Racal Electronics Plc, reporting its 1992 figures in London yesterday just a day after those of the once-affiliated Vodafone Group, gave October as the date for the planned spin-off its restructured Security business. Proposals for the demerger will be circulated to shareholders in September, for completion of the transaction in October, subject to shareholder approval. Demerger will be achieved by the formation of a new company, to be called Chubb Security Plc. Racal Electronics will transfer shares in the old Racal Security to Chubb by way of a dividend; in turn, Chubb shares will be distributed free to Racal Electronics' shareholders on a one-for-one basis. Chubb shares will be listed on the London Stock Exchange, so that Racal shareholders will hold shares in two independently-quoted companies. Chairman and chief executive of Racal Electronics group Sir Ernest Harrison, also non-executive chairman of Vodafone, will relinquish his role as chief executive of Racal, though retaining his position as executive chairman, in order to take up the post of chairman of Chubb. Chief executive of Racal Security David Peacock will resume the same role at the new holding company. As reported, the demerger of the security systems arm is intended to improve the value of the business for shareholders, though the group is aware that, by spinning off Chubb, both the shrunken Racal group and the lone security business will be more vulnerable to a hostile bid. On the latter subject, Sir Ernest told the meeting that the Security business alone was worth the amount that Williams Holdings had bid for the Racal group last year - Security increased profits by 20% to UKP53.8m on revenues up 3% at UKP669.4m. Restructuring at the division - which represents 42% of total group revenues - has paid off and operating margins in the second half were 10%. The one matter outstanding in the demerger proposals, Sir Ernest told the press yesterday, is the apportion of debt - Racal Electronics' debt currently stands at UKP121m (after a UKP140m reduction in borrowings on the demerger of Vodafone), which the chairman describes as not a problem, and something that will be settled in the summer, after Racal has taken advice. Meanwhile, Racal Electronics (not including Vodafone, which demerged from the group last September), has reported pre-tax profits of UKP55.6m for the year to March 31, against $21.8m losses last time, on revenues up 4% at UKP1,607m. Sales outside the UK accounted for over 60% of total revenues. Pre-tax results include UKP29.8m exceptional items this time, comprising UKP31m redundancy and restructuring costs and UKP1.5m gains from the sale of properties; versus UKP17.7m items last time, made up of UKP25m restructuring costs and UKP7m gains from the sale of properties. The group's net losses of UKP22.2m, reduced from UKP41.2m losses last time, include a further UKP53.8m extraordinary costs this time, versus UKP15m last time, after tax.
No feet in the grave yet
The charges last time were made up entirely of business closure and disposal costs, whereas those this time they comprised UKP7.7m costs from the Vodafone demerger, UKP14.7m costs associated with the bid for a government defence contract, UKP1.1m costs from business disposals and closures, UKP18m provision for the planned closure and disposal of four undisclosed loss-making activities overseas, and UKP12m acquisition goodwill in connection with disposals and closures written off in previous years. The Data Communications arm achieved a trading profit of UKP1.8m, against a loss of UKP12m, on sales of UKP324, up from UKP321m. Network Services incurred a UKP306,000 loss, down from UKP14m losses last time, on sales up 63% at UKP24m. Radio Communications, the defence-related operation, almost doubled profits to UKP22.5m on sales up 12% at UKP160m. Marine and Energy contributed UKP16m profits, up from UKP15m, on sales up slightly at UKP138m. Defence, Radar and Avionics managed a UKP6m profit, despite a depressed market, against UKP335,000 losses, on revenues that were flat at UKP127m. Th
e division has decided that its best tack in the current climate is to focus on niche sectors of the defence market, and has been diversifying within these boundaries, for example entering into partnership with Honeywell Inc to provide a phone service for on board aeroplanes - Sir Ernest reckons this project alone, into which Racal has already pumped UKP4m, could be worth some UKP1,000m over the next five to 10 years. Total group research and development expenditure for the year was UKP76m, up from UKP73m last year. Sir Ernie concluded by promising that he would remain very much involved with Racal and its associated activities - I've got no feet in the grave yet, he joked.
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