Tight defence budgets dampen Ultra Electronics results

Tough decisions for governments were affecting defence budgets, making for difficult trading at Ultra Electronics in 2015, with the company releasing its final report for the calendar year on Monday.

The FTSE 250 firm saw revenue rise 1.8% during the period to £726.3m. Underlying operating profit was up 1.6% to £120m, and underlying profit before tax was largely flat, moving up 0.4% to £112.4m.

Ultra Electronics reported underlying earnings per share of 123.9p, a 0.6% incrase on 2014's 123.1p.

"2015 was a significant year for the group, in which it completed its largest acquisition, introduced a new market segment structure and launched a Standardisation and Shared Services (S3) programme, whilst continuing to face difficult market conditions," said chief executive Rakesh Sharma.

"Ultra's full-year performance was in line with market expectations and reflected, as anticipated, a generally lower level of activity across most parts of our government related business," he added.

Sharma said the UK Strategic Defence & Security Review and the two-year US federal budget brought some welcome stability late in the period, though the industry was still unsure how they would play out.

He said macroeconomic factors were still threatening future government funding in the company's markets.

"We expect US government defence expenditure to increase in a presidential election year, but these higher levels of spending will take time to benefit the mid-tier defence industry," Sharma explained.

"For Ultra, most of the delayed orders from 2015 are expected to be secured in the first half of 2016 and we continue to have a number of secure long-term platform positions," he added.

Ultra's board said the company would see a full-year benefit from the acquisition of RF and microwave systems designer and producer Herley, completed in August. It also completed the acquisition of Furnace Parts in October.

The board believed the group could make 'satisfactory progress' in 2016, considering the current market conditions and business challenges.

Ultra's board recommended a final dividend of 32.3p, up 3.9% on the prior year's 31.1p. That took the total 2015 dividends to 46.1p, a 4.1% increase on 2014.

In a separate announcement, Ultra revealed some positive news for its Herley acquisition, which had received a $14.25m (£10.27m) contract from a major US prime contractor for the continuing production of electronic hardware for a ballistic missile programme.

The contract was to be executed over the next two years, Ultra said, and included hardware used for tracking, flight safety and multi-stage flight test instrumentation.

"We are very pleased that Ultra has been awarded this follow-on contract, and are proud of our significant contribution to this important US missile program," Rakesh Sharma said.

"This recognises our capability to provide a wide range of products and subsystems to support flight test programs and we look forward to enhancing our already strong relationship with our customer."