The figures released yesterday by Cray Electronics Holdings Plc certainly looked bad, but they were in line with expectations and the shares actually rose slightly at the news. Interim pre-tax losses were ú14.6m, against profits of ú10.1m the same time last year. The losses were after a ú9.3m restructuring hit, with Cray Communications responsible for the lot, including stock write-offs of ú7.4m and redundancy costs of ú1.5m. Outgoing chairman Roger Holland warned of the charges in September, adding that restoring profitability at Cray Communications had been slower than is acceptable (CI No 2,757). Holland has been replaced today by Alec Daly, Holland’s deputy and current deputy director of the Confederation of British Industry. Cray Communications suffered from too rapid an expansion, which backfired and has cost another 130 people their jobs since April. Around 250 lost their jobs last year, from an original headcount of 1,900. The restructuring is now complete, bar a bit of fine-tuning, and the division is now as we want it, according to deputy managing director of Cray Communications, Ashley Ward. Operating losses in the half were ú4.8m, against ú9.8m profits last time, on turnover that fell 10% to ú74.0m. The main reason for the drop in turnover was a fall in local area networking product revenues, caused by delays in bringing new products to market. The trading loss is expected to be reduced in the second half.
New Ethernet switch
The restructuring will result in benefits in the second half, promised Holland, and has reduced the division’s cost base by ú1.7m. No further charges are expected in the second half. The division has narrowed its focus to six areas, Ethernet switching, routers, intelligent hubs, multiplexing, frame relay and network management; a new Ethernet switch will ship in February. Research and development spending for the year at the unit will be ú15m. The division is still working on co-ordinating design, marketing and manufacturing so that products are delivered on time and in budget. Over at Cray Systems, turnover was up 6% but operating profits fell 9%. The slight fall in profits was due to investment in products, Cray says. Its main areas of growth during the half were space, publishing, telecommunications and projects with the European Union. It won orders from the European Space Agency and Hitachi Ltd, and contracts with Standard Life, Unijet and EMAP Plc. Each contract was worth ú1m or so. PE International is the smallest of the three divisions, and if not perfectly formed, at least it reported increased profits, turnover and orders. It won a number of orders overseas, and is continuing to concentrate on improving margins. The group’s gearing has leaped to 69%, from just 8% at the year-end, as net borrowings reached ú30m. The increased borrowing was simply as a result of not enough cash coming in from operations. Costs from 30 surplus properties cost the group ú1.9m in the half, up from ú835,000 last time. The company said it had had some successes in sub-letting the properties. Orders are ahead at all three divisions and the prognosis is for progress in the second half in what Holland described at the full-year stage as a year of recovery. Predictably enough, Cray will not pay an interim dividend, and it remains very vulnerable to an opportunistic bid.
