LucasVarity surprised analysts by announcing a 50 per cent increase in distributions to investors to pounds 150m this year, through a combination of share buy-backs and dividends. Analysts said the company had backed off from its original proposal to abandon dividends altogether in favour of US-style buy-backs, though Mr Rice claimed this had never been on the agenda.
But the news failed to lift the shares, which dropped a further 2.5p at 198p, compared with a 12 month peak of 262p. "It's costing the company an extra 50 per cent to disappoint the market," said one analyst.
Mr Rice said he had hoped the revised dividend policy, coupled with his prediction that profits this year would improve by 20 per cent, would please the markets. "That sounds pretty good to me but obviously I'm not getting the message across. I thought I'd delivered an upbeat message. Obviously I'm failing," he said.
The group also appeared to retreat from moves to change its name. A spokesman said no decisions on a name change would be taken for at least a year and insisted their was "no truth" in suggestions that it had been due to happen sooner.
On top of a 2.25 per cent dividend for the year to the end of January 1997, the group, formed out of last year's merger of car components companies Lucas Industries and Varity, forecast a 4.5p dividend for this year. In addition, LucasVarity said it intended to buy back 3 per cent of its shares during 1997 through occasional market purchases.
Buy-backs generally please investors in the US, who hold about 40 per cent of LucasVarity stock, where the tax advantages of paying dividends are reduced. UK institutional investors had opposed abandoning dividend payouts because they would lose valuable tax credits.
The cost of the buy-backs and dividends would be about pounds 150m, compared with pounds 100m to maintain Lucas's last 7p dividend. One analyst, who did not want to be named, said the new policy seemed more "imprudent" than the strategy of the old Lucas, which was widely regarded as over-generous.
LucasVarity yesterday revealed a 5 per cent rise in operating profits on a pro-forma basis, to pounds 336m last year. For the eight months as a merged business to the end of January it reported losses of pounds 78.8m after restructuring charges of pounds 250m.
Mr Rice said savings from the merger were coming more swiftly than expected, adding pounds 40m to profits this year, rising to pounds 120m after next year. He also said he expected this year to complete sales of 13 business, all from the old Lucas empire, earmarked for disposal. "Everything is going about as smoothly as we could possibly wish."Reuse content