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Ultra Electronics Holdings Plc (ULE), a British maker of defense sonar equipment, forecast a return to profit growth in 2013, helping offset a luckluster performance this year as markets such as the U.S. slowed.
“We think we can make some modest progress next year in terms of organic growth” of 1 to 2 percent in profit, Chief Executive Officer Rakesh Sharma said in a telephone interview.
The company, based in Greenford, England, is still budgeting for cuts in military spending in 2013, and is expanding in civilian equipment markets including transport, cybersecurity, and energy to bolster earnings. Sales from those markets now represent 45 percent of business after takeovers.
The threat of an additional $500 billion in U.S. defense cuts over the next decade has weighed on Ultra and other defense suppliers. The White House and Congress continue to discuss setting aside the cuts, known as sequestration, which would take effect in January.
Ultra suffered as the Pentagon shunted the payment of contracts into the next fiscal year. It was also hit by the delayed signature on an Asian electronic warfare program as the parties negotiate contract terms. Sharma said the deal is expected to be finalized next year. Delays on an Oman airport program have also hurt sales.
“Against a backdrop of adverse market conditions in the defense sector, largely driven by political discord over U.S. deficit management, the board expects the group’s performance in the year to be sustained around 2011 levels,” the company said in a statement today. It previously projected “continued progress” in 2012 and beyond.
Profit this year will be hurt by restructuring costs, including at its radios business for the U.S. Army where sales are down 50 percent, Sharma said. The company will not divest the operation, he said.
The company is spending 3.5 million pounds this year on restructuring. That includes money to cover costs associated with a 7 percent reduction in employees.
Ultra shares fell as much as 1.8 percent and were down 22 pence to 1,507 pence at 11:01 a.m. in London, bringing the decline this week to 10 percent and giving the company a market value of 1.04 billion pounds.
Although the company’s focus remains on deals of as much as 100 million pounds, the budget could extend to 250 million pounds, Sharma said.
“The number of quality targets coming from brokers has dropped so we are supplementing that with targets we are identifying internally,” he said. Ultra has around 150 million pounds available for deals without seeking additional funds, Sharma said.
Ultra also announced the departure of Chief Financial Officer Paul Dean, who will leave the company about the end of March. The search for a replacement has begun, it said.
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