Racal moves to calm fears with news of pounds 2bn link-up

Racal Electronics yesterday sought to stem shareholder discontent after Monday's disastrous profits warning by announcing an agreement to join with a rival defence constortium to bid for a pounds 2bn British army radio contract.

However Sir Ernest Harrison, the company's chairman, failed to discount speculation that he was considering retiring from the group he has managed for the past 30 years. Asked whether it was time for him to leave his job at the age of 70, he said: "The whole question of succession is always under review." He declined to be drawn further on any firm plans.

Sir Ernest was launching a fierce defence of his strategy after the profits warning on Monday which stunned investors and knocked 18 per cent off the company's share price. Describing Racal as a "super" company and a "tremendous success," he totally rejected accusations that the management had been wrong-footed by delays to contracts in its Radio Communications division. He continued: "The businesses are not going wrong, they are going well."

Directors also insisted that the first time they had heard about the problems with the contracts, which would be worth some pounds 30m to Racal's sales this year, was at a scheduled board meeting last Friday. Sir Ernest said the radio business was "more supervised than any other activity in the company."

He revealed that Racal had agreed to team up with ITT Defence of the US to jointly bid for the pounds 2bn Bowman contract to replace the British Army's battlefield radio system. Racal had been in partnership with Siemens Plessey in a team called "Yeoman" to bid for Bowman, billed as the largest UK military communications programme ever, with ITT as the remaining rival bidder left in the race.

However both Racal-Plessey and ITT have become increasingly frustrated at delays by the UK Government in placing the order. The Ministry of Defence recently announced that the production contract had slipped further, from 1998 to 1999.

A joint bid with ITT needs approval from the Ministry of Defence, though David Elsbury, Racal chief executive, pointed out that the Yeoman consortium had already spent pounds 35m in research and development work. "It's difficult to be enthusiastic and support those R&D costs," he said.

However he claimed that a tie-up with ITT would give the combined operation more than two thirds of the global defence radio market, worth around pounds 500m a year. If the MoD approves the link-up with ITT, it would go some way to restructuring Racal's radio division, which is currently the subject of a strategic review.

The news about Bowman helped Racal shares to recover a little of the ground they lost on Monday, rising 11p to 236p. They had closed at 275p last Friday.

Racal yesterday confirmed that its half-yearly profits had fallen by 30 per cent to pounds 21.2m after a pounds 10m charge for restructuring its Data products operations. The profits warning had earlier estimated that earnings for the year as a whole would be around pounds 50m, compared with pounds 70.4m in 1995.

However speculation that Sir Ernest is to retire would be likely to raise further doubts about Racal's long-term direction. He joined the company in 1951 as company secretary and financial accountant, gaining a seat on the board 10 years later and becoming chairman in 1966.

In the years that followed Sir Ernest became the acknowledged "king" of shareholder value, delighting investors with his demerger policy, which saw Vodafone and then Chubb, the security business, hived off into separate businesses.

After massive growth in the mobile phone market, Vodafone is now worth pounds 7.9bn, while Chubb, with a market value of some pounds 930m, is also worth more than what remains of Racal.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

The Greek referendum exposes a gaping hole at the heart of the European Union – its distinct lack of any genuine popular legitimacy

Gaping hole at the heart of the European Union

Treatment of Greece has shown up a lack of genuine legitimacy
Number of young homeless in Britain 'more than three times the official figures'

'Everything changed when I went to the hostel'

Number of young homeless people in Britain is 'more than three times the official figures'
Compton Cricket Club

Compton Cricket Club

Portraits of LA cricketers from notorious suburb to be displayed in London
London now the global money-laundering centre for the drug trade, says crime expert

Wlecome to London, drug money-laundering centre for the world

'Mexico is its heart and London is its head'
The Buddhist temple minutes from Centre Court that helps a winner keep on winning

The Buddhist temple minutes from Centre Court

It helps a winner keep on winning
Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'