Ultra Electronics Looks at Defense Acquisitions, CEO Says

Ultra Electronics Holdings Plc said it may consider a major defense acquisition as the U.K. military-electronics maker takes advantage of industry disposals prompted by government-budget cuts.

Ultra would go beyond its typical 150 million-pound ($225 million) purchase limit to buy an attractive asset should a top defense contractor sell a unit that fits with long-term goals, Chief Executive Officer Rakesh Sharma said in a telephone interview. “If something came out that was quite strategic to us, we would consider doing something larger.”

Slowdowns in U.K. and U.S. defense spending contributed to a 9.2 percent drop in pretax profit last year, Greenford, England-based Ultra said today in a statement. Protracted budget negotiations between the U.S. Congress and the White House reduced order bookings, the manufacturer said.

“The difficulty is the uncertainty, rather than the budget cuts themselves.” Sharma said. “We want the cuts to happen so everybody can readjust and move on.” Long-term prospects remain positive as “there are elements within the military budget that continue to grow.”

Ultra fell as much as 1 percent to 1,664 pence and was trading down less than 0.1 percent at 10:08 a.m. in London, valuing the company at 1.17 billion pounds ($1.75 billion).

Civilian Activities

The manufacturer has expanded sales in fields such as energy and transport to make up for the decline in military projects. Revenue from non-defense activities accounted for 44 percent of the total last year, Ultra said. That compares with 35 percent in 2011.

“Over the medium term, our non-defense business is going to take a bigger share of the pie,” Sharma said. As production ramps up for programs such as the Boeing Co. 787 Dreamliner and Gulfstream business jets, civilian-oriented sales may reach 50 percent of the total within three years, he said.

Revenue increased 4 percent in 2012 to 760.8 million pounds. Information and power-systems sales jumped 23 percent last year, while falling 12 percent drop in aircraft and vehicle systems and 3.4 percent in tactical and sonar systems.

Acquisitions made last year and non-defense activities should permit “marginal” group sales growth of 1 percent to 1.5 percent this year, more than making up for a shrinking defense market, including the latest round of U.S. military-spending cuts taking effect March 1 under so-called sequestration, Sharma said.

The order backlog fell 4.8 percent to 905 million pounds, largely because of delayed booking on an airport contract for Oman. Sharma said it’s too early to tell whether the order book will grow this year.