Restructuring puts Lucas into red

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LUCAS INDUSTRIES, the automotive and aerospace components group, yesterday announced an extensive restructuring under its new chief executive, George Simpson, pushing it heavily into the red.

An pounds 87.6m exceptional provision in the year to the end of July - mainly covering the restructuring of Lucas's diesel systems, flight control systems and electronics businesses - triggered pre-tax losses of pounds 129.7m against profits of pounds 49.5m last time.

Mr Simpson, in his first statement since joining the group from British Aerospace last spring, said the remaining unspecified part of the provision was to cover potential contractual problems in the United States. The US government is investigating Lucas plants in Los Angeles, California, and Park City, Utah, for alleged non- compliance with certain contractual requirements.

However, Mr Simpson, holding the dividend at an unchanged total of 7p, said underlying trading had improved greatly, particularly in the key automotive sector.

The stock market was also cheered by the absence of a rumoured rights issue, and the shares rose by 15p to 192p.

Hundreds of jobs will go in the restructuring, most of them in France, where capacity in flight control manufacture will be reduced. The business is to be integrated with the British arm. A couple of Lucas's UK electronics factories are likely to close.

Mr Simpson said the restructuring would enable capacity in the core divisions to be used more effectively, partly through sourcing out non-critical components and rationalising plants into 'centres of excellence' for specific products and processes. There will also be co-location of manufacturing and engineering activities.

The chief executive said he was looking for payback from the restructuring charges within three years. He added that Lucas was looking to generate cash internally, but declined to rule out a rights issue should a big acquisition opportunity occur.

Goodwill write-downs of pounds 94.3m also masked the underlying trading picture, where operating profits jumped from pounds 85.4m to pounds 126.6m.

This has been powered by a doubling of operating profits in the automotive arm to pounds 88.1m, with the US and UK markets doing particularly well. Lucas car component volumes were up 14 per cent on last year, and the cost-cutting benefits of the past couple of years were feeding through, Mr Simpson said.

Profits in aerospace, however, where volumes are still well below levels before the recession, fell back 56 per cent to pounds 13.2m, while profits at the applied technology business dropped by 73 per cent to pounds 2.9m.

Lucas also announced the sale of two US-based aerospace businesses - Lucas Communications & Electronics, and Lucas Aviation.

View from City Road, above

(Photograph omitted)