Full year pre-tax profit at Racal Electronics Plc surged as the result of careful cost controls and a strong performance at the data communications division. The group saw pre-tax profit for the year ending March 31 rise 219.6% to UKP51.5m, somewhat higher than analysts’ expectations of around UKP50m. And this was despite turnover remaining flat […]
Full year pre-tax profit at Racal Electronics Plc surged as the result of careful cost controls and a strong performance at the data communications division. The group saw pre-tax profit for the year ending March 31 rise 219.6% to UKP51.5m, somewhat higher than analysts’ expectations of around UKP50m. And this was despite turnover remaining flat at UKP946.2m. Some 70% of sales are now generated outside of the UK. But the company is still feeling the effects of demerging Chubb Security Plc and Vodafone Group Plc – it paid out UKP13.8m in redundancy and reorganisation costs this time, following a reduced requirement for headquarters operations although the figure was UKP10m lower than 1992 levels. The UKP13.8m includes an unexpected UKP7.1m provision for further reorganisation and rationalisation in the year ahead – such measures have already been implemented, mainly in the defence radar, radio and marine businesses. We decided to make some very early rationalisation this current financial year and so, because the decision had been made, we made the provisions, Harrison said. But it’s not over yet. There will be further exceptionals this year as we continue our cost reduction exercise, he stated, although no figures were available. Analyst at Panmure Gordon, Tressan MacCarthy’s prognosis was The provision for this year is good. It means we can feel quite confident that they will make the UKP62.5m [pre-tax profit] we’ve got pencilled in for the current year. However, Racal did see some pay-back from demerger. It gained UKP6.9m from repaying US dollar-denominated borrowings, both as a result of the Chubb spin-off and because of a reduction in the working capital requirements in the US. The board is recommending a final dividend of 2.75 pence per share, making a total of 4.25 pence for the year, a fall of 15% compared with 1992. Shareholders will be offered a scrip dividend alternative. Despite the fall, Sir Ernie did say that the dividend was covered 2.7 times by earnings, and this is within the group’s target coverage of between 2.5 and three times. As stated above, Sir Ernie attributed the sharp increase in profits to a much improved performance at Racal’s data communications division. While the start-up business, networking services, moved into profit for the first time, the product arm saw margins increase to 3.5% of turnover due directly to cost-cutting. We’ve been working hard on this and we’re looking for continuing improvement in the current financial year, Sir Ernest said. Share analysts consider the division, which now accounts for 39% of total group turnover, vital to future growth at the demerged firm. It turned in operating profits of UKP12.6m this time compared with UKP1.5m last time. Turnover was UKP370.6m against UKP348.2m in 1991. But radio communications again proved the most profitable of Racal’s businesses. Operating profit grew to UKP23.5m from UKP22.5m in 1992, on turnover of UKP161.8m. It now accounts for 17% of total sales.
Redac made a loss
Defence, radar and avionics generated a further 12% of the total, marine and energy 14%, and specialised health and safety businesses, including electronic data interchange product specialst, Racal-Redac, the remaining 18%. Redac made a loss of UKP5m in a very difficult market, but Sir Ernie said his policy towards the company hasn’t changed – he aims to get it back to making acceptable profits, but has not yet decided whether to merge it, sell it off, or keep it as it is. In the more long-term, Racal’s over-riding aim is to grow market share in its three main markets: commercial voice and data communications; industry, safety and energy; and defence electronics. Although the group is still feeling the effects of recession at some of its businesses, especially in continental Europe, chairman Sir Ernest Harrison is confident that Racal will be able to match this year’s results during 1994. Lower exceptional costs will offset the loss of interest receivable in the current financial year, he stated, and The benefits from our cost reduction and profi
t improvement schemes are on-going… We’re looking for another year of satisfactory progress. – Catherine Everett