Improving Cray puts a damper on rumours

Cray Electronics, the largest British-owned information technology business, poured cold water on two persistent rumours as it announced a continued improvement in profits for the six months to October.

Roger Holland, chairman, says Cray is no longer interested in taking over Racal as market whispers continue to suggest.

They broke off talks about a potential tie-up a year ago, despite agreeing on the benefits of combining Cray's strength in Europe with Racal's US bias.

Mr Holland also said the management consultancy arm of PE International, bought in 1993 for its systems business, was a core business.

Cray, which admits it became a highly geared basket case five years ago after an acquisitions binge, had been expected to quit consultancy to focus on software, communications and systems integration.

In the first six months, pre-tax profits jumped 29 per cent to £10.1m, struck from a 36 per cent increase in sales to £135m.

After a 22 per cent rise in earnings per share to 3p, the interim dividend increased from 0.75p to 1p.

Despite the better figures, Cray's shares closed 6p lower at 148p as profits were taken on the 350 per cent rise in the share price since new management took over five years ago.

Cray Communications, which generates 80 per cent of group profits, increased its pre-tax margin from 9 per cent to 10 per cent, despite the cost of rationalising products in Europe and integrating operations in the Far East.

The division's smaller product manufacturing arm is expected to continue its consolidation from 12 into three main products, although Mr Holland says that Cray remains committed to manufacturing the local and wide area network products in which it specialises. The higher-margin network systems business attracted new business from across its range of utility, healthcare, finance and government clients.

The worldwide market for linking computers so they can communicate with each other is growing at between 15 and 20 per cent a year.

In the US about half of all computers are linked with others, compared with only about 10 per cent in Britain.

Cray Systems, the software division, saw margins double from 3 to 6 per cent as returns from the previously loss-making PE business were brought up to match the rest of the division.

Consultancy generated profits of only £200,000 from sales of £17.6m following one-off rationalisation costs.

However, it gained new orders from the Cabinet Office, to monitor recruitment, and from other clients including Ford and the Indian government.