Racal Electronics Plc has confirmed that it will demerge its Security activity in the summer. Racal Chubb is to spin off as a separate company, as Racal Vodafone did in September, presenting the option to predator Williams Holdings Plc to bide its time in its pursuit to own the Chubb business. The news of the demerger emerged yesterday, Day 39 in the Williams-Racal takeover bid timetable, the electronics group’s last opportunity to defend its interests. Williams now has 10 days to alter its bid if it so decides, though a spokesman for Racal said he thought the conglomerate was unlikely to up its all-paper offer or supplement it with cash. Accordingly, the electronics group found itself able to bring forward its interim results presentation by a couple of weeks, in an attempt to show shareholders just how badly undervalued Racal is by the Williams offer. Pre-tax profits of UKP11.6m were reported, against UKP25m losses for the same period last year, on turnover up 11% at UKP818m. Vodafone Group is not included in the results. Extraordinary costs this time totalled UKP18m, made up of redundancy, severance and reorganisation costs, compared with UKP13m redundancy costs last time. Some 1,500 jobs have been cut this half, many of which were from the security division. Other costs were made up of UKP357,000 business closure costs and UKP8.5m costs associated with the demerger of Vodafone. Net borrowings at the period end were UKP210m, down from UKP225m at the end of 1990. Cash flow amounted to just under UKP19m, an improvement of UKP71m over the same period last year. Earnings per share, before exceptional items, amounted to 0.47 pence. Group trading profits jumped to UKP42m from UKP4m, which is attributed to a good performance at Radio Communications; a turnaround to profitability at Defence, Radar and Avionics and in Specialised Businesses; and the completion of the restructuring at Network Services. The sought-after Security Division traded at a flat profit of UKP21m on sales up 8% at UKP345m. The division is being put through a cost reduction and profit improvement programme, with annualised benfits estimated at UKP21m. The allocation of group debt to Security will be decided nearer the time of the demerger. Making bold predictions for the full year, Sir Ernie Harrison, Racal chairman, said the group’s trading profit would not be less than UKP100m, pre-tax not less than UKP50m after charging UKP30m exceptional items. Exceptional charges are expected to amount to UKP23.5m, made up of the UKP8.5m cost of the Vodafone demerger and UKP15m from Racal’s defence campaign against Williams. Sir Ernie did not have a kind word to say for Williams as a possible parent for Racal, claiming the holding company doesn’t make it its business to develop the activities it acquires – it simply buys and sells. If someone wants to bid, he said, then fine, but they’ll have to pay the market price. He concluded his presentation saying Williams has received a derisory level of acceptances for its bid; he is urging shareholders to ignore the offer and hang onto their Racal shares.
