Racal Electronics Plc accompanied the announcement that first half pre-tax profit rose 44% to UKP62.4m with news that its military radio business, Racal-Tacticom Ltd has signed a licensing agreement with the Advanced Electronics Co Ltd of Riyadh, Saudi Arabia, for manufacture of military radios there. The announcement underlines the difficulties besetting what until the acquisition of Decca was one of the two mainstays of Racal’s business: at UKP49.4m in the first half, radio communications is down 8.5% on the same period last year, and now accounts for just 6.5% of Racal’s business, a far cry from the 40% it used to represent. And an agreement that allows the Saudis to make the things, initially from kits supplied by Racal, later from components, is a whole lot better than no business at all, which is the state that many military suppliers to the Middle East find themselves in these days. It nevertheless underlines the wisdom of Racal’s diversifications into telecommunications and security – the latter now the biggest single group, at UKP247.6m up 12.3% on last year and accounting for 32.6% of the group total. The agreement that Racal has signed in Saudi Arabia is the first such deal by the newly-formed Advanced Electronics Co and was structured under Saudi’s Peace Shield Offset Investment Programme, an industrialisation effort to take account of declining oil revenues and the fact that the oil will one day run out altogether.
The Racal figures were struck prior to the flotation of Racal Telecom, and show Data Communications the second largest business in the group, but very dull, with operating profits up 7% at UKP13,8m on sales up just 1.3% at UKP144.2m. Next comes Racal Telecom, with operating profit more than doubled to UKP36.4m, making it much the biggest profit contributor, on sales almost doubled at UKP114m. Profits were down on flat sales in the Defence Radar and Avionics business, and profits almost vanished in Radio Communications, just UKP356,000, down from UKP1.2m. Emphatically going the other way, Marine and Energy saw profits of UKP4.3m against UKP664,000 last time, on turnover up 11.7% to UKP55.7m. The odds and ends that make up Specialised Businesses came up with little to cheer – a loss of UKP734,000 against a profit last time of UKP4.7m on turnover down 3% at UKP94.2m. Data Network Services are still a cost centre – no business, but costs of UKP2m, up from UKP981,000 – but the core of that business is the Government Data Network for which Racal won the contract – and sees it as a big future opportunity. Summing up, Racal says that it is in a period of sustained growth and that full year results will be good – but nothing pleases markets these days.
