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."

News
newsGlobal index has ranked the quality of life for OAPs - but the UK didn't even make it into the top 10
News
people

Kirstie Allsopp has waded into the female fertility debate again

Sport
footballArsenal 4 Galatasaray 1: Wenger celebrates 18th anniversary in style
News
people
PROMOTED VIDEO
News
people
News
peopleStella McCartney apologises over controversial Instagram picture
News
Gillian Anderson was paid less than her male co-star David Duchovny for three years while she was in the The X-Files until she protested and was given the same salary
people

Gillian Anderson lays into gender disparity in Hollywood

Life and Style
Laid bare: the Good2Go app ensures people have a chance to make their intentions clear about having sex
techCould Good2Go end disputes about sexual consent - without being a passion-killer?
Arts and Entertainment
Swiss guards stand in the Sistine Chapel, which is to be lit, and protected, by 7,000 LEDs
art

The Sistine Chapel is set to be illuminated with thousands of LEDs

Arts and Entertainment
Richard Burr remains the baker to beat on the Great British Bake Off
tvRichard remains the baker to beat as Chetna begins to flake
News
i100
Arts and Entertainment
Amazon has added a cautionary warning to Tom and Jerry cartoons on its streaming service
tv
News
people
News
The village was originally named Llansanffraid-ym-Mechain after the Celtic female Saint Brigit, but the name was changed 150 years ago to Llansantffraid – a decision which suggests the incorrect gender of the saint
newsA Welsh town has changed its name - and a prize if you can notice how
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Kristen Scott Thomas in Electra at the Old Vic
theatreReview: Kristin Scott Thomas is magnificent in a five-star performance of ‘Electra’
Life and Style
Couples who boast about their relationship have been condemned as the most annoying Facebook users
tech
Arts and Entertainment
Hayley Williams performs with Paramore in New York
musicParamore singer says 'Steal Your Girl' is itself stolen from a New Found Glory hit
News
i100
Sport
Ronaldinho signs the t-shirt of a pitch invader
footballProof they are getting bolder
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

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Trust Accountant - Kent

NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

Law Costs

Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

Day In a Page

Italian couples fake UK divorce scam on an ‘industrial scale’

Welcome to Maidenhead, the divorce capital of... Italy

A look at the the legal tourists who exploited our liberal dissolution rules
Tom and Jerry cartoons now carry a 'racial prejudice' warning on Amazon

Tom and Jerry cartoons now carry a 'racial prejudice' warning on Amazon

The vintage series has often been criticised for racial stereotyping
An app for the amorous: Could Good2Go end disputes about sexual consent - without being a passion-killer?

An app for the amorous

Could Good2Go end disputes about sexual consent - without being a passion-killer?
Llansanffraid is now Llansantffraid. Welsh town changes its name, but can you spot the difference?

Llansanffraid is now Llansantffraid

Welsh town changes its name, but can you spot the difference?
Charlotte Riley: At the peak of her powers

Charlotte Riley: At the peak of her powers

After a few early missteps with Chekhov, her acting career has taken her to Hollywood. Next up is a role in the BBC’s gangster drama ‘Peaky Blinders’
She's having a laugh: Britain's female comedians have never had it so good

She's having a laugh

Britain's female comedians have never had it so good, says stand-up Natalie Haynes
Sistine Chapel to ‘sing’ with new LED lights designed to bring Michelangelo’s masterpiece out of the shadows

Let there be light

Sistine Chapel to ‘sing’ with new LEDs designed to bring Michelangelo’s masterpiece out of the shadows
Great British Bake Off, semi-final, review: Richard remains the baker to beat

Tensions rise in Bake Off's pastry week

Richard remains the baker to beat as Chetna begins to flake
Paris Fashion Week, spring/summer 2015: Time travel fashion at Louis Vuitton in Paris

A look to the future

It's time travel fashion at Louis Vuitton in Paris
The 10 best bedspreads

The 10 best bedspreads

Before you up the tog count on your duvet, add an extra layer and a room-changing piece to your bed this autumn
Arsenal vs Galatasaray: Five things we learnt from the Emirates

Arsenal vs Galatasaray

Five things we learnt from the Gunners' Champions League victory at the Emirates
Stuart Lancaster’s long-term deal makes sense – a rarity for a decision taken by the RFU

Lancaster’s long-term deal makes sense – a rarity for a decision taken by the RFU

This deal gives England a head-start to prepare for 2019 World Cup, says Chris Hewett
Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

The children orphaned by Ebola...

... then rejected by surviving relatives over fear of infection
Pride: Are censors pandering to homophobia?

Are censors pandering to homophobia?

US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
The magic of roundabouts

Lords of the rings

Just who are the Roundabout Appreciation Society?