Analyst Briefing 2015 24 th June 2015 © 2015 Ultra Electronics: Proprietary Data

Analyst Briefing 201524th June 2015

© 2015 Ultra Electronics: Proprietary Data

Presentation to Investors and s Analyst Briefing 2015 Investors and Analysts SLIDE 2


Ultra’s Market Facing SegmentsMark Anderson



What have we done?

We have:• Segmented our capability portfolio to better reflect the markets that we address,

consistent with being an outward facing organisation

• Re-organised the business reporting lines consistent with the market facing segment – authority, accountability and responsibility remain aligned in autonomous businesses

Why now?• Evolution – right time now

• Complexity - >30% inter-divisional sales

• Coherency – many businesses overlap

• Minimal cost of implementation



The 8 market segments

Communications and SecurityMike Baptist

Aerospace & InfrastructureGraeme Stacey

Maritime & LandBill Terry

Underwater warfare

MaritimeAerospace C2ISRComms LandNuclearInfrastruct

ure

Cyber

Rob McDonald

16.4%

Chris Binsley8.2%

Chris Binsley5.7%

Brian Bates

15.3%

Brian Bates

22.6%

Rusty Kollmorge

n19.6%

Rusty Kollmorge

n9.6%

Mike Clayton

2.6%

Lead

2014 revenue



The reporting change

Aircraft & Vehicle Systems

Information & Power Systems

Tactical & Sonar Systems

Before After

Communications & Security

Maritime & Land

Aerospace & InfrastructureRevenue £140.3m

Profit £24.6m

Order book £160.2m

Operating margin

17.5%

Revenue £204.0m

Profit £29.2m

Order book £175.9m

Operating margin

14.3%

Revenue £369.4m

Profit £64.3m

Order book £451.2m

Operating margin

17.4%

Revenue £224.4m

Profit £37.0m

Order book £214.5m

Operating margin

16.5%

Revenue £198.6m

Profit £29.6m

Order book £253.0m

Operating margin

14.9%

Revenue £290.7m

Profit £51.5m

Order book £319.8m

Operating margin

17.7%

% of Group revenue before

% of Group revenue after

Maritime & Land

Communications& Security

Aerospace &Infrastructure

Aircraft & Vehicle

Information& Power

Tactical & Sonar



Market segment operating principles



Internal benefits

• Market segment strategies aligned with business operations– reduces inter-division revenue to <10% of total

• Collaboration to rationalise the segment’s portfolio of capability• Grow market share with affordable, scalable, modular, reliable

systems – more comprehensive offerings

• Select and grow new market capabilities in growth sectors through acquisition and development– consideration at a segment rather than individual business level

• Improved market analysis – better, shared understanding

• Improved customer recognition of the wide portfolio of capabilities available from Ultra – improved brand awareness

• Improved internal processes– talent recognition & development

– deployment of specialist resources



External benefits

• Customer-focused market segment strategies replace Divisional strategies

• Presents a ‘joined-up’ Ultra to our customers– allows Ultra to offer more competitive and broader offerings

• Clearer external presentation– easier to compare to market parameters– new divisional financial data from H1 2015– revenues by market segment from FY2014



Introducing 3 of our segments

Underwater warfare Rusty Kollmorgen

C2ISRBrian Bates

Infrastructure Chris Binsley



Market Segment Strategies – Underwater Warfare

Rusty Kollmorgen



Underwater Warfare

• Actionable intelligence provided to independent or networked platforms (aircraft, ship, submarine) through– sensor detection of energy anomalies in the water (data)– software processing and fusing of the data (information)– presentation of information through specific human-machine

displays (knowledge)

• Core capabilities– acoustic expertise – the physics of sound propagation in water– mechanical properties of sound producing materials– hydrodynamics of sensors on moving and deep hull forms– packaging of sensitive sensor suites in demanding environments– real-time digital processing – manufacturing processes for throughputs of tens of thousands of

units– human factors as it applies to optimised display of information



Underwater WarfareMarket segment characteristics

• Market– growing at a projected 6.2% CAGR (segment is 19.6% of Ultra revenue)

• Customer requirements – cost effective– modular architecture that allow scalable functionality for tailored solutions– human machine interfaces that minimise unique training

• SSTD – a case study in collaboration and market approach (2002-2014)– Surface Ship Torpedo Defence (S2170) grows and wins multiple international awards– three Ultra businesses collaborate to capture Australia’s AWD ISS– incumbent unseated on S2050

• Positioning & growth– established offerings enhance Pwin for India Navy pursuits– investing in thinner, single tow solutions – accelerating leadership in multi-static processing



Market Segment Strategies – C2ISRBrian Bates



C2ISR

• Enabling security and mission effectiveness through solutions that turn data into actionable information– connecting different sensors and systems (collect)– processing and fusing data (process)– presenting timely information though specialist

visualisation systems (disseminate)

• Core capabilities– command and control– surveillance and security– communications surveillance– covert reconnaissance – airborne surveillance– electronic warfare– identity security– forensic analysis



C2ISRMarket segment characteristics

• Market – large, diverse and competitive market that is forecast to grow at around 4.5% CAGR– C2ISR segment represented 22.6% of Ultra’s 2014 revenue

• Customer requirements

– rise in asymmetric warfare and the need for advanced sensors and networked capabilities

– growing requirement for integrated solutions and interoperability– increasing need for connectivity to aid situational awareness

• Positioning & growth– acquisition of Herley Industries – investing in integrated surveillance systems for Middle East, Far East and South America – law enforcement market channels being used to cross market legal intercept



Market Segment Strategies – InfrastructureChris Binsley



Infrastructure

• Integrated infrastructure solutions through secure operational software, control systems and power management– domain expertise spanning airport & airline operational

performance systems, rail transit power and energy sectors (efficiency & resilience)

• Core capabilities– integrated information management systems– power management & energy storage– secure localised network communications for measurement and

control– protection of critical energy & transport information systems – energy management & control– smart infrastructure



InfrastructureMarket segment characteristics

• Market – overall growth forecast 6.5% CAGR (airports 4.5%, rail

3.9%)– infrastructure segment 8.2% of Ultra revenue

• Customer requirements – increasingly driven by global commoditised infrastructure

programmes – focus on value-add in smart, resilient infrastructure which

plays to core strengths– prudent approach to growth whilst realigning into market

segments

• Positioning & growth– targeting of longer term strategic opportunities within

energy networks and transportation hubs – underpinned by refreshed shorter term offerings in

packaged airport systems, export rail and stand-alone smart grid

http://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRw&url=http://www.tonex.com/training-courses/smart-grid-training-for-non-engineers/&ei=WQlfVbi8IciN7AbRh4PYCA&bvm=bv.93990622,d.ZGU&psig=AFQjCNGOJt0i8-IQs9k4g9Oj-ulEIlvsZw&ust=1432377993538236



Standardisation and Shared ServicesMary Waldner and Graeme Stacey



S3 - Evolution not step change

• Highly autonomous businesses

• LEAP

• Predominently tier 3/4

• Singular markets

• Individual businesses

• Collaborative Autonomy

• LAUNCH

• Demanding tier 2 activities

• Increased diversity

• Divisional management

• Market segments

• Segment behaviours

• Centres of excellence

• More comprehensive offerings

• Divisional & segment structures

We have been steadily developing and evolving the structure of the Group as we have increased the scope, diversity and complexity of our portfolio of capabilities

Strongly acquisitive with high levels of internal investment

Aligned authority, responsibility & accountability

Strong financial accountability

S3

Analyst Briefing 2015 SLIDE 21


What is S3?

• A Group-wide initiative to standardise non-differentiating processes and systems

• Standardisation will allow businesses to share resources in the following back-office functions– Finance– Commercial

• Procurement• Legal risk management

– Human Resources– Facilities and – Information & Communications Technologies

• S3 will deliver a scaleable, sustainable operating model to support the future growth of the Group



S3 – Impact on culture

Business Autonomy Retained S3 Scope

Competitive business strategies

Property strategy & site rationalisation

Financial insight & accountability for business performance

Financial transaction processing

Engineering & technology design & specification

High value procurement sourcing

Talent selection, engagement & development

Transactional HR processing

Negotiation of commercial contract terms

Legal risk management

Management of information security risk

ICT service delivery



S3 – Indicative timescale

2015 2016 2017 2018

Strategy & business case

Organisation & systems requirements

Transition lead businesses

Transition of the Group to shared services

Systems build, test & integration

Lead business systems implementation

Procurement & facilities



Investment case

• Estimated project costs of £30m over three years – ERP systems– programme management– restructuring – cost of site closures

• Initial one off non-underlying cost of £5m (£2m cash) in 2015 to cover programme set up

• Project self-funds during 2016 as efficiency savings cover project costs

• Estimated enduring efficiency savings of £20m will be deployed to:– fund programme from 2016 - 2018– increase investment in R&D– increase competitiveness – improve profits



Programme benefits

• Improved controls through standardisation and governance

• Working capital optimisation

• Standard and timely data to support decision making

• Businesses freed up to focus on value-add

• Enables retention of talent through extended career paths and global mobility

• Scaleability – increased synergies from future acquisitions



EPD Acquisition Rakesh Sharma

May 2015

PROJECT JUPITER: Market Due Diligence

NON-RELIANCE PROVISION

27

The Recipient understands and agrees that neither Fairmont Consulting Group LLC or any of their respective Representatives:

(a) have made or make any representation or warranty hereunder, expressed or implied, as to the accuracy or completeness of the following analysis, OR

(b) shall have any liability hereunder to the Recipient or its Representatives relating to or resulting from the use of the analysis or any errors therein or omissions therefrom.

June 2015


COMPANY OVERVIEW

Defense Primes Generate Over Half Of EPD Revenues

Northrop Grumman accounts for over 25% of the three years of revenues and has experienced a slight decline since 2012

● Revenues primarily driven by EA-18 Growler platform deliveries

Lockheed Martin sales accounts for 13% of revenues

Raytheon accounts for 5% of revenues

Boeing and DLA Defense Supply Center Columbus (DSCC) each generate an additional 3%

No single “Other” customer represents more than 2% of total revenues

28

2012A 2013A 2014A$0

$20

$40

$60

$80

$100

$120

$140

OTHER OTHER OTHER

EWST EWST EWST

NORTHROP GRUMMAN NORTHROP GRUMMAN NORTHROP GRUMMAN

LOCKHEED MARTIN

LOCKHEED MARTIN LOCKHEED MARTIN

RAYTHEON

RAYTHEON RAYTHEON

BOEING

BOEING BOEING

DSCCDSCC DSCC

$123.0$116.8 $118.0

EPD Revenues By Major Customer2012A-2014A; $ Millions

June 2015


12-14 Win-Loss 12-14 Win-Unit 12-14 Prime-Sub$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

Won158.277

Lost5.76

CTI$1

Lancaster $91

New England $66

Prime5.1

Sub153.2

COMPANY OVERVIEW

Win/Loss Record Shows Great Success Retaining Work; Varying Messages Regarding Pursuit Of New Business

EPD pursued a total of $304M in business over the 2012-2014 period; the company won $234M of that value, and lost $70M

● Among business classified as new (not recompete) EPD won $76M out of $140M in total bids (54% win rate)● Within that $76M in new business wins, $64M came from CTI/EWST, $10M from Lancaster, and $2M from New England● Among business classified as recompete, EPD won $158M out of $164M in total bids (96% win rate)

29

12-14 Unit 12-14 Rec-New 12-14 Win-Loss$0

$50

$100

$150

$200

$250

$300

$350

Lancaster131.406381

CTI104.2197

New England68.211906

Reco

mpe

te$1

64New$140

Won233.783828

Lost70.054159

12-14 Win-Loss 12-14 Win-Unit 12-14 Prime-Sub$0

$20

$40

$60

$80

$100

$120

$140

$160

Won75.50687

Lost64.294299

CTI$64

Lancaster $10

New England $2

Prime42.1626

Sub33.34427

EPD: TOTAL COMPANY-WIDE WIN-LOSS PERFORMANCE

$303M $140M

$76M

EPD: NEW BUSINESS ONLY

$76M

EPD: RECOMPETES ONLY$164M

$158M $158M

The win/loss data for EPD allows the following observations1. The company is VERY successful at retaining

existing business, with a 96% recompete win rate on a value basis

2. The company’s success in pursuit of new business varies widely by business unit

1. CTI pursued $102M in new business and won 63%

2. Lancaster pursued $35M and won $10M (29%); $9M of this value was won as a sub-contractor

3. New England pursued only $2M, and won $1.6M

May 2015


MARKET POSITIONING

Electronic Warfare Is Segmented Into Three Distinct Missions; Mission Lines Are Blurring

Mission: Protect EM systems against interference sourced from both friendly and enemy EW activities

Example Missions And Programs:

● ALQ-165 airborne self protect jammer (ASPJ) multiple platforms including the F-18

● B-52 self protect jammer● Havequick frequency-hopping

system

30

Electronic Attack (EA) Mission: Tactical sensing for

real-time response including: intercept, identify, and locate sources of intentional and unintentional radiated EM leading to threat avoidance, targeting, homing, and intelligence collection


● SEWIP Block II antennas and receivers

● F-16 Scalable Agile Beam Radar (SABR) fire control radar

Electronic Warfare (EW) is a broad term, pertaining to any military action involving the use of the electromagnetic (EM) or directed energy to control the EM spectrum or to attack/disrupt the enemy’s use of the spectrum

However, EW is not a monolithic mission set – capabilities and programs broadly align with three distinct areas

Mission: Degrade, neutralize, or destroy enemy combat capability through EM, directed energy, or anti-radiation weapons


● Jamming and EM deception are examples of preventing or reducing an enemy's effective use of EM spectrum

Next Generation Jammer (NGJ)

● Lasers, radio frequency weapons, particle beams are examples of weapons that use either EM or directed energy as their primary destructive mechanism

Advanced Test High ENergy Asset (ATHENA)

Electronic Surveillance (ES)

Electronic Protection (EP)

Technology advancements and integration of systems have led to the blurring of EW missions

May 2015


MARKET POSITIONING

DoD Emphasis On Electronic Warfare Has Continued To Grow And Is Expected To Continue To Be An Area Of Focus

DoD unclassified EW budget is expected to grow from $7.0B in FY15 to $8.4B in FY20 representing a 4.0% CAGR

● Fairmont estimates total DoD unclassified EW budget, Procurement and RDT&E, will grow at a 4.7% CAGR FY15-FY20

MarketsandMarkets estimates the worldwide EW budget will grow from $17.7B in 2014 to $24.3B in 2020 (5.4% CAGR), driven by stealth aircraft and ships

The EW budget contained in this study was created by reviewing unclassified budget line items currently of interest to EPD as well as similar programs where EPD components and integrated assemblies could be used

EW will continue to be a portion of new platforms across the services and as technology advances, the lines between EP, EA, and ES will continue to blur

31

FY2014A FY2015E FY2016R FY2017P FY2018P FY2019P FY2020P$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

Electronic Surveillance

ESES

ES ES ES ES

EP

EP

EP EP EP EPElectronic AttackEA

EA

EA EA EAEA

$6.9 $7.0

$8.6

$7.8 $7.9 $8.1

$8.5

Electronic Protection

DoD Electronic Warfare Unclassified Procurement Budget2014A-2020P; $ Billions

P-8A Poseidon increased due 14 full rate production aircraft and CFE equipment

reassigned to GFE procurement

4.0% CAGRFY15-FY20

May 2015


MARKET POSITIONING

DoD Has Increased Focus On Entire Electromagnetic Spectrum and Regaining EW Competitive Edge

32

● BBP conversations have focused on taking a step back and rethinking the concept of programs like F-35, tightly integrated complex capabilities crammed into one single military platform, which cost billions of dollars to upgrade and limit the ability to modernize subsystems at the same pace technology advances

● Modular designs with common architectures will be required to achieve advanced military applications and shorter implementation cycles

Future EW capabilities will focus on collaborative work between platforms, leveraging manned and unmanned technology together to control the battlefield; specific capabilities under development include:

● Unmanned aircraft EW and ISR capabilities to provide manned system alternatives● Modular systems, common interfaces, and software driven platforms (i.e. Angry Kitten) ● Interoperability with technology spanning the electromagnetic spectrum (i.e. DARPA’s Arrays at Commercial Time-scales (ACT))● Battle field management and increased system correlation (i.e. System of Systems Integration Technology and Experimentation

(SoSITE)● Cyber attack/protection technology (i.e. CHAMP – ability to shut down rooms full of computers using an electromagnetic pulse)

EW developments today involve the successful management of the electromagnetic spectrum in order to control all aspects of the battlefield either with a single system or a system of systems

BBP 3.0 focuses on breaking down barriers to entry for commercial firms and increasing technology integration in order to maintain the EW technological superiority the U.S. had entering the Cold War

The Undersecretary of Defense for Acquisition, Frank Kendall, plans to collaborate with industry to receive concept definition input prior to issuing finalized requirements

● Increasing R&D spending in key areas of technology while leveraging industry IR&D, commercial focus will leverage investments similar to system-on-chip technology which has made wideband digital elemental AESAs feasible

The DoD procurement process hopes to leverage lessons learned from past programs and products

Electromagnetic Spectrum and UsesSource: Association of Old Crows

DoD future programs will have an increased focus on commercial technology, modular systems, common interfaces, software driven – reprogrammable systems which

support an EW ecosystem

May 2015


COMPETITIVE ASSESSMENT

Electronic Warfare Supply Chain Tiers

Tier 1: Platforms and Systems● The major defense primes have absorbed some Tier II capabilities in order

to maintain unique selling positions while continuing to lowering the overhead cost base

● Most of the Tier I firms have acquired technology and capability to pursue the high-margin work associated with “cutting edge” technology such as Electronic Attack

33

EPD’s direct competitors are looking to move up the value chain, beginning to compete with their historical buyers – creating opportunities within the systems and integrated components

segment of the market

Tier III: Components and Integrated Components● Maintain high volume production/manufacturing capability

● Many Tier III companies maintain both build-to-print capability and are able to engineer integrated components

● Larger Tier III firms maintain both custom build and build-to-print capability with extensive inventories and broad COTS-based product offerings

Tier II: Sub-Systems● Producing both custom and commoditized sub-systems such as RF

Switches, Filters, and Receivers

● Many of the companies currently making sub-systems for major platforms and defense primes have aspirations to move up the value chain, producing complete systems such as EW stimulators and EW pods

May 2015


Market Positioning: Key Takeaways

34

The EW Market Is Growing US DoD and foreign governments understand the importance of EW and budgets

dedicated to this mission will continue to grow even amidst ongoing fiscal pressures

Radar, missile, and tactical communications budgets are all expected to grow over the forecasted period

The applications of technologies included in the EW spectrum are merging and lines between communication, cyber, ISR and many others are blurring

EPD Understands Place Within EW Supply Chain EPD’s current technology focuses on Radar and Electronic Surveillance receive

functions Programs included in management’s forecasted pipeline, with the exception of SEWIP

BLK III, include opportunities within EPD’s current technological capabilities SEWIP BLK III will provide EPD an opportunity to develop and compete for a new

capability within the EW marketplace

DoD Acquisition Has Increased Focused On EW Technology Requirements and product development will focus on modular, reprogrammable

solutions with common interfaces Commercial technology will be leveraged in order to quicken the pace of DoD

technology development and maintain superiority relative to a quickly evolving threat environment

A system of systems will be used for battlefield management across the EW spectrum New systems will include technology spanning the spectrum, including communication,

cyber-security, surveillance, detection, tracking all working simultaneously together



Questions



Appendices



Market positioning



Old divisions

Infrastructure & Power

Secure Intelligence Systems

Information & Power Systems Aircraft & Vehicle

Command & Control

Avalon Systems

Sonar Systems

Advanced Tactical Systems

Airport Systems

TCS

Controls

Precision Air & Land Systems

EMS

Nuclear Control SystemsNuclear

Sensors & Process

Instrumentation

PMES

ProLogic/SOTECH

Naval Systems Aircraft & Vehicle

Systems

Tactical Systems

Tactical & Sonar Systems

3 Phoenix

Maritime Systems

Ocean Systems

Flightline

3eTI

USSI

Communication & Integrated

Systems

GigaSat

ID

Forensic Technology

CEMS



New divisions

Maritime & Land

Advanced Tactical Systems

Airport Systems

Controls

Precision Air & Land Systems

EMS

Nuclear Control SystemsNuclear

Sensors & Process

Instrumentation

PMESProLogic/SOTECH

Communications & Security

Aerospace & Infrastructure

3 Phoenix

Command & Control

Maritime Systems

Sonar Systems

Ocean Systems

Flightline

3eTI

USSI

Communication & Integrated

Systems

TCS

Forensic Technology

Avalon Systems

GigaSat

ID

Documents

Analyst Briefing 2015 24 th June 2015 © 2015 Ultra Electronics: Proprietary Data