LONDON (Alliance News) - Ultra Electronics PLC Monday reported lower profit and revenue for the first half of the year, but reiterated that its defence markets are stabilising and it expects to "broadly" meet expectations for the full year because revenue will be weighted towards the second half.
The defence, aerospace, security, transport and energy technology company reported a pretax, pre-items pretax profit of GBP50.5 million for the six months to end-June, down from GBP55.4 million a year earlier, as revenue declined to GBP341.0 million, from GBP367.7 million.
Its pretax profit rose to GBP45.8 million, from GBP39.6 million, but this was mostly down to a GBP3.0 million profit on fair value movements on derivatives, compared with the GBP7.7 million loss it booked a year earlier.
The company, like peers in the defence sector, has been hit hard by a slowdown in defence spending in the US and UK, caused by government spending cuts in the wake of the financial crisis and the end of recent conflicts like those in Iraq and Afghanistan. Ultra Electronics has been trying to offset that downturn by building up its security and cyber, transport and nuclear energy businesses.
"As indicated in March, Ultra's 2014 performance will be weighted towards the second half, principally reflecting constraints in the US defence procurement process at the start of the period. The group has seen the positive effects of increasing stability in the US and UK defence markets, as evidenced by increased order placement towards the end of the first half," Chief Executive Rakesh Sharma said in a statement.
He warned that the company could be further hit by a potential new US Congress vote on defence appropriations, saying it could constrain orders after October. However, he said order book cover and annual contracts were at "normal levels" overall.
"Subject to no further currency fluctuations, the board is confident that this positioning will support performance in the second half and will enable expectations to be broadly met for the full year," he said.
Aircraft and vehicle systems revenue fell 8.9% to GBP67.7 million, while the unit's underlying operating profit fell 26% to GBP11.8 million after it got a boost a year earlier from an urgent contract done at higher then average margins.
Revenue in its information and power systems business was down 19%, while underlyong operating profit fell 15%, due to the strength of sterling and the US defence spending cutbacks.
Revenue rose 7.1% in tactical and sonar systems, while underlying oeprating profit rose 11%, as acauisitions, and strong US sales more than offset the hit from the strength of sterling.
Ultra Electronics said its order intake in the first half of GBP408.2 million had increased its order book by 13% since the end of 2013. It was almost flat on the year-earlier level at GBP876.8 million.
Separately, the company said its joint venture with Sparton Corp had won a contract worth USD166 million to make sonobuoys for the US navy, a deal worth USD75.5 million to Ultra Electronics alone. It said the the contract is the base year award of a five year indefinite delivery, indefinite quantity contract that has a ceiling value of USD810 million.
It also said that it had completed a successful capability demonstration of its ORION GRC-245C radio in trials with the US Army.
Ultra Electronics raised its interim dividend to 13.2 pence, from 12.7p.