LucasVarity: Third Quarter and Year to Date Results to 31 October 1997
11 December 1997
LucasVarity: Third Quarter and Year to Date Results to 31 October 1997
Positive Momentum Sustained
LONDON, Dec. 11 -- LucasVarity plc (London: LVA, NYSE: LVA)
today reports its results for the three (third quarter) and nine (YTD) month
periods ended
31 October 1997.
LucasVarity also announces the sale of VarityPerkins, its Diesel Engines
business, the details of which are provided in a separate release today.
FINANCIAL HIGHLIGHTS
-- Third quarter sales up 5.6% to 1,161m British Pounds Sterling (pounds)
($1,869m) over the prior year quarter - up 10.7% excluding currency
translation effects
-- YTD sales up 3.3% to 3,513m pounds ($5,726m) - up 8.8% excluding
currency translation effects
-- Third quarter operating profit before exceptionals up 10.0% on second
quarter and 15.1% on first quarter
-- YTD operating profits before exceptionals up 8.7% to 275m pounds
($448m) - up 14.6% excluding currency translation effects
-- Quarterly progressive margin improvement maintained - third quarter
at 8.5%, second quarter at 7.9% and first quarter at 7.1%
-- Merger related cost savings and actions continue as planned
Victor A Rice, Chief Executive, commented:
"Despite the strength of sterling and mixed trading conditions, our
businesses have produced another highly creditable result. Our third quarter
results show that the underlying performance of the businesses is progressing
according to plan. I am especially encouraged by the continuing improvement
in the quarterly trend of margins, which is driven by the realisation of the
merger related benefits as well as the underlying sales growth achieved over
last year in what have essentially been low growth markets".
LucasVarity plc's summary of financial results for the three month period
ended 31 October 1997 (Qtr 3) and nine month period ended 31 October 1997
(YTD) are as follows (results for the first and second quarters of 1997 and
the pro-forma results for the nine months ended 31 October 1996 are provided
for comparative purposes):
GBP (pounds) millions 1997 1996
Qtr 1 Qtr 2 Qtr 3 YTD YTD
Total sales 1,206 1,146 1,161 3,513 3,402
Operating profit
before
exceptional items 86 90 99 275 253
Profit before tax
and exceptional
items 72 76 85 233 212
Profit before tax 72 95 84 251 -
Profit
attributable
to shareholders 46 67 57 170 -
Earnings per
ordinary share
before
exceptional
items 3.1p 3.5p 4.1p 10.7p -
Earnings per
ordinary share 3.2p 4.8p 4.0p 12.0p -
USD ($) millions 1997 1996
Qtr 1 Qtr 2 Qtr 3 YTD YTD
Total sales 1,954 1,903 1,869 5,726 5,545
Operating
profit before
exceptional
items 139 150 159 448 412
Profit before
tax and
exceptional
items 117 126 137 380 346
Profit before tax 117 157 135 409 -
Profit
attributable
to shareholders 75 110 92 277 -
Earnings per
ADS before
exceptional
items
- UK GAAP $0.50 $0.57 $0.67 $1.74 -
Earnings per
ADS - UK GAAP $0.52 $0.79 $0.65 $1.96 -
Notes:
(1) USD amounts are translated from GBP to USD at 1.63 for the YTD
periods, at 1.66 for Qtr 2 and 1.62 for Qtr 1, the average exchange
rates for the periods.
(2) All amounts are unaudited.
SUMMARY AND OUTLOOK
Summary
Lucas Industries plc (Lucas Industries) and Varity Corporation (Varity)
were merged on 6 September 1996 to form LucasVarity plc (LucasVarity). The
results for the nine months ended 31 October 1997 (YTD 1997), are compared to
pro-forma combined results before exceptional items for the same period
in 1996. During most of this period, the two companies were not under common
control and had different fiscal years.
Third Quarter 1997 Compared to Second Quarter 1997
Sales of 1,161 million pounds ($1,869 million) for the third quarter
increased 1.3% compared to the second quarter while operating profit before
exceptional items improved by 10.0% to 99 million pounds ($159 million).
Operating margins before exceptional items improved from 7.9% in the second
quarter to 8.5% in the third quarter, continuing the trend of improving
margins every quarter during 1997, principally driven by the continuing
realisation of merger related cost savings.
Profit before tax and exceptional items of 85 million pounds
($137 million) improved 11.8% compared to the second quarter. Profit before
tax of 84 million pounds ($135 million) for the third quarter of 1997, was
less than the 95 million pounds ($157 million) realised in the second quarter
as a result of 18 million pounds ($30 million) of exceptional gains relating
to business and asset sales in the second quarter.
Profit attributable to shareholders was 57 million pounds ($92 million).
Earnings per ordinary share for the quarter were 4.0p ($0.65 per ADS based on
UK GAAP). Before exceptional items, third quarter earnings per share of 4.1p
($0.67 per ADS based on UK GAAP) were up 17.1% compared to the 3.5p per share
($0.57 per ADS based on UK GAAP) in the second quarter.
1997 Compared to 1996
Compared to the nine month period ended 31 October 1996, sales increased
3.3% from 3,402 million pounds ($5,545 million) to 3,513 million pounds
($5,726 million) and operating profit before exceptional items increased
8.7% from 253 million pounds($412 million) to 275 million pounds
($448 million).
Excluding the effects of currency translation, which reduced reported
sales by 189 million pounds ($308 million), the underlying sales increase
was 8.8%. This growth included contributions from two acquisitions completed
in late 1996 and three during the first half of 1997 which, net of the sales
lost due to disposals in 1997, contributed _110 million ($179 million) to the
sales increase. Organic sales growth in the YTD period before currency and
acquisitions was 5.6%. Likewise, excluding the effects of currency
translation, which reduced reported operating profit by 15 million pounds
($24 million), the underlying operating profit increase was 14.6%. YTD
operating margins before exceptional items improved from 7.4% to 7.8%.
Profit before tax and exceptional items of _233 million ($380 million)
increased by 9.9% compared to the equivalent 1996 period. After recording _18
million ($30 million) of exceptional gains relating to business and asset
sales, profit before tax was 251 million pounds ($409 million). Tax expense
was 71 million pounds ($116 million) which, when excluding taxes associated
with the business and asset sales, resulted in an effective tax rate of 30%.
Profit attributable to shareholders for the 1997 YTD period was
170 million pounds($277 million). Earnings per ordinary share were 12.0p
($1.96 per ADS based on UK GAAP). During the 1997 YTD period, the company
repurchased 40 million of its ordinary shares at an average price of
196.6p per share.
Third quarter sales of _1,161 million ($1,869 million) have increased 5.6%
over the prior year third quarter. Excluding the effects of currency
translation, sales have increased 10.7%. Acquisitions, net of divestitures
contributed 34 million pounds ($55 million) to this growth.
Outlook
The industry outlook for the automotive markets in both Europe and North
America for the remainder of 1997 continues to show little growth over the
previous year. Within the Diesel Engines segment, there is some continuing
weakness in the demand for large engines and the strength of sterling
continues to present a challenge. The commercial Aerospace markets continue
to be very robust, while the Aftermarket business is being affected by mixed
trading conditions and the strength of sterling.
As stated previously, reported revenue growth for this year as compared to
last year is expected to be modest. Fourth quarter revenues will be affected
by the lower number of working days as a result of the holiday season included
in the quarter and are therefore expected to be down from the third quarter.
Despite this, continued progress on merger related cost savings will be
reflected in improvement in earnings and margins.
OPERATING AND FINANCIAL REVIEW
As comparisons to the prior year quarterly pro-forma information are not
meaningful, the results have been analysed for the YTD period between quarters
by segment in the following table and commentary. Operating profits are
before exceptional items. The USD amounts have been translated from GBP to
USD using the average exchange rates for the 1997 periods indicated.
Review of operations (unaudited):
GBP (pounds) millions 1997 SALES
Qtr 1 Qtr 2 Qtr 3 YTD
Braking Systems 409 356 406 1,171
Other Automotive 481 467 432 1,380
Diesel Engines 159 164 157 480
Aerospace 151 157 166 474
Corporate / Other 6 2 - 8
Totals 1,206 1,146 1,161 3,513
GBP (pounds) millions
1997 OPERATING PROFIT
Qtr 1 Qtr 2 Qtr 3 YTD
Braking Systems 33 30 38 101
Other Automotive 37 40 39 116
Diesel Engines 11 14 13 38
Aerospace 16 17 19 52
Corporate / Other (11) (11) (10) (32)
Totals 86 90 99 275
1997 OPERATING MARGIN
Qtr 1 Qtr 2 Qtr 3 YTD
Braking Systems 8.1% 8.4% 9.4% 8.6%
Other Automotive 7.7% 8.6% 9.0% 8.4%
Diesel Engines 6.9% 8.5% 8.3% 7.9%
Aerospace 10.6% 10.8% 11.4% 11.0%
Totals 7.1% 7.9% 8.5% 7.8%
BRAKING SYSTEMS
Third quarter sales increased by 14.0% to 406 million pounds
($654 million) compared to the 1997 second quarter while operating profit
increased 26.7% to 38 million pounds ($61 million). Operating margin improved
from 8.4% in the second quarter to 9.4% in the third quarter continuing the
trend of quarterly
margin improvement for 1997.
The increase in sales between the third and second quarters is primarily
due to the lesser effect of the third quarter European OEM shut downs as
compared to the second quarter North American OEM shut downs. Third quarter
sales also benefited from the continuing strength of the light truck segment
in North America which included the recovery of sales lost in the first half
due to strikes at GM and Chrysler. The continuing realisation of merger
related cost savings and a favorable mix in the third quarter of high margin
ABS sales due to recovery from the GM and Chrysler strikes contributed to the
increase in operating margin.
OTHER AUTOMOTIVE
Third quarter sales declined by 7.5% to 432 million pounds ($695 million)
compared to the 1997 second quarter. Operating profit was 39 million pounds
($63 million), resulting in an operating margin of 9.0%, up from 8.6% in the
second quarter and 7.7% in the first quarter.
The decline in sales resulted from; the annual summer shut down of
European OEM's which affected, in particular, Diesel Systems sales; the
disposal of Lucas Assembly and Test Systems (LATS) business which occurred
late in the second quarter (15 million pounds($24 million) effect third
quarter compared to second) and, to a lesser extent, weakness in Aftermarket
sales due to the strength of sterling. The improvement in margin resulted
from the disposal of LATS, the successful integration of the two Aftermarket
acquisitions (Autospecialty in December 1996 and Remsa in April 1997) and
merger related cost savings in each of the businesses within this segment.
During the quarter, the Aftermarket division sold its Lucas Service
Hellas SA business, which had annual sales of approximately 7 million pounds
($11 million).
DIESEL ENGINES
Sales at VarityPerkins for the third quarter were 157 million pounds
($253 million) and operating profit was 13 million pounds ($21 million)
resulting in an operating margin of 8.3%. Sales and operating profit were
consistent with the prior year third quarter and down slightly as compared to
the second quarter.
Sales improvements due to higher demand for diesel engines by leading OEMs
in the agricultural and construction sectors as well as sales relating to new
contract awards were off-set by continued weakness in the large engine power
generation business and to the strength of sterling. Additionally, as part of
its TQ and margin improvement plans, VarityPerkins completed a major
investment programme with the introduction of new best-in-class engine
assembly and painting facilities for its core 1000 series engine family to
significantly improve production efficiency. Sales lost in the third quarter
due to the change over will be recovered in the fourth quarter. Operating
profit and margins have been maintained despite the change over and the
effects of the strength of sterling.
In a separate announcement on 11 December 1997, LucasVarity disclosed its
intentions, subject to shareholder and regulatory approvals, to sell
VarityPerkins.
AEROSPACE
Third quarter sales increased 5.7% to 166 million pounds ($267 million)
and operating profit improved 11.8% to 19 million pounds ($31 million) as
compared to the second quarter. The operating margin of 11.4% in the third
quarter shows an encouraging increase from the 10.8% in the second quarter and
10.6% in the first quarter. Year to date revenues of 474 million pounds
($773 million) were up 28.5% from the 1996 period (of which 70 million pounds,
or 19.0% of the increase related to the acquisition of Boeing Georgia).
The strong growth in sales resulted from the continuing increase in
deliveries relating to the large commercial airline segment, while the
increase in operating margins this year resulted from the benefits provided by
higher volume levels and continued progress in the division's operational
improvement programme.
Cash flow and debt
At 31 October 1997, net debt amounted to 496.2 million pounds
($809 million). Net debt has increased by 33.8 million pounds ($55 million)
from the beginning of the year resulting primarily from the timing of the
company's share repurchase programme and restructuring actions. In the YTD
period to 31 October 1997, 40 million ordinary shares were repurchased for
78.7 million pounds ($128 million). Cash expended on restructuring actions
was 78.1 million pounds ($127 million), while the majority of the proceeds
from the company's divestment programme and working capital reduction actions
are expected to be realised in the fourth quarter. Net assets, including
minority interests, at 31 October 1997 were 600.9 million pounds
($979 million). Gearing, which reduced in the quarter from 90% to 83%, is
expected to continue to decline over the remainder of fiscal 1997.
For Further Information:
Investors & Analysts Media
Joseph S. Cantie Nicholas Jones
+44(0)171 465 0610 +44(0)171 465 0617
LucasVarity plc
Consolidated Profit and Loss Accounts
For the 3 and 9 month periods ended 31 October 1997
(Third Quarter and YTD)
Third
Quarter YTD
(pounds)m (pounds)m
Turnover 1,161.7 3,513.2
Cost of sales (1,064.0) (3,242.9)
Surplus on trading 97.7 270.3
Share of profits less losses of
associated undertakings 1.3 4.3
Total operating profit before exceptional items 99.0 274.6
Profit on the sale of current asset investment - 13.2
Total operating profit 99.0 287.8
Profits less losses on business
and fixed asset disposals (0.5) 5.0
Profit on ordinary activities
before interest and taxation 98.5 292.8
Interest payable less receivable (14.0) (41.8)
Profit on ordinary activities before taxation 84.5 251.0
Taxation (25.5) (71.4)
Profit on ordinary activities after taxation 59.0 179.6
Minority interests (2.0) (9.3)
Profit attributable to shareholders 57.0 170.3
Earnings per ordinary share 4.0p 12.0p
LucasVarity plc
Balance Sheets
At 31 October and 31 January 1997
31 October 31 January
(pounds)m (pounds)m
Fixed assets:
Tangible assets 1,298.3 1,301.9
Investments 57.6 49.0
1,355.9 1,350.9
Current assets:
Investments - 16.3
Stocks 508.3 517.5
Debtors 898.2 884.1
Cash 156.4 227.3
1,562.9 1,645.2
Creditors:
Amounts falling due within one year
Borrowings (338.7) (367.7)
Other creditors (1,055.6) (976.3)
(1,394.3) (1,344.0)
Net current assets 168.6 301.2
Total assets less current liabilities 1,524.5 1,652.1
Creditors:
Amounts falling due after one year
Borrowings (313.9) (322.0)
Accruals and deferred income (48.6) (34.0)
(362.5) (356.0)
Provisions for liabilities and charges (561.1) (707.4)
Net Assets 600.9 588.7
Capital & Reserves:
Total shareholders' funds 552.2 546.0
Minority interests 48.7 42.7
600.9 588.7
LucasVarity plc
Consolidated Cash Flow Statements
For the 3 and 9 month periods ended 31 October 1997
(Third Quarter and YTD)
Third
Quarter YTD
(pounds)m (pounds)m
Cash flow from operating activities:
Group operating profit 99.0 287.8
Share of profit less dividends
of associated undertakings (1.2) (3.9)
Depreciation 39.7 120.9
Profit on sale of current asset investment - (13.2)
Utilisation of provision for restructuring (18.6) (78.1)
Decrease in other provisions (5.0) (29.6)
Increase in working capital (26.6) (13.8)
Net cash inflow from operating activities 87.3 270.1
Interest paid (6.0) (38.6)
Tax paid (19.7) (40.3)
Capital expenditure and financial investment:
Purchase of tangible fixed assets (47.1) (186.7)
Disposal of tangible fixed assets 2.6 16.1
Net cash outflow for capital expenditure and
financial investment (44.5) (170.6)
Net cash (outflow) / inflow for
acquisitions and disposals (8.8) 22.2
Equity dividends paid - (32.3)
Net cash inflow before management of liquid
resources and financing 8.3 10.5
Management of liquid resources and financing:
Proceeds from sale of current asset investment - 29.1
Issue of ordinary share capital 3.8 13.5
Purchase of ordinary share capital (20.8) (78.7)
Decrease in bank loans (68.8) (11.8)
Decrease in short-term deposits 46.3 46.8
Capital element of finance lease rental payments (1.1) (12.6)
Net cash outflow from management of liquid
resources and financing (40.6) (13.7)
Decrease in cash in the period (32.3) (3.2)
LucasVarity plc
Reconciliation of net cash flow
to movement in net debt
For the 9 month period ended 31 October 1997
(YTD)
(pounds)m
Decrease in cash in the period (3.2)
Cash outflow from decrease in debt and lease financing 24.4
Cash inflow from decrease in short-term deposits (46.8)
Change in net debt resulting from cash flows (25.6)
New finance lease commitments (9.5)
Exchange movements 1.3
Movement in net debt in the period (33.8)
Net debt at 31 January 1997 (462.4)
Net debt at 31 October 1997 (496.2)
LucasVarity plc
Reconciliation of movements in shareholders' funds
For the 9 month period ended 31 October 1997
(YTD)
(pounds)m
Profit attributable to shareholders 170.3
Dividend in respect of current period (31.8)
Currency translation differences (33.0)
New share capital subscribed 13.5
Repurchase of shares (78.7)
Goodwill set off on acquisitions (36.0)
Goodwill on disposals transferred to profit and loss account 1.9
Net increase in shareholders' funds 6.2
Opening shareholders' funds 546.0
Closing shareholders' funds 552.2
LucasVarity plc
UK to US GAAP Reconciliations
31 October 1997
Results are based on United Kingdom accounting principles and are
unaudited. Under US Generally Accepted Accounting Principles (GAAP), net
income for the third quarter and YTD periods ended 31 October 1997 were:
Third Quarter YTD
(pounds)m $m (pounds)m $m
UK GAAP income 57.0 91.8 170.3 277.6
Adjustments to conform
with US GAAP:
Goodwill amortisation (10.6) (17.1) (31.3) (51.0)
Goodwill written off
on divestments - - 1.1 1.8
Pension credit 29.3 47.2 87.8 143.1
Restructuring and
integration costs (33.2) (53.9) (56.3) (91.8)
Exchange gains relating
to forward exchange
contracts 22.0 35.9 16.7 27.2
Deferred tax (1.0) (1.7) (1.7) (2.8)
Other 0.9 1.4 2.6 4.2
US GAAP net income 64.4 103.6 189.2 308.3
Earnings per ADS
(US GAAP) 0.45 pounds $0.73 1.33 pounds $2.17
A reconciliation of shareholders' funds based on UK GAAP to shareholders'
equity based on US GAAP at 31 October 1997 is as follows:
(pounds)m $m
Shareholders' funds (UK GAAP) 552.2 900.1
Adjustments to conform with US GAAP:
Goodwill 1,231.9 2,008.0
Revaluation of tangible fixed assets (119.7) (195.1)
Prepaid pension cost 425.1 692.9
Exchange gains relating to forward
exchange contracts 61.8 100.8
Proposed interim dividend including
Advanced Corporation Tax 39.8 64.9
Restructuring provision 74.7 121.8
Deferred taxation (54.6) (89.0)
Other (13.4) (21.8)
Shareholders' equity (US GAAP) 2,197.8 3,582.6
LucasVarity plc
Pro-forma Quarterly Information
for the year ended 31 January 1997 (Fiscal 1996)
(pounds in millions)
LucasVarity and Lucas Industries merged and subsequently acquired Varity
with effect from 6 September 1996. The following quarterly information for
the year ended 31 January 1997 (Fiscal 1996) is based on the pro-forma
combined operating results of Lucas Industries and Varity. These results are
presented by the Group's current reporting segments and exclude exceptional
items. As these results reflect pro-forma information when the two companies
were not under common control and the companies previously had different
fiscal years, they do not illustrate the trend in underlying trading
performance that will occur in future quarters.
1996 Quarters
Qtr 1 Qtr 2 Qtr 3 Qtr 4 Full Year
Braking Systems
Sales 393 387 391 383 1,554
Operating Profit 31 42 23 25 121
Operating Margin 7.9% 10.9% 5.9% 6.5% 7.8%
Other Automotive
Sales 446 490 439 466 1,841
Operating Profit 38 58 34 39 169
Operating Margin 8.5% 11.8% 7.7% 8.4% 9.2%
Diesel Engines
Sales 144 158 158 195 655
Operating Profit 10 13 13 23 59
Operating Margin 6.9% 8.2% 8.2% 11.8% 9.0%
Aerospace
Sales 120 145 104 141 510
Operating Profit 14 23 (1) 13 49
Operating Margin 11.7% 15.9% (1.0%) 9.2% 9.6%
Corporate/other
Sales 8 11 8 13 40
Operating Profit (16) (14) (15) (17) (62)
Totals
Sales 1,111 1,191 1,100 1,198 4,600
Operating Profit 77 122 54 83 336
Operating Margin 6.9% 10.2% 4.9% 6.9% 7.3%
Interest (15) (15) (11) (13) (54)
Profit Before Tax (PBT) 62 107 43 70 282
SOURCE LucasVarity plc