Flat data product sales hit Racal

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The Independent Online

Deputy City Editor

A bigger-than-expected profit from Camelot, the National Lottery organiser, disguised another disappointing result from the troubled data communications division of electronics group Racal. The shares were marked down 8p to 250p.

Sales of data products fell pounds 25m below expectations, disappointing hopes the division's problems were under control. Sir Ernest Harrison, chairman, said the market remained extremely difficult and margins were still under pressure.

The company said it was keeping its options open over a possible sale or flotation of the division, although any move was likely to be two to three years away.

David Elsbury, group chief executive, said the group had recently been in talks with potential US suitors, although he declined to give details.

Profits from data communications rose from pounds 3.5m to pounds 14.3m, but the result was boosted by an pounds 8.4m contribution from Camelot, in which Racal has a 22.5 per cent stake.

Mr Elsbury said: "It is a wonderful investment; we are very glad we made it. The contribution was much bigger than we expected at the interim stage."

Racal said it was involved with new national lotteries in Russia and South Africa, although it would not necessarily be taking equity stakes.

The City remained unimpressed, however, by repeated claims from Racal that it was continuing a rationalisation of the data communications division's product portfolio and reducing other costs. About 470 jobs, or 10 per cent of the workforce, have been taken out over the past year.

Even including the contribution from Camelot, the division generates an operating return on sales of less than 4 per cent, albeit a big improvement on last year's 1 per cent trading margin.

Elsewhere, Racal's portfolio of electronics and communications businesses were a mixed bag. Marine and energy saw a 2 per cent decline in sales resulting in a sharp drop in operating profits from pounds 11.8m to pounds 6.8m. Divisional sales are, however, highly sensitive to the oil price and appear to have turned upwards again following last year's rise in the price of crude.

Radio communications had a strong year with the first signs that orders are returning from the Middle East since the Gulf war.

A 24 per cent rise in turnover to pounds 179.4m lifted profits 15 per cent to pounds 20.5m after increasing investment in the Bowman programme for the Ministry of Defence.