Cray Electronics Plc has seen a fall in its year end pre-tax profits. But comparisons are distorted by the extraordinary gain last year of ?12.6m from the disposal of Malvern Instruments. Indeed Jon Richards, chief executive at Cray, was less than impressed that Reuters headlined its report of the figures with Cray Year Pre-Tax Profit Falls, but that’s the press for you! Without that gain Cray’s profits were up 48.9% at ?26.2m, with the gain, down 9.8% to ?26.2m – take your pick. Turnover rose 35.3% to ?271.7m, and Cray says its order book continues at record levels, with strong demand for telecommunications software and integrated network systems. The disposal of discontinued operations contributed ?473,000 to pre-tax profits and ?27.7m turnover, cost the company ?235,000. Cash flow from continued operations of ?15.6m was further enhanced by the sale of non-core activities and this was used in assuming the debt and costs on the acquisition of P-E International and the payment of dividends. Cray also made ?8.7m of capital expenditure over the year, mainly in expanding its manufacturing plant in the UK and US. Richards expects to see the company grow organically, but remains open to the idea of acquisitions. Cray was rumoured to be interested in purchasing Racal Electronics Plc, but Richards was swift to quash this idea, we’re happy with Cray as it stands, the company has completely finished the disposal programme which saw the selling of Cray Technology for about ?12.0m, and now has the proper shape for the future. He believes the rumour was circulated by forces friendly to Racal, to drive up its share price and depress Cray’s. Cray is interested in buying Racal Data Communications for a sensible price but Richards regards this as unlikely: Racal has been very bullish about its results and good luck to them, as it survives on pre-tax margins of only 1%.
Heart of Cray
The heart of Cray Electronics Plc is Cray Communications Ltd, representing 68% of continuing operations and providing multimedia communication network systems to government and corporate customers and networking products to public network operators and computer system suppliers. It is the top supplier of wide area networks in Europe, Australia and New Zealand and moved to seventh from 11th in Europe for sales of local area networks. During the financial year the company introduced a Frame Relay-based network switch for integrated data, voice and video and will introduce the first of a series of Asynchronous Transfer Mode products later this year. It achieved turnover of ?165.0m, up 29.9%, while profit rose 61% to ?21m, and the company hopes to increase margins further in the medium term. Cray Systems, with 24% of group revenue, remains the leading supplier of space software systems, particularly for the European Space Agency, and travel software for reservation and accounting systems. It has also moved into the cable television telephone call billing and the publishing administration and distribution markets. Its turnover advanced 65.7% to ?58m, with profits up 21.6% to ?4.5m. However the 8% margin on turnover was three points down cent on last year as a result of the first time contribution of P-E Computer Services: small profit, ?581,000, on large turnover, ?21.1m, but the company believes that its margins will improve in the current year. The acquisition of P-E was completed in September 1993, for ?16m, financed mainly by the issue of new Cray ordinary shares. P-E’s Computer Services Division has merged with Cray Systems and P-E International is now exclusively a management consultancy, with clients in China and Romania, and the Inland Revenue and Ministry of Defence in the UK. Richards envisages much of the growth of company to be in the US, which Cray inherited when it bought the old Case business from TI Group Plc, in September 1992. Since the acquisition Cray has stabilised revenues and margins and now looks to expand the venture by increasing the number of partnerships with distributors and by launching new products through the US, t
he first of these was the wide area network hub. As to further acquisitions in the US to kick start its presence, Richards is wary as the US has been the graveyard for many British companies. The effect on the share price was marginal, up tuppence to 170p, as the results were only slightly ahead of expectations. The company will pay a final dividend of 1.5 pence to bring the total to 2.25 pence up 50% on last year.
