Cray value dives to £187m

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The Independent Online

Cray Electronics' stock-market value almost halved to £187m yesterday after the information technology group warned it had made no profits in the second half of last year.

Analysts, who had expected full-year profits of £34.5m, are pencilling in break-even after restructuring costs. Up to 200 job losses were announced with the profits warning, which prompted a plunge in the share price from 155p to 79p.

The company's problems are focused in Cray Communications, the subsidiary that accounts for more than two thirds of Cray's business. Cray Communications reported a pre-tax profit of £21m in the year to end 1993.

The profit warning, the first for Cray Communications, follows the management's failure to control the phasing of increased costs and investment. In a reassessment of the cost base, up to 170 jobs will go from its manufacturing plant in Watford and a further 30 from US operations.

Jon Richards, who has direct operating responsibility for the division, said the redundancies were regrettable but necessary to bring costs back into line.

Several of the senior management have also lost their jobs,including Roger Smith, managing director for the UK; Terry Pethica, managing director for Asia Pacific and Gordon Fowler, operations director worldwide. Ray Piggot, former chief executive, was sacked last December, one month into a full review of the problems.

Over-zealous expansion plans in Europe and South-east Asia, cost over- runs in marketing and the formation of a global management team have also been blamed for the cost cutting and redundancies.

Mr Richards blamed delays in manufacturing and an ill conceived move to just-in-time deliveries for the devastation of the final quarter, traditionally the most profitable period for the company. The division had a full order book, but now estimates that £15m worth of business has gone for good, with another £10m being salvageable. The company has reverted to a more traditional way of filling its order books.

Mr Richards has instigated a flatter management structure with appointments from within the company as well as outside. Some of the new team are already in place, but all will be fully operational by 1 May.

Cray Systems and P-E International, the smaller divisions of Cray Electronics, which was rumoured to be interested in a £700m take-over bid for Racal Electronics in 1994, remain unaffected by the losses and are expected to be in line with predictions. A forecast final dividend of 1.5p a share remains unchanged from last year.

Despite the warning, the group's financial position remains strong with minimal borrowings and net assets of approximately £65m.

Analysts who said Cray had reached "an uncomfortable transitional phase", now expect a modest £7m from Cray Communications in 1995 with between £7.5m and £9m in 1995 from Cray Systems and P-E International, the divisions responsible for much of the growth in the first half year.