LucasVarity Reports Fiscal Year and Fourth Quarter Results
25 March 1999
LucasVarity Reports Fiscal Year and Fourth Quarter Results
LONDON, March 25 -- LucasVarity plc (London: LVA; NYSE: LVA)
today reports its results for the full year and three month (fourth quarter)
periods ended 31 January 1999. On 28 January 1999, it was announced that a
definitive agreement was reached for the sale of LucasVarity plc to TRW Inc.
for cash of 4 billion Pounds Sterling (288 pence per ordinary share). The
transaction is expected to be completed in April 1999.
FULL YEAR AND FOURTH QUARTER HIGHLIGHTS
-- Earnings per ordinary share from continuing operations
(before exceptional items) increased in both periods:
1998 1997
Fiscal Year 16.2p 13.0p
Fourth Quarter 4.2p 4.1p
-- Full year sales from continuing operations up 6.3%.
-- Full year operating profit from continuing operations
(before exceptional items) up 14.6%.
-- Fourth quarter sales from continuing operations up 6.0%.
-- Fourth quarter operating profit from continuing operations
(before exceptional items) up 7.6%.
-- Sale of VarityPerkins for gross proceeds of #803 million completed in
March 1998.
-- Sale of Heavy Vehicle Braking Systems for gross cash proceeds of
235 million pounds completed in January 1999.
CHIEF EXECUTIVE'S STATEMENT
Victor A Rice, commented: "This is the last results announcement for
LucasVarity plc as we look forward to the combination with TRW Inc. It is,
therefore, appropriate to reflect on what has been achieved over the past 2 /
years since the merger.
"We can be proud of our record:
-- Impressive improvement in operating margins (pro forma 1996 margin was
7.3% vs. 8.8% for 1998)
-- Annualised cost savings of at least #120 million
-- A downward trend in working capital requirements (from 10.8% of sales
in 1996 to 7.6% in 1998)
-- Significant new contract awards
"Behind these numbers lies probably an even greater accomplishment -- the
speed with which LucasVarity was successfully integrated and best in class
processes and systems were embedded. These included TQ, Product Introduction
Management (PIM) and EVA, all of which helped to harness the talents of our
people and enabled them to have a significant impact.
"In a remarkably short space of time, the Group was ready to take on, and
in many cases, beat the world's best. The number and extent of our major
automotive and aerospace contract wins stands powerful testimony to that.
Equally gratifying has been the improvement in our product quality and
customer care. Within the past 18 months, LucasVarity has won some of the
world's most prestigious quality awards available to automotive suppliers
including GM's Corporation of the Year, Chrysler's Role Model award,
Volkswagen's Formel Q award and Ford's World Excellence Award.
"We injected considerable technological and commercial resource into our
engineering programmes with excellent results. Examples include 650 million
pounds worth of Common Rail commitments, joint ventures to develop EPAS and
ACC, our biggest contract to date to provide leading edge vehicle stability
control systems, and within Aerospace, world leadership in variable frequency
power generation.
"We strengthened the portfolio through the acquisition of six businesses
and the disposal of poorly performing businesses or operations which had no
long term future in the Group. Within a year we had sold off the 13 non-core
businesses we had identified at the time of the merger and we obtained full
and fair prices for our Perkins and Heavy Vehicle Braking businesses.
Proceeds totalled approximately 1.2 billion pounds from these disposals.
"We focused rigorously on getting our strategy correct. We tested and
re-tested our hypotheses and frequently revisited our assumptions. Out of
this whole process emerged what we are convinced is the right strategy: to
drive the business to global leadership in vehicle dynamic systems.
"We failed by just one percentage point to secure shareholder approval to
implement our strategy as a US domiciled independent corporation.
Nevertheless, and in light of our new circumstance, the transaction with TRW
is absolutely the right one with which to take the business forward. We
looked at over 30 corporate combinations and none offered as good a fit in
terms of shared strategic vision, synergy and complementary products as that
with TRW. For our customers, our employees and our shareholders this is an
excellent deal and we look to the future with confidence and excitement."
SUMMARY AND OUTLOOK
Summary
Fiscal 1998 compared to 1997
Group turnover from continuing operations for the twelve months to
31 January 1999 increased by 6.3% to 4,270 million pounds and operating profit
from continuing operations before exceptional items, increased 14.6% to
377 million pounds as compared to the prior year. Operating margin improved
to 8.8% compared to the prior year's 8.2%.
Currency translation reduced sales for the twelve months by 54 million
pounds and operating profit by 7 million pounds. Excluding the adverse
effects of currency translation, sales from continuing operations increased
7.6% and operating profit 16.7%.
The main drivers behind the sales growth were strong North American and
European car markets and improved Aerospace turnover, partially offset by the
effects of a strike at General Motors in the second quarter. In addition,
acquisitions net of disposals contributed 35 million pounds to the increase in
sales. The improvements in operating profit and margin were due to the
continuing implementation of cost improvement programmes, the sale of several
lower margin businesses, increased turnover levels and a favourable mix of
spare parts sales in the Aerospace division. These positive factors were
partially offset by the strike at General Motors, a lower level of profits
from the Heavy Vehicle Braking business in the fourth quarter and the decline
in the South American automotive market.
Profit before tax and exceptional items from continuing operations of
347 million pounds increased 28.5% compared to the prior year. Contributing
to the improvement was a 29 million pounds decrease in net interest expense
primarily as a result of cash proceeds received in the first quarter of 1998
from the sale of VarityPerkins.
Tax expense on ordinary activities was 105 million pounds, which resulted
in an effective tax rate of 30% in 1998 as compared to 91 million pounds
(effective tax rate of 28%) in 1997.
Full year profit attributable to shareholders from continuing operations
before exceptional items was 228 million pounds, or 16.2p per ordinary share
compared to 184 million pounds, or 13.0p per ordinary share in the prior year.
Exceptional items during 1998 included net after tax gains of 64 million
pounds on business and asset disposals, primarily the Heavy Vehicle Braking
business and VarityPerkins; 11 million pounds of restructuring charges
associated with plant closures and redundancies, expenses of 13 million pounds
relating to the proposed change of domicile and 6 million pounds of after-tax
interest expense relating to the termination of an interest rate swap
portfolio. After exceptional items and discontinued operations, twelve month
earnings per ordinary share were 18.5p compared to 14.7p in the prior year.
Under US GAAP, 1998 earnings per ADS from continuing operations before
exceptional items and non-cash exchange gains relating to long-term forward
exchange contracts were $3.10 compared to $2.46 in the prior year. After
exceptional items, foreign exchange gains and discontinued operations, 1998
twelve month earnings per ADS were $4.41 compared to $2.08 in the prior year.
Fourth Quarter
Group turnover from continuing operations for the fourth quarter increased
by 6.0% to 1,044 million pounds and operating profit from continuing
operations before exceptional items increased 7.6% to 99 million pounds.
Fourth quarter operating margins improved from 9.3% in 1997 to 9.5% in 1998.
Currency translation increased sales for the quarter by 17 million pounds and
operating profit by 1 million pounds. Excluding the effect of currency
translation sales from continuing operations increased 4.3% and operating
profit 6.5%.
A strong European diesel car and van market, growth in the North American
light-vehicle market, and improved Aerospace turnover were the main drivers
behind the sales increase.
In addition, acquisitions net of disposals contributed approximately
14 million pounds to the sales this fourth quarter as compared to last. These
improvements were partially offset by weak markets for Electrical and
Electronic Systems' products in India and the United Kingdom. The
improvements in operating profit and margins were due to the continuing
implementation of cost improvement programmes, the increased turnover level
and a favourable mix of more profitable spare parts sales in the Aerospace
business. These improvements were partially offset by a lower level of
profits from the Heavy Vehicle Braking business, which was sold at the end of
the quarter, and the South American brakes operation due to market conditions.
Profit before tax and exceptional items from continuing operations of
91 million pounds increased 21.3% compared to the prior year. Contributing to
the improvement was a 9 million pounds decrease in net interest expense as a
result of cash proceeds received in the first quarter of 1998 from the sale of
VarityPerkins.
Tax expense on ordinary activities was 29 million pounds in 1998,
representing an effective tax rate of 32% as compared to 19 million pounds in
1997 (an effective tax rate of 20%). The 1997 fourth quarter tax charge
benefited from an adjustment of the 1997 full year tax charge recorded in that
quarter.
Fourth quarter profit attributable to shareholders from continuing
operations (before exceptional items) was 59 million pounds, or 4.2p per
ordinary share compared to 58 million pounds, or 4.1p per ordinary share in
the prior year.
Exceptional items during the 1998 fourth quarter included net after tax
gains of 55 million pounds, principally the gain on the sale of the Heavy
Vehicle Braking business and 11 million pounds of restructuring expenses
associated with plant closures and redundancies. After exceptional items and
discontinued operations, 1998 fourth quarter earnings per ordinary share were
8.1p compared to 2.7p in the fourth quarter of 1997.
Under US GAAP, fourth quarter earnings per American Depository Share (ADS)
from continuing operations before exceptional items and non-cash exchange
gains relating to long-term forward exchange contracts were $0.77 compared to
$0.48 in the prior year. After exceptional items, foreign exchange gains and
discontinued operations, 1998 fourth quarter earnings per ADS were $1.61
compared to a loss of $(0.10) in the fourth quarter of 1997.
Key Events
In January 1999, it was announced that TRW Inc. would acquire LucasVarity
plc for cash of 4 billion pounds representing 288 pence per ordinary share.
During fiscal 1998, the Group continued its progress towards the restructuring
of its businesses to strengthen their strategic positions and to improve
shareholder value overall. Key events were:
-- In January 1999, the sale of the Heavy Vehicle Braking business to
Meritor Automotive, Inc. was completed for gross cash proceeds of
235 million pounds. After taxes and transaction costs, net proceeds
will be 197 million pounds.
-- The sale of VarityPerkins to Caterpillar, Inc. was completed in
March 1998 for gross proceeds of 803 million pounds. After taxes,
claims and transaction costs, net proceeds were 630 million pounds.
-- The remaining three of the thirteen businesses identified for sale at
the time of the merger (Lucas Service UK, Aftermarket's starters and
alternators remanufacturing business and wiper motor and emergency
lighting business) were sold for total net proceeds of 37 million
pounds. In addition, the sales of Sasic, Deeco Systems, the 35% stake
in Min-Cer, and the controlling interest in Lucas Kienzle Instruments
Limited were concluded during the year for net proceeds of 8 million
pounds.
-- The Electrical and Electronic Systems business entered into joint
ventures with TRW Inc. to develop and manufacture electric power
assisted steering (EPAS) and with Thomson-CSF to design, develop and
manufacture automotive radar sensors for adaptive cruise control and
future collision avoidance systems for passenger cars and light trucks
on a global basis.
-- The Group's businesses were reorganised into two units: LucasVarity
Automotive and LucasVarity Aerospace. This reorganisation will enable
an improved response to the demands of its customers for systems
solutions on a global basis.
-- LucasVarity won several prestigious customer awards including General
Motors' highest award available to its worldwide supplier network, the
GM "Corporation of the Year".
-- Significant contract awards were achieved in both the Automotive and
Aerospace sectors.
Outlook
Economic conditions in Asia and South America remain difficult and other
regions are now showing signs of a tougher trading environment.
In the automotive industry, strong production schedules during the first
quarter in North America will offset cutbacks at certain European car
manufacturers. However, in 1999, in line with most industry participants, the
Group expects both markets on average to moderate, more so in Europe than
North America, from their 1998 levels. The Group is well placed with a
significant presence in the North American light truck and the European diesel
car and van sectors -- both of which have shown, and continue to demonstrate,
above average growth rates.
The aerospace markets the Group serves continue to expand and its recent
contract successes leave the Group confident that it can share in this growth
over the medium term.
OPERATING AND FINANCIAL REVIEW
In March 1998, the sale of VarityPerkins, which constituted 100% of
LucasVarity's Diesel Engine segment, was completed. As a result, the sales
and operating profit of VarityPerkins are shown under the heading of
discontinued operations in the financial statements. None of the other
business disposals completed in fiscal 1998, including the sale of the Heavy
Vehicle Braking business, qualified as discontinued operations for accounting
purposes. The analysis below sets out the results of continuing operations
and excludes exceptional items.
Review of continuing operations (fourth quarter results are unaudited):
GBP (pounds) millions Fourth Quarter Twelve Months
ended 31 January ended 31 January
1999 1998 1999 1998
SALES
Braking Systems 436 379 1,808 1,550
Other Automotive 415 432 1,746 1,812
Aerospace 193 174 716 648
Corporate/Other -- -- -- 8
Total 1,044 985 4,270 4,018
OPERATING PROFIT
Braking Systems 31 33 149 134
Other Automotive 44 46 170 162
Aerospace 32 23 95 75
Corporate / Other (8) (10) (37) (42)
Total 99 92 377 329
OPERATING MARGIN
Braking Systems 7.1% 8.7% 8.2% 8.6%
Other Automotive 10.6% 10.6% 9.7% 8.9%
Aerospace 16.6% 13.2% 13.3% 11.6%
Total 9.5% 9.3% 8.8% 8.2%
BRAKING SYSTEMS
The Braking Systems segment comprised the Light Vehicle Braking Systems
(LVBS) and Heavy Vehicle Braking Systems (HVBS) businesses. The HVBS
business, which had fiscal 1998 sales of 187 million pounds, was sold to
Meritor Automotive Inc. in January 1999.
Fiscal 1998 turnover in the Braking Systems segment increased 16.6%, to
1,808 million pounds. The January 1998 acquisition of Freios Varga, South
America's largest brake company, contributed approximately 145 million pounds
to sales whilst the effects of currency translation decreased sales by
19 million pounds. The remaining increase of 132 million pounds, or 8.5%,
resulted primarily from strong North American and European automotive markets
although the disruption of the General Motors' strike in the second quarter
had a negative effect on sales. Despite the GM strike during the year,
production of light vehicles in North America for 1998 increased 0.6% from
last year with light trucks increasing 3.1% and passenger car production
declining 1.7%. Car registrations in Europe rose approximately 6% as compared
to last year while production in South America declined 8%.
Operating profit increased 11.2% to 149 million pounds, resulting in an
operating margin of 8.2% compared to 8.6% in the prior year. The operating
margin declined due to the impact of the GM strike, the dilutive effect of the
acquisition of Freios Varga where the 1998 margin is below the average for the
segment; and a decline in the profitability of the HVBS business.
The fourth quarter margin of 7.1% as compared to 8.7% in the prior year
quarter resulted primarily from HVBS having nil profits on 41 million pounds
of sales and weak trading conditions in South America during the 1998 fourth
quarter which adversely affected Freios Varga.
During the year, LVBS acquired the remaining 39% of the Autobrzdy brake
manufacturing facility in the Czech Republic that it did not already own.
Also during the year, LVBS sold Sasic, a French braking business for
1 million pounds and HVBS sold its 35% ownership stake in Min-Cer, a Mexican
heavy duty brake business, for 2 million pounds.
OTHER AUTOMOTIVE
The Other Automotive segment comprises the Diesel Systems, Electrical and
Electronic Systems (E&ES) and Aftermarket businesses.
Excluding the effects of currency translation, which decreased 1998
reported sales by 29 million pounds, and the revenues of businesses disposed
of totaling 116 million pounds, underlying sales improved 79 million pounds,
or 4.4%. The Diesel Systems business was the main contributor to this growth,
reflecting continued increases in diesel car and van sales in Europe.
Production cutbacks at some customers and the decline of sales in India due to
local market conditions contributed to a lower level of sales at E&ES while
the Aftermarket business enjoyed modest sales growth.
Excluding the effects of currency translation, which decreased reported
operating profit by 5 million pounds compared to the prior year, the
underlying profit increased by 13 million pounds, or 8.0%. Operating margin
was 9.7% for 1998 compared to 8.9% last year. The improvement in margin
resulted primarily from cost reduction and manufacturing improvement
programmes and the sale of lower margin businesses during the year.
In March 1998, E&ES announced that it had formed a joint venture with TRW
Inc. to design, develop and manufacture column and pinion drive electric
steering systems for passenger cars and light commercial vehicles on a global
basis. E&ES also announced in September 1998 the formation of a joint venture
with Thomson-CSF to design, develop and manufacture automotive radar sensors
for adaptive cruise control and future collision avoidance systems for
passenger cars and light trucks.
In January, E&ES announced the planned closure of its Fenton facility in
the United States and its wiring plant at Ystradgynlais in South Wales. In
December, E&ES completed the purchase of AF Dormeyer Manufacturing
Corporation, a manufacturer of solenoids for a net consideration of 7 million
pounds. During the second quarter, E&ES completed the sale of Deeco Systems,
its flat panel factory automation products business, which had annual sales of
9 million pounds in fiscal 1997. In addition, during the fourth quarter, the
sale of the controlling interest in Lucas Kienzle Instruments Limited was
agreed with Mannesmann VDO AG.
Lucas Aftermarket Operations (LAO) completed the disposals of Lucas
Service UK, its UK distribution chain; LAO's starters and alternators
remanufacturing business; and LAO's wiper motor and emergency lighting
business. Total proceeds of 37 million pounds net were raised from the sale
of these businesses which had 1997 revenues of 62 million pounds.
AEROSPACE
Turnover in the Aerospace segment for 1998 increased 10.5% to 716 million
pounds. Operating profit improved 26.7% to 95 million pounds reflecting an
operating margin of 13.3% as compared to 11.6% in 1997.
Both the original equipment (OE) and higher margin aftermarket sectors
demonstrated growth, primarily from existing contracts. Principal drivers
behind the OE growth were very strong volumes in the Cargo Systems business,
reflecting increased demand from Boeing, and increased volumes of components
for the Airbus 320 range. Partially offsetting these increases was the run-
off of certain military contracts in 1997.
The improved operating margin reflected the benefits of cost reduction
programmes partially offset by increased net engineering spend. In 1998, two
one-off items affected profit. Strikes at the Macon and Utica plants during
the third quarter led to higher costs being incurred in an effort to minimise
disruption to customer deliveries. Separately, a favourable reassessment of
warranty provisions, relating to the cargo systems business, resulted in the
recognition of income. Together, these two items had a nil effect on profits.
During the year, the Aerospace division terminated its non-core gas
cylinder bottle business at Burnley. An exceptional loss of 6 million pounds
was recognised on the termination of which 5 million pounds is non-cash.
In 1998, the Aerospace division made two announcements regarding major
contract awards. The first was in respect of a contract with Fairchild
Aerospace to supply the complete fly-by-wire flight control system for its new
728JET. The contract is worth more than 600 million pounds over the life of
the programme. The division was also awarded several contracts to supply a
major portion of the primary and secondary flight controls and thrust reverser
and actuation on the Airbus A340-500/600. The combined value of these
contracts is approximately 320 million pounds. These contracts are in
addition to Lucas Aerospace's major contribution in the supply of engine
controls on the Roll-Royce Trent engine announced last year with a value of
around 2 billion pounds over the life of the programme.
CORPORATE /OTHER
Sales in 1997 represented the turnover of Geared Systems, Inc. which was
sold in 1997. Corporate expense declined 5 million pounds, or 11.9%, to
37 million pounds in 1998 as compared to the prior year due primarily to
merger related cost savings.
OTHER FINANCIAL HIGHLIGHTS
Discontinued Operations
In March 1998, LucasVarity completed the sale of VarityPerkins, which
constituted 100% of the Diesel Engines Segment, to Caterpillar Inc. for gross
proceeds of 803 million pounds. After deducting 173 million pounds of tax,
claims and transaction costs relating to the disposal, net cash received
amounted to 630 million pounds. A net accounting profit of 4 million pounds
was recorded on the sale during the 1998 first quarter after considering net
assets disposed and the write-back of 453 million pounds of goodwill. This
goodwill resulted from the accounting treatment of the acquisition of Varity
Corporation by Lucas Industries in September 1996. In the 1998 first quarter,
prior to completion of the transaction, VarityPerkins had sales of 42 million
pounds and an operating loss of 2 million pounds.
Exceptional items
Since the merger of Lucas Industries and Varity Corporation in late 1996,
management has focused on restructuring both the Group and each of its
businesses to improve strategic positions and profitability. The following is
a summary of exceptional items recognised during 1998 and 1997:
Fourth Quarter - 1998
Exceptional net after-tax gains, of 55 million pounds were realised. The
HVBS business was sold to Meritor Automotive, Inc. for gross proceeds of
235 million pounds. After deducting 38 million pounds of tax and transaction
costs relating to the disposal (most of which will be paid in the first
quarter of 1999), net cash received will amount to 197 million pounds. A net
accounting gain of 60 million pounds was recorded on the sale after
considering net assets disposed and the write-back of 35 million pounds of
goodwill. The sale of HVBS, which occurred on 29 January, did not qualify as
a discontinued operation for accounting purposes. In addition to the sale of
HVBS, a net after-tax gain of 6 million pounds was recognised on other
business disposals and after-tax restructuring charges of 11 million pounds
were recognised on the closure of two plants and redundancy programmes.
Third Quarter - 1998
After-tax expenses of 19 million pounds were recognised on one-off items.
The costs associated with the proposed change of domicile amounted to
13 million pounds and an after-tax loss of 6 million pounds was recognised on
the termination of an interest rate swap portfolio.
Second Quarter - 1998
Net after-tax losses of 8 million pounds were recognised on the sale of
Deeco Systems (an E&ES business) and the Group's 35% interest in Min-Cer (a
Mexican heavy-duty brake business). The loss on the sale of Deeco Systems
included the write-back of 9 million pounds of goodwill. In addition, a
6 million pounds loss was recognised on the termination of a product line
within the Aerospace division.
First Quarter - 1998
Net after-tax gains of 12 million pounds were realised. In addition to
the net loss of 3 million pounds on the sale of VarityPerkins, gains of
10 million pounds were recognised on the sale of Lucas Services UK,
Aftermarket's starters and alternators remanufacturing business and the wiper
motor and emergency lighting business. The remaining exceptional gain related
to E&ES joint venture agreement with TRW Inc. to develop and manufacture EPAS.
Proceeds of 18 million pounds were received which, after deducting related
assets, taxes and provisions, resulted in a net gain of 5 million pounds.
Fiscal 1997
In the 1997 fourth quarter, after tax losses of 36 million pounds were
recognised primarily on the sale of four businesses. In the second quarter,
17 million pounds of after-tax gains were recognised on the sale of five
businesses and the remaining interest in Hayes Wheels International, Inc. One
other business was sold in the 1997 first quarter resulting in a after-tax
gain of 1 million pounds.
Shareholder funds
Shareholder funds increased from 458 million pounds at the beginning of
the year to 1,185 million pounds at 31 January 1999. In addition to the
increase from the 261 million pounds of profit attributable to shareholders
recognised in the year, 497 million pounds of the increase related to the
disposals of VarityPerkins and the Heavy Vehicle Braking Systems businesses in
1998.
Cash flow and debt
Net cash inflow from operating activities in the twelve months to
31 January 1999 after interest, tax and dividends paid to minority
shareholders was 274 million pounds. This amount included cash outflows for
restructuring activities of 59 million pounds and working capital of
30 million pounds. Investments of 274 million pounds were made for capital
expenditure and 39 million pounds on acquisitions, while after-tax proceeds
from disposals, including the sale of VarityPerkins and Heavy Vehicle Braking
Systems (HVBS), amounted to 917 million pounds. Tax on the sale of HVBS of
approximately 35 million pounds will be paid in 1999. Dividends of 66 million
pounds were paid to shareholders. As a result of these major cash flow items,
the Company has moved from a net borrowings position of 574 million pounds at
the beginning of the fiscal year to a net cash position of 245 million pounds
at 31 January 1999.
Dividends and Share Repurchase Programme During 1998
Dividends of 4.75p per ordinary share were paid in fiscal 1998, a 5.6%
increase as compared to 1997. In addition, the Group repurchased 14.6 million
shares during 1998 at an average price of 202p per share. As a result of the
pending transaction with TRW Inc. the Directors are not recommending a final
dividend for the six month period ended 31 January 1999.
Financial Information
The financial information set out on pages 13 through 19 of this document
does not constitute the company's statutory accounts for the years ended
31 January 1999 or 1998 but is derived from those accounts. Statutory
accounts for the year ended 31 January 1998 have been delivered to the
registrar of companies, and those for the year ended 31 January 1999 will be
delivered before the statutory filing date of 31 July 1999. The auditors have
reported on those accounts; their reports were unqualified and did not contain
statements under section 237(2) or (3) of the Companies Act 1985.
LucasVarity plc
Consolidated Profit and Loss Accounts
For the three and twelve month periods ended 31 January 1999 and 1998
(million pounds)
(Unaudited)
Fourth Quarter Twelve Months
1998 1997 1998 1997
Turnover:
Continuing operations 1,044 985 4,270 4,018
Discontinued operations -- 183 42 663
Total turnover 1,044 1,168 4,312 4,681
Cost of sales (946) (1,057) (3,941) (4,300)
Surplus on trading 98 111 371 381
Share of profits less losses of
associated undertakings 1 2 4 7
Total operating profit before
exceptional items:
Continuing operations 99 92 377 329
Discontinued operations -- 21 (2) 59
Total operating profit
before exceptional items 99 113 375 388
Profit on sale of
current asset investment -- -- -- 13
Restructuring charges (14) -- (14) --
Costs of proposed
change of domicile -- -- (13) --
Total operating profit 85 113 348 401
Profit/(loss) on business
and asset disposals 100 (31) 222 (26)
Profit on ordinary activities
before interest and taxation 185 82 570 375
Interest
- ordinary activities (8) (17) (30) (59)
- costs relating to termination
of interest rate swaps -- -- (7) --
Profit on ordinary
activities before taxation 177 65 533 316
Taxation
- ordinary activities (29) (19) (105) (91)
- exceptional items (31) (5) (154) (5)
_
Profit on ordinary
activities after taxation 117 41 274 220
Minority interests and other (3) (2) (13) (11)
Profit attributable
to shareholders 114 39 261 209
LucasVarity plc
Per share amounts
For the three and twelve month periods ended 31 January 1999 and 1998
(Unaudited)
Fourth Quarter Twelve Months
1998 1997 1998 1997
Earnings per share:
Before restructuring charges costs of
proposed change of domicile,
termination of interest rate swaps,
sale of businesses and fixed assets,
and discontinued operations 4.2p 4.1p 16.2p 13.0p
Restructuring charges,
costs of proposed change of
domicile, termination of interest
rate swaps, and sale of
businesses and fixed assets 3.4p (2.6)p 2.1p (1.3)p
Discontinued operations 0.5p 1.2p 0.2p 3.0p
Earnings per ordinary share 8.1p 2.7p 18.5p 14.7p
Average shares outstanding
(millions) 1,406 1,410 1,408 1,418
LucasVarity plc
Consolidated Balance Sheets
At 31 January 1999 and 31 January 1998
(million pounds)
1999 1998
Fixed assets:
Intangible assets 43 27
Tangible assets 1,227 1,362
Investments 35 47
1,305 1,436
Current assets:
Stocks 393 489
Debtors 790 869
Cash 646 155
1,829 1,513
Creditors:
Amounts falling due
within one year:
Borrowings (75) (414)
Other creditors (961) (1,097)
(1,036) (1,511)
Net current assets 793 2
Total assets less
current liabilities 2,098 1,438
Creditors:
Amounts falling due
after one year:
Borrowings (326) (315)
Accruals and deferred income (37) (52)
(363) (367)
Provisions for liabilities
and charges (487) (545)
Net Assets 1,248 526
Capital & Reserves:
Total shareholders' funds 1,185 458
Minority interests 63 68
1,248 526
LucasVarity plc
Consolidated Cash Flow Statements
For the three and twelve month periods ended 31 January 1999 and 1998
(million pounds)
(Unaudited)
Fourth Quarter Twelve Months
1998 1997 1998 1997
Cash flow
from operating activities:
Group operating profit 85 113 348 401
Share of profit of
associated undertakings (1) (2) (4) (7)
Depreciation/amortisation 42 47 164 168
Profit on sale of
current asset investment -- -- -- (13)
Utilisation of provision
for restructuring (21) (47) (59) (125)
Increase/(decrease) in
other provisions 1 (17) (28) (47)
Decrease/(increase)
in working capital 54 88 (30) 74
Net cash inflow from
operating activities 160 182 391 451
Dividends received from
associated undertakings -- -- 4 1
Interest paid and dividends paid to
minority shareholders (3) (23) (38) (61)
Tax paid (15) (19) (83) (59)
Capital expenditure and
financial investment:
Purchase of tangible fixed assets (85) (98) (274) (285)
Disposal of tangible fixed assets 6 19 19 35
Investment in intangible
fixed assets (4) (15) (11) (15)
Net cash outflow for capital
expenditure and
financial investment (83) (94) (266) (265)
Net cash inflow/(outflow) for
acquisitions and disposals 218 (29) 878 (7)
Equity dividends paid (35) (32) (66) (64)
Net cash inflow/(outflow)
before management of
liquid resources and financing 242 (15) 820 (4)
Management of liquid resources
and financing:
Proceeds from sale of
current asset investment -- -- -- 29
Issue of ordinary share capital 16 -- 24 14
Repurchase of ordinary
share capital (29) (6) (29) (85)
Decrease in bank and other loans -- 45 (299) 33
(Increase)/decrease in
short-term deposits (172) (29) (438) 18
Capital element of finance
lease rental payments (3) (9) (14) (22)
Net cash inflow/(outflow)
from management of liquid
resources and financing (188) 1 (756) (13)
Increase/(Decrease) in cash
in the period 54 (14) 64 (17)
LucasVarity plc
Reconciliation of net cash flow
to movement in net debt
For the twelve month period ended 31 January 1999
million pounds
Increase in cash in the period 64
Cash outflow from decrease in debt and lease financing 313
Cash outflow from increase in short-term deposits 438
Change in net debt resulting from cash flows 815
Finance leases disposed of with subsidiary undertakings 3
New finance lease commitments net of terminations (2)
Exchange movements 3
Movement in net debt in the period 819
Net debt at 31 January 1998 (574)
Net cash at 31 January 1999 245
LucasVarity plc
Reconciliation of movements in shareholders' funds
For the twelve month period ended 31 January 1999
million pounds
Profit attributable to shareholders 261
Dividend in respect of current period (35)
Currency translation differences 11
New share capital subscribed 24
Repurchase of shares (29)
Goodwill adjustment on prior year acquisition (2)
Goodwill on disposals transferred to
profit and loss account 497
Net increase in shareholders' funds 727
Opening shareholders' funds 458
Closing shareholders' funds 1,185
LucasVarity plc
UK to US GAAP Reconciliation
For the three and twelve month periods ended 31 January 1999 and 1998
Fourth Quarter
1998 1997
(p)m $m (p)m (p)m
Net Income - UK GAAP 114 189 39 64
Adjustments to conform with US GAAP:
Goodwill amortisation (7) (12) (9) (15)
Goodwill written off
on divestments 6 11 3 5
Pension curtailment gains
on divestments 20 33 -- --
Property revaluation on disposals 4 7 10 16
Entry fees (4) (6) (15) (24)
Pension credit 33 54 29 48
Provisions for restructuring (8) (13) (39) (64)
Exchange losses relating to
forward exchange contracts (6) (10) (20) (33)
Deferred tax (12) (19) (4) (7)
Other (4) (7) (3) (5)
Net Income - US GAAP 136 227 (9) (15)
Earnings per ADS (US GAAP) -- $1.61 -- $(0.10)
Twelve Months
1998 1997
(p)m $m (p)m $m
Net Income - UK GAAP 261 433 209 343
Adjustments to conform with US GAAP:
Goodwill amortisation (33) (55) (40) (66)
Goodwill written off
on divestments 54 90 4 7
Pension curtailment gains
on divestments 20 33 -- --
Property revaluation on disposals 13 22 10 16
Pension credit 132 219 117 192
Entry fees (10) (17) (15) (24)
Provisions for restructuring (23) (38) (95) (156)
Exchange gains/(losses) relating
to forward exchange contracts 17 28 (3) (5)
Deferred tax (52) (86) (6) (10)
Other (5) (8) (1) (2)
Net Income - US GAAP 374 621 180 295
Earnings per ADS (US GAAP) -- $4.41 -- $2.08
LucasVarity plc
UK to US GAAP Reconciliation
At 31 January 1999
(p)m $m
Shareholders' funds (UK GAAP) 1,185 1,943
Adjustments to conform with US GAAP:
Goodwill 762 1,250
Revaluation of tangible fixed assets (98) (161)
Entry fees (25) (41)
Prepaid pension cost 601 986
Exchange gains relating to
forward exchange contracts 64 105
Restructuring provision 13 21
Deferred taxation (58) (95)
Other (13) (21)
Shareholders' equity (US GAAP) 2,431 3,987