Ultra Electronics faces corruption probe by Serious Fraud Office

Ultra Electronics motherboard
Ultra Electronics produces components used in complex defence and aerospace applications

Ultra Electronics has suffered another blow, revealing it is being investigated for suspected corruption by the Serious Fraud Office.

The defence and technology group said it had reported itself to the watchdog and the matter concerns the “conduct of business in Algeria by Ultra, its subsidiaries, employees and associated persons”.

The only public mention Ultra has made of Algeria in recent years is in the 2015 annual report, which referred to the company’s “TCS division expanding in Africa, receiving its first contract from Algeria”.

The TCS division provides communication and control services such as high capacity radios, as well as “electronic warfare” systems such as signal jamming. However, the company refused to comment on the exact nature of the affected work though it is though to involve sales to a second party who then sold the equipment on to a buyer in Algeria and involves support services work. 

Work in Algeria is said to represent “a speck” - understood to be less than £500,000 last year - in Ultra’s annual revenues of £775m, falling into the rest of the world arm which makes up 17pc of all sales.

The possible corruption is thought to have been discovered during routine work, rather than a targeted probe.

Ultra declined to comment on the likely impact on the business, saying it was fully co-operating with the SFO. The company added: “Given the stage of these matters, it is not possible to estimate reliably what effect the outcome of this matter may have on the group.”

The SFO investigation is the latest issue for Ultra. Last month, its shares plunged by nearly a fifth after it used its annual results to reveal it had abandoned its $235m (£170m) deal to buy US-based Sparton because of worries raised by America’s Department of Justice.

submarine
Ultra's products include systems to detect submarines Credit: Ben Sutton

Ultra had raised £134m from a share placing to fund the deal, which it said it would return to investors via share buybacks, but the failed deal ran up £22m of costs.

In November, the shares dropped almost 25pc when veteran chief executive Rakesh Sharma was ousted and Ultra issued a profit warning.

At the time Ultra said “mounting pressures in the funding of UK defence programmes [have resulted] in the MoD pausing, cancelling or delaying numerous programmes”.

A spokesman for Ultra said Mr Sharma’s departure was “absolutely not related” to the corruption current investigation at the company.

Ultra is the latest company in the defence and aerospace sector to face SFO scrutiny. In January the regulator launched a formal investigation into bribery, corruption and money-laundering concerns at Chemring.

Rakesh Sharma 
Rakesh Sharma was ousted from his role as chief executive in November

The SFO said the investigation relates to the use of “middlemen” by Chemring, and that the company voluntarily reported the concerns to it, calling them “historic” and pre-dating current management.

Use of intermediaries has become a focus for the SFO recently. It secured a record £671m settlement with Rolls-Royce last year over its use of middlemen to win contracts.

Airbus is also under investigation by the SFO and foreign regulators over similar concerns, with the aircraft manufacturer having self-reported to authorities after unearthing issues during internal audits.

A source with knowledge of the regulator's thinking said : “The SFO is having a push on this and it is working. Companies are looking at everything and self-reporting themselves.”

Analysts at Berenberg called the SFO investigation “clearly a negative headline and not good for sentiment" but added that "Algeria is a negligible market for Ultra, and we have never heard of them mentioning business there”.

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