Racal shares slump on fresh profit warning

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Shares in Racal Electronics slumped 12 per cent yesterday as the group shocked the City by issuing its second profits warning in the space of six months.

The group, led by Sir Ernest Harrison, chairman, cautioned that profits for the year just ended would be around pounds 40m compared with a market expectation of pounds 50m because of second-half losses in its data products division.

Racal said the losses would be in the region of pounds 7m compared with expectations that the division would record a modest profit. The losses stem from the delayed launch of a new product aimed at the telecoms market which provides a fast data link between computers.

The profit warning sent Racal shares tumbling from 277p to 243.5p, wiping pounds 95m off the company's stock market value. Last November the shares slumped by 25 per cent after Racal warned of losses in its radio division after the failure to win three big orders.

David Elsbury, Racal's chief executive, described the profits warning as a "hiccup" and pledged that the division had now passed its transition phase and was starting to deliver.

Of the pounds 7m loss, pounds 5m is due to extra research and development spending while a further pounds 2m is a trading loss caused by a delay in bringing the new product - known as fast-frame relay - to the market.

Justinian Clifford Bowes of Credit Lyonnais said that Racal's target of returning the data products division to profit after a first-half loss of pounds 12m had always been "somewhat ambitious".

He added that the key challenge still facing the group was its relatively poor level of profitability and expectations that Sir Ernest would have to take further measures to boost shareholder returns in what is his last year with Racal.

But Mr Elsbury said there was no question of any further break-up of the group following the sale of the Chubb security division to Williams Holdings. He said the business was worth well in excess of the City's estimated 350p break-up value.