
–
(0.4)
(0.2)
At 31 December 2020
(7.0)
1.7
(1.4)
14.0
(16.1)
7.4
(1.4)
2020
£m
2019
£m
Non-current assets
13.6
23.0
Non-current liabilities
(15.0)
(19.5)
(1.4)
3.5
*
Relates to property, plant and equipment and intangible assets.
Deferred tax assets and liabilities are oset where the Group has a legally enforceable right to do so.
Unrecognised deferred tax assets
Deferred tax assets, in excess of osetting deferred tax liabilities, are recognised for loss carry forwards and deductible temporary dierences to the extent that
the utilisation against future taxable prots is probable. UK deferred tax assets of £1.7m (2019: £2.1m) have not been recognised as their recovery is uncertain.
The unrecognised US deferred tax asset at 31 December 2019 (£3.7m) has been fully utilised as a result of the US Coronavirus Aid, Relief, and Economic Security
(CARES) Act.
Notes to accounts – Group
For the year ended 31 December 2020
continued
Ultra
Annual Report
and Accounts 2020
143
Strategic report
Governance
Financial statements
24 Deferred tax
continued
Current tax assets in the consolidated balance sheet consist of:
2020
£m
2019
(restated)
£m
Current tax
8.8
6.5
Deferred tax
–
–
8.8
6.5
Current tax liabilities in the consolidated balance sheet consist of:
2020
£m
2019
(restated)
£m
Current tax
(5.9)
(1.5)
Deferred tax
–
–
(5.9)
(1.5)
In 2019, we set out to improve clarity for readers over our deferred tax balances and classied elements of deferred tax asset and deferred tax liabilities to
current from non-current. However, we erroneously did not take into consideration a requirement of IAS 1.56, which requires deferred tax assets and liabilities
to not be presented as current. For presentational purposes, in accordance with IAS 8: ‘Accounting Policies, Change in Accounting Policies and Errors’, we have
therefore restated the prior year Group balance sheet to reect a reclassication of £13.0m deferred tax asset from current assets to non-current assets and a
reclassication of £(3.2)m deferred tax liability from current liabilities to non-current liabilities. See note 35.
25 Provisions
Warranties
£m
Contract-
related
provisions
£m
Other
£m
Total
£m
At 1 January 2020
4.8
13.9
6.1
24.8
Created
4.4
4.4
3.9
12.7
Reversed
(0.8)
(2.4)
(0.3)
(3.5)
Utilised
(1.0)
(5.7)
(2.5)
(9.2)
Exchange dierences
–
(0.3)
(0.1)
(0.4)
Reclassied from held for sale
(see note 30)
0.1
–
0.1
0.2
At 31 December 2020
7.5
9.9
7.2
24.6
Included in current liabilities
6.0
9.1
4.5
19.6
Included in non-current liabilities
1.5
0.8
2.7
5.0
7.5
9.9
7.2
24.6
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 – for example, including provisions for agent fees and provisions relating to contract execution and delivery – are utilised
over the period as stated in the contract to which the specic provision relates. Other provisions include reorganisation costs, contingent consideration and
dilapidation costs. Reorganisation costs will be incurred over the period of the reorganisation, which is typically up to two years. Contingent consideration is
payable when earnings targets are met. Dilapidations will be payable at the end of the contracted life, which is up to 15 years.
Ultra
Annual Report
and Accounts 2020
144
26 Share capital and share options
2020
2019
No.
£m
No.
£m
Authorised:
5p ordinary shares
90,000,000
4.5
90,000,000
4.5
Allotted, called-up and fully paid:
5p ordinary shares
71,122,599
3.6
70,964,527
3.5
During 2020, the Company did not purchase and cancel any shares.
During 2019, the Company purchased and cancelled 634,996 shares. The shares were acquired at an average price of £13.41 per share, with prices ranging from
£12.80 to £14.02. The total cost of £8.6m, including fees and stamp duty of £0.1m, was transferred to retained earnings. The total reduction in paid-up capital
was £32,000.
158,072 ordinary shares having a nominal value of £7,904 were allotted during the year under the terms of the Group’s various share option schemes. The
aggregate consideration received was £2.3m.
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 2020, the number of own shares held was 108,494
(2019: 131,542).
Share options
The Group’s equity-settled share-based payments are measured at fair value at the date of the 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 Group recognised total expenses of
£2,596,000 (2019: £1,980,000) in relation to equity-settled share-based payment transactions. Expected volatility was determined by calculating the historical
volatility of the Group’s share price.
During the year to 31 December 2020, the Group operated the following equity-settled share option schemes:
1. Savings-Related Share Option Schemes, Company Share Option Plan and Executive Share Option Scheme
A Savings-Related Share Option Scheme is open to all UK, US and Canadian employees and provides for a purchase price equal to the average of the daily
average market price before the grant less 10%. The vesting period is two to ve years. If the options remain unexercised after a period ranging from three to six
months from the date of maturity, the options expire. Options are forfeited if the employee leaves the Group before the options vest.
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 the
grant. This is an approved scheme and vesting is unconditional. Options vest after three years and lapse after 10 years from the date of the grant.
The Executive Share Option Scheme provides share options for nominated employees in the UK, the USA and Canada. The purchase price is set at a mid-market
price on the date of the grant. This is an unapproved scheme and vesting is unconditional. Options vest after three years and lapse after seven years from the
date of the grant.
The number and weighted average exercise price of share options for all share-based payment arrangements (excluding LTIP) are as follows:
Weighted
average
exercise price
(£)
2020
Number
of options
2020
Weighted
average
exercise price
(£)
2019
Number
of options
2019
Beginning of year
16.53
970,757
16.81
1,046,659
Granted during the year
–
–
16.08
324,784
Exercised during the year
16.94
(161,655)
16.92
(258,038)
Expired during the year
16.32
(91,322)
16.87
(142,648)
Outstanding at the end of the year
16.44
717,780
16.53
970,757
Exercisable at the end of the year
19.04
190,626
17.34
198,208
2020
2019
Range of exercise price of outstanding options (£)
14.45 – 21.91
14.45 – 21.91
Weighted average remaining contracted life (years)
3.73
4.28
Weighted average fair value of options granted (£)
–
3.22
Notes to accounts – Group
For the year ended 31 December 2020
continued
Ultra
Annual Report
and Accounts 2020
145
Strategic report
Governance
Financial statements
26 Share capital and share options
continued
2. Long-Term Incentive Plan
Details in relation to the Ultra Electronics Long-Term Incentive Plan 2017 awards to Executive Directors are included in the Directors’ Remuneration Report
on pages 88–101. In April 2020, LTIPs were also awarded to nominated employees and are subject to the same four performance metrics (see page 95) as the
Executive Director awards. The awards will vest in April 2022 upon achievement of those performance targets and are conditional upon continued employment.
The number of the LTIPs are as follows:
Number
of options
2020
Number
of options
2019
Beginning of year
903,632
683,006
Granted during the year
426,153
403,612
Exercised during the year
(32,946)
(3,692)
Expired during the year
(190,417)
(179,294)
Outstanding at the end of the year
1,106,422
903,632
2020
2019
Weighted average remaining contracted life (years)
1.39
1.60
Weighted average fair value of options granted (£)
15.09
12.60
The weighted average contracted life in 2020 is less than three years due to the 2018 issuances upon appointment of the new Chief Executive and expiration of
LTIPs granted in 2017 following changes to the executive management team.
27 Notes to the cash ow statement
2020
£m
2019
£m
Operating prot
106.3
94.2
Adjustments for:
Depreciation of property, plant and equipment
10.4
9.7
Amortisation of intangible assets
18.6
28.6
Amortisation of leased assets
8.5
9.3
Cost of equity-settled employee share schemes
2.5
0.8
Dened benet pension scheme funding
(11.0)
(10.8)
Loss on disposal of property, plant and equipment
0.1
0.1
(Decrease)/increase in provisions
0.2
5.5
Operating cash ow before movements in working capital
135.6
137.4
Increase in inventories
(13.8)
(5.7)
Decrease/(increase) in receivables
19.3
(2.9)
Increase/(decrease) in payables
1.5
(13.9)
Cash generated by operations
142.6
114.9
Income taxes paid
(5.4)
(9.5)
Interest paid
(5.5)
(9.3)
Lease liability interest paid
(1.7)
(1.5)
Net cash from operating activities
130.0
94.6
The total cash outow in 2020 relating to leases was £10.7m (2019: £9.2m), of which £0.2m (2019: £0.2m) related to low-value or short-term leases not recognised
on the balance sheet.
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27 Notes to the cash ow statement
continued
Reconciliation of net movement in cash and cash equivalents to movements in net debt:
2020
£m
2019
£m
Net increase/(decrease) in cash and cash equivalents
3.1
(10.5)
Cash inow from movement in debt and nance leasing
65.1
55.3
Change in net debt arising from cash ows
68.2
44.8
Loan syndication costs
–
0.3
Lease liability movement
3.5
(41.2)
Other non-cash movements
(2.7)
–
Amortisation of nance costs of debt
(0.6)
(0.7)
Translation dierences
0.6
(0.5)
Movement in net debt in the year
69.0
2.7
Net debt at start of year
(154.8)
(157.5)
Net debt at end of year
(85.8)
(154.8)
Net cash and cash equivalents and overdrafts comprised the following:
2020
£m
2019
(restated)
£m
Cash and cash equivalents*
114.4
110.5
Overdrafts*
(30.3)
(28.3)
Net cash and cash equivalents and bank overdrafts
84.1
82.2
Cash and cash equivalents comprise cash at bank and short-term deposits with an original maturity date of three months or less.
Net debt comprised the following:
2020
£m
2019
(restated)
£m
Cash and cash equivalents*
114.4
110.5
Borrowings*
(200.2)
(265.3)
(85.8)
(154.8)
Reconciliation of changes in nancing liabilities:
2020
£m
2019
(restated)
£m
Borrowings at start of year*
(265.3)
(292.6)
Repayments of borrowings
76.2
315.3
Proceeds from borrowings
(11.1)
(259.9)
(Increase)/decrease in overdraft
(2.0)
10.5
Loan syndication costs
–
0.3
Other non-cash movements
(2.7)
–
Amortisation of nance costs of debt
(0.6)
(0.7)
Principal payment on leases
9.0
7.8
Lease liability non-cash movements
(5.5)
(49.0)
Translation dierences
1.8
3.0
Borrowings at end of year*
(200.2)
(265.3)
Notes to accounts – Group
For the year ended 31 December 2020
continued
*
2019 balances for cash and cash equivalents and borrowings have been restated to meet the presentational requirements of IAS 32 with respect to the Group’s cash-pooling arrangements. See note 35.
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Strategic report
Governance
Financial statements
28 Other nancial commitments
Capital commitments
At the end of the year capital commitments were:
2020
£m
2019
£m
Contracted but not provided
2.8
1.3
29 Retirement benet schemes
Some UK employees of the Group are members of the Ultra Electronics Limited dened benet scheme which was established on 1 March 1994. The scheme
was closed to new members in 2003. The scheme is a nal salary scheme with the majority of members accruing 1/60th of their nal pensionable earnings for
each year of pensionable service; however, the scheme was closed to future benet accrual from 5 April 2016. A dened contribution plan was introduced for
other employees and new joiners in the UK. The latest full actuarial valuation of the dened benet scheme was carried out as at 5 April 2019. The Group also
operates two dened contribution schemes for overseas employees. In addition to these schemes, the Group’s Tactical Communication Systems business
based in Montreal, Canada, has three dened benet schemes and the Swiss business of the Forensic Technology group has a dened benet scheme.
Dened contribution schemes
The total cost charged to income in respect of the dened contribution schemes was £10.8m (2019: £9.9m).
Dened benet schemes
All the dened benet schemes were actuarially assessed at 31 December 2020 using the projected unit method.
In the UK, Ultra Electronics Limited sponsors the Ultra Electronics Pension Scheme, a funded dened benet 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
interests 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.
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 decit within the scheme lies with the Company and this introduces a number of risks for the Company. The major risks
are: interest rate risk, ination 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.
Investment strategy
The investment strategy is set by the Trustee of the scheme. The investment strategy is targeting a level of investment return above that assumed under the
Recovery Plan and slightly higher than the required return to achieve full funding on a self-suciency basis by 31 March 2030, with an appropriate level of
diversication across assets and interest rate and ination hedging to manage investment risks.
The UK Scheme’s investment strategy is to invest broadly 54% in return-seeking assets and 46% in matching assets, with the aim of moving to 20% growth
and 80% matching by 2030. This strategy reects the UK Scheme’s liability prole and the Trustee’s and Company’s attitude to risk.
The Trustee’s investment strategy includes investing in liability driven investment (LDI), the value of which will increase with decreases in interest rates, and will
move with ination expectations. LDI primarily involves the use of government bonds and derivatives such as interest rate and ination swaps. The main risk is
that the investments held move dierently to the liability exposures; this risk is managed by the Trustee, its advisers and the scheme’s LDI manager, who
regularly assess the position.
The assets held are also well diversied, across asset classes and investment managers. This reduces the risk of drops in the value of individual asset classes, or
a particular manager underperforming its investment objectives, having a negative impact on the funding position of the scheme. The investment performance
and liability experience are regularly reviewed by the Trustee, and the Trustee will consult with the Company over any changes to the investment strategy.
Rather than holding the underlying assets directly, the scheme invests in pooled investment vehicles managed by professional external investment managers,
whom the Trustee has appointed with the help of its investment advisers.
GMP Equalisation
Following a High Court judgment on 26 October 2018, it became apparent across the UK pension industry that equalisation was required with respect to
Guaranteed Minimum Pensions (GMPs). Scheme benets earned in the period 17 May 1990 to 5 April 1997 may be aected by the requirement to equalise
GMPs. It will take a considerable time for trustees and employers to decide on the approach for GMP equalisation, gather data, calculate the new benets and
cost, and ultimately make payments to members. The initial estimate for the Ultra Electronics Limited dened benet scheme was that the impact was £3.2m;
this was recorded as a debit to the income statement in 2018 with a corresponding increase in scheme liabilities. There have been no material changes in
estimates in 2019 or 2020.
Ultra
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and Accounts 2020
148
29 Retirement benet schemes
continued
Valuation
The scheme is subject to regular actuarial valuations, which are usually carried out every three years. The last actuarial valuation of the scheme was on 5 April
2019. The next actuarial valuation is due to be carried out with an eective date of 5 April 2022. 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 5 April 2019 valuation have been projected to 31 December 2020 by a qualied, independent actuary. The gures in the following disclosure
were measured using the projected unit method.
Key nancial assumptions used in the valuation of these schemes were as follows:
UK
2020
Canada
2020
Switzerland
2020
UK
2019
Canada
2019
Switzerland
2019
Discount rate
1.45%
2.25%
0.20%
1.95%
3.00%
0.00%
Ination rate – RPI
2.95%
3.00%
0.60%
3.00%
3.00%
0.90%
Ination rate – CPI
2.35%
2.20%
0.60%
2.20%
2.20%
0.90%
Expected rate of salary increases
n/a
3.45%
1.00%
n/a
3.45%
1.00%
Future pension increases (pre 6/4/08)
2.85%
n/a
0.00%
2.85%
n/a
0.00%
Future pension increases (post 6/4/08)
1.95%
n/a
0.00%
1.85%
n/a
0.00%
For each of these assumptions there is a range of possible values. Relatively small changes in some of these variables can have a signicant impact on the level
of the total obligation. For the UK scheme, a 0.5% increase in the ination assumption to 3.45% and a 1.0% decrease in the discount rate to 0.45% would increase
the scheme’s liabilities by 6.2% and 19.2% respectively. If the life expectancy of members was to increase by one year, the scheme liabilities would increase by
4.7%. The average duration of the scheme liabilities is 18 years (2019: 17 years).
The assumptions used are provided by Willis Towers Watson as Company advisers, and also by reference to the Bank of England gilt curve at a duration
appropriate to the scheme’s liabilities of 18 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 – males
95% of SAPS S3PMA with CMI 2019 projections and a 1.25% oor from 2013 (UK only)
Current pensioners – females
101% of SAPS S3PFA with CMI 2019 projections and a 1.25% oor from 2013 (UK only)
Future pensioners – males
95% of SAPS S3PMA with CMI 2019 projections and a 1.25% oor from 2013 (UK only)
Future pensioners – females
101% of SAPS S3PFA with CMI 2019 projections and a 1.25% oor from 2013 (UK only)
The mortality assumptions used in the valuation of the UK scheme make appropriate allowance for future improvements in longevity and are set out below:
2020
2019
Current pensioners (at 65) – males
22 years
22 years
Current pensioners (at 65) – females
24 years
24 years
Future pensioners (at 65) – males
24 years
24 years
Future pensioners (at 65) – females
26 years
25 years
Amounts recognised in the income statement in respect of the Group’s dened benet schemes were as follows:
UK
2020
£m
Canada
2020
£m
Switzerland
2020
£m
Total
2020
£m
UK
2019
£m
Canada
2019
£m
Switzerland
2019
£m
Total
2019
£m
Current service cost
–
0.1
0.4
0.5
–
0.1
0.3
0.4
Administration expenses
–
0.1
–
0.1
–
0.1
–
0.1
Interest on pension scheme liabilities
7.4
0.2
–
7.6
9.7
0.4
0.1
10.2
Past service cost
0.1
–
–
0.1
–
–
(0.2)
(0.2)
Expected return on pension
scheme assets
(6.1)
(0.2)
–
(6.3)
(7.8)
(0.4)
(0.1)
(8.3)
Charge
1.4
0.2
0.4
2.0
1.9
0.2
0.1
2.2
Notes to accounts – Group
For the year ended 31 December 2020
continued
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149
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Governance
Financial statements
29 Retirement benet schemes
continued
Of the current service cost for the year, £0.1m (2019: £0.1m) has been included in cost of sales, and £0.4m (2019: £0.3m) 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 dened benet retirement schemes is as follows:
UK
2020
£m
Canada
2020
£m
Switzerland
2020
£m
Total
2020
£m
UK
2019
£m
Canada
2019
£m
Switzerland
2019
£m
Total
2019
£m
Fair value of scheme assets
353.3
8.1
8.1
369.5
315.2
8.0
6.5
329.7
Present value of scheme liabilities
(423.2)
(9.0)
(10.4)
(442.6)
(386.4)
(8.4)
(8.2)
(403.0)
Scheme decit
(69.9)
(0.9)
(2.3)
(73.1)
(71.2)
(0.4)
(1.7)
(73.3)
Related deferred tax asset
13.3
0.3
0.4
14.0
12.1
0.1
0.3
12.5
Net pension liability
(56.6)
(0.6)
(1.9)
(59.1)
(59.1)
(0.3)
(1.4)
(60.8)
Movements in the present value of dened benet obligations during the year were as follows:
UK
2020
£m
Canada
2020
£m
Switzerland
2020
£m
Total
2020
£m
UK
2019
£m
Canada
2019
£m
Switzerland
2019
£m
Total
2019
£m
Present value of obligation at 1 January
(386.4)
(8.4)
(8.2)
(403.0)
(353.1)
(10.1)
(7.5)
(370.7)
Current service cost
–
(0.1)
(0.4)
(0.5)
–
(0.1)
(0.3)
(0.4)
Interest cost
(7.4)
(0.2)
–
(7.6)
(9.7)
(0.4)
(0.1)
(10.2)
Actuarial gains and losses
(43.3)
(0.8)
(0.1)
(44.2)
(38.7)
(0.6)
(1.2)
(40.5)
Exchange dierence
–
0.1
(0.6)
(0.5)
–
–
0.2
0.2
Past service cost
(0.1)
–
–
(0.1)
–
–
0.2
0.2
Liabilities extinguished on settlements
–
–
–
–
–
2.3
–
2.3
Benets paid
14.0
0.4
(1.1)
13.3
15.1
0.5
0.5
16.1
Present value of obligation
at 31 December
(423.2)
(9.0)
(10.4)
(442.6)
(386.4)
(8.4)
(8.2)
(403.0)
Movements in the fair value of scheme assets during the year were as follows:
UK
2020
£m
Canada
2020
£m
Switzerland
2020
£m
Total
2020
£m
UK
2019
£m
Canada
2019
£m
Switzerland
2019
£m
Total
2019
£m
Fair value at 1 January
315.2
8.0
6.5
329.7
281.7
9.6
6.4
297.7
Expected return on scheme assets
6.1
0.2
–
6.3
7.8
0.4
0.1
8.3
Actuarial gains and losses
35.1
0.1
(0.3)
34.9
30.4
0.5
0.3
31.2
Exchange dierences
(0.1)
(0.1)
0.4
0.2
–
–
(0.1)
(0.1)
Employer contributions
11.0
0.4
0.4
11.8
10.4
0.4
0.3
11.1
Assets distributed on settlements
–
–
–
–
–
(2.3)
–
(2.3)
Administration expenses
–
(0.1)
–
(0.1)
–
(0.1)
–
(0.1)
Benets paid
(14.0)
(0.4)
1.1
(13.3)
(15.1)
(0.5)
(0.5)
(16.1)
Fair value at 31 December
353.3
8.1
8.1
369.5
315.2
8.0
6.5
329.7
Ultra
Annual Report
and Accounts 2020
150
29 Retirement benet schemes
continued
Scheme assets were as follows:
UK
2020
£m
Canada
2020
£m
Switzerland
2020
£m
Total
2020
£m
UK
2019
£m
Canada
2019
£m
Switzerland
2019
£m
Total
2019
£m
Fair value:
Equities
82.5
2.4
2.7
87.6
73.0
2.6
2.2
77.8
Bonds
–
5.5
2.0
7.5
–
5.0
1.7
6.7
Property
38.1
–
1.6
39.7
26.0
–
0.9
26.9
Other assets
9.4
0.2
1.4
11.0
15.3
0.4
1.4
17.1
Other investment funds:
Absolute return
89.2
–
0.4
89.6
86.8
–
0.3
87.1
LDI
101.9
–
–
101.9
96.1
–
–
96.1
Multi-asset credit
31.9
–
–
31.9
18.0
–
–
18.0
353.0
8.1
8.1
369.2
315.2
8.0
6.5
329.7
The scheme’s investments are in pooled funds which are unquoted.
The analysis of the actuarial loss in the consolidated statement of comprehensive income was as follows:
UK
2020
£m
Canada
2020
£m
Switzerland
2020
£m
Total
2020
£m
UK
2019
£m
Canada
2019
£m
Switzerland
2019
£m
Total
2019
£m
Actual return less expected return
on pension scheme assets
41.4
0.8
(0.3)
41.9
30.4
0.5
0.3
31.2
Experience gains arising on
scheme liabilities
1.9
–
0.5
2.4
(7.3)
0.1
(0.1)
(7.3)
Changes in assumptions underlying the
present value of the scheme liabilities
(35.1)
(0.1)
0.2
(35.0)
(31.4)
(0.7)
(1.1)
(33.2)
8.2
0.7
0.4
9.3
(8.3)
(0.1)
(0.9)
(9.3)
Cumulative actuarial losses, net of deferred tax, recognised in the consolidated statement of comprehensive income at 31 December 2020 were £87.5m (2019:
£78.2m). The ve-year history of experience adjustments is as follows:
2020
£m
2019
£m
2018
£m
2017
£m
2016
£m
Present value of dened benet obligations
(442.6)
(403.0)
(370.7)
(389.0)
(400.5)
Fair value of scheme assets
369.5
329.7
297.7
306.3
287.3
Scheme decit
(73.1)
(73.3)
(73.0)
(82.7)
(113.2)
Experience adjustments on scheme liabilities
2.4
(7.3)
(3.8)
(0.8)
4.0
Percentage of scheme liabilities
0.5%
(1.8%)
(1.0%)
(0.2%)
1.0%
Experience adjustment on scheme assets
41.9
31.2
(12.1)
15.3
40.7
Percentage of scheme assets
11.3%
9.5%
(4.1%)
5.0%
14.2%
The amount of contributions expected to be paid to dened benet schemes per annum is £11.0m until March 2025.
Notes to accounts – Group
For the year ended 31 December 2020
continued
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and Accounts 2020
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Strategic report
Governance
Financial statements
30 Acquisitions and disposals
Disposals
Former Flightline business
Agreement was reached in April 2020 to dispose of certain non-core aircraft product lines from the former Flightline business, within the Maritime SBU, to Ontic
Engineering and Manufacturing Inc. The disposal completed in November 2020. Consideration received in the year totalled US$9.5m (£7.5m), the net assets
disposed of were £1.7m and the directly attributable costs of disposal were £0.2m; consequently the gain on disposal was £5.6m.
Non-underlying restructuring costs of £2.8m were incurred closing, relocating and re-certifying the remainder of the former Flightline business and product
lines that had not been divested. However, these costs are not ‘directly’ attributable to the divestment as required by IFRS 5 and consequently cannot form part
of the IFRS 5 gain on disposal calculation. However, to fully understand the net income statement impact of the divestment, restructuring, closure, relocation
and re-certcation activity the table below sets out the net impact:
2020
£m
Inventories
1.5
Trade and other receivables
0.2
Total
1.7
Proceeds received
7.5
Directly attributable costs of disposal
(0.2)
Gain on disposal
5.6
Restructuring costs
(2.8)
Gain on disposal net of related restructuring costs
2.8
Further consideration of US$0.5m (£0.4m) could be received dependent on the number of certain aircraft sold by a third party; no receivable or prot has been
recognised in the year for this deferred consideration due to the uncertainty over this being achieved.
Other
In October 2019, agreement was reached to dispose of the Intelligence & Communications SBU’s small Ottawa-based electronic intelligence business to private
investors. A loss of £1.5m was recognised in the 2019 income statement when the assets were written down to their recoverable amount. The disposal
completed in January 2020; there was no residual gain or loss to recognise in 2020. The cash outow in 2020 was £1.9m.
2020
£m
Property, plant and equipment
–
Trade and other receivables
0.7
Trade and other payables
(1.1)
Cash
1.9
Total
1.5
Proceeds received
–
Loss on disposal in 2019
1.5
As disclosed in the prior year, certain assets from the Intelligence & Communications SBU were classied as held for sale at 31 December 2019. During 2020, the
decision was taken to cease classifying these assets as held for sale due to uncertainty over the likelihood of disposal; there was no impact to the current period
or prior year nancial results. In 2019 there was also a £0.6m gain arising from the disposals of Airport Systems and Corvid Paygate Limited.
31 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
specied 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 page 92.
2020
£m
2019
£m
Short-term employee benets
5.5
5.1
Post-employment benets
0.3
0.4
Termination benets
0.4
0.2
Share-based payments
3.1
4.3
9.3
10.0
Ultra
Annual Report
and Accounts 2020
152
32 Non-controlling interests
There is a 5% non-controlling interest in the Group’s Corvid Holdings Limited subsidiary. Before any intra-Group eliminations, the consolidated revenue of the
subsidiary in the year was £2.7m (2019: £3.7m), the gain was £5,000 (2019: £1.4m gain) and the net assets were £4.1m (2019: £3.8m). Sales to Group companies
were £2.1m (2019: £2.4m).
During 2020, dividends totalling £820,000 were issued. £41,000 in dividends was paid to the non-controlling interest holder.
During 2019, Corvid Paygate Limited was disposed of, which formed part of the Corvid Holdings Limited group.
33 Contingent liabilities
Contingent liabilities are potential future cash outows which are either not probable or cannot be measured reliably.
The Group has entered into a number of guarantee and performance bond arrangements in the normal course of business, totalling £37.3m (2019: £55.1m).
As previously announced, investigations associated with conduct of business issues in Algeria and the Philippines are ongoing, and Ultra continues to cooperate
with the relevant authorities. It is not yet possible to estimate the time scale in which these investigations might be resolved, or to reliably predict their
outcomes. As at 31 December 2020, taking account of all available evidence, Ultra concluded that, for the above matters, it is not deemed probable that a
present obligation existed which would result in a probable outow of economic resources. Consequently, the timing and amount, if any, of nancial eects
(such as nes, penalties or damages, which could be material) or other consequences, including external costs, from any of the investigations is not possible to
predict or estimate.
The Oman Airport IT contract between the Sultanate of Oman, Ministry of Transport & Communications and Ithra (Ultra Electronics in collaboration with Oman
Investment Corporation LLC, the legal entity established with the sole purpose of delivering that contract and which was placed into voluntary liquidation in
March 2015) was terminated in February 2015 and there were various proceedings in relation to that contract and its termination, which have now all been
concluded with no liability arising out of these proceedings for Ultra.
We have previously reported that Ultra was potentially aected by the European Commission decision that the group nancing partial exemption (FCPE), in the
UK controlled foreign company (CFC) rules as they applied up to 31 December 2018, could constitute illegal State Aid. On 26 February 2021, HMRC notied Ultra
of their view that Ultra is not a beneciary of State Aid, as dened in the EC decision and we believe this concludes the matter.
34 Additional information as required by Listing Rules Requirement 9.8.4
+
Long-term incentive plans – see Directors’ Remuneration Report
+
Allocation of equity securities for cash – see note 26
+
Election of independent Directors – see Directors’ Report on page 102
+
Contractual arrangements – see Directors’ Report on page 102
+
Details of independent Directors – see Chairman’s governance report on pages 68–69
+
Substantial shareholders – see Directors’ Report on page 102
No prot 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 are considered to be a Controlling Shareholder (as dened in Listing Rules 6.1.2A).
35 Prior year restatement
Cash pooling
During the year it was determined that the Group’s cash and overdrafts within its cash-pooling arrangements did not meet the requirements for osetting in
accordance with IAS 32: ‘Financial Instruments: Presentation’. For presentational purposes, cash and cash equivalents and borrowings in the prior year have
been restated in accordance with IAS 8: ‘Accounting Policies, Change in Accounting Policies and Errors’ resulting in an additional £28.3m within borrowings,
and cash balances increased by an equal and opposite amount. There is no impact on net assets or net debt.
Deferred tax balances
In 2019, we set out to improve clarity for readers over our deferred tax balances and classied elements of deferred tax asset and deferred tax liabilities to
current from non-current. However, we erroneously did not take into consideration a requirement of IAS 1.56, which requires deferred tax assets and liabilities
to not be presented as current. For presentational purposes, in accordance with IAS 8: ‘Accounting Policies, Change in Accounting Policies and Errors’, we have
therefore restated the prior year Group balance sheet to reect a reclassication of £13.0m deferred tax asset from current assets to non-current assets and a
reclassication of £(3.2)m deferred tax liability from current liabilities to non-current liabilities. See note 24.
Reserves
The previously disclosed separate hedging reserve and translation reserve have been combined. The amounts in the hedging reserve incorrectly related to
net investment hedges of foreign operations. Prior periods have been restated on a consistent basis.
Notes to accounts – Group
For the year ended 31 December 2020
continued
Ultra
Annual Report
and Accounts 2020
153
Strategic report
Governance
Financial statements
35. Prior year restatement
continued
2019
As previously
reported
£m
Reserves
combination
£m
Deferred tax
re- classication
adjustment
£m
Cash osetting
adjustment
£m
2019
As restated
£m
Non-current assets
Goodwill
365.9
365.9
Other intangible assets
92.7
92.7
Property, plant and equipment
64.2
64.2
Leased assets
36.1
36.1
Deferred tax assets
10.0
13.0
23.0
Derivative nancial instruments
1.7
1.7
Trade and other receivables
13.7
13.7
584.3
13.0
–
597.3
Current assets
Inventories
90.7
90.7
Trade and other receivables
205.4
205.4
Current tax assets
19.5
(13.0)
6.5
Cash and cash equivalents
82.2
28.3
110.5
Derivative nancial instruments
3.2
3.2
Assets classied as held for sale
11.5
11.5
412.5
(13.0)
28.3
427.8
Total assets
996.8
–
28.3
1,025.1
Current liabilities
Trade and other payables
(192.3)
(192.3)
Current tax liabilities
(4.7)
3.2
(1.5)
Derivative nancial instruments
(0.5)
(0.5)
Borrowings
(8.2)
(28.3)
(36.5)
Liabilities classied as held for sale
(5.3)
(5.3)
Short-term provisions
(16.6)
(16.6)
(227.6)
3.2
(28.3)
(252.7)
Non-current liabilities
Retirement benet obligations
(73.3)
(73.3)
Other payables
(11.8)
(11.8)
Deferred tax liabilities
(16.3)
(3.2)
(19.5)
Derivative nancial instruments
(0.2)
(0.2)
Borrowings
(228.8)
(228.8)
Long-term provisions
(8.2)
(8.2)
(338.6)
(3.2)
–
(341.8)
Total liabilities
(566.2)
–
(28.3)
(594.5)
Net assets
430.6
–
–
430.6
Equity
Share capital
3.5
3.5
Share premium account
203.2
203.2
Capital redemption reserve
0.4
0.4
Reserve for own shares
(1.4)
(1.4)
Hedging reserve
(56.8)
56.8
–
Translation reserve
99.0
(56.8)
42.2
Retained earnings
182.6
182.6
Equity attributable to owners of the Company
430.5
–
–
–
430.5
Non-controlling interests
0.1
0.1
Total equity
430.6
–
–
–
430.6
Ultra
Annual Report
and Accounts 2020
154
36 Related undertakings
The Company owns either directly or indirectly the ordinary share capital of the following undertakings:
Company name
Country incorporated
%
owned
Direct/Indirect
(Group interest)
3e Technologies International Inc.
United States
100%
Indirect (Group interest)
AEP Networks Inc.
United States
100%
Indirect (Group interest)
AEP Networks Limited
Ireland
100%
Direct
CORVID Holdings Limited
Guernsey
95%
Direct
CORVID Protect Holdings Limited
Guernsey
95%
Indirect (Group interest)
DF Group Limited
United Kingdom
100%
Direct
EMS Development Corporation
United States
100%
Indirect (Group interest)
ERAPSCO
United States
50%
Indirect (Group interest)
Flightline Electronics Inc.
United States
100%
Indirect (Group interest)
Forensic Technology (Europe) Limited
Ireland
100%
Direct
Forensic Technology AEC Thailand Limited
Thailand
100%
Direct
Forensic Technology Inc.
United States
100%
Direct
Forensic Technology Mexico S. de RL. de C.V
Mexico
100%
Indirect (Group interest)
Forensic Technology-Tecnologia Forense Ltda
Brazil
100%
Indirect (Group interest)
Giga Communications Limited
United Kingdom
100%
Direct
GIGASAT, INC.
United States
100%
Direct
Gigasat. Asia Pacic Pty Limited
Australia
100%
Indirect (Group interest)
Herley Industries Inc.
United States
100%
Indirect (Group interest)
Herley-CTI Inc.
United States
100%
Indirect (Group interest)
Projectina AG
Switzerland
100%
Direct
Prologic Inc.
United States
100%
Indirect (Group interest)
Ultra Electronics (USA) Group Inc.
United States
100%
Indirect (Group interest)
Ultra Electronics Advanced Tactical Systems Inc.
United States
100%
Indirect (Group interest)
Ultra Electronics Aneira Inc.
United States
100%
Indirect (Group interest)
Ultra Electronics Australia Pty Limited
Australia
100%
Direct
Ultra Electronics Avalon Systems Pty Limited
Australia
100%
Indirect (Group interest)
Ultra Electronics Canada Inc.
Canada
100%
Direct
Ultra Electronics Connecticut LLC
United States
100%
Indirect (Group interest)
Ultra Electronics Defense Inc.
United States
100%
Indirect (Group interest)
Ultra Electronics DNE Technologies Inc.
United States
100%
Indirect (Group interest)
Ultra Electronics Enterprises (USA) LLC
United States
100%
Indirect (Group interest)
Ultra Electronics Finance Limited
Jersey
100%
Indirect (Group interest)
Ultra Electronics Forensic Technology Inc./
Les Technologies Ultra Electronics Forensic Inc.
Canada
100%
Direct
Notes to accounts – Group
For the year ended 31 December 2020
continued
Ultra
Annual Report
and Accounts 2020
155
Strategic report
Governance
Financial statements
36 Related undertakings
continued
Company name
Country incorporated
%
owned
Direct/Indirect
(Group interest)
Ultra Electronics Hong Kong Holdings Limited
Hong Kong
100%
Direct
Ultra Electronics ICE, Inc.
United States
100%
Indirect (Group interest)
Ultra Electronics in collaboration with
Oman Investment Corporation LLC (in liquidation)
Oman
70%
Direct
Ultra Electronics Inc.
United States
100%
Indirect (Group interest)
Ultra Electronics Investments (USA) LLC
United States
100%
Indirect (Group interest)
Ultra Electronics Limited
United Kingdom
100%
Direct
Ultra Electronics Maritime Systems Inc.
Canada
100%
Indirect (Group interest)
Ultra Electronics Measurement Systems Inc.
United States
100%
Indirect (Group interest)
Ultra Electronics Ocean Systems Inc.
United States
100%
Indirect (Group interest)
Ultra Electronics Pension Trustee Company Limited
United Kingdom
100%
Indirect (Group interest)
Ultra Electronics Precision Air and Land Systems Inc.
United States
100%
Indirect (Group interest)
Ultra Electronics Secure Intelligence Systems Inc.
United States
100%
Indirect (Group interest)
Ultra Electronics Swiss Holdings Company Limited
United Kingdom
100%
Indirect (Group interest)
Ultra Electronics TCS Inc.
Canada
100%
Indirect (Group interest)
Ultra Electronics TopScientic Aerospace Limited
Hong Kong
50%
Direct
UnderSea Sensor Systems Inc.
United States
100%
Indirect (Group interest)
Weed Instrument Company Inc.
United States
100%
Indirect (Group interest)
The principal activity of the trading subsidiary undertakings is the design, development and manufacture of electronic systems for the international defence and
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.
The Group’s hedging strategy under IFRS 9 is to minimise income statement
volatility arising from re-valuation of US Dollar assets and liabilities held on the
UK balance sheet. The net investment hedge osets the value of the external
USD borrowings with the net investments in US companies and net US Dollar
assets held on the UK balance sheet.
Classication and measurement
All nancial instruments are initially measured at fair value plus or minus,
in the case of a nancial asset or nancial liability not at fair value through
prot or loss, transaction costs.
IFRS 9 divides all nancial assets that were previously in the scope of IAS 39
into two classications – those measured at amortised cost and those
measured at fair value. Where assets are measured at fair value, gains and
losses are either recognised entirely in prot or loss (fair value through prot
or loss, FVTPL), or recognised in other comprehensive income (fair value
through other comprehensive income, FVTOCI).
A debt instrument is measured at amortised cost if: a) the objective is to hold
the nancial asset for the collection of the contractual cash ows; and b) the
contractual cash ows under the instrument solely represent payments of
principal and interest. A debt instrument is measured at FVTOCI if: a) the
objective is to hold the nancial asset both for the collection of the contractual
cash ows and selling nancial assets, and b) the contractual cash ows under
the instrument solely represent payments of principal and interest. All other
debt instruments must be measured at FVTPL.
Hedge accounting
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 IFRS 9. When hedge accounting is
used, the relevant hedging relationships will be classied as fair value hedges,
cash ow hedges or net investment hedges. In order to qualify for hedge
accounting, the hedge relationship must meet the following eectiveness
criteria at the beginning of each hedged period:
+
There is an economic relationship between the hedged item and the
hedging instrument.
+
The eect of credit risk does not dominate the value changes that result
from that economic relationship.
+
The hedge ratio of the hedging relationship is the same as that actually
used in the economic hedge.
If a hedging relationship ceases to meet the hedge eectiveness requirement
relating to the hedge ratio but the risk management objective for that
designated hedging relationship remains the same, the hedge ratio of the
hedging relationship is adjusted so that it meets the qualifying criteria.
Where the hedging relationship is classied 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 permissible under IFRS 9.
Where the hedging relationship is classied as a cash ow hedge or as a net
investment hedge, to the extent that the hedge is eective, changes in the fair
value of the hedging instrument will be recognised in the consolidated
statement of comprehensive income and accumulated in equity.
Any gain or loss relating to the ineective portion is recognised immediately
in the income statement. For cash ow hedges of forecasted future
transactions, when the hedged item is recognised in the nancial 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-nancial 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
nancial performance.
Operating prot
Operating prot is stated after charging restructuring costs but before
investment income and nance costs.
Exceptional items
When items of income or expense are material and they are relevant to an
understanding of the entity’s nancial performance, they are disclosed
separately within the nancial 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.
Underlying and non-statutory performance
measures
Management monitors the underlying nancial performance of the Group
using alternative performance measures. These measures are not dened in
IFRS and are considered to be non-statutory. This additional information is
not uniformly dened 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.
The underlying presentation is regularly reviewed by management to identify
items that are unusual, due to their materiality and nature, and other items
relevant to an understanding of the long-term trends of the Group’s
performance. The non-statutory performance measures are consistent with
how business performance is planned and reported within the internal
management reporting to the divisional management teams, Executive
Committee and to the Board. Some of the measures are used for setting
remuneration targets.
The reconciliations between underlying and statutory measures are shown in
note 2. The related tax eects of these items, reected when determining
underlying earnings per share, are set out in note 12.
Ultra
Annual Report
and Accounts 2020
164
Underlying and non-statutory performance
measures
continued
Underlying prot is used by the Board to monitor and measure the
underlying trading performance of the business using a measure that is
comparable over time. Items excluded from underlying prot are treated
consistently with covenant requirements dened in the Group’s committed
nancing facilities. Underlying prot excludes:
+
costs associated with mergers & acquisitions (M&A), disposals or closures:
delivery of the Group’s strategy has included investment in acquisitions that
enhance Ultra’s portfolio of capabilities, as well as disposal or closure of non-
core businesses, facilities or product lines. The exclusion of signicant items
arising from this activity is to align short-term operational decisions with this
longer-term strategy. Items excluded are directly attributable external legal
and adviser costs, adjustments to the fair value of contingent consideration
and acquired inventory, payment of retention bonuses, restructuring costs
related to disposals and closures, and gains or losses made upon the
disposal or closures. Similarly, amortisation and impairment of goodwill or
intangible assets arising on acquisition are excluded from underlying prot
because they are not related to the in-year operational performance of the
business, being driven by the timing and amount of historical investment in
acquired businesses.
+
signicant legal charges and expenses: these are the charges arising from
investigations and settlement of litigation that are not in the normal course
of business. These costs are not related to the in-year operational
performance of the business and are excluded.
+
mark to market gains or losses from foreign exchange nancial instruments:
there is volatility in the valuation of outstanding instruments as exchange
rates move over time. This has minimal impact on prot over the full term of
the instruments, but can cause signicant income statement volatility in
particular periods. These gains or losses are excluded to ensure appropriate
and timely commercial decisions are made regarding mitigating the Group’s
foreign currency exposures.
Underlying operating cash ow
is used by the Board to monitor and
measure the underlying cash performance of the business using a measure
that is comparable over time. The Group is cash-generative and reinvests
funds to meet its strategic objectives. Management believes that using cash
generated by operations, after principal payments on leases, net expenditure
on property, plant and equipment, outows for capitalised product
development and other intangibles, and adding back the operating cash
impacts arising from M&A, disposals & closures, and signicant legal charges
& expenses is the appropriate underlying metric of the cash cost of sustaining
a growing business.
Underlying operating cash conversion
is the ratio of underlying operating
cash ow to underlying operating prot.
Organic growth
(of revenue, prot or orders) excludes the impact of
currency translation, acquisitions, disposals and closures of businesses. It
is calculated as the annual rate of increase that was achieved at constant
currency exchange rates, assuming that acquisitions made during the
prior-year were only included for the same proportion of the current year,
and adjusted for closures or disposals to reect the comparable period of
operation or ownership. The constant exchange comparison retranslates the
prior year reported results from the prior year’s average exchange rates into
the current year’s average exchange rates. See note 2 for reconciliations
between absolute growth and organic growth.
Other metrics and denitions
EBITDA
is the underlying operating prot for the year, before depreciation
charges and before amortisation arising on non-acquired intangible assets.
Net debt used in the net debt/EBITDA metric comprises borrowings including
pension obligations and lease liabilities, less cash and cash equivalents. For
covenant purposes, net debt does not include pension obligations and all
impacts of IFRS 16 are removed from EBITDA and net debt, and EBITDA is
adjusted to remove the EBITDA generated by businesses up to the date of
their disposal.
ROIC
is calculated as underlying operating prot as a percentage of invested
capital (average of opening and closing balance sheets). Invested capital is
dened as net assets of the Group, excluding net debt and lease liability,
pension obligations, tax and derivatives. This allows ROIC to be calculated on
the operating assets of the business within the control of management. The
calculation for ROIC is shown in note 2. ROIC under the previous measure, as
still used in the LTIP targets for the 2017 – 2019 issuances, is calculated as
underlying operating prot expressed as a percentage of invested capital
(average of opening and closing balance sheets). Invested capital is calculated
as net assets of the Group (after adjusting for exchange rate uctuations and
to eliminate the impact of the 2017 equity raise and subsequent buy-back)
adjusted for amortisation and impairment charges arising on acquired
intangible assets and goodwill, and the add-back of other non-underlying
performance items, such as tax, fair value movements on derivatives, the S3
programme, acquisition and disposal-related costs and the Ithra (Oman)
contract, impacting the balance sheet.
Average Working Capital Turn
(AWCT) is the ratio of the 12 month average
month-end working capital (dened as the total of inventory, receivables and
payables excluding lease liabilities) to gross revenue, calculated at constant FX
rates.
Free cash ow
is net cash ow from operating activities, after interest
received, purchase of property, plant and equipment, proceeds on disposal of
property, plant and equipment, expenditure on product development and
other intangibles, and principal payments on leases.
Interest cover
is the ratio of underlying operating prot to nance charges
associated with borrowings (excluding lease nance charges).
Underlying tax
is the tax charge on underlying prot before tax. The
underlying tax rate is underlying tax expressed as a percentage of underlying
prot before tax.
Net nance charges
exclude fair value movements on derivatives.
Order intake
is the value of new contractually committed customer orders
(and amendments to existing orders) booked in the year.
Order book
is the value of partially satised and unsatised performance
obligations from contractually committed customer orders.
Order cover
is the ratio of the 31 December 2020 closing order book due for
execution in 2021, to consensus revenue for 2021.
Statement of accounting policies
in respect of the Group’s consolidated nancial statements
continued
Ultra
Annual Report
and Accounts 2020
165
Strategic report
Governance
Financial statements
Note
2020
£m
2019
£m
Fixed assets
Property, plant and equipment
37
2.5
1.8
Investments
38
751.0
749.5
Leased assets
39
2.1
2.5
755.6
753.8
Current assets
Debtors: amounts falling due after more than one year
40
1.5
–
Debtors: amounts falling due within one year
41
1.5
7.9
Cash and cash equivalents
5.2
3.8
8.2
11.7
Creditors:
amounts falling due within one year
43
(113.5)
(140.0)
Net current liabilities
(105.3)
(128.3)
Total assets less current liabilities
650.3
625.5
Creditors:
amounts falling due after more than one year
44
(122.7)
(188.8)
Net assets
527.6
436.7
Capital and reserves
Share capital
46
3.6
3.5
Share premium account
47
205.5
203.2
Capital redemption reserve
47
0.4
0.4
Retained earnings brought forward
47
231.0
223.2
Prot and loss account movement for year
47
88.5
7.8
Own shares
47
(1.4)
(1.4)
Shareholders’ funds
527.6
436.7
The Company only prot for the year was £123.7m (2019: £52.3m). The nancial statements of Ultra Electronics Holdings plc, registered number 02830397, were
approved by the Board of Directors and authorised for issue on 9 March 2021.
On behalf of the Board,
S. PRYCE
, Chief Executive Ocer
J. SCLATER
, Chief Financial Ocer
The accompanying notes are an integral part of this balance sheet.
Company balance sheet
For the year ended 31 December 2020
Ultra
Annual Report
and Accounts 2020
166
Share
capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Prot and
loss account
£m
Own
shares
£m
Total
£m
Balance at 1 January 2019
3.6
201.0
0.3
223.3
(2.6)
425.6
Retained prot for the year
–
–
–
52.3
–
52.3
Total comprehensive income for the year
–
–
–
52.3
–
52.3
Issue of share capital
–
–
–
–
–
–
Equity-settled employee share schemes
–
2.2
–
1.9
–
4.1
Transfer from own shares
–
–
–
(1.2)
1.2
–
Shares purchased in buyback
(0.1)
–
0.1
(8.6)
–
(8.6)
Dividends paid
–
–
–
(36.7)
–
(36.7)
Balance at 31 December 2019
3.5
203.2
0.4
231.0
(1.4)
436.7
Balance at 1 January 2020
3.5
203.2
0.4
231.0
(1.4)
436.7
Retained prot for the year
–
–
–
123.7
–
123.7
Total comprehensive income for the year
–
–
–
123.7
–
123.7
Issue of share capital
–
–
–
–
–
–
Equity-settled employee share schemes
0.1
2.3
–
2.6
–
5.0
Transfer from own shares
–
–
–
–
–
–
De-recognition of deferred tax on share based payments
–
–
–
0.9
–
0.9
Dividends paid
–
–
–
(38.7)
–
(38.7)
Balance at 31 December 2020
3.6
205.5
0.4
319.5
(1.4)
527.6
Company statement of changes in equity
For the year ended 31 December 2020
Ultra
Annual Report
and Accounts 2020
167
Strategic report
Governance
Financial statements
37 Property, plant and equipment
Total
£m
Cost
At 1 January 2019
2.2
Additions
1.3
Disposals
(0.9)
At 1 January 2020
2.6
Additions
1.0
Disposals
–
At 31 December 2020
3.6
Accumulated depreciation
At 1 January 2019
(1.6)
Charge
(0.1)
Disposals
0.9
At 1 January 2020
(0.8)
Charge
(0.3)
Disposals
–
At 31 December 2020
(1.1)
Net book value
At 31 December 2020
2.5
At 31 December 2019
1.8
38 Investments
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 36.
b) Investment in subsidiary undertakings
Total
£m
At 1 January 2020
749.5
Additions
1.5
At 31 December 2020
751.0
Notes to accounts – Company
For the year ended 31 December 2020
Ultra
Annual Report
and Accounts 2020
168
39 Leased assets
Total
£m
Cost
At 1 January 2019
–
Additions
2.8
At 1 January 2020
2.8
Additions
–
At 31 December 2020
2.8
Accumulated depreciation
At 1 January 2019
–
Charge
(0.3)
At 1 January 2020
(0.3)
Charge
(0.4)
At 31 December 2020
(0.7)
Carrying amount
At 31 December 2020
2.1
At 31 December 2019
2.5
40 Debtors: amounts falling due after more than one year
2020
£m
2019
£m
Deferred tax assets
(see note 42)
1.5
–
1.5
–
41 Debtors: amounts falling due within one year
2020
£m
2019
£m
Amounts due from subsidiary undertakings
0.4
5.3
Deferred tax assets
(see note 42)
–
0.9
Other receivables
0.4
1.3
Prepayments
0.7
0.4
1.5
7.9
Notes to accounts – Company
For the year ended 31 December 2020
continued
Ultra
Annual Report
and Accounts 2020
169
Strategic report
Governance
Financial statements
42 Deferred tax
Movements in the deferred tax asset were as follows:
2020
£m
2019
£m
Beginning of year
0.1
0.8
Credit/(charge) to the prot and loss account
0.6
(0.7)
End of year
0.7
0.1
The deferred tax balances are analysed as follows:
2020
£m
2019
£m
Other temporary dierences relating to current assets and liabilities
0.7
0.1
Deferred tax
0.7
0.1
These balances are shown as follows:
2020
£m
2019
£m
Debtors: amounts falling due after more than one year
1.5
–
Debtors: amounts falling due within one year
–
0.9
Creditors: amounts falling due within one year
–
(0.8)
Creditors: amounts falling due after more than one year
(0.8)
–
Deferred tax
0.7
0.1
Deferred tax assets, in excess of osetting tax liabilities, are recognised for loss carry forwards and deductible temporary dierences to the extent that the
utilisation against future taxable prots is probable. At the balance sheet date the Company had deferred tax assets of £1.7m (2019: £2.1m) that have not been
recognised as their recovery is uncertain.
43 Creditors: amounts falling due within one year
2020
£m
2019
£m
Borrowings
(see note 45)
10.7
4.1
Amounts owed to subsidiary undertakings
82.5
122.3
Deferred tax liability
–
0.8
Other payables
1.4
1.4
Accruals
18.9
11.4
113.5
140.0
The bank loans held in borrowings above are unsecured. Interest was predominantly charged at 0.65% (2019: 0.90%) over base or contracted rate.
Ultra
Annual Report
and Accounts 2020
170
44 Creditors: amounts falling due after more than one year
2020
£m
2019
£m
Borrowings
(see note 45)
121.9
188.8
Deferred tax liability
0.8
–
122.7
188.8
The nancial risk management objectives and policies of the Company are managed at a Group level; further information is set out in note 22.
45 Borrowings
Borrowings fall due as analysed below:
2020
£m
2019
£m
Amounts due within one year
Bank loans and overdrafts
10.1
3.7
Lease liability
0.6
0.4
10.7
4.1
Amounts due after more than one year
Bank loans
18.8
83.8
Unsecured loan notes
101.0
102.5
Lease liability
2.1
2.5
121.9
188.8
Interest was charged at 3.71% (2019: 3.73%). Included in the above, £51.0m (2019: £102.5m) is repayable after ve years. Refer to note 22 for more details.
46 Called-up share capital
The movements are disclosed in note 26.
47 Equity reserve
The prot and loss account includes £65.4m (2019: £65.4m) which is not distributable. A net foreign exchange loss of £2.1m was taken to reserves in the year
(2019: £4.4m gain). Further details in respect of dividends are presented in note 11 and in respect of share-based payments in note 26.
The Company holds 108,494 own shares (2019: 131,542).
48 Related parties
Transactions with Corvid Holdings Limited are set out in note 32.
Notes to accounts – Company
For the year ended 31 December 2020
continued
Ultra
Annual Report
and Accounts 2020
171
Strategic report
Governance
Financial statements
A summary of the Company’s principal accounting policies, all of which have
been applied consistently throughout the year and preceding year, unless
otherwise stated below, in the separate nancial 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 FRS 101 Reduced Disclosure Framework.
No prot and loss account is presented for the Company, as permitted by
section 408 of the Companies Act 2006. As permitted by FRS 101, the
Company has taken advantage of the disclosure exemptions available under
that standard in relation to share-based payments, nancial instruments,
capital management, presentation of a cash ow statement and certain
related-party transactions. The Company’s retained prot for the year is
disclosed in the Company statement of changes in equity.
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 o the cost, less estimated residual value, of each
asset on a straight-line basis over its expected useful life as follows:
Short leasehold improvements
over remaining period of lease
Plant and machinery
3 to 20 years
Leases
IFRS 16 requires that all leases and the related rights and obligations should
be recognised on the lessee’s balance sheet, unless the lease is less than one
year in length or is for a low-value asset. Leases that do not meet these
criteria are expensed on a straight-line basis.
For each lease, a liability for lease obligations to be incurred in the future must
be recognised. Correspondingly, a right-of-use asset is capitalised. The asset
and liability are initially measured at the present value of all future lease
payments plus directly attributable costs.
The Company’s leases relate to real estate, vehicles, printers and copiers and
other equipment. The Company therefore chose to split the leases between
the following categories: property and non-property.
The Company’s property lease is eight years in length and is based in the UK.
The Company’s non-property leases range from one year to three years.
The Company recognises a right-of-use asset and a lease liability at the lease
commencement date. The asset and liability are initially measured at the
present value of all future lease payments plus directly attributable costs.
Payments made before the commencement date and incentives received
from the lessor are also included in the carrying amount of the right-of-use
asset. The asset is then amortised over the useful life of the lease on a
straight-line basis. Further details on the valuation of the right-of-use asset
and the lease liability and the discount rate applied in calculating the present
value are discussed below.
Interest on the lease liability is expensed within nancing charges. The cash
impact of the lease is split between the principal and interest.
Short-term leases and leases of low-value assets
The Company has elected not to recognise leases that are less than one
year in length or are for a low-value asset (<£3.5k) on the balance sheet.
These leases are expensed on a straight-line basis as short-term leases or
leases of low-value assets.
Valuation of lease liabilities and right-of-use assets
IFRS 16 requires the Company to make judgements that impact the initial
valuation of the lease liabilities and the right-of-use assets. These judgements
include: determining what contracts are in scope of IFRS 16, determining the
lease contract term and determining the interest rate used for discounting
future cash ows.
The lease term is the non-cancellable period of the lease contract. It can also
be impacted by periods covered by an option to extend the lease if the
Company is reasonably certain that it will exercise that option. For lease
contracts with an indenite term the Company estimates the length of the
contract to be equal to the economic useful life of the asset or typical market
contract term. The lease term is used to determine the depreciation rate of
right-of-use assets.
The lease liability is measured at amortised cost using the eective interest
method. The present value of the lease payment is determined using the
discount rate. The Company has used two discount rates; one for property
and one for non-property leases. The discount rate is determined based on:
1) the risk free rate on government bonds in the location and currency of the
lease over a similar term as the lease; 2) the Company’s borrowing rate; and
3) an asset-specic premium. Discount rates remain the same throughout
the lease unless the lease term or renewal assumptions change and range
between 1.9% and 2.9%.
The lease liability and right-of-use asset are remeasured when there is a
change in the future lease payments arising from a change in the expected
lease term, or a change in the estimated total cost of the lease.
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 dierences 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
dierences are dierences between the Company’s taxable prots and its
results as stated in the nancial statements. These arise from including gains
and losses in tax assessments in dierent periods from those recognised in
the nancial 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
prots from which the future reversal of the underlying timing dierence
can be deducted. Deferred tax is measured at the average tax rates
that are expected to apply in the periods in which the timing dierences
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 benet costs
The Company participates in a dened benet 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 29. There is
no contractual agreement or stated policy for charging the net benet 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
dependent on estimates of future cash ows and long-term growth rates.
The criteria used in this assessment are consistent with those set out in note
13 and the critical accounting estimates and assumptions as set out below.
Statement of accounting policies
For the Company accounts
Ultra
Annual Report
and Accounts 2020
172
Going concern
The Directors have, at the time of approving the nancial statements, a
reasonable expectation that the Group has adequate resources to continue
to adopt the going concern basis of accounting in preparing the nancial
statements. Further detail is contained in the strategic report on page 58.
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 the 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 26.
Related parties
The 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 page 92.
Loans and overdrafts
Interest-bearing loans and overdrafts are recorded as the proceeds are
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 o as incurred. Finance charges
including premiums payable on settlement or redemption are accounted for
on an accruals basis in prot or loss using the eective 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.
Critical accounting judgements and
key sources of estimation uncertainty
In the application of the Company’s accounting policies, the Directors are
required to make judgements (other than those involving estimates) that have
a signicant impact on the accounts recognised and to make estimates and
assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors that are
considered to be relevant. Actual results may dier from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the period in which
the estimate is revised if the revision aects only that period, or in the period
of the revision and future periods if the revision aects both current and
future periods.
Critical accounting judgements in applying
the Company’s accounting policies
There were no critical accounting judgements that would have a
signicant eect on the amounts recognised in the Parent Company
nancial statements.
Critical accounting estimation and
assumptions
There are no major sources of estimation uncertainty that have a signicant
risk of resulting in a material adjustment to the carrying amounts of assets
and liabilities within the next nancial year.
Footnote
A reconciliation is set out in note 2 between operating prot,
underlying operating prot and EBITDA, between prot before tax
and underlying prot before tax and between cash generated by
operations and underlying operating cash ow and between net
cash ow from operating activities and free cash ow.
The calculations for organic measures are also set out in note 2.
The calculation for underlying earnings per share is set out in note
12. Further detail on non-statutory performance measures is set
out on pages 163 – 164.
Underlying operating prot
is before amortisation of
intangibles arising on acquisition, acquisition and disposal related
costs and signicant legal charges and expenses. IFRS operating
prot was £106.3m (2019: £94.2m). See note 2.
Underlying operating margin
is the underlying operating prot
as a percentage of revenue.
Net nance charges
exclude fair value movements on
derivatives.
Underlying prot before tax
is before amortisation of
intangibles arising on acquisition, fair value movements on
derivatives, acquisition and disposal-related costs, gain or loss on
disposal net of related restructuring costs and signicant legal
charges and expenses. See note 2.
Underlying tax
is the tax charge on underlying prot before tax.
The underlying tax rate is underlying tax expressed as a
percentage of underlying prot before tax.
Underlying operating cash ow
is cash generated by
operations, less principal payments on nance leases, less net
capital expenditure and R&D, and excluding the cash outows
from acquisition and disposal-related payments and signicant
legal charges and expenses. See note 2.
Operating cash conversion
is underlying operating cash ow as
a percentage of underlying operating prot. See note 2.
Net debt
used in the net debt/EBITDA metric comprises
borrowings including pension obligations and lease liabilities, less
cash and cash equivalents.
Interest cover
is the ratio of underlying operating
prot to nance costs associated with borrowings (excluding lease
nance charges).
Organic growth
(of revenue, prot or orders) is the annual rate of
increase that was achieved at constant currency translation when
compared to the prior year results as adjusted for any acquisitions
or disposals to reect the comparable period of ownership. See
note 2.
Order intake
is the value of new contractually committed
customer orders (and amendments to existing orders) booked
in the year.
Order book
is the value of partially satised and unsatised
performance obligations from contractually committed customer
orders.
Order cover
is the ratio of the 31 December 2020 closing order
book due for execution in 2021, to consensus revenue for 2021.
Underlying earnings per share
is before amortisation
of intangibles arising on acquisition, fair value movements
on derivatives, acquisition and disposal-related costs net
of contingent consideration adjustments, gain or loss on disposal
and signicant legal charges and expenses. Basic EPS was 118.0p
(2019: 105.1p). See note 12.
Average Working Capital Turn
is the ratio of the 12 month
average month-end working capital (dened as the total of
inventory, receivables and payables excluding lease liabilities) to
gross revenue, calculated at constant FX rates.
ROIC
is calculated as underlying operating prot expressed as a
percentage of invested capital (average of opening and closing
balance sheets). Invested capital is dened as net assets of the
Group, excluding net debt and lease liability, pension obligations,
tax and derivatives. See note 2.
Total shareholder return
is annual shareholder return (capital
growth plus dividends paid, assuming dividends reinvested) over
a rolling ve-year period.
Statement of accounting policies
For the Company accounts
continued
Ultra
Annual Report
and Accounts 2020
173
Strategic report
Governance
Financial statements
Acronym
Denition
ADSI
Air Defense Systems Integrator
AGR
Active Guard and Reserve
AI
Articial intelligence
ASW
Anti-submarine warfare
ATCS
Amphibious Tactical Communications Systems
AWCT
Average working capital turn
BAME
Black, Asian and Minority Ethnic
C2I
Command, Control and Intelligence
C3
Command, Communication and Control, including Cyber
C4ISR/EW
Command, Control, Communications, Computers (C4)
Intelligence, Surveillance and Reconnaissance (ISR)/Electronic
Warfare (EW)
CAGR
Compound annual growth rate
CGI
Crime Gun Intelligence
CSC
Canadian Surface Combatant
CSR
Corporate Social Responsibility
EBITDA
Underlying operating prot
ECU RP
End Crypto Unit Replacement Programme
EPS
Earnings per share
ER-DIFAR
Extended Range Directional Frequency Analysis and
Recording
ERP
Enterprise resource planning
ESG
Environmental, Social and Governance
EW
Electronic warfare
FIPS
Federal Information Processing Standards
FTR
Flight Termination Receiver
HMS
Hull mounted sonar
HiPPAG
High pressure pure air generator
HSM
Hardware security modules
IAMD
Integrated Air and Missile Defence
IBIS
Integrated Ballistic Identication System
IDIQ
Indenite-delivery/indenite-quantity contract
IFRS
International Financial Reporting Standards
IP
Intellectual property
IR&D
Internal research and development
IS
Information systems
ISR
Intelligence, surveillance, and reconnaissance
ISS
Integrated sonar system
ITAR
International Trac in Arms Regulations
ITN
Integrated tactical network
MIMO
Multiple input/multiple output
MIS
Management information systems
MDIS
Multi-domain intelligence systems
ML
Machine learning
Acronym
Denition
MSC/ECP
Main static Converter/electric cruise propulsion
NATO
North Atlantic Treaty Organization
NCSC
National Computer Security Center
NGSSR
Next Generation Surface Search Radar
OBU
Operating Business Unit
ORION
Ultra ORION is a family of multichannel, multiband,
point-to-point (PTP), point-to-multipoint (PMP) and
mesh radio systems.
PBT
Prot before tax
PCS
Precision Control Systems
PSSC
Precision Strike Sensor Core
REAP
Rosetta Echo Advanced Payloads
RF
Radio frequency
ROIC
Return on invested capital
SBU
Strategic Business Unit
SSA
US Social Security Administration
SSNR
Spectral signal to noise ratio
SSTD
Surface Ship Torpedo Defence
SWaP
Size, Weight and Power
TRILOS
US Army network modernization programme,
Terrestrial Transmission Line of Sight Radio
UAV
Unmanned aerial vehicle
UGV
Unmanned ground vehicle
UI/UX
User experience/user interface
μIFF
Micro identier friend or foe
USAF
United States Air Force
USMC
United States Marine Corps
US MSA
United States Missile Defense Agency
USN S&T
United States Navy Science and Technology
VDS
Variable depth sonar
VMV
Vision, Mission, Values
Glossary
Denitions
Ultra
Annual Report
and Accounts 2020
174
Financial highlights
2016
*†
£m
2017
*†
£m
2018
†
£m
2019
£m
2020
£m
Revenue
Maritime
322.1
329.5
317.9
353.0
391.8
Intelligence & Communications
221.2
200.5
211.1
224.8
241.0
Critical Detection & Control
242.5
245.4
237.7
247.6
227.0
Total revenue
785.8
775.4
766.7
825.4
859.8
Underlying operating prot
1
Maritime
59.0
59.3
52.8
52.5
58.6
Intelligence & Communications
30.5
18.8
21.6
30.2
33.5
Critical Detection & Control
41.6
42.0
38.3
35.5
34.0
Total underlying operating prot
1
131.1
120.1
112.7
118.2
126.1
Underlying operating margin
1
16.7%
15.5%
14.7%
14.3%
14.7%
Prot before tax
67.6
60.6
42.6
91.0
103.7
Prot after tax
58.3
48.9
32.4
74.6
83.8
Underlying operating cash ow
2
120.4
116.5
89.3
86.8
116.1
Free cash ow
3
86.0
65.3
67.6
64.7
99.4
Net debt at year end
4
(256.7)
(74.5)
(157.5)
(154.8)
(85.8)
Underlying earnings per share (p)
5
134.6
116.7
109.5
119.5
130.6
Dividend per share (p)
47.8
49.6
51.6
54.2
^
56.9
Average employee numbers
4,466
4,172
4,119
4,089
4,253
The operating segment split for 2016 to 2019 has been restated to reect the new segments that became eective from 1 January 2020.
1
Underlying operating prot is before amortisation of intangibles arising on acquisition, acquisition and disposal related costs, signicant legal charges and expenses and, for 2018 and earlier,
the S3 programme and impairments. See note 2. Underlying operating margin is the underlying operating prot as a percentage of revenue.
2
Underlying operating cash ow is cash generated by operations, less principal payments on nance leases, less net capital expenditure and R&D, and excluding cash outows from acquisition and disposal
related payments and signicant legal charges and expenses and, for 2018 and earlier, the S3 programme. See note 2
3
Free cash ow is before dividends paid, acquisitions, disposals and nancing. The denition has been revised to deduct the principal payments on leases, the 2019 comparative has been restated. See note 2
4
Net debt is loans, overdrafts and nance lease liabilities less cash and cash equivalents. See note 27
5
Underlying earnings per share is before amortisation of intangibles arising on acquisition, fair value movements on derivatives, acquisition and disposal related costs net of contingent consideration
adjustments, gain or loss on disposal, signicant legal charges and expenses and, for 2018 and earlier, the S3 programme, impairments, GMP equalisation and dened benet pension nance charges
and in 2018 the loss on closing out a foreign currency derivative contract. See note 12
*
Not prepared under IFRS 15
†
Not prepared under IFRS 16
^
when including the 2019 nal dividend that was withdrawn as a precautionary measure due to the Covid-19 pandemic, and paid on 18 September 2020 as an additional interim dividend.
Shareholder information
Five-year review
Annual General Meeting
A separate circular providing the Notice of Annual General Meeting and
details of the resolutions to be put to the meeting will be sent to shareholders
in due course. Proxy votes lodged for each Annual General Meeting are
announced at the meeting and published on the Group’s website (www.ultra.
group). Electronic communication with shareholders is preferred wherever
possible since this is both more ecient and environmentally friendly.
However, shareholders may opt to receive hard copy communications
if they wish.
Ultra
Annual Report
and Accounts 2020
175
Strategic report
Governance
Financial statements
Jos Sclater
Chief Financial Ocer
Simon Pryce
Chief Executive Ocer
Steve Izquierdo
Chief Human
Resources Ocer
Richard Cashin
President, Strategy &
Corporate Development
Louise Ruppel
General Counsel &
Company Secretary
Andrew Puryear
Group Chief
Technology Ocer
Intelligence &
Communications
Critical Detection
& Control
Other Group
support functions
Maritime & Land
Sonobuoy Systems
Eric Webster – President
Thomas Link
President
Mike Baptist
President
Communications
Alan Cohen – President
Precision Control Systems
Mike Clayton – President
Global Business Services
Lead: Scott Meyers
Sonar Systems
Bernard Mills – President
Forensic Technology
Alavaro Venegas– President
Corvid – ICT
Lead: Andrew Nanson
Energy
Dan Upp – President
CEMS
Lead: Richard McKay
Specialist Radio Frequency
Dan Pikora – President
C2I
Jill Daiber – President
Cyber
Michael Murray – President
Naval Systems & Sensors
Martin Lewis – President
Signature Management & Power
Peter Crawford – President
Businesses operate under the US Proxy Board
Businesses operate under a US Special Security Agreement (SSA)
Operating Business Unit
Strategic Business Unit
Contacts
Company Secretary
Louise Ruppel
Email: information@ultra-electronics.com
Phone: +44 (0) 20 8813 4321
Head of Investor Relations
Gabriella Colley
Email: investor.relations@ultra-electronics.com
Phone: 07891206239
Joint Brokers
Numis Securities Ltd.
10 Paternoster Sq., London EC4M 7LT
JP Morgan
25 Bank St, Canary Wharf, London E14 5JP
Auditor
Deloitte LLP
Abbots House, Abbey St, Reading RG1 3BD
Tax Advisers
PriceWaterhouseCoopers LLP
10 Bricket Road
St Albans
Herts AL1 3JX
Registrars
Equiniti
6, Broadgate Tower, 20 Primrose St,
London EC2A 2EW
PR advisors
MHP
6 Agar Street, London, WC2N 4HN
Financial Calendar
2021
Date
2020 Preliminary Results
Announcement
9 Mar 2021
Preliminary Record date
9 April 2021
AGM
12 May 2021
2020 Final dividend
payment date
14 May 2021
2021 Interim Announcement
3 Aug 2021
Q3 Trading Statement
Nov 2021
Ultra’s organisational structure from 1 January 2021