Lower costs help Lucas double profits to pounds 50m: Engineer's dividend left uncovered

COST-CUTTING and profits on the sale of businesses helped Lucas Industries, the engineering group, to more than double its profits to pounds 50.3m in the year to July. But that was not enough to cover the dividend, which was held at 7p.

Sir Anthony Gill, chairman and chief executive, said the group had 'forged ahead' with its restructuring, which had already produced pounds 60m of savings through job losses and working capital reductions. It shed 4,860 staff during the year, bringing the total to 45,709, and cut the amount tied up in stocks and debtors by pounds 22m.

'There will be further decreases in costs and working capital, giving us a platform to enhance our performance for shareholders, despite the uncertainty over the speed of the recovery,' Sir Anthony said.

He refused to comment on speculation that George Simpson, deputy chief executive of British Aerospace and head of its Rover Cars subsidiary, was to replace him as chief executive. He said the group had made good progress in finding a successor and an announcement is expected by the annual meeting next month. There is speculation in the City that Mr Simpson has already accepted in principle, although BAe is believed to be making strenuous efforts to keep him.

Lucas's sales rose 8.2 per cent to pounds 2.6bn, but that was largely due to exchange gains, and the underlying increase was just 2 per cent. In Britain, which accounts for about 29 per cent of the business, profits jumped from pounds 13.3m to pounds 37.7m, but in Europe, they dropped from pounds 43.4m to pounds 34.2m. That was partly due to the slump in car sales, which has hit demand for its brake and fuel systems. Overall automotive operating profits rose pounds 2.9m to pounds 45.1m. The impact of cost-cutting was most pronounced in aerospace, where profits doubled to pounds 31m, despite a 6 per cent decline in sales at constant exchange rates, to pounds 617m.

Earnings per share were 4.3p, up from 0.8p last time, but still too low to cover the dividend as Sir Anthony had promised last year. But John Grant, finance director, said: 'We shouldn't be looking backwards, but forwards. Our cash position is stronger and we do not need the money.'

Lucas is, however, encouraging shareholders to take their dividend in shares, rather than cash, by offering them 50 per cent more than the cash payment of 4.9p. Mr Grant said that would save up to pounds 10m of advance corporation tax. The shares rose 12p to 167p.

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