ULTRA ELECTONICS REVIEWED
By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.

05 Aug 13. With large US, UK and most Continental based defence and aerospace industry players having already issued first half results the floor has opened to the small but hugely important group of highly specialist players to announce their numbers. Rather than look at some of the wider and probably less interesting issues around this morning I thought for a change that I might concentrate on one of the UK’s small group of unsung success stories that plays a considerable part in our international exports success. That company is Ultra Electronics, a company that just happens to have reported first half numbers today.
Born in the 1920’s, acquired by Dowty in the 1960s’ and which was itself to be consumed by yet another once great British company (TI Group) in the early 1990’s Ultra Electronics has a fascinating history to tell. Reborn in 1993 having thankfully been spun out of TI as a ‘management buy-out’ along with the now merged interests of Dowty Electronics ‘new’ Ultra Electronics was floated on the London Stock Exchange in 1996 by its current Chairman, Dr. Julian Blogh. Although I would love too I will here and now spare readers the delights of being reminded about the ‘pungent’ TI Group strategy and of its manipulative ‘financial engineering’ and abject failure to invest in the businesses it acquired. Suffice to say that thankfully by the time that the ‘city’ forced the then ‘Smiths Industries’ to mop up what was left of the TI mess Ultra had managed to escape. Today Ultra Electronics may be regarded as a strong highly invested player in the world of military and defence electronics plus many other related activities.

So what does Ultra Electronics do? The company blurb tells you that Ultra is an internationally successful defence, security, transport and energy company. That it certainly is. Always agile and responsive with the ability to innovate and create solutions designed specifically for customer needs Ultra Electronics may be regarded as a niche market player engaged in aircraft and vehicle systems, information and power systems plus tactical and sonar systems. With manufacturing and support operations based in Greenford and design activities based in Cambridge this is a niche player that believes in investing in product.
This is the first time that I have mentioned Ultra Electronics in a ‘Daily Commentary’ since the later 1990’s. My reasoning for so doing today is that the company has produced decent H1 numbers that are not without minimal evidence of the impact from defence cuts in both the US and the UK. This is hardly surprising but it is in my view manageable for an international specialist company such as this. Indeed, I suspect that flat H1 revenue of £367m and pre-tax profits just a smidgen ahead of those of last year at £55.4m should better be regarded as very reasonable performance given such high levels of uncertainty that have surrounded US and UK defence activities over the past year. Note too that operating margins of 15.7% are ahead of last year and that with strong cash flow performance and sound balance sheet Ultra looks to be in excellent shape to handle current market uncertainties.

In the half year statement the company confirms that the order book was down 7% at £877.2m compared to the £943.7m reported in H1 2012. Of this we are told that trading of the Oman contract contributed 4% whilst a delay in contract award for the Warrior programme to the second half contributed 3%. Order book cover for 2013 remains strong at over 85%.
As hinted earlier one of the many things that I particularly like about Ultra is that the company continues to invest in new product and business development opportunity and that no matter what this has continued to be sustained at the customary high level. To that end one notes that internal investment in the first half period was sustained at about 5% of revenue a