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  1. Technology
July 13, 1993

CRAY ELECTRONICS TURNS DOWTY INFORMATION ACQUISITION INTO SHINING SUCCESS AS PROFITS FOR THE GROUP SOAR

By CBR Staff Writer

Restructuring at Cray Electronics Plc has paid off with year-end profits soaring in all areas of business, particularly at the former Dowty Information Technology division. This means that chairman Roger Holland and three other colleagues who were appointed as troubleshooters four years ago when the company was having problems, may well be Britain’s wealthiest management team. At the time, all four were given share options and auditors are currently working out details on how to convert them. The Evening Standard reckons they will have the right to take an 8% stake in Cray, worth approximately UKP27m. Details will be announced in the next couple of weeks. But the Standard continues, none of the four, with the exception of the now retired former chairman Sir Peter Michael, are in a rush to grab the cash. They previously bought and sold UEI Plc for UKP490m, and according to Holland, We’re here for the long haul… Under the arrangements, it may not pay us to take our shares until 1996 and then we plan to keep them so we have a stake in the business. Cray Electronic’s pre-tax profits for the year ending April 30 rose 1,134% to UKP29m. But the data communications and software supplier did benefit from several one-off gains. It made UKP3.4m non-taxable profits from foreign exchange rate differences, mainly as a result of sterling leaving the European exchange rate mechanism. It also earned UKP12.6m from selling Malvern Instruments Ltd to Burnfield Plc for UKP20m (CI No 1,952) as well as UKP322,000 from discontinuing certain operations. But it lost UKP4.5m on closing subsidiaries Shrewsbury Technology and Materiales Avanzados. Last time, the firm made UKP2.1m from discontinuing various operations, but lost UKP389,000 on selling them. Furthermore, after about nine months of Cray ownership, the Dowty business, now integrated with Cray Communications, has brought in profits of UKP7.2m. Chairman Roger Holland said that complete restructuring and a new management team has restored the business to good health (CI No 1,937). Since slicing UKP10m off the cost base, Cray Communications is, he added, the largest and most profitable division within the company. He expects it to grow by up to 50% per year, potentially generating margins of 25% in the sphere of local and wide area networks. Indeed, Holland’s intention is to pioneer the integration of local and wide area networking to bring together seamlessly the communication of data, voice and video, within the office or across the world. The division currently both sells networking products worldwide to computer manufacturers and public network operators, and undertakes network integration in Europe, the Americas and the Asia Pacific region for government and corporate customers. It now generates approximately 68% of total group turnover.

Exceeded our expectations

Overall Cray’s revenues increased 190.1% to UKP187.4m, with non-UK sales making up about 36% of the total. Some UKP97m of this came from Dowty, while discontinued operations brought in an additional UKP13.4m this time and UKP20.2m in 1992. If Dowty’s figures are not included, sales from continuing operations actually grew 40% to UKP90.4m – or 16% if the first full year figures from travel industry software specialist, Autofile, are excluded. Holland said Autofile, which is part of Cray Systems, exceeded our expectations this year, producing profits 24% ahead of their budget. And he intends to build up the division by moving towards the higher margins available from software products and to build on our skills of systems integration and facilities management. The business currently generates about 19% of total group turnover, more than 50% of which comes from overseas. It also works with Cray Communications, providing consultancy and project management services for complex data networks. The remaining 13% of group revenues comes from Cray Technology, which mainly comprises Cray’s original defence electronics businesses. Despite concern regarding defence expenditure, this division performed well, although the

move towards commercial electronics is continuing. All in all, Holland believes that Cray’s strong balance sheet, good management, a record order backlog and the investment in Cray Communications gives it a firm basis…to develop and expand our business in the future. The board is recommending a final dividend of one penny per share, which brings the total to 1.5 pence for the year.

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