Ultra Electronics warns on profits as Herley weighs

Ultra Electronics issued a profit warning on Wednesday as its defence and aerospace business in the US, Herley, was hit by cost overruns on development contracts.

In a pre-close trading statement ahead of its interim results, Ultra said that while most of its operations have had better-than-expected order intake and are expected to deliver half-year revenue and operating performance broadly in line with management's expectations, Herley is a different matter.

While there is some recovery expected in the second half of the year, the group now expects full-year operating profit at constant currencies to be down between £4m and £6m.

Ultra also said that its cash performance will be more heavily weighted to the second half of the year, with current full-year expectations for cash conversion of 70-75% due to increased working capital requirements given the higher order book and revenue.

Chief executive officer Simon Pryce said: "Although I have only been CEO for a few days, I am excited by what I have seen. It is clear that the group has a strong and relevant technology base and a range of specialist capabilities supporting a broad number of long term platforms and programmes. We are well positioned in areas of priority spend with significant exposure to the strengthening US defence budget which is reflected in our growing order book.

"Whilst individual programme problems clearly detract from an otherwise broadly satisfactory first half, the team are focussed on addressing operational, programme and customer issues whilst continuing to win new business."

At 0807 BST, the shares were down 7.5% to 1,499p.