The management responsible for the debacle at Cray Electronics Holdings Plc’s Cray Communications division paid for it with their jobs, and to add insult to injury, have been replaced by their underlings. The company issued a profits warning that halved the share price in April (CI No 2,650). The management set over-ambitious monthly targets for […]
The management responsible for the debacle at Cray Electronics Holdings Plc’s Cray Communications division paid for it with their jobs, and to add insult to injury, have been replaced by their underlings. The company issued a profits warning that halved the share price in April (CI No 2,650). The management set over-ambitious monthly targets for rapid expansion at the division at the start of the last fiscal. The plan backfired badly, due mainly to spiralling costs and a lack of data communications experience at senior level. Eight senior managers were sacked and almost 250 others were made redundant, from a headcount of 1,900. These job losses, together with stock write-offs and reorganisation costs resulted in a higher than expected hit of ú9.0m. One of those to go was head of communications Ray Piggott, who evidently did not know when he was beaten, having proposed further plans to boost sales in December even after the problems had become apparent. Chairman Roger Holland said either he would have to go or we would, so he did. Pre-tax profits for the group plunged 97% to ú835,000 after the charges, from turnover that was down 3% at ú264.8m. However, the worst now appears to be over, and group chief executive Jon Richards has taken the reins of the communications division.
Pleased the City
Richards and his new team claim to have reduced the cost base by ú6m per annum and have taken action to rectify problems that occured in UK manufacturing towards the end of the year. Holland expected the problems to be over in a few months. In spite of the heavy charges, his upbeat tone pleased the City; the shares jumped 11.5 pence to a high of 72.5 pence in heavy trading. In the first two months of this year, orders at Cray Communications were up on last year and James Heal, analyst at ABN AMRO Hoare Govett told Reuters that there’s enough there for the market to begin to get a little encouraged by. In January the division won a contract worth around ú4.5m from the Royal Australian Air Force to connect its 17 bases with a digital network and supply networking products for two years. At Cray Systems, things were less eventful but more successful, with profits up 36.2% to ú6.1m and turnover rising 27% to ú73m. In the first quarter of this year it won orders from the European Space Agency and the German Aerospace Research Establishment worth more than ú5m. Facilities management continues to grow faster than any part of the division, representing some 15% of turnover. P-E International made steady progress after its troubles in recent years, recording turnover up 74% to ú36.6m and profits increasing by 153% to ú1.8m. Among the contracts won was a European Commission-funded project to promote a free market in Romanian agriculture and the development of a customer care programme with Ford Motor Co’s Jaguar Cars. The group still had a relatively strong balance sheet at the year-end with gearing of just 8% and cash balances of ú7.7m, and the company says it will seek shareholder approval at the annual meeting on September 12 to buy back some of its own shares. Cray Electronics will pay a final dividend of 1.5 pence for a total of 2.5 pence, up 11% on last year. Holland, whose salary was slashed by ú150,000 to ú100,000 during the year, predicted that this is a year of recovery and we hope to be back to good health in 1996-97.