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LucasVarity to cut 1,500 jobs in Britain

Up to 1,500 jobs are to be shed in Britain as part of a sweeping cost reduction programme unveiled yesterday by the newly merged automotive and aerospace group LucasVarity.

The job cuts are part of a rationalisation plan that will see a total of 3,000 redundancies worldwide and the disposal of a further 13 businesses employing some 5,000 people.

LucasVarity is taking a one-off charge of pounds 250m to cover the restructuring programme but said that by January 1999 it expected to be making annual savings in operating costs of at least pounds 120m.

The City initially greeted the news positively, marking LucasVarity shares up sharply. But they fell later in the day as dealers construed comments about weakening European demand by the group's chief executive, Victor Rice, as a veiled profits warning.

Mr Rice described the City's reaction as "dumb and stupid" and denied he had issued a profits warning. All he had said to analysts during a telephone conference call was that the group's heavy-duty braking, Perkins engines and diesel fuel injection businesses had seen a slowdown in European markets.

The cost savings identified by LucasVarity are double those estimated at the time the merger was announced in September, and will come from increased productivity, the elimination of duplicated facilities and reduced overheads.

Sir Brian Pearse, Lucas's chairman, had also indicated that job losses would be few. In the event, the rationalisation programme will see the combined workforce fall from 55,000 to 47,000.

All 13 businesses being sold off are former Lucas subsidiaries. Mr Rice said the disposal programme would raise pounds 100m at a conservative estimate and would be earnings enhancing.

The businesses being sold have sales of pounds 270m, representing 6 per cent of group turnover. Eight businesses have so far been identified for sale. They include two UK subsidiaries - Lucas Heavy Duty Products, which makes starters and alternators, and Lucas Industrial Components, which manufactures precision machined components - and two businesses with UK operations - Lucas Nitrotec, which specialises in metal surface treatment, and Lucas Assembly & Test Systems, which is based in Britain and the US.

The other businesses being disposed of are its Brazilian headlamp division, its Argentinian starter motor and ignition systems business, its South African starter motor and alternator subsidiary and a Greek parts importer and distributor.

Mr Rice said there was no question of selling the Lucas aerospace business, saying the combined group intended to establish leading positions in four key markets - automotive, diesel engines, aftermarket and aerospace.

He indicated, however, that Lucas's troubled US aerospace subsidiary GDS, which was the subject of a multi-million dollar settlement with the Pentagon over falsified records, might be got rid off. Speculation that it might close Lucas's Koblenz brakes plant in Germany and Varity's Dayton Walther brakes and wheels business in the US was wrong, he said.

At the time of the merger, LucasVarity said it expected to achieve pounds 65m in cost savings and a further pounds 65m in tax savings over a two-year period. Of the pounds 120m it now expects to save through greater operational efficiency, pounds 60m to pounds 70m will come through in the first year.

The pounds 250m exceptional charge breaks down into pounds 120m to cover redundancies and a one-off non-cash item of pounds 130m, primarily to cover asset writedowns.

There would be no plant closures in the UK, although it was bearing the brunt of the job cuts, said Mr Rice. He defended the heavier-than-expected job losses, saying the forecasts were made when Lucas and Varity were still virtually separate companies, before its "transition teams" had got to work.