The Dowty Group Plc has reported turnover up 5% to UKP768.8m for the year to March 31, but operating profit before exceptional items was down 17% to UKP78.8m from UKP95.3m. The company has implemented a programme of rationalisation, with some 2,300 job reductions either complete or announced. The two major charges in the year’s results are an exceptional item of UKP4.8m and extraordinary items net of tax of UKP14.6m. The former arises principally from the company’s attempts to reduce the cost base of the Information Technology division, and Dowty says that the latter is in response to recent political and military events which have forced a reorganisation of the Aerospace division, and a reduction in the activities of the Electronic Systems division. After the exceptional item of UKP4.8m, up from UKP1.1m in 1990, profit before tax and interest fell 22% to UKP73.8m, down from UKP94.6m. Interest has jumped to UKP13.2m from UKP9.2m, and Dowty attributes this to substantial investment in new business opportunities. Profit before tax fell by 29% to UKP60.6m from UKP85.4m, and with the tax charge at UKP20.4m, profit after tax was 27% lower than last year’s UKP54.8m at UKP40.2m. Borrowings increased by UKP24.9m before further investment of UKP24.7m in the Cognito data transmission network and Montreal aerospace products and acquisitions less disposals of UKP17.7m.

Engineering expenditure

With borrowings of UKP13m, Dowty has a gearing level of 44%, and it intends to up that to 50% in the coming year. In terms of divisions, turnover in aerospace increased 9% to UKP316.2m, but profit fell to UKP42.5m. The company says that these figures reflect the reduced level of spending on defence and reduced airline activity. In the electronic systems division, turnover grew 5% to UKP173.6m and profits increased to UKP13.2m from UKP11.2m. Dowty claims that the entire division saw steady progress except for magnetics and and batteries, and there will be significant reductions in volume because one contract is nearing completion while magnetics has lost a contract. Information Technology saw turnover fall by 2% to UKP192.7m and profit down to UKP13.1m from UKP22m. Dowty says that the UK marketplace is experiencing difficulties, and the US market is weak in all business areas. Profit was affected by lower volume and changes in product mix. New local and wide area networking products have been introduced, but they require a high level of engineering expenditure in order to experience future growth. Again, significant cost reductions and redundancies have been made. The polymer division saw turnover grow 6% to UKP96.4m, although profit fell to UKP9.9m from UKP13.8m. One UK facility has been closed and production concentrated in other units. As regards future prospects, Dowty says that the Ministry of Defence’s Options for Change programme and pressure on US defence budgets will have an impact, and it anticipates that civil equipment as a proportion of total business will continue to rise – military contracts now represent 30% of turnover, almost half what it was a few years ago. There has been speculation that Dowty might be a takeover target for either Smiths Industries Plc or Lucas Industries Plc, but Dowty believes there is little likelihood of it happening, and if it did, it believes any that predator would be bigger and it would not necessarily British.