Final Results
Lookers PLC
20 March 2006
20 March 2006
LOOKERS PLC
AUDITED PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2005
Further to the announcement made by the Board of Lookers on 9 March 2006 firmly
rejecting Pendragon's offer, today the Board of Lookers is delighted to announce
its audited preliminary results for the year ended 31 December 2005.
Commenting on the results, Ken Surgenor, Chief Executive said:
'It is ironic that at a time when Lookers is the subject of a bid at a level
which represents significant under value for Lookers shareholders, the Board of
Lookers announces another record year with its strongest ever set of results.
These outstanding results demonstrate the effectiveness of management's
commitment to their stated strategy as we continue to create shareholder value,
outperforming in each of our key markets. In the current year, we have made an
excellent start and trading is significantly ahead of the Board's expectations
across all areas of our business.
As stated in the announcement on 9 March 2006, the Board believes that the all
paper offer of 1.15 Pendragon shares for each Lookers share significantly
undervalues the company and represents a significant discount to its fundamental
value. The Board will write to shareholders in due course with its detailed
views on the offer after Pendragon has published its Offer Document. In the
meantime, the Board strongly advises shareholders to take no action whatsoever
in respect of the offer.'
2005 RESULTS HIGHLIGHTS
• Strong growth across all areas of the business with turnover up 13 per
cent. to £1.23 billion (2004: £1.09 billion)
• Adjusted* operating profit up 31 per cent. to £27.1 million (2004:
£20.7 million)
• Adjusted* profit before tax up 28 per cent. to £18.0 million (2004:
£14.1 million)
• Profit before tax £16.4 million (2004: £26.4 million, after net
exceptional gains of £12.5 million)
• Adjusted earnings per share up 22 per cent. to 37.7p (2004: 30.8p)
• Basic earnings per share 32.7p (2004: 55.0p)
* After adding back exceptional items, goodwill impairment and amortisation of
intangible assets
• Total dividend up 26 per cent. to 15.25p (2004:12.1p), reinforcing the
Board's commitment to the creation and return of value to shareholders.
Further explanation of the Board's proposal for returning value to
shareholders will be set out in its detailed response to Pendragon's offer
• In spite of disruption caused by franchise refurbishments, rebuilds
and relocations we have continued to outperform the indices for the new car
market
• Looking forward the Board has established a trading platform that is
perfectly suited to the current trading environment. The key aspects of which
are as follows:
- used car sales up 23 per cent. after acquisition of two used car
supermarkets
- aftersales volumes up 36 per cent. including the acquisition of APEC
Limited and strong performance from FPS
- 72 per cent. of gross profit from non-new car business
• Excellent start to the current year with trading well ahead of Board's
expectations
• In 2006 we expect to see significant contribution from recent acquisitions
Enquiries:
Lookers Telephone: 020 7796 4133
Ken Surgenor, Chief Executive (on Monday 20 March only, and on 0161 291 0043
David Dyson, Finance Director thereafter)
Hudson Sandler Telephone: 020 7796 4133
Andrew Hayes/Nick Lyon/James Hill
RESULTS STATEMENT
The Board is delighted to be able to report that the Group has continued to
achieve excellent progress during 2005, generating strong growth in turnover,
profit* and earnings* which have enabled the Board to increase the total
dividend payment by 26 per cent. The successes achieved reflect our development
strategy and the effectiveness of our de-centralised dealer enfranchised
operating model that delivers superior performance from our network, both in
terms of customer satisfaction and profitability.
The benefits of a wide geographical coverage, a strong presence in used cars,
and the car parts and service aftermarkets have enabled us to deliver an
outstanding set of results.
Our scale and market strategy in each of the regional areas in which we operate
has enabled us to reduce costs, bolt on additional businesses and further
significantly improve efficiencies and thereby returns. Our de-centralised
dealer enfranchised model is at the heart of our success in delivering superior
returns from the franchises we operate. As further evidence of the success of
this strategy and reflecting the existing strong relationships we enjoy with our
manufacturer partners, we were recently awarded a new Land Rover dealership in
Glasgow.
Outlook
The Board believes that through Lookers' focus on and commitment to broadening
revenue streams, strengthening relationships with manufactures and stakeholders
alike, driving consolidation and generating further efficiencies across the
Group, 2006 will be yet another successful year of growth.
Already, the Group is making good progress and I am pleased to report that
trading has been ahead of the Board's expectations across all areas of our
businesses for the first two months of the year. In particular, our new car
sales performance is well ahead of the market. In Northern Ireland, January is
a key month and we are pleased to report that these operations enjoyed a strong
performance with new car retail sales up by 18 per cent. on the same period in
2005. Overall volumes across the UK for one of the most important trading
months, March, are also encouraging. Our used car supermarkets and aftersales
businesses have also had a strong start to the year.
* Adjusted pre exceptional items, goodwill impairment and amortisation of
intangible assets
Dividend and Future Dividend Policy
Following last year's excellent performance and the strong start to the current
year, the Board is proposing a final dividend of 10.5 pence, bringing the total
dividend for the year to 15.25 pence, an increase of 26 per cent. on 2004.
Subject to final approval at the Annual General Meeting, the final dividend will
be paid on 31 May 2006 to shareholders on the register at 18 April 2006.
In light of the Board's continued confidence in the future, it is intending to
initiate a more progressive dividend policy, increasing the total dividend
payable by 15 per cent. per annum subject to maintaining an appropriate dividend
cover. In conjunction with this, and as indicated last year, given the higher
level of profit earned in the first half of the year, it is the Board's
intention that a larger proportion of the dividend will be paid at the interim
stage in successive years.
This increase in the final dividend and enhancement of the dividend policy
reinforces the Board's commitment to creating further value and returning
capital to shareholders. Further proposals regarding how we intend to create
and return value to shareholders will be set out in the defence document which
will be posted to shareholders after the Pendragon offer document has been
posted, the timing of which is presently unclear.
Operating Review
Franchised Businesses
The success achieved in this business area is due to the combination of the
scale which has been generated with its broad base of manufacturing partners and
also the wide geographic spread of the operations. In order to provide a first
class service to our partners and customers, the Group operates a decentralised
management structure with key management directors taking responsibility for
their respective franchises, and certain franchise directors who are responsible
for a number of dealerships in one or more regions also being the focal point of
contact for the manufacturer.
We believe that the success of this approach is borne out by the fact that we
have again outperformed the market and continue to gain market share. In
addition, although the new car market was down 5 per cent. in 2005 and the more
profitable retail content of new car sales fell by over 10 per cent., our new
car sales were down only 3 per cent. by comparison and the retail element was
down 7.5 per cent.
On the volume side of the business, Vauxhall has had another excellent year. We
now have seventeen Vauxhall outlets operating in three significant market areas
- the North West, the Midlands and Northern Ireland.
Of the prestige brands, Premier Auto Group ('PAG') has also had a very
satisfactory year. In total we now represent PAG in 22 outlets in three
significant market areas - the South East, West of Scotland and Northern
Ireland.
In addition, we have again improved our used car performance which, on a
like-for-like basis, is 6 per cent. ahead of last year which had also shown a
healthy increase on the previous year.
Through our Customer Care Centre in Liverpool we have also continued to improve
our aftersales volumes and margins.
We have made significant improvements in our performance on sales of finance and
insurance products within the franchised businesses as a result of the
strengthening of the management team responsible for finance and insurance
related activities. This has contributed to these excellent results and will
benefit us in the future.
Part of our acquisition strategy has always been to retain, motivate and
incentivise the key people within the target businesses and exploit their
experience to expand the Group in those specific markets or market areas. For
example, when we first expanded into Scotland by acquiring Taggarts in 2003, we
retained all the senior and middle management. Having reincentivised and
remotivated them they are now prospering under the Lookers banner, as is the
business. Our record of people retention and motivation is second to none.
Not withstanding the major disruption of refurbishments, new builds and
relocations on 20 sites (representing 22 per cent. of our franchised outlets),
we managed to achieve such a strong performance from this part of our business
in 2005. The level of such activity is expected to be significantly lower in
2006 and we expect to reap the rewards of our increased investment in these
sites through the improved facilities for customers and staff alike. In
addition, the current year will benefit from the contribution from the 5
additional outlets acquired in 2005 together with the 6 which were acquired in
2006.
Used Car Supermarkets
Our entry into the Used Car Supermarket business was effected by the acquisition
of BTC at the end of January 2005. Having quickly appreciated the potential of
this business we were able to add another strategic location by acquiring ISC in
the Midlands, in May.
Many of the vehicles sold by these outlets are sourced from our existing
franchise network, vehicles which would otherwise have been sold at auction.
Unlike the used car operations on franchised sites, the Used Car Supermarkets
give customers much wider choice as they can physically display more vehicles
and offer all makes of used cars.
These businesses performed in line with our expectations during our period of
ownership, and in 2006, we will see the benefits of a full year of trading
combined with improved performance overall.
A third site in the South East was opened in January 2006. We now have outlets
in the South East, South West and Midlands which are tracking to retail in
excess of 12,000 cars a year providing significant scale to both enhance margins
and reduce costs.
Parts Distribution
We acquired FPS Distribution ('FPS') in August 2004 and have successfully
retained the senior and middle management of this business. The team is young
and ambitious and is keen to grow the product offering and profitability. FPS
has had a very strong performance in the year under review, achieving an
operating profit of £4.6 million.
Recognising that there are significant opportunities to expand the distribution
side of the business, the Company has put in place some initiatives to grow
this, at little incremental cost. One such initiative has been the development
of a series of programmes to be delivered under the 'WDS' brand - Warehouse
Distribution Services on a next day delivery cycle. The results of this will be
seen in 2006 and beyond.
At present, the business is constrained by the capacity of its central
warehouse, which is currently 55,000 square feet. A freehold site has been
obtained and a purpose built warehouse will be constructed which will
immediately more than double that capacity, with the ability to expand to up to
200,000 square feet without increasing the footprint of the proposed building.
This will be available for January 2007 and will enable the business to
significantly expand its distribution activities.
In October, FPS acquired APEC Limited - a business specialising in dry braking
parts. APEC is a highly respected and leading brand of braking parts in the
United Kingdom and Irish aftermarkets. This business supplies the same customer
base as FPS and complements that operation. In our short period of ownership,
it has made a positive contribution and is in good shape to deliver its full
year budget in 2006.
Acquisitions and Disposals
The fragmented nature of the motor retail and parts distribution industry offers
significant opportunities to make earnings enhancing acquisitions. An important
component of our ability to successfully integrate acquisitions and to further
develop them, is our track record of retaining local management.
At the end of January 2005, we acquired our first Used Car Supermarket in
Bristol, taking us to the South West of England for the first time. Bristol
Trade Centre ('BTC') was a well established business in the area. The
management of this business was retained, enabling us to make our second
acquisition in May of Ian Shipton Cars ('ISC') - a Used Car Supermarket in the
Midlands. These two businesses have traded well during our period of ownership.
On 31 July we acquired PLP Motors, comprising of two Vauxhall outlets in
Warrington and Widnes, a Saab service centre in Warrington and introduced
Chevrolet to the Group for the first time in Warrington.
The following month we acquired the Volvo businesses from Murray Motors in
Glasgow and Hamilton. During the course of 2006, these businesses will be
relocated to existing under-utilised facilities in these market areas to sit
alongside our other PAG brands - Jaguar and Land Rover. The full benefits of
these acquisitions will be realised when these relocations have taken place.
In mid-October we acquired APEC Limited, based in Bristol which supplies dry
braking parts and complements our FPS Distribution business.
In addition, during the year we have provided Vauxhall with a new facility in
Belfast in our Northern Ireland market area. This will be the first time for
five years that Vauxhall has been represented in that city and we fully
anticipate it to contribute strongly in 2006 as it grows its customer base and
volumes.
The total cost of these acquisitions was £35.0 million and they reflect our
stated strategy of ensuring we have strong contributions from used car sales and
aftersales which complement the revenue for new car sales. The annualised
revenues of these acquisitions was £155.0 million and historically, these
businesses generated an annualised operating profit of £3.4 million. We will
enjoy the full year benefit of these acquisitions and their expected improvement
in performance in 2006.
In our franchise business, we acquired 6 PAG dealerships on 28 February 2006,
and during the year, Lookers also exited from 3 under-performing dealerships
which were loss making at the operating profit level (2005: £1.3m).
Our expansion strategy in the future will be to continue to acquire franchised
businesses especially prestige, used car operations and aftersales businesses to
improve the quantity and quality of earnings.
Reg Vardy Acquisition and Pendragon Offer
On 17 January 2006 we announced a recommended cash offer of 875p per share for
Reg Vardy plc. We felt that this represented an attractive opportunity to build
shareholder value through consolidation in the sector. Pendragon PLC
subsequently announced a higher offer of 900p. The Board believed that it was
not in our Shareholders' interests to continue to pursue this opportunity at
higher offer levels.
On 9 March 2006 Pendragon announced an all share offer for your company. The
Board, as advised by Rothschild, had no hesitation in unanimously rejecting this
offer on the basis of its inadequacy both in terms of the value it places on
your company and also the real value of the Pendragon shares that are being
offered. The Board's view was clear and augmented by the fact that there would
be significant operational risks to Pendragon shareholders in a three way
merger, all of which seems particularly unattractive when compared to the
exciting future growth prospects for Lookers as a stand alone company.
Fred Maguire
Ken Surgenor
For and on behalf of the Board of Lookers plc
20 March 2006
FINANCIAL REVIEW
Financials
Turnover has increased to £1.23 billion from £1.09 billion last year,
representing growth of 13 per cent. of which approximately half was organic. We
have continued to focus on driving operating efficiencies and cost reductions
across the business whilst managing the integration of acquisitions and growing
organically. As a result we have achieved an improvement in the adjusted
operating margin from 1.9 per cent. to 2.2 percent., an increase of 16 per cent.
Gross margins have increased by 20 basis points from 12 per cent. to 12.2 per
cent. This, together with our tight control of operating costs, has resulted in
a 31 per cent increase in operating profit before impairment, amortisation and
exceptional items.
Profit before tax for the year was £16.4 million, but before exceptionals,
impairment of goodwill and amortisation of intangible assets was up 28 per cent.
to £18.0 million. Adjusted earnings per share was 37.7 pence, an increase of 22
per cent.
Net exceptional items amount to a charge of £0.7 million compared with a credit
of £12.5 million in 2004. Last year there was a net credit of £15.6 million in
respect of VAT compared with £2.0 million this year. Of the remainder, £1.2
million charge relates to professional fees in connection with the aborted
acquisition of Reg Vardy plc. The balance is made up of the costs to exit
certain underperforming franchises.
Although new borrowings have been taken out to fund our expansion programme, our
operating cashflow of £50.2 million (2004: £40.6 million) demonstrates our
ability to quickly repay our borrowings.
A large proportion of the Group's borrowings are hedged allowing rates to
fluctuate between certain acceptable parameters. The fair value of the hedge at
the end of December resulted in a £0.4 million charge to be provided within the
interest cost.
Over the last five years we have increased earnings and dividends at a compound
growth rate of 28 per cent. and 13 per cent. respectively.
Dividends
Total dividend cover is 2.5 times based on adjusted earnings.
Cash Flow and Capital Expenditure
Despite the significant investments made in acquisitions and capital expenditure
our strong operating cash flow of £50.2 million has enabled us to maintain
gearing levels at 82 per cent. compared with 72 per cent. the previous year.
Pension Deficit
The Group has taken action to reduce its pension fund deficit by agreeing with
the Trustees of the Pension Scheme to contribute an additional £2.1 million per
annum for the three years up until the next formal valuation. The first of
these contributions was made during 2005.
New Regulations
The investment made by the Group to ensure it received the necessary
authorisations to sell insurance products from the Financial Services Authority
and the ongoing investment to ensure staff remain fully competent to sell
insurance products has positively impacted the customer experience and our
success in selling these complementary products.
David Dyson
Finance Director
20 March 2006
The Directors announce the following audited results of the Group for the year
ended 31 December 2005
Consolidated Income Statement (Summarised)
Year ended Year ended
31 December 2005 31 December
2004
£M £M
Revenue 1,231.6 1,093.8
Operating profit before amortisation and exceptional items 27.1 20.7
Amortisation of intangible assets and impairment of goodwill (0.9) (0.2)
Exceptional items (2.5) 4.1
Profit from operations 23.7 24.6
Interest costs - net (9.1) (6.6)
Interest income on VAT refund 1.8 8.4
Profit before tax, amortisation, impairment and exceptional items
Amortisation of intangible assets and impairment of goodwill 18.0 14.1
Exceptional items including interest income on VAT refund (0.9) (0.2)
(0.7) 12.5
_____ _____
Profit on ordinary activities before taxation 16.4 26.4
Taxation 4.8 7.1
______ _____
Profit for the period 11.6 19.3
===== ====
Basic earnings per ordinary share 32.7p 55.0p
===== =====
Diluted earnings per ordinary share 32.6p 54.9p
===== =====
Adjusted earnings per ordinary share 37.7p 30.8p
===== =====
Dividend per Ordinary share - interim 4.75p 4.00p
- final 10.50p 8.10p
_____ _____
15.25p 12.10p
===== =====
Consolidated Balance Sheet (Summarised)
31 December 31 December
2005 2004
£M £M
FIXED ASSETS
Goodwill 20.3 15.2
Other intangible fixed assets 16.8 13.4
Property, plant & equipment 137.2 106.2
______ _____
174.3 134.8
______ _____
CURRENT ASSETS
Inventories 190.8 140.4
Trade and other receivables 66.8 52.2
Cash and cash equivalents 2.4 2.5
______ _____
260.0 195.1
______ _____
Non current assets classified as held for resale - 1.8
______ _____
TOTAL ASSETS 434.3 331.7
===== =====
CURRENT LIABILITIES
Bank loans and overdrafts 21.3 16.6
Trade and other payables 240.2 156.7
Tax liabilities and short term provisions 8.5 9.5
______ _____
270.0 182.8
===== =====
NET CURRENT (LIABILITIES)/ASSETS (10.0) 12.3
_______ _____
NON CURRENT LIABILITIES
Bank loans and overdrafts 52.7 43.7
Retirement benefit obligations 19.2 18.0
Deferred taxation and long term provisions 2.2 3.0
_____ _____
74.1 64.7
===== =====
TOTAL LIABILITIES 344.1 247.5
===== =====
NET ASSETS 90.2 84.2
===== ====
Total Borrowings 74.0 60.3
===== ====
Gearing 82% 72%
===== ====
Consolidated Cashflow Statement (Summarised)
Year ended Year ended
31 December 2005 31 December
2004
£M £M
Cash generated from operations
Net profit 11.6 19.3
Adjustments for tax 4.8 7.1
Adjustments for depreciation 4.7 4.1
Profit on disposal of property, plant & equipment (0.4) (0.4)
Cost of aborted Vardy takeover 1.2 -
Amortisation of intangibles 0.7 0.1
Impairment of goodwill 0.2 -
Interest on VAT (1.8) (8.4)
Interest expense - net 9.1 6.6
Changes in working capital (excluding effects of acquisitions and
disposal of subsidiaries)
Increase in inventories (40.1) (24.6)
(Decrease) increase in trade and other receivables (8.5) 3.1
Increase in payables 73.0 31.5
Increase/(decrease) in pensions (2.5) (0.5)
Movement in provisions (1.8) 2.7
_____ ___
Cash generated from operations 50.2 40.6
Tax paid (4.0) (2.4)
Interest paid (8.3) (5.9)
Exceptional interest received on VAT refund 1.8 8.7
____ ____
Net cash from operating activities 39.7 41.0
____ ___
Cashflows from investing activities
Acquisition of subsidiaries (net of cash acquired) (34.6) (34.9)
Purchase of property, plant and equipment (19.9) (11.9)
Proceeds from sale of property, plant & equipment 2.6 10.5
Proceeds from sale of business 1.9 0.5
_____ _____
Net cash used by investing activities (50.0) (35.8)
Cashflows from financing activities
Proceeds from issue of ordinary shares 0.1 0.3
Repayment of loans (13.5) (16.9)
New loans 24.0 30.0
Principal payments under HP agreements (0.2) (0.1)
Dividends paid to group shareholders (3.5) (3.9)
Net cash from financing activities 6.9 9.4
=== ===
Increase in cash and cash equivalents (3.4) 14.6
Cash and cash equivalents at the beginning of the period 2.5 (12.1)
_____ ___
Cash and cash equivalents at the end of the period (0.9) 2.5
==== ===
Consolidated Statement of Recognised Income and Expense
Year ended Year ended
31 December 2005 31 December
2004
£M £M
Actuarial losses recognised in post retirement benefit scheme (3.1) (4.6)
Taxation thereon 0.9 1.4
_______ _____
Net losses recognised directly in equity (2.2) (3.2)
Profit for the financial period 11.6 19.3
_______ _____
Total recognised income and expenses for the period 9.4 16.1
====== =====
Notes
1. Basis of Preparation
The financial information has been prepared under International Financial
Reporting Standards (IFRS) issued by the IASB and as adopted by the European
Commission (EC). As a result, the comparative figures to 31 December 2004 have
been restated under IFRS. Further information in relation to the Standards
adopted by the Group is available on the Group's website www.lookers.co.uk.
The information for the years ended 31 December 2005 and 2004 does not
constitute statutory accounts as defined in section 240 of the Companies Act
1985. A copy of the UK GAAP statutory accounts for 2004 have been delivered to
the Register of Companies. The auditors' report on those accounts under UK GAAP
was unqualified.
2. Dividends
The final dividend proposed at the rate of 10.5p per share (2004 - 8.1p per
share) is payable on 31 May 2006 to shareholders on the register at close of
business on 18 April 2006. Together with the interim dividend paid 30 November
2005, total dividend for 2005 is 15.25p (2004 - 12.10p)
3. Exceptional items
Year ended Year ended
31 December 31 December
2005 2004
£M £M
Exceptional item - VAT refund 0.2 7.3
Loss on termination of businesses (1.9) (3.4)
Profit on disposal of properties 0.4 0.2
Aborted acquisition costs (1.2) -
___ ___
Exceptional items included within Operating Profit (2.5) 4.1
Exceptional interest on VAT refund 1.8 8.4
____ ____
Total exceptional items (0.7) 12.5
==== ====
4. Interest costs - net
Year ended Year ended
31 December 31 December
2005 2004
£M £M
Bank interest payable 5.6 4.4
Fair value losses on interest rate hedges 0.4 -
Bank interest receivable (0.1) (0.3)
Hire purchase agreements 0.1 0.1
Interest on consignment vehicles 2.5 2.0
Net interest on pension scheme 0.6 0.4
____ ____
9.1 6.6
==== ====
5. Earnings per share
The calculation of earnings per ordinary share is based on profits on ordinary
activities after taxation amounting to £11.6million (2004: £19.3million) and a
weighted average of 35,523,586 ordinary shares in issue during the year (2004:
35,133,817).
The diluted earnings per share is based on the weighted average number of
shares, after taking account of the dilutive impact of shares under option of
56,573 (2004: 85,266).
Adjusted earnings per share is stated before amortisation of intangible assets,
impairment of goodwill, loss on disposal/termination of businesses, the profit
on disposal of properties and the exceptional VAT credits and is calculated on
profits of £13.4 million for the year (2004: £10.8 million).
31 December 2005 31 December 2004
Earnings Earnings Earnings Earnings
£M per share £M per share
P P
Earnings attributable to
ordinary shareholders 11.6 32.7 19.3 55.0
Amortisation of intangible
assets and impairment of
goodwill 0.9 2.5 0.2 0.6
Exceptional items (net) 0.7 2.0 (12.5) (35.6)
Tax on exceptional items
(net) 0.2 0.5 3.8 10.8
_________________________ ____ ____ ____ ____
13.4 37.7 10.8 30.8
_________________________ ____ ____ ____ ____
6. Property, Plant and Equipment
31 December 31 December
2005 2004
£M £M
Freehold property 87.6 65.9
Long leasehold property 35.1 29.9
Short leasehold property 4.2 1.8
Plant and machinery 4.4 3.4
Fixtures, fittings, tools and equipment 5.9 5.2
______ _____
137.2 106.2
===== ====
This information is provided by RNS
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