Racal Electronics Plc yesterday gave a few final details of the demerger of what will become Chubb Security Plc on October 5 if shareholders approve the move – and the company is taking the opportunity of the demerger to consolidate the shares of the Racal Electronics rump. It proposes to exchange every five current Racal shares for one consolidated Racal share and one Chubb. Racal’s net debt of UKP121.2m at end-March will be split around 50-50 between Racal and Chubb, giving Chubb pro forma net debt of UKP60m as at March 31 and a pro forma debt to equity ratio of 42.4%. Sir Ernest Harrison, who remains chairman of both Racal and Chubb, said that as at August 14, group debt had declined to UKP105m, with UKP50m attributable to Chubb, giving Chubb a debt to equity ratio of 34%. Racal Electronics will have a pro forma debt-to-equity ratio of 12.3%. Once the demerger is complete, Racal says there may also be minor acquisitions in prospect. Following on from the demerger of Chubb, Racal says the number one priority is to be the improvement of profitability and cash generation levels within its data communications division. Data communications and network services currently account for some 37% of Racal’s business, minus Chubb, or revenues of UKP348m.
Data Networks
This ratio is much the same as it was before the creation of Vodafone. Racal claims to be the world’s leading independent supplier of data communications, with a market share of 7.7%. Boasting over 100,000 international customers, and distribution outlets in 80 countries, the electronics company asserts that it is able to offer local design and service support on a worldwide basis, something that it is keen to develop further. Nonetheless, the push to lower overheads and improve working efficiency is still high on the agenda – over the past three years, costs have fallen by some UKP30m. Manufacturing has now been relocated to just one site in Florida, which it is hoped will cut overheads further. Another goal is to reduce the time it takes to get products to market via a more focussed research and development activity. This is particularly relevant in view of the industry’s fast turnover ratio – an average product life is approximately three years. Development expenditure will in future be focussed on such fast growing areas as internetworking, now the company’s largest market. It claims to hold a 4% market share here, double that of last year, and generates 12% of revenues in this area. So to some extent, Racal has succeeded in repositioning its data communications business in line with current trends. In moving away from its traditional leased-line marketplace, where it holds a 20% share, it has also chosen to concentrate on other faster growing sectors, such as dial-up, where it currently controls 9% of the market, and digital access, where it has 25% of the market. Via its skills in data communications, Racal Data Networks says that despite start-up losses of UKP33m and capital expenditure of some UKP32m last year, the Government Data Network is now profitable and is cash positive by UKP2m. Providing managed telecommunications services for 30 government departments, its objective is to enhance the range of value-added services on offer, by means of such applications as electronic messaging and video conferencing. Data Networks expects to add two major companies as clients soon. The infrastructure is now in place and the aim is to double revenues by 1995 from UKP24m this year – and maintain current cash flow levels of about UKP5m.
