In response to much pushing from TI Group Plc, Dowty Group Plc on Friday reported its full-year 1991 financial results earlier than planned, to prove it hadn’t been leading the market a merry dance. The figures for the 12-month period to March 31 have indeed shown just that, according to Dowty’s director for corporate communications, Shaun Bruen, TI had been predicting a pre-tax profit of UKP20.5m, whereas in fact Dowty managed UKP33m profits for the year, down 46% on the previous year, on revenues down 10% at UKP695m (including a 29% reduction from Electronic Systems). Dowty had forecast pre-tax profits not less than UKP29m so, after Friday’s announcement, Bruen concludes that TI was indeed undervaluing Dowty’s prospects. Exceptional costs of UKP1.8m were included in the pre-tax figures this time, compared with UKP4.8m last time. These comprised redundancy and reorganisation costs associated with the aerospace, electronic systems, information technology and polymer engineering divisions – the fall in costs over the year was almost purely down to the information technology business, which cost the group UKP3.2m in restructuring charges last time, but nothing this time above the pre-tax line. What isn’t exactly mentioned as a separate item is the receipt of a UKP3.7m fee from the Ministry of Defence in respect of a cancelled contract – it should be noted that it is the inclusion of this extraordinary amount in the Electronic Systems division’s contribution which takes Dowty so comfortably above its project profit level. Net profits, meanwhile, appeared up 27% at UKP22.3m, after UKP800,000 extraordinary costs this time compared with UKP22m costs last time. Group net borrowings increased by UKP21m during the year, as a total UKP25.7m was spent on reorganisation and restructuring. Capital spend included a further UKP10m on the new Montreal plant and UKP8m on the Cognito network. Borrowings at the year end were UKP134m, to give a gearing level of 54%. Dowty has reduced its workforce by a further 20% over the year, to 11,600. As Wednesday approaches – the closing date for TI Group’s UKP518m paper bid for Dowty – there is a 175 pence a share cash alternative – the former is busily buying up shares in the market: last Thursday it snapped up almost 10% of its target from institutional investors at 189 pence a share. TI needs acceptances with respect to a further 41% shares by 1pm on Wednesday to win the day. Bruen gave the impression that white knights were indeed waiting in the wings, but if these potential rescuers don’t act soon it could be too late. Meanwhile, Dowty’s Information Technology division, publicly known to be up for sale, saw losses of UKP4.1m, against a profit of UKP9.5m last time, on revenues that dropped by 10% to UKP172m.

Information Technology

Bruen says that while the controversy over TI’s bid has prevailed, the various trading activities have been operating as usual, which implies that outside interest in the information technology division has temporarily died down, as potential buyers wait to see what happens on Wednesday – as previously reported (CI No 1,908), TI has said it would get rid of the ailing division if its bid for the group succeeds. The Information Technology operation comprises Dowty Communications – the biggest sub-division which includes the Dowty Case activity; Dowty Systems Integration; and other small activities including the year-old Cognito public data messaging system. It was Cognito that took the Information Technology division into the red, turning in losses of UKP4.4m. (The project has swallowed a total UKP17m net investment). The other information technology activities did little to counteract the financial strain caused by Cognito, reporting lower sales of new equipment and installations as potential customers withheld capital outlay during the contuing recession. Support of existing installations, however, brought in some money, accounting for 20% of turnover and providing one steady source of profits. Some UKP19m was ploughed into product development and support over the

year and new data communications devices were launched. The group feels that these new products – Frame Relay devices, hub centres, b-routers, ISDN products and a new low-cost modem have positioned the unit to benefit from a business upturn and to win increased market share. The division now claims to have a well reduced cost base – job losses, in other words – though a total UKP87m was spent on the information technology arm over the year. Bruen claims the business is a good one and says the reason it’s for sale is that the new chairman and chief executive (CI No 1,913) have decided that Dowty’s range of activities is too broad, and has to be streamlined.