Interim Results
Lookers PLC
04 September 2006
4 September 2006
LOOKERS plc
UNAUDITED RESULTS FOR THE HALF-YEAR ENDED 30 JUNE 2006
Commenting on another record set of results for Lookers in the half-year ended
30 June 2006, Ken Surgenor, Chief Executive said:
I am delighted to announce an excellent set of results. They demonstrate the
effectiveness of our business model and approach which continue to deliver a
strong performance. It also reflects the high quality of our management team
and the commitment and hard work of our people, the strong relationships we have
developed with our manufacturer partners, our de-centralised operating model and
our development into complementary automotive markets. As a result, we are
making good progress in meeting our expectations for the year and the forecast
we made at the time of the defence. The consistent application of our proven
strategy will, I am confident, continue to deliver value to our shareholders.'
Key Financials
Half year to 30 June 2006 2005 Change
Turnover £726.6M £648.1M +12%
Operating profit £17.8M £15.3M +16%
Adjusted operating profit* £22.0M £15.0M +47%
Adjusted profit before tax* £17.0M £11.0M +55%
Adjusted earnings per share* 6.69p 4.46p +50%
Adjusted operating margin 3.0% 2.3% +30%
Interim dividend 1.3p 0.95p +37%
* Adjusted pre exceptional items, goodwill impairment and amortisation of
intangible assets
Highlights
• New car retail sales up 5% on a like for like basis against a market that
is down over 4%
• Used car retail sales up 22% with like for like sales up 9%
• Particularly good performances from PAG, Lexus and Vauxhall
• FPS Distribution operating profit up 24%
• Acquired 6 outlets from HR Owen in the South East strengthening our PAG
prestige offering
• Since the half-year, acquired a further 10 prestige outlets from HR Owen
in the South East
• Awarded Mercedes Benz market area
• Arranged new loan facilities of £200million on competitive terms
An analysts' briefing will be held at the offices of Hudson Sandler at 29 Cloth
Fair, London EC1A 7NN at 9.30 a.m. on 4 September 2006.
Enquiries:
Lookers Telephone: 020 7796 4133
Ken Surgenor, Chief Executive (on Monday 4 September only, and on
0161 291 0043 thereafter)
David Dyson, Finance Director
Hudson Sandler Telephone: 020 7796 4133
Andrew Hayes/Nick Lyon/Kate Hough
High resolution photographs will be available to media at
www.vismedia.co.uk from 12.30pm.
CHIEF EXECUTIVE'S REVIEW
The first six months of this year have been eventful for Lookers. The Board
felt it was in shareholders' interests to make an offer for Reg Vardy in
January. Having done so, we concluded that it would be wrong and expensive to
match the price paid by Pendragon for the business. In March, Pendragon made a
wholly unattractive all share offer for Lookers which shareholders firmly
rejected in line with the Board's recommendation. I would like to take this
opportunity to again thank our shareholders for their support of our strategy.
These results, once again, demonstrate the outperformance that Lookers is able
to deliver across its complementary business streams.
We continue to develop our business through investment in our existing
operations and through selected acquisitions including most recently the
acquisition of a further 10 dealerships from HR Owen on 31 August 2006.
The impressive turnover, adjusted profit and earnings growth of 12%, 55% and 50%
respectively, once again demonstrates the effectiveness of our business model.
We now have one of the broadest revenue streams in the industry and this enables
us to continue to perform well even in a more subdued new car retail market.
Lookers' success owes a great deal to the strong management team and the
dedicated support they receive from the team across the business.
ACQUISITIONS
The motor retail and parts distribution industry remains highly fragmented,
offering us significant opportunities to develop the business. At the beginning
of the first half we acquired six Premier Automotive Group ('PAG') dealerships
from HR Owen including two Jaguar, two Land Rover and two Volvo dealerships
located in Colchester, Ipswich and Bury St Edmunds adjacent to our existing PAG
territory. This business has been successfully integrated and has performed
strongly in terms of volume and profit growth, benefiting from Lookers'
de-centralised dealer enfranchised operating model. The success of this
strategy was recognised and rewarded by Land Rover at the beginning of the year
when they awarded us the franchise in North Glasgow.
On 24 August, we acquired a Chrysler, Jeep and Dodge outlet in Liverpool for a
consideration of £1.3 million including the freehold property.
On 31 August, we acquired a further 10 dealerships from HR Owen for a total
consideration of less than £21 million. This acquisition, which includes four
Mercedes Benz, two Land Rover, two Lexus and two Chrysler, Jeep and Dodge
outlets in the South East, significantly improves our mix of prestige brands and
re-introduces Mercedes Benz into our franchise portfolio. These dealerships
complement our existing market areas in the South East and we are confident
that, like the previously acquired HR Owen businesses, they will prosper under
Lookers' ownership. The acquisition is expected to be earnings enhancing in its
first full year under our ownership and add approximately £175 million to
Lookers' annual turnover.
FINANCIAL COMMENTARY AND DIVIDEND
Turnover for the first half increased 12% to £726 million (2005: £648 million),
of which approximately half was organic growth. As a result of our continuing
focus on operational efficiency, adjusted operating margin increased by 30% to
3.0%. Adjusted operating profit was £22 million, an increase of 47% on the same
period last year. Profit before exceptionals, impairment of goodwill and
amortisation of intangible assets increased by an impressive 55% to £17 million
(2005: £11.0 million), generating a 50% increase in adjusted earnings per share
of 6.69 pence (2005: 4.46 pence). Total exceptional items amount to a charge of
£3.8 million, most of which relates to the costs of the successful defence of
the hostile offer from Pendragon plc.
Our focus on working capital management again resulted in strong operating cash
flow of £15 million for the period. The Group invested over £5 million on
acquisitions and £7 million on developing the franchise network. Despite this
significant investment in our future development, gearing at the period end fell
to 75% compared with 80% at the last year end.
Dividend
In light of these results and our continued confidence in the Group's prospects,
the Board is proposing an interim dividend of 1.30 pence (2005: 0.95 pence).
This will be paid on 30 November 2006 to shareholders on the register at 22
September 2006.
The 37% increase in dividend reflects the Group's commitment to a more
progressive dividend policy as previously set out at the preliminary results on
20 March 2006, and also reflects our previously stated policy to increase the
proportion of the dividend proposed in the first half of the year.
REFINANCING
Competitive terms have recently been agreed to provide up to £200 million of
funds to replace existing debt and provide the finance for future expansion. We
intend to use those funds to invest in the business by improving our facilities
and pursuing further acquisitions.
BOARD
Further to Hamilton Finance Limited, a subsidiary of GE Corporation, selling its
shareholding to Tony Bramall, Neil Clyne, Vice President of the European Auto
Division of GE Consumer Finance, resigned from the Board of Lookers as a
Non-Executive Director in April 2006. He was replaced as a Non-Executive
Director on the Board by Tony Bramall at an EGM on 30 June 2006. Neil's valued
contribution to the Group's success over the last six years is much appreciated
by the Board.
I would like to take this opportunity to formally welcome Tony to the Board. He
is one of the most respected and successful operators in the UK motor industry
and I am confident his experience will prove invaluable to the continued
development of Lookers.
Today, Fred Maguire will be stepping down as Chairman and from the Board having
been with the Company for over twenty years, the last six years as Chairman.
During his Chairmanship, Lookers has developed beyond all recognition into one
of the most dynamic and best performing motor retailers in the country. I know
that Fred would like to take this opportunity to say thank you to colleagues
across the Group for their support over this period. The Board and I wish him
well for the future.
From today Phil White will be taking over as Chairman in what will be an
exciting period in Lookers' development and I have no doubt he will have the
full support of the Board, management and staff to continue to deliver excellent
value to shareholders. Phil has been Chief Executive of National Express Group
PLC since 1997.
I would also like to say thank you on behalf of the Board to all our colleagues
for their loyalty, commitment and hard work during the first half, despite the
distractions and uncertainty of Pendragon's unwelcome offer. We give high
priority to attracting and retaining the best people and they are undoubtedly
the major reason why Lookers continues to make excellent progress.
OPERATING REVIEW
Franchise network
Lookers now operates 101 franchise outlets and represents 26 brands. Our broad
base of manufacturing partners and wide geographic coverage across the United
Kingdom is a key strength of our business. We pride ourselves on providing a
first class service to our partners and customers and are able to do so because
of our decentralised management structure. Empowering key franchise directors
and local management has been instrumental in generating a healthy
entrepreneurial spirit across the business.
Trading in the first half, which includes the key registration month of March,
has been good. The first quarter performance in particular was very strong and
ahead of management expectations. In the second quarter we continued to
outperform the market although, as expected, trading has moderated after a
strong March registration performance. Our Charles Hurst business in Northern
Ireland also performed well in the first half following excellent sales in
January, a key sales month for the region.
Turning to our volume franchises, Vauxhall achieved a creditable performance in
the first half as we continued to invest in its refurbishment programme. We are
in the process of improving a number of our Vauxhall outlets. A complete rebuild
of our St Helens facility is currently underway and is expected to be completed
by early autumn. The showroom has been completed and once the other work is
complete it will enable us to display more used cars and increase the site's
service capacity. Further to the refurbishment work carried out last year, we
are updating our remaining three Vauxhall outlets to Vauxhall's current
corporate standards. We are confident these refurbished sites will prove to be
equally popular with customers as our brand centre in Birmingham and our new
retail concept Vauxhall outlet in Boucher Road, Belfast.
Toyota and Lexus also performed well during the first half, the former
continuing to benefit from the refurbishment of six of its outlets last year
which has generated higher customer footfall and the latter from the
introduction of several new models such as the GS300, the IS200 and the GX
Hybrid.
Of the prestige brands, PAG continues to go from strength to strength. We now
operate 25 of its franchises across the UK in three major market areas - the
South East, West of Scotland and Northern Ireland. The performance of our PAG
business in the South East has been very encouraging including the outlets
acquired from HR Owen. We are confident that our recent acquisition of a further
ten dealerships from HR Owen will prove to be equally successful.
Other significant developments taking place with PAG are in Scotland where we
are in the process of bringing together Land Rover, Volvo (relocation from its
existing Glasgow site) and Jaguar onto one excellent facility in Glasgow. The
showrooms are already complete with the aftersales and under-cover used car
display due to be available on 1 October 2006. In addition, we are also
redeveloping our multi-franchise site in Motherwell to accommodate Volvo,
Jaguar, Mazda and Hyundai. This site is expected to be completed in the final
quarter.
A key strength of the business continues to be the development and retention of
high quality management teams across our dealership network. In particular, we
have been highly successful in retaining management of businesses we acquire.
They respond well to our de-centralised operating structure, which gives them
the opportunity to trade more independently and profitably within a strong Group
controlled environment.
Used cars
Used car retail sales increased by 22%, with like for like sales up 9% against
strong prior year comparatives. We now have three used car supermarkets in the
UK - BTC in the South West, ISC in the Midlands and ETC in the South East. The
latter commenced trading 1 January 2006 and has performed in line with our
expectations. We retailed 5,000 cars during the first half and we believe we
will retail in excess of 12,000 cars a year from these sites. Our expansion in
used cars is in line with our strategy of broadening our revenue streams and
this area of our business now contributes strongly to both turnover and profits.
Finally, we continue to make solid progress in driving higher levels of sales of
finance and insurance products within both the new and used car businesses. This
is a result of our ongoing investment in this area of our business where
particular focus was brought to bear in 2004.
Parts Distribution
FPS Distribution ('FPS') achieved an excellent performance in the first half,
with operating profit up 24% on last year. As stated in the past, there are
significant opportunities to expand the distribution side of the Group. Our
current parts distribution warehouse in Sheffield trades from 55,000 sq ft which
is constraining more rapid growth. Accordingly, we are in the process of
developing an 80,000 sq ft footprint purpose built facility which is capable of
being expanded internally, by way of mezzanine, to over 200,000 sq ft of storage
capacity. Our aim is to relocate in December 2006 and be fully operational from
January 2007.
APEC, our dry braking parts specialist, also had a good first half ahead of
expectations. A warehouse reorganisation is underway in the third quarter to
support further sales growth planned for the next financial year.
Following expansion across all our business streams, Group aftersales now
accounts for 22% of turnover and 54% of gross profit, both ahead of last year.
OUTLOOK
These results demonstrate that we are firmly on track to deliver the profit
forecast we issued at the time of our defence against Pendragon's unwelcome
offer. Trading since the end of June has been in line with the Board's
expectations and our order book for September, historically a strong retail
month, is encouraging. We are achieving this progress despite a weakening
market in new car sales that has persisted since the end of the first quarter.
We continue to outperform across all our business streams and are confident that
the improvements we are making now to our franchise network, used car operations
and parts distribution business will enable us to build on this excellent
progress. We will also continue to seek value enhancing acquisitions whilst
ensuring that our organic growth is sustained. Overall, the Group is well placed
to continue its successful development.
Ken Surgenor
Chief Executive
4 September 2006
The Directors announce the following unaudited results of the Group for the
half-year ended 30 June 2006
Consolidated Income Statement (Summarised)
Half-year Half-year Year ended
ended ended 31 December
30 June 2006 30 June 2005 2005
£M £M £M
Revenue 726.6 648.1 1,231.6
Operating profit before amortisation and exceptional items 22.0 15.0 27.1
Amortisation of intangible assets and impairment of goodwill (0.4) (0.3) (0.9)
Exceptional items (3.8) 0.6 (2.5)
Profit from operations 17.8 15.3 23.7
Interest costs - net (5.0) (4.0) (9.1)
Exceptional interest income on VAT refund - 1.8 1.8
Profit before tax, amortisation, impairment and exceptional items 17.0 11.0 18.0
Amortisation of intangible assets and impairment of Goodwill (0.4) (0.3) (0.9)
Exceptional items including interest income on VAT Refund (3.8) 2.4 (0.7)
Profit on ordinary activities before taxation 12.8 13.1 16.4
Taxation (4.7) (3.8) (4.8)
____ _____ _____
Profit for the period 8.1 9.3 11.6
==== ===== =====
Basic earnings per ordinary share 4.52p 5.25p 6.53p
==== ===== =====
Diluted earnings per ordinary share 4.52p 5.22p 6.52p
==== ===== =====
Adjusted earnings per ordinary share 6.69p 4.46p 7.54p
==== ===== =====
Consolidated Statement of Recognised Income and Expense
Half-year Half-year Year ended
ended ended 31 December 2005
30 June 2006 30 June 2005
£M £M £M
Actuarial gains/(losses) recognised in post retirement benefit scheme
8.0 - (3.1)
Taxation thereon (2.4) - 0.9
______ ______ _______
Net gains/(losses) recognised directly in equity 5.6 - (2.2)
Profit for the financial period 8.1 9.3 11.6
______ ______ _______
Total recognised income and expense for the period 13.7 9.3 9.4
===== ===== ======
Consolidated Balance Sheet (Summarised)
30 June 30 June 31 December
2006 2005 2005
£M £M £M
FIXED ASSETS
Goodwill 22.5 18.4 20.3
Other intangible fixed assets 16.4 14.7 16.8
Property, plant and equipment 142.3 122.7 137.2
_______ ______ ______
181.2 155.8 174.3
_______ ______ ______
CURRENT ASSETS
Inventories 209.0 166.2 190.8
Trade and other receivables 97.4 82.2 66.8
Cash and cash equivalents 0.8 2.7 2.4
______ ______ ______
307.2 251.1 260.0
______ ______ ______
TOTAL ASSETS 488.4 406.9 434.3
===== ===== =====
CURRENT LIABILITIES
Financial liabilities 22.2 19.7 21.7
Trade and other payables 283.6 209.2 239.8
Tax liabilities and short term provisions 11.0 10.3 8.5
______ ______ ______
316.8 239.2 270.0
===== ===== =====
NET CURRENT (LIABILITIES)/ASSETS (9.6) 11.9 (10.0)
______ _____ _______
NON CURRENT LIABILITIES
Financial liabilities 54.8 56.2 52.7
Retirement benefit obligation 10.5 18.1 19.2
Deferred taxation and long term provisions 4.5 1.9 2.2
______ _____ _____
69.8 76.2 74.1
===== ===== =====
TOTAL LIABILITIES 386.6 315.4 344.1
===== ===== =====
NET ASSETS 101.8 91.5 90.2
===== ===== =====
Total Borrowings 76.2 73.2 72.0
===== ===== =====
Gearing 75% 80% 80%
===== ===== =====
Consolidated Cashflow Statement (Summarised)
Half-year ended Half-year ended Year ended
30 June 2006 30 June 2005 31 December 2005
£M £M £M
Cash generated from operations
Profit for the period 8.1 9.3 11.6
Adjustments for tax 4.7 3.9 4.8
Adjustments for depreciation 2.7 2.4 4.7
Profit on disposal of property, plant and equipment (0.5) (0.4) (0.4)
Cost of aborted Reg Vardy bid - - 1.2
Cost of bid defence/strategic review 4.0 - -
Amortisation of intangibles 0.4 0.3 0.7
Impairment of goodwill - - 0.2
Interest on VAT - (1.8) (1.8)
Interest expense - net 5.0 4.0 9.1
Changes in working capital (excluding effects of
acquisitions and disposal of subsidiaries)
Increase in inventories (16.7) (19.6) (40.1)
Increase in trade and other receivables (30.1) (30.0) (8.5)
Increase in payables 38.7 52.8 73.0
Movement in pensions (0.7) - (2.5)
Movement in provisions (0.8) (1.0) (1.8)
_____ _____ _____
Cash generated from operations 14.8 19.9 50.2
Tax paid (1.5) (3.6) (4.0)
Interest paid (5.2) (4.3) (8.4)
Interest received - 1.8 1.9
______ _____ ____
Net cash from operating activities 8.1 13.8 39.7
______ _____ ____
Cashflows from investing activities
Acquisition of businesses/subsidiaries (net of cash acquired) (5.5) (21.6) (34.6)
Purchase of property, plant and equipment (7.1) (8.4) (19.9)
Proceeds from sale of property, plant and equipment 1.3 2.8 2.6
Proceeds from sale of business 1.5 - 1.9
____ _____ _____
Net cash used by investing activities (9.8) (27.2) (50.0)
Cashflows from financing activities
Proceeds from issue of ordinary shares 0.7 - 0.1
Repayment of loans (8.3) (4.4) (13.5)
New loans 5.0 20.0 24.0
Principal payments under HP agreements (0.1) - (0.2)
Dividends paid to group shareholders (2.9) (2.0) (3.5)
_____ ____ ___
Net cash (for)/from financing activities (5.6) 13.6 6.9
==== ==== ===
(Decrease)/Increase in cash and cash equivalents (7.3) 0.2 (3.4)
Cash and cash equivalents at the beginning of the period (0.9) 2.5 2.5
____ ____ _____
Cash and cash equivalents at the end of the period (8.2) 2.7 (0.9)
==== ==== ====
Notes
1. Basis of Preparation
The unaudited information has been prepared in accordance with the Listing Rules
of the Financial Services Authority and on the basis of International Financial
Reporting Standards (IFRS) issued by the IASB and as adopted by the European
Commission (EC) with the exception of IAS 34 which is not yet required by UK
Company Law.
The information for the year ended 31 December 2005 does not constitute
statutory accounts as defined in section 240 of the Companies Act 1985. A copy
of the statutory accounts for that year have been delivered to the Register of
Companies. The auditors' report on those accounts was unqualified.
2. Dividends
Ordinary shares of 5p each
The interim dividend proposed at the rate of 1.30p per share (2005 - 0.95p per
share) is payable on 30 November 2006 to shareholders on the register at close
of business on 22 September 2006.
Half-year Half-year Year ended
ended ended 31 December
30 June 2006 30 June 2005 2005
Pence Pence Pence
Ordinary dividend per share
- paid in period 2.10 1.62 2.57
==== ==== ====
- proposed 1.30 0.95 2.10
==== ==== ====
3. Exceptional items
Half-year Half-year Year ended
ended ended 31 December
30 June 2006 30 June 2005 2005
£M £M £M
Loss on termination of businesses (0.3) - (1.9)
Profit on disposal of properties 0.5 0.4 0.4
Bid defence costs/strategic review (4.0) - -
Exceptional item - VAT - 0.2 0.2
Aborted acquisition costs - - (1.2)
____ ___ ____
(3.8) 0.6 (2.5)
=== === ===
4. Interest costs - net
Half-year Half-year Year ended
ended ended 31 December
30 June 2006 30 June 2005 2005
£M £M £M
Bank interest payable 3.2 2.7 5.7
Fair value losses on interest rate swaps and collars - - 0.4
Bank interest receivable - - (0.1)
Hire purchase agreements - - 0.1
Interest on consignment vehicles 1.5 1.3 2.4
Net interest on pension scheme 0.3 - 0.6
____ ____ ____
5.0 4.0 9.1
==== ==== ====
5. Earnings per share
The calculation of earnings per ordinary share is based on profits on ordinary
activities after taxation amounting to £8.1M (2005: £9.3M) and a weighted
average of 179,140,033 ordinary shares in issue during the period (2005:
177,069,250).
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
125,089 (2005: 235,670). The diluted earnings per share is 4.52p (2005: 5.22p).
Adjusted earnings per share is stated before amortisation of intangible assets,
loss on disposal/termination of businesses and the profit on disposal of
properties and exceptional VAT credits and is calculated on profits of £12.0M
for the period (2005: £7.9M)
Half-year ended Half-year ended Year ended
30 June 2006 30 June 2005 31 December 2005
Earnings Earnings Earnings Earnings Earnings Earnings
per share per share per share
p p p
£M £M £M
Earnings attributable to
ordinary shareholders 8.1 4.52 9.3 5.25 11.6 6.53
Amortisation of
intangible assets and
impairment of goodwill 0.4 0.22 0.3 0.17 0.9 0.51
Exceptional items (net) 3.8 2.12 (2.4) (1.36) 0.7 0.39
Tax (credit)/debit
exceptional items (0.3) (0.17) 0.7 0.40 0.2 0.11
Adjusted 12.0 6.69 7.9 4.46 13.4 7.54
The net exceptional items are comprised of £3.8 million charge (2005: £0.6
million credit) included in operating profit and £ nil (2005: £1.8 million) of
interest income on the VAT refund.
6. Taxation
The tax charge for the period has been provided at the rate of 36.7% (2005:
29.5%).
7. Interim Statement
The interim announcement was approved by the Board and will be posted to
shareholders on 8 September 2006. Copies are also available to the public at the
registered office of the company at 776 Chester Road, Stretford, Manchester M32
OQH.
Executive Directors
H K Surgenor - Chief Executive
D V Dyson, BSc F.C.A - Finance Director
D J Blakeman, LL.B - Company Secretary
B Schumacker, MSc - Operations Director
A C Bruce, BA - Operations Director
T Wainwright - Operations Director
Non-Executive Directors
F S Maguire, MSc - Chairman
P M White, C.B.E. F.C.A - Chairman (from 4 September 2006)
D C Mace, BSc
J E Brown, FCCA ATII
D C A Bramall, F.C.A
Registered Office
776 Chester Road
Stretford
Manchester
M32 OQH
Telephone : 0161 291 0043
Website: www.lookers.co.uk
Registrars and Transfer Office
Capita Registrars
Woodsome Park
Penistone Road
Fenay Bridge
Huddersfield
HD8 OLA
Telephone : 01484 600900
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