View from City Road: Lucas gets its defence in first

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The Independent Online
ANY CONNECTION between Lucas Industries' decision to host a lunchtime thrash for the press at London's Savoy Hotel yesterday and speculation about an impending takeover assault is no doubt far-fetched.

But Lucas is clearly taking the prospect of a bid pretty seriously and is marshalling its arguments in shadow form ahead of any predatory move.

Do these arguments have any substance in fact? Lucas, thanks to a long-term strategic approach, has leading market positions in brakes and is now reaping the benefits of massive investment in electronic diesel injection. In aerospace the development of Fadec engine controls has equally long- term attractions.

But what worries investors is whether Lucas has the necessary management skills to exploit strategic position. The elongated takeover defence began last summer when Lucas decided on a pounds 90m restructuring programme to shed peripheral businesses and take out 4,000 jobs.

This was a clear admission that Lucas' grip had slipped badly. Now, with John Grant, ex-Ford, installed as finance director, attempts to introduce up-to-date financial reporting and forecasting are in full swing. This is just what a reviled predator like BTR would do.

Job cuts and a net pounds 10m of savings on product sourcing could lift Lucas' full-year pre-tax profits up to the pounds 60m needed to cover a maintained 7p dividend, even with flat group revenues. But it is touch and go, and much more is needed to underpin a yield of 6.7 per cent at 139p without a bid that will inevitably accompany any signs of slippage following likely dismal interim figures in the spring.

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