Revamp for Racal Telecom

News analysis: Sir Ernest's flotation plans have been set back once again

IS RACAL ELECTRONIC chairman, Sir Ernest Harrison, throwing good money after bad? That could be the blunt reality for Racal Telecom, the division of Racal Electronics that the 73-year-old executive remains determined to float in a bid to release one final star-burst of shareholder value to cap his glittering 33-year reign.

That could also be the catalyst to Racal's defence and industrial electronics interests being absorbed by larger competitors - in effect, wrapping up the company.

After turning down a pounds 700m offer for the business in February, investors were promised that a chief executive would be recruited as a prelude to building up the unit for a lucrative initial public offering. That rosy scenario was pushed back indefinitely yesterday when Racal unveiled a re-organisation of the telecoms operation designed to bolster its disappointing growth rate.

Yet rather than poaching an outsider with up-to-the-minute commercial experience in the fast-moving telecoms market, Racal has stuck with Martin Lea, 41, who will remain deputy managing director of telecoms services. Mr Lea, a veteran Racal executive, moved into that post 14 months ago, after a stint heading the European arm of Racal's data operation.

On the surface, the company recovered strongly in the year to March, bouncing back into the black with pre-tax profit of pounds 80.8m, compared with a pre-tax loss of pounds 205.2m a year earlier, when the group incurred a pounds 234m charge relating to a disposal. But that ostensible recovery hid plunging earnings in telecoms services and a flat performance in the industrial electronics business.

Against the spiralling revenue and cash flow growth of competitors like Colt Telecom,Racal Telecoms' record is dismal. Full-year turnover grew a paltry 9.6 per cent to pounds 296.8m, while operating profit virtually halved to pounds 22.2m. This, remember, is for a business that should be capitalising from the rapid spread of the Internet.

The finishing touches to Racal's revamp of its telecoms arm are the result of a review begun in December. The new structure throws up three operating divisions, each with independent management, and its own strategy for growth.

Racal Telecom - the core operation - will attempt to branch out beyond its traditional government and railway company customer base into the high-growth market of providing telecoms services to companies. This is largely the business Racal acquired from British Rail Telecom, whose network is strung along the rail network. The second division is Racal Translink. It provides infrastructure services, customer information systems and project support to rail and transport companies such as Railtrack and London Underground.

The third division is Racal Fieldforce, which provides field service support for the periodic repair and maintenance needs of the rail industry and other telecoms customers.

Among investment analysts, there is clear respect for Sir Ernest - he, after all, successfully floated mobile phone giant Vodafone in 1991 and spun off security services firm Chubb in 1992 - though concern is mounting over whether telecoms services will justify the cash being spent on it. Last year, Racal invested pounds 70m in the division and is planning to spend an unspecified, but higher, amount this year.

While City analysts support Racal's belated move to aggressively target the market for business telecoms service and, in particular, areas converging on the Internet, there is also a realisation that the group trails rivals such as Colt and MCI WorldCom.

A particular fear is that Racal's better second-half growth rate came from selling low margin "dark" fibre optic capacity rather than from more value-added applications.

The apparent lack of bids for the unit, given the deal volume in the telecoms sector, also worries. "The business has clearly been up for sale, and nobody's bought it," said ABN Amro analyst, Sandy Morris. "Yet they just keep throwing money at it. That's the scary thing."

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Arts and Entertainment
Kara Tointon and Jeremy Piven star in Mr Selfridge
tvActress Kara Tointon on what to expect from Series 3
Voices
Winston Churchill, then prime minister, outside No 10 in June 1943
voicesA C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
News
i100
Sport
footballBrighton vs Arsenal match report
Arts and Entertainment
Benedict Cumberbatch has spoken about the lack of opportunities for black British actors in the UK
film
News
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
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: Tax Assistant

Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

Recruitment Genius: Outbound Sales Executive - OTE £25,000

£16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

£45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

£35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Day In a Page

Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
America: Land of the free, home of the political dynasty

America: Land of the free, home of the political dynasty

These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
A graphic history of US civil rights – in comic book form

A graphic history of US civil rights – in comic book form

A veteran of the Fifties campaigns is inspiring a new generation of activists
Winston Churchill: the enigma of a British hero

Winston Churchill: the enigma of a British hero

A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
Growing mussels: Precious freshwater shellfish are thriving in a unique green project

Growing mussels

Precious freshwater shellfish are thriving in a unique green project
Diana Krall: The jazz singer on being friends with Elton John, outer space and skiing in Dubai

Diana Krall interview

The jazz singer on being friends with Elton John, outer space and skiing in Dubai
Pinstriped for action: A glimpse of what the very rich man will be wearing this winter

Pinstriped for action

A glimpse of what the very rich man will be wearing this winter
Russell T Davies & Ben Cook: 'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'

Russell T Davies & Ben Cook: How we met

'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'
Bill Granger recipes: Our chef serves up his favourite Japanese dishes

Bill Granger's Japanese recipes

Stock up on mirin, soy and miso and you have the makings of everyday Japanese cuisine
Michael Calvin: How we need more Eric Cantonas to knock some sense into us

Michael Calvin's Last Word

How we need more Eric Cantonas to knock some sense into us