The Foden Affair . . by CM reporters
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lack on the road to recovery
ODENS are set for a :covery from their econnic ills following a £3m Lsh injection by the City hich was announced on FriBut it is going to be a ng convalescence for the ling lorry maker—and the eatment has some sideTeets.
The rescue operation means iat Fodens come off the Deartment of Industry's "lame ucks" list and rules out a neatened Government take ver. However, the City's cure Leans that Mr Bill Foden is usted as chairman and there be reorganisation of the Lanagement structure.
This bitter pill is sugared y the fact that about 25 of le institutional shareholders, iclucling the Prudential, Comiercial Union and Legal and ;eneral are prepared to suport the deal. They will underTrite an issue of convertible reference shares to raise the 3m. At the same time there will be support for Fodens £6m overdraft, and the £2m loan guarantee made by the DoI will be cancelled.
The firm ran into trouble back in December when its bankers, National Westminster, said they would not increase the overdraft. Because Fodens are a major export earner, with overseas sales last year running at £7m, the Government stepped in with an offer of £2m.
For that loan guarantee it looked as if the DoT would demand a big slice of the company. Then negotiations got under way and finally on Friday the City agreed to bail Fodens out and for the first time the Government agreed to withdraw from such a rescue.
The Cheshire-based company is at present trading at a loss although accounts released on Friday show a pre-tax profit of £946,000 on the year ended March 29. Mr Bill Foden, who will stay on as chairman until the AGM on August 18, said that they were now operating "marginally below break-even point" and that it would be at least 18 months before "meaningful profits are made."
Fodens had hit trouble because of the three-day working week, the oil crisis and the sudden collapse of the UK truck market. They had sunk £5m in an expansion programme to build Europe's most modern production facilities. The downturn in the industry had caught them short of cash.
Good position
Mr Foden said that the company was now in a good position to take advantage of any upturn in business. "We have a range of new and exciting models including bus chassis together with the major contracts from the Ministry of Defence these factors will allow us to maximise utilisation of our enlarged capacity." At present the company can turn out 120 vehicles a week though production is down to only 30. Mr Foden said that the Om injection would be enough when one considered that the company had a large stock of vehicles unsold and in the pipeline. This had amounted to some £13m worth which was a large percentage of the turnover.
Mr Foden admitted that the deal was something of a gamble. The directors were saying to shareholders that if they could afford to take up the new issue then they should. "But if you can't then don't," he commented.
He said that he himself did not have the money to take up the issue. If other noninstitutional shareholders followed suit some 60 per cent of the company could fall into the hands of the institutions.
A new finance director is now to be appointed on the insistence of the City and there will also be a new nonexecutive chairman and another City appointment to the board. None of these positions has yet been filled.