MONEY MATTERS Steering Rootes back on course
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by Martin Younger
SHAREHOLDERS of Rootes Group will look back on the past week as the time they became faced with grim reality. Two pieces of news—one linked to the other—put this group squarely in its new place.
During the year that terminated on July 31, Rootes made a pretax loss of approximately £3 million, or £1.7 million more than was lost the previous year. But during the first six months of the current trading year losses have totalled the staggering figure of £41million, with a further sharp loss during the second-half of the year a prospect.
There is little doubt that this sharpish upward spiral in the loss for the latest six months was due to the down-turn in sales that followed the Government's deflation package that was applied last July.
With set-backs of this order on its hands the fact that the United Kingdom vehicle makers who were approached to take Rootes under their umbrella turned down the offer caused no eyebrows to be raised in Throgmorton Street.
The clear fact is that short of a further blood transfusion by Chrysler the plight of Rootes would indeed be grave, some may think impossible. The immediate transfusion amounts to 110 million, which will be made available through the medium of a "rights" issue on a five-for-four basis (in the form of Preferred Ordinary shares) at the par value of 4s. each. The Government is to have its finger in the pie via a 15 per cent stake in the new issues (to cost about £3 million) by the Industrial Re-organisation Corporation.
The directors of Rootes recommend (unanimously) the latest medicine as the only likely cure. Suffice it to say that although shareholders may whisper "I told you so" to this tightening of the grip on this leading UK maker, the plain fact is Chrysler has provided the only practical means of steering Rootes back on course.
Greenwoods (St. Ives)—the group has an active interest in transport contracting—reported that pre-tax profits for the year that terminated on September 30 fell to £469,081 from £524,203 the previous year. The dividend is being maintained at 20 per cent. At their present price of 6s. these 2s. Ordinary shares yield per cent based on the latest payment. I advise retention.