Shares in Racal Electronics Plc fell ninepence to 207 pence at the opening yesterday after the Bracknell, Berkshire-based company reported pre-tax profit of UKP23m for the half year, after losses last time, and is predicting that the year-end results will be large and healthy. Operating profit from continuing operations rose just 1.9% to UKP25.2m, but given that this time last year Racal was reporting an actual loss of nearly UKP388,000, which has since been adjusted to an even greater loss of UKP418,000, this is something of a recovery; Racal plans to pay an interim dividend of 1.75 pence. The loss was primarily due to the disposal and closure of Racal-Redac. Racal has, so far this half, paid UKP4.1m in redundancy, severance and reorganisational costs and expects to have paid UKP10m in exceptional charges by the end of the year. The Data Communications section of the business, which makes up 42% of Racal, continues to be a lacklustre performer: it saw a 9.7% rise in turnover to UKP197.2m, attributable to its growth in network services business, but operating profit fell to UKP834,000 from UKP2.9m. Racal said progress was being made and it expects an operating profit of around 4% by the end of the year, a percentage point down from its predictions in June, but is still looking at ways of making this section more profitable. It added that sales in Europe had been disapppointing. Racal’s Radio Communications division has had strong performance in its established Middle Eastern and African markets, and is pursuing opportunities in Eastern Europe. Its turnover rose 58.8% to UKP97.48m with a rise in profits of 38.2% to UKP11m. Its South African subsidiary, Telekom SA will launch a commercial service next month using wireless data technology; this same technology is being used in Russia for a credit card on-line authorisation facility in Moscow. Defence Radar and Avionics’ turnover rose 15.7% to UKP53.6m, but its margins were reduced.

Oil exploration

This division is currently in the process of acquiring Thorn EMI Plc’s Sensors Group; Racal says this buy would strengthen its position in the global defence market. The Marine and Energy section reported a reduction of 53.8% to UKP3.5m in operating profit because of the reduction in oil exploration activity. There was better news from Specialised Businesses which reported a 50.7% rise in profits to UKP13.5m; its figures were aided partly by the inclusion of figures from the highly successful Satellite Information Services. Racal’s figures have been affected by the discontinued operations, primarily Racal-Redac a computer-aided design and manufacturing company which represented a UKP188,000 pre-tax loss and UKP1.9m write off to Racal overall. The sale of this section finally went through in June (CI No 2,432). But although Racal appears to be firmly back in the black its net borrowings are 36.8% up to UKP75.1m as a result of its acquisitions and a UKP21m investment in the UK’s national lottery and Camelot Plc, the organisation running the lottery. Nevertheless, Racal is predicting, on the basis of this half’s figures, that operating profits for the end of the fiscal year will be greater than the UKP26.4m reported at year end in June. Analysts said they are downgrading profit forecasts for the full year. They’ve revised the forecast for margins to 4% from 5% for the year and although margins were expected to be lower in the half year, the news that it is only 0.4 percent is a bit of a shocker, Hoare Govett’s James Heal told Reuter.