Annual Results for the year ended 31 December 2011

RNS Number : 8063Y

Lookers PLC

07 March 2012

 



LOOKERS plc

ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2011

Lookers plc, ("Lookers" "the company" or "the group"), one of the leading UK motor retail and aftersales service groups, announces its annual results for the year ended 31 December 2011.

Financial Highlights

·       Revenue of £1.90 billion (2010: £1.88 billion)

·       *Adjusted profit before tax increased to £33.8 million (2010: £33.6 million)

·       Profit before tax increased to £31.4 million (2010: £31.1 million)

·       Earnings per share up 10% at 6.54p (2010: 5.97p)

·       Operational cash flow improved at £58.0 million (2010: £53.4 million)

·       Net debt reduced significantly at £39.5 million (2010: £56.6 million)

·       Gearing down to 20% (2010: 31%) and net debt to EBITDA reduced to 0.73 (2010: 1.04)

·       Proposed final dividend of 1.38p per share - total dividend per share up 21% at 2.18p (2010: 1.8p)

·       New bank facilities, providing substantial headroom, in place until 2016

Operational Highlights

Strong trading performance from both the motor division and the group's market leading independent parts division, as well as a further reduction in the cost base:

Motor division

·      Group's share of the UK new car retail market increased to 4.1%

·      New car sales volumes up 1.1% overall with fleet volumes up 25%, despite the new car market reducing by 4.4%

·      Used car sales volumes up 2.5% against a flat UK market

Parts division

·      Strong growth in turnover and gross profit

·      Future growth supported by new product lines, improved facilities and investment in systems

Peter Jones, Chief Executive of Lookers, said:  "We have had three successive years of increased profits, which have been delivered in difficult market circumstances. Operating cash flow continues to be strong and this has further strengthened our balance sheet. These results give us confidence that we can continue to grow the business in 2012, despite short term market conditions remaining challenging. As economic conditions improve over the medium term, the business is well placed to take advantage from future growth in the new and used car markets and increased demand for aftersales and parts."

Enquiries:

Lookers	Telephone:  [phone]
Peter Jones, Chief Executive
Robin Gregson, Finance Director
Tavistock Communications	Telephone:  [phone]
Catriona Valentine/Keeley Clarke

(*Adjusted before amortisation of intangible assets and debt issue costs)

CHAIRMAN'S REVIEW

I am very pleased to report that Lookers has delivered another strong trading performance for the year, improving *adjusted profit before tax to £33.8 million (2010: £33.6 million). It is particularly pleasing to announce another successful result against the background of the difficult trading conditions in the motor retail market and general uncertainty in the UK economy. The group's performance demonstrates the strength of its businesses and represents a significant achievement against this challenging environment.

The UK new car market reduced by 4.4% in 2011, with total registrations of 1.94 million which was the lowest volume since 1994. Against this background, however, our motor division delivered another strong performance, with profitability at a similar level to the record result achieved in 2010. Further details of our progress in the motor division are provided in the Chief Executive's Review.

We continue to benefit from our diverse business structure and our market leading independent parts distribution business, which provides a significant contribution to group earnings, has had another good year. Satisfactory levels of operating profit were produced by all of the three businesses that comprise the division which now represents 36% of group profits. The parts division is of particular importance to the group as it produces a more resilient source of profit which is not subject to fluctuations in the new and used car markets. As each of our three independent parts businesses is a national market leader in their sector of the market, we are in a strong position to exploit further growth opportunities through the introduction of new products and services.

Our strong performance in 2011 demonstrates the strength of the group's businesses with profits generated by dealership aftersales and the independent parts division representing 60% of total gross profit. Furthermore, the capital structure of the group has strengthened significantly in the last three years and the business is generating substantial levels of free cash flow. This improved financial position has enabled the board to significantly increase the dividend payment for the year, details of which are set out below. The group is therefore in a strong position to continue to trade successfully in 2012 and develop further opportunities in all areas of the business.

FINANCIAL HIGHLIGHTS

Turnover and *adjusted operating profit were similar to the previous year at £1.9 billion and £45.2 million respectively and we are pleased to report that there were again no exceptional charges in the year. We continued to focus on the control of working capital and operational cash flow, which together with cash raised from the sale of underperforming businesses or surplus properties, has reduced net bank borrowings by £17.1 million in the year. This had a positive effect on net interest charges which reduced by £1.9 million to £11.4 million, a reduction of 14%. *Adjusted profit before tax was £33.8 million compared with an *adjusted profit of £33.6 million last year. Profit before tax increased to £31.4 million (2010: £31.1 million). Earnings per share increased by 10% to 6.54p compared to 5.97p in 2010. *Adjusted earnings per share increased by 8.1% to 7.17p (2010: 6.63p). Cash flow for the year continued to be very strong with operating cash improving to £58.0 million compared to £53.4 million in 2010. This had a beneficial effect on the balance sheet where gearing improved to 20% from 31% last year and net debt reduced to £39.5 million compared to £56.6 million at the start of the year.

(*Adjusted before amortisation of intangible assets and debt issue costs)

BANK FACILITIES

I am pleased to announce that we renegotiated our banking facilities during the year, to replace our arrangements which were due to expire in April 2012. The new agreement, which was finalised in November 2011, provides the group with bank facilities that have greater flexibility over a longer term than those that they have replaced. The new facilities will also result in a reduction in the interest rate margin that is payable on group borrowings. Further details of the new facilities are included in the Finance Director's review.

DIVIDEND

We were pleased to announce in the half year report that, given the encouraging results for that period and the strong financial position of the group, the company declared an interim dividend of 0.8p per share, which was paid in November. This represented an increase in the interim dividend of 33% over the amount paid in the previous year. I am also pleased to announce that following the strong performance of the group in the year, we are proposing to pay a final dividend for the year ended 31 December 2011 of 1.38p per share, giving a total dividend for the year ended 31 December 2011 of 2.18p per share (2010: 1.8p). This represents an increase in the total dividend for the year of 21%. Payment of the final dividend is subject to approval by shareholders at the Annual General Meeting and will be payable on 31 May 2012.

BOARD CHANGES

As announced on 1 July 2011, Neil Davis was appointed as a director of the company on that date. Neil is Managing Director of the parts division and his appointment is part of a succession plan that has been under consideration for some time. As part of this arrangement, Terry Wainwright stepped down from his position as a director of the company on 4 January 2012. Terry will continue with the business in his current role as Chairman of the parts division. I would like to thank Terry for his excellent and substantial contribution since joining the group when FPS was acquired in August 2004 and his subsequent appointment to the board in October 2005. During this time he has worked with Neil to develop the parts division into a market leader and a significant business. I am delighted that Terry is continuing his important role at Lookers and I, together with my colleagues on the board, would like to personally thank him for his exceptional contribution to the group during the past seven years.

OUTLOOK

The motor division delivered a strong performance in 2011 against a background of challenging economic conditions. The new and used car retail markets are likely to continue to be affected whilst economic conditions remain uncertain. However, the aftersales bias to the motor division helps to reduce the financial impact of this and the group has a demonstrable track record of performing well in the difficult retail markets of the last three years. This demonstrates the resilience of the group's retail business and the flexibility to adapt to changing market conditions to help protect profitability, which gives us confidence for the future.  In addition, we remain focused on areas in which we can improve the performance of the group's dealership operations to bring further improvements in profitability.

The independent parts division delivered a strong trading performance during 2011. A decline in demand at the start of 2012 has had some impact on turnover, however the continued investment in its value proposition and the addition of new product lines should help offset this during the year.

We continue to focus on working capital management, and the strong operational cash flow during the year has further strengthened the group balance sheet. This will continue to improve with positive cash flow in the future as net borrowings are well managed and are at a lower level than budget. These factors, together with substantial headroom provided by our new bank facilities, will allow us to take advantage of strategic acquisition opportunities in both the motor and parts divisions.

The new financial year has started well with the group continuing to make further progress. We are therefore confident that we are well placed to deliver future growth.

I would like to conclude by thanking all our people at Lookers for their hard work and dedication in a challenging year, without whom we would not have been able to deliver such a result.

Phil White

Chairman

7 March 2012

CHIEF EXECUTIVE'S REVIEW

2011 Performance Overview

Both the motor division and parts division have delivered strong trading performances in the year with the group achieving *adjusted profit before tax of £33.8 million (2010: £33.6 million). Given the challenging trading conditions during the year, I believe it is a significant achievement to increase profits above the record result achieved in 2010.

The key elements of this creditable performance were:

·           An increase in the group's share of the new car market, both in the retail and corporate sales sectors;

·           Growth in used car volumes;

·           A highly resilient aftersales performance in the motor division;

·           Substantial growth in turnover and gross profit in our parts division; and

·           Further reductions in the cost base.

We have now had three successive years of increased profits which have been delivered in difficult market circumstances. This gives us confidence that we will be able to grow the business again in 2012, despite short term market conditions remaining challenging. As economic conditions improve over the medium term, the business is well placed to take advantage of growth opportunities in the new and used car markets and increased demand for aftersales and parts.

(*Adjusted before amortisation of intangible assets and debt issue costs)

OPERATING REVIEW

MOTOR DIVISION

Our motor division consists of 111 franchise dealerships representing 31 marques from 70 sites.  The business generates revenue from the sale of new and used cars and aftersales being vehicle servicing and repair together with the sale of franchise parts. I am pleased to report that profit before tax in the motor division was £27.4 million, a similar level to that of the previous year.

During the year we have added three further franchises, two of which are in existing locations, which increased turnover without a significant increase in fixed costs, thereby improving efficiency and profitability of the relevant sites. At the start of the year we acquired the Audi business in South Dublin as a precursor to establishing a flagship brand centre in Dublin and this investment is expected to make good profit returns in the medium term. We continue to improve the balance of our portfolio of franchise representation and, in the year, we have sold or closed nine underperforming businesses which were non core to our strategic development plan.

In March 2011 we acquired Get Motoring UK Limited which trades as Vehicle Rental Services ("VRS") and supplies vehicles on short term leases to car rental operators in the UK. VRS complements Lookers' existing vehicle leasing businesses and has helped to broaden the range of revenue streams in the group. VRS has made a good start as part of the group and profitability for the period since acquisition is ahead of expectations.

New Cars

The new car market reduced by 4.4% to 1.94 million cars, the lowest since 1994. Group new car sales volumes of 54,317 showed an increase of 1.1% compared to 2010 levels, on a like for like basis. Whilst the new car retail market reduced by 14.1%, our sales were 5% ahead of the market, strengthening our share of this sector of the market to 4.1%. In the fleet sector, the market increased by 4.2%, whereas our sales volumes increased by 25%. Gross profit per unit for new retail cars was maintained at similar levels to the previous year, with fleet margins improving by 13.5%. Whilst conditions in the new car market continue to be difficult, we have made a strong start to 2012 and our order take for the important month of March is tracking ahead of plan.

Used Cars

The total used car market in the UK remained flat in 2011 but group sales increased by 2.5% to 40,404 cars, on a like for like basis. This was a positive performance and was the result of a strong focus on pro-active pricing, stock management and improved buying. Gross profit per unit was maintained at a similar level to the previous year.

The used car market, which has annual sales of approximately 6.7 million vehicles, remains a huge area of opportunity for the group. Through improved sourcing and a broader stock mix, we expect to take advantage of the stable market conditions in the used car sector to improve volumes and margins.

Aftersales

The aftersales business in the motor division continues to grow, despite what has been a declining vehicle parc within the 0 to 3 year vehicle sector, although this period of reduction is coming to an end. The group maintained like for like aftersales revenue, excluding closed or sold businesses, which represents good progress in this market and gross margins improved on the prior year.

We continue to invest in technology and procedures to further improve customer retention and average sales value per customer visit. In particular, we have made a number of improvements to our customer relationship marketing processes where our conversion rates have significantly increased, along with a lower cost per customer contact. We are also now enjoying the benefits of full deployment of our electronic vehicle health check system across the whole motor division and this has resulted in higher levels of additional spend per customer visit. Our sales of service plans, whereby customers commit to longer term contracts for vehicle servicing, together with the sale of warranties under the Lookers' warranty scheme, are showing significant growth and this will further improve customer retention. All these initiatives help us to identify and optimise service and repair requirements on all vehicles visiting us, which combined with the reorganisation of our call centres and our determination to deliver excellent customer service, are key factors in strengthening and optimising customer retention.

Business Development

Marketing strategy

We have made major improvements to our web presence and have seen visitor and enquiry levels increase significantly in 2011 showing year on year growth of 22% and 20% respectively. In the first two months of 2012, this has increased to 35% and 33%. We intend to make further significant investment in this area to ensure our digital showroom reflects the very latest trends in consumer behaviour. This will include social media, reputation management and the use of more video technology.

Customer satisfaction

During 2011, we provided more transparency in respect of our customer satisfaction both within the business and with our customers. Management incentives have been restructured to place more emphasis on our customer satisfaction levels and the scope of our customer research has become more widely focused. We believe these measures will continue to drive higher retention and referrals within our business

Employee development

Recognising that our people are our key asset, we invested in a much enhanced training and development programme in 2011. This dramatically increased the number of training courses available to all staff, including the innovative use of an e-learning platform as well as introducing a structured and formal management development programme.

PARTS DIVISION

Following a record year in 2010, our independent aftermarket parts division has continued to perform well, producing another significant increase in turnover and gross profit compared to the previous year. The parts division operates through three companies, FPS, Apec Braking and BTN Turbo, each supplying hard parts to the independent automotive aftermarket, the customer base being primarily motor factors who, in turn, supply the independent repair sector.

The total vehicle car parc in the UK market is over 30 million vehicles, with the markets served by the independent parts division making up 80% of this market.  With each of our businesses being market leaders in their sector, our independent parts operations have continued to take advantage of growth opportunities through increased customer and product sector penetration.

Turnover for the division increased by 6%, despite economic pressures and a reduction in miles driven by UK consumers, which directly reduces the demand for vehicle parts. Operating profit and profit before tax were maintained at a similar level to 2010 at £12.4 million.

FPS, our national warehouse distributor of quality branded automotive hard parts delivered strong growth in turnover, up 7% with profit before tax increasing to £8.8 million from £8.7 million last year. Growth continues to be supported by new product development and penetration. Investment in infrastructure continues and at the start of 2011 a  second warehouse was established in Sheffield for bulk storage and distribution of new product lines. Efficiency benefits were also achieved by an increase in electronic order capture and information exchange.

Apec Braking, the market leader in the UK for 'dry' braking (pads and discs) increased turnover by 7% and delivered an increase in profit before tax over budget and the prior year. Margins were maintained despite being under pressure due to significant competition in the market, particularly for brake pads.

BTN Turbo, a leading supplier and provider of technical support and servicing of turbochargers, experienced underlying sales growth of 8%. However, abnormal demand patterns from a key account resulted in total turnover being marginally behind prior year and, despite maintained margins, profits were slightly down for the year. The market remains attractive as the installed turbo base in the UK continues to increase and the introduction of new product ranges will assist growth in the key motor factor sector.

OUTLOOK

The group has made a good start to the current year and we have continued to outperform the new retail car market. We have a healthy order book for the delivery of new cars in the important month of March and aftersales continue to perform well, with the result that the group is ahead of both budget and prior year. We therefore expect the result for the first quarter to be ahead of both budget and last year.

The new and used car retail markets are likely to continue to be affected whilst economic conditions remain challenging. However, we have been operating in these conditions since 2008 and the group's strong performance during the past three years demonstrates the strength of the business and its ability to make progress in difficult times. The broad base of our franchise representation and the aftersales bias to the motor division, together with the restructuring of our portfolio during the last three years, have provided a structural resilience which allows us to adapt to market challenges. This leaves us very well positioned for future growth.

We continue to focus on the areas in which we can improve the performance of the group's franchised outlets and also on targeted and selective acquisitions to further improve our franchise representation.

Whilst turnover in the parts division has been affected by a modest reduction in demand, we continue to invest in new product lines, improved facilities and investment in systems, which should help offset this impact during the year and support further growth. This division is a key factor that differentiates Lookers in the retail motor sector and provides a high quality earnings stream that has greater stability than the fluctuating new and used car markets.

We continue to focus on the control and management of working capital. Cash flow is ahead of budget and has also benefited from the sale of surplus assets, resulting in a significant reduction in bank borrowings during the year. Net debt continues to be well managed and is at a lower level than the start of 2011. This, together with significant headroom provided by our new bank facilities, will allow us to take advantage of acquisition opportunities that may arise for both the motor and parts division, which will help to provide additional future growth.

Peter Jones

Chief Executive

7 March 2012

FINANCE DIRECTOR'S REVIEW

GROUP RESULTS

Turnover increased slightly to £1.90 billion compared to £1.88 billion last year, with positive growth across most areas of the business offsetting turnover from closed dealerships of £77 million in the previous year. Gross profit of £253 million is £8 million lower than last year but increased on a like for like basis if adjusted for £13.6 million of gross profit included in last year for closed dealerships. The gross margin was a similar level to the prior year at 13.3% compared to 13.8% and the operating margin was 2.4% compared to 2.5% last year. Overheads reduced by £6.7 million in the year and *adjusted profit from operations was £45.2 million, compared to £46.9 million in 2010. 

Total net interest costs reduced by 14% to £11.4 million compared to £13.3 million in 2010, with operational interest charges, excluding interest on pension scheme liabilities, reduced by 11% from £12.2 million to £10.9 million. Interest on group borrowings is based initially on floating interest rates supplemented with interest rate hedges. The term loan was fully covered by interest rate hedges during the year and this was also the situation at 31 December 2011. However, as the hedges were established in 2007, when interest rates were significantly higher than current levels, they have the effect of increasing the interest charge so that we do not get the full benefit of the low base rate which is currently applicable in the UK. The largest hedge, with a capital value of £50 million, expires on 28 February 2013, which will have a positive impact on the interest charge from that date.

Profit before tax, amortisation, and debt issue costs for the year increased to £33.8 million, from £33.6 million last year, which is the highest trading result to date for the company. Profit before tax was £31.4 million compared to a profit before tax in the previous year of £31.1 million. Profit after tax was £25.2 million, an increase of 10% compared to £22.9 million in 2010. This resulted in an increase of 10% in earnings per share of 6.54p compared to 5.97p in the prior year and *adjusted earnings per share of 7.17p compared to 6.63p in the prior year.

(*Adjusted before amortisation of intangible assets and debt issue costs)

TAXATION

The tax charge for the year of £6.2 million compares to a tax charge of £8.2 million in the prior year and reflects a charge of 20% of profit before tax. This is lower than the standard rate of corporation tax of 26%, as a tax benefit has arisen this year from prior year items and a reduction in deferred tax due to the impact of the reduction in the rate of corporation tax rate on the deferred tax liability.

CASH FLOW AND CAPITAL EXPENDITURE

Cash generated from operations for the year was £58.0 million, an increase of 9% compared to the operating cash flow in 2010 of £53.4 million. Working capital reduced by £3.0 million with an increase in creditors of £29.7 million offsetting the increase in stock and debtors of £26.7 million. Capital expenditure was £10.9 million compared to £12.3 million the previous year and proceeds from the sale of properties and dealership businesses were £13.7 million (2010: £7.0 million). The majority of capital expenditure was on new or improved premises for dealerships or improvements to parts division properties.

The strong operational cash flow allowed us to make a large reduction in bank loans where repayments of £24.6 million were made during the year, compared to £10 million in 2010. Net debt reduced by £17.1 million in the year, compared to £22.4 million in the previous year. However, the increased dividend paid in 2011 represents £5.4 million of this difference and, if this is adjusted for, the reduction in net debt is similar for both years. This reduction resulted in net borrowings of £39.5 million at 31 December 2011 compared to £56.6 million at the start of the year, net debt being calculated as gross bank borrowings less cash balances.

SHAREHOLDERS' FUNDS AND FINANCING

As referred to in the Chairman's review, we negotiated new bank facilities with the group's syndicate of banks and these new facilities were agreed on 28 November 2011. These facilities provide security of funding over a longer term and with greater flexibility compared to the previous facilities, together with a significant reduction in the interest rate margin. They consist of a revolving credit facility of £55 million and a term loan which was initially £60 million, with the potential to increase the term loan by up to an additional £30 million to fund future acquisitions. Interest is charged on both loans at a margin of between 1.4% and 2.35% above LIBOR, depending on the ratio of net bank debt to EBITDA. These facilities are subject to half yearly covenant tests on interest cover and net bank debt to EBITDA. The covenant tests are set at levels that provide sufficient headroom and flexibility for the group until maturity of the facilities in March 2016.

At 31 December 2011, total facilities were £111 million of which £39.5 million, net of cash balances, was being utilised. These facilities, together with the group's strong operational cash flow, indicate that the group has sufficient facilities available to fund its operations and allow for future expansion. At 31 December 2011, gearing was 20% compared to 31% at 31 December 2010 and net debt to EBITDA was 0.73 compared to 1.04 last year. The group's underlying profitability and strong cash flow should result in further reductions in borrowing in the future and help ensure that the level of borrowing remains under control and is at a reasonable level in relation to net assets. Further information on the going concern basis of preparation of the accounts is included in note 1.

PROPERTY PORTFOLIO

The group has a policy of investing in freehold and long leasehold property as the preferred means of providing premises for the car dealerships, where possible. As a result, we have a significant and valuable portfolio of freehold and long leasehold properties, where the net book value at 31 December 2011 was £174.3 million compared to £181.5 million last year, the reduction being due to the sale of surplus properties from closed dealerships. Of this amount £3.5 million has been disclosed within current assets as assets held for sale. Short leasehold properties had a value of £7.4 million (2010: £7.4 million).

DIVIDENDS

As referred to in our interim report, we were able to significantly increase the interim dividend following the strong cash flow and financial position of the group. The interim dividend of 0.8p per ordinary share was paid on 30 November 2011 and this represented an increase of 33% over the interim dividend for the previous year. We have continued this policy of significantly increasing the dividend by proposing to pay a final dividend of 1.38p per ordinary share, an increase of 15% over the final dividend for the previous year. This is subject to shareholder approval at the Annual General Meeting and will be payable on 31 May 2012. This will result in a total dividend for the year of 2.18p per share which represents an increase of 21% over the dividend paid in the previous year. The final dividend will represent a cash outflow of £5.3 million, which gives a total dividend for the year of £8.4 million.

PENSION SCHEMES

The group operates two defined benefit pension schemes both of which are closed to entry for new members. Action was taken during the year to control the deficit in the schemes by closing both schemes to future accrual from 1 April 2011. Returns on assets have been lower than anticipated during the year, which has resulted in a reduction in the value of pension assets across the schemes and the estimated liability of the Dutton Forshaw Scheme has increased during the year, resulting in an increase in the deficit. The total deficit, after deferred tax, has increased by £4.1 million in the year, so that the total deficit is now £23.9 million (2010: £19.8 million). The assessment of valuation is based on several key assumptions prescribed by accounting standards and over which the directors have very little control.  Relatively small changes in the bases of valuation can have a significant effect on the calculated deficit, hence the movement in the calculated deficit can be subject to high levels of volatility. The board continues to look at its options to reduce both the annual cost of operating both schemes and what actions can be taken to reduce the deficit on the schemes, thereby reducing exposure to movements in these liabilities and reducing the deficit over the medium and longer term.

VAT

As we have referred to in previous years, the group has previously submitted a number of claims with HM Revenue & Customs ('HMRC') in respect of potential overpayments of VAT relating to prior years and this situation continues to apply. If the group is successful in its negotiations with HMRC, then there is the potential for significant repayments to be received by the group. The nature of the process for negotiating these claims with HMRC can take a considerable time, so the timing of any potential receipt is uncertain and no benefit for any potential repayment has been included in the accounts and no income will be included until the claims have been agreed with HMRC.

Robin Gregson

Finance Director

7 March 2012

Responsibility Statement

The responsibility statement below has been prepared in connection with the company's financial statements for the year ending 31 December 2011. Certain parts thereof are not included within this announcement.

We confirm that to the best of our knowledge:

·        the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and

·        the management report, which is incorporated into the Directors' Report, includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

By order of the board P Jones Chief Executive Officer 7 March 2012

R A Gregson Finance Director 7 March 2012

Consolidated Income Statement
For the year ended 31 December 2011

		2011	2010
	Note	£m	£m
Continuing operations
Revenue		1,898.5	1,883.8
Cost of sales		(1,645.9)	(1,623.2)
Gross profit		252.6	260.6
Distribution costs		(138.6)	(140.0)
Administrative expenses		(70.2)	(75.5)
Other operating income		0.1	0.5
Profit from operations		43.9	45.6
Profit from operations before amortisation		45.2	46.9
Amortisation of intangible assets		(1.3)	(1.3)
Profit from operations		43.9	45.6
Interest payable	2	(11.7)	(13.4)
Interest receivable	2	0.3	0.1
Net interest		(11.4)	(13.3)
Debt issue costs		(1.1)	(1.2)
Profit on ordinary activities before taxation		31.4	31.1
Profit before tax, amortisation
and debt issue costs		33.8	33.6
Amortisation of intangible assets		(1.3)	(1.3)
Debt issue costs		(1.1)	(1.2)
Profit on ordinary activities before taxation		31.4	31.1
Tax charge		(6.2)	(8.2)
Profit for the year		25.2	22.9
Attributable to:
Shareholders of the company		25.1	22.9
Non-controlling interests		0.1	-
Continuing operations
Earnings per share
Basic earnings per share	3	6.54p	5.97p
Diluted earnings per share	3	6.39p	5.85p

Consolidated Statement of Comprehensive Income

		2011	2010
		£m	£m
Profit for the financial year		25.2	22.9
Actuarial (losses)/gains recognised in post-
retirement benefit schemes		(6.4)	3.8
Movement in deferred taxation on pension liability		2.4	(1.2)
Fair value on derivative instruments		-	(2.3)
Movement in deferred taxation on derivative instruments		0.5	0.6
Other comprehensive (expense)/Income for the year		(3.5)	0.9
Total comprehensive income for the year		21.7	23.8
Attributable to:
Shareholders of the company		21.6	23.8
Non-controlling interests		0.1	-

Consolidated Statement of Financial Position

As at 31 December 2011

	2011	2010
	£m	£m
Non-current assets
Goodwill	47.7	44.8
Intangible assets	14.5	15.7
Property, plant and equipment	191.1	194.6
	253.3	255.1
Current assets
Inventories	320.3	292.3
Trade and other receivables	109.1	104.2
Rental fleet vehicles	29.3	-
Cash and cash equivalents	17.9	24.3
Assets held for sale	3.5	7.8
	480.1	428.6
Total assets	733.4	683.7
Current liabilities
Financial liabilities - bank loans and overdrafts	8.6	14.1
Trade and other payables	407.1	353.8
Current tax liabilities	8.4	9.7
Short-term provisions	0.9	0.9
Derivative financial instruments	8.5	8.5
	433.5	387.0
Net current assets	46.6	41.6
NON-CURRENT LIABILITIES
Financial liabilities- bank loans	48.8	66.8
Trade and other payables	9.8	7.2
Retirement benefit obligations	32.0	27.1
Deferred tax liabilities	11.4	13.3
Long-term provisions	0.8	0.7
	102.8	115.1
Total liabilities	536.3	502.1
Net assets	197.1	181.6
Shareholders' equity
Ordinary share capital	19.3	19.2
Share premium	75.0	73.6
Capital redemption reserve	14.6	14.6
Other reserve	(1.4)	(1.4)
Retained earnings	89.3	75.6
Equity attributable to shareholders of the company	196.8	181.6
Non-controlling interests	0.3	-
TOTAL EQUITY	197.1	181.6

Consolidated Cash Flow Statement

For the year ended 31 December 2011

	2011	2010
	£m	£m
Cash flows from operating activities
Profit for the year	25.2	22.9
Adjustments for:
Tax	6.2	8.2
Depreciation	9.3	7.8
Loss on disposal of plant and equipment	0.1	0.2
Loss on disposal of rental fleet vehicles	0.4	-
Amortisation of intangible assets	1.3	1.3
Interest income	(0.3)	(0.1)
Interest payable	11.7	13.4
Debt issue costs	1.1	1.2
Changes in working capital
Increase in inventories	(25.6)	(44.9)
(Iincrease)/decrease in trade and other receivables	(1.1)	2.1
Increase in payables	29.7	41.3
Cash generated from operations	58.0	53.4
Difference between pension charge and cash contributions	(4.1)	(4.1)
Purchase of rental fleet vehicles	(39.3)	-
Proceeds from sale of rental fleet vehicles	26.2	-
Interest paid	(11.7)	(13.3)
Interest received	0.3	0.1
Tax paid	(6.7)	(5.9)
Net cash inflow from operating activities	22.7	30.2
Cash flows from investing activities
Acquisition of subsidiary companies	(1.0)	-
Purchase of property, plant and equipment	(10.9)	(12.3)
Purchase of intangibles	(0.1)	-
Proceeds from sale of property, plant and equipment	12.5	7.0
Proceeds from sale of business	1.2	-
Net cash generated/(used) by investing activities	1.7	(5.3)
Cash flows from financing activities
Proceeds from issue of ordinary shares	1.5	-
Repayment of loans	(25.5)	(10.0)
New loans	0.9	-
Debt issue costs	(1.1)	-
Principal payments under hire purchase agreements	-	(0.2)
Dividends paid to group shareholders	(7.7)	(2.3)
Net cash outflow from financing activities	(31.9)	(12.5)
(Decrease)/increase in cash and cash equivalents	(7.5)	12.4
Cash and cash equivalents at 1 January	24.3	11.9
Cash and cash equivalents at 31 December	16.8	24.3

Consolidated Statement of Changes in Equity

	Share capital £m	Share premium £m	Capital redemption reserve £m	Other reserve £m	Retained earnings £m	Total equity £m	Non controlling interest £m	Total equity £m
As at 1 January 2010	19.2	73.6	14.6	(1.4)	54.1	160.1	-	160.1
Profit for the year	-	-	-	-	22.9	22.9	-	22.9
Actuarial gains on defined benefit pension schemes	-	-	-	-	3.8	3.8	-	3.8
Deferred taxation on pension liability	-	-	-	-	(1.2)	(1.2)	-	(1.2)
Fair value on derivative instruments	-	-	-	-	(2.3)	(2.3)	-	(2.3)
Deferred taxation on derivatives	-	-	-	-	0.6	0.6	-	0.6
Dividends to shareholders	-	-	-	-	(2.3)	(2.3)	-	(2.3)
As at 31 December 2010	19.2	73.6	14.6	(1.4)	75.6	181.6	-	181.6
Profit for the year	-	-	-	-	25.1	25.1	0.1	25.2
New shares issued	0.1	1.4	-	-	-	1.5	-	1.5
Actuarial losses on defined benefit pension schemes	-	-	-		(6.4)	(6.4)	-	(6.4)
Deferred taxation on pension liability	-	-	-	-	2.4	2.4	-	2.4
Deferred taxation on derivatives	-	-	-	-	0.5	0.5	-	0.5
Non-controlling interest in subsidiary undertaking	-	-	-	-	(0.2)	(0.2)	0.2	-
Dividends to shareholders	-	-	-	-	(7.7)	(7.7)	-	(7.7)
As at 31 December 2011	19.3	75.0	14.6	(1.4)	89.3	196.8	0.3	197.1

Explanatory Notes to the Financial Information

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 Union (EU). This financial information has been prepared on the same basis as in 2010. Further information in relation to the Standards adopted by the group is available on the group's website, www.lookersplc.co.uk.

       
Whilst the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS's), this announcement does not itself contain sufficient information to comply with IFRS's.

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2011 or 2010, but is derived from those accounts. Statutory accounts for 2010 have been delivered to the Registrar of Companies and those for 2011 will be delivered following the company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under section 498(2) or (3) Companies Act 2006.

A copy of the full group accounts that comply with IFRS's for the period ended 31 December 2011 can be found at www.lookersplc.co.uk and will be posted to shareholders this month.

Going Concern

This financial information has been prepared on a going concern basis which the directors believe to be appropriate for the reasons set out below.

The company and the group continue to meet their day to day working capital requirements through short term stocking loans and the revolving credit facility and medium term funding requirements through a term loan. At the year end, the medium term banking facilities included a revolving credit facility of up to £55.0 million and a term loan of £56.25 million, providing total facilities of £111.25 million until March 2016.

The financial position of the group, its cash flows, liquidity position and borrowing facilities are described earlier. The group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the group should be able to operate within the level of its current facility. Therefore the directors have a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

2. Finance costs - net

	2011	2010
	£m	£m
Interest expense
On amounts wholly repayable within 5 years:
Interest payable on bank borrowings	(6.8)	(8.4)
Interest on consignment vehicle liabilities	(4.4)	(3.9)
Net interest on pension schemes	(0.5)	(1.1)
Interest and similar charges payable	(11.7)	(13.4)
Interest income
Bank interest	0.3	0.1
Total interest receivable	0.3	0.1
Finance costs - net	(11.4)	(13.3)

3. Earnings per share

The calculation of earnings per ordinary share is based on the profit on ordinary activities after taxation attributable to shareholders of the company amounting to £25.1 million (2010: £22.9 million) and a weighted average number of ordinary shares in issue during the year of 383,750,120 (2010: 383,549,291).

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 9,281,938 (2010: 7,357,815).

Adjusted earnings per share is stated before amortisation of intangible assets, impairment of goodwill and debt issue costs and is calculated on profits of £27.5 million (2010: £25.4 million) for the year.

Continuing operations	2011 Earnings £m	2011 Earnings per share p	2010 Earnings £m	2010 Earnings per share  p
Basic EPS
Earnings attributable to ordinary shareholders	25.1	6.54	22.9	5.97
Effect of dilutive securities	-	(0.15)	-	(0.12)
Diluted EPS	25.1	6.39	22.9	5.85
Adjusted EPS
Earnings attributable to ordinary shareholders	25.1	6.54	22.9	5.97
Amortisation of intangible assets	1.3	0.34	1.3	0.34
Debt issue costs	1.1	0.29	1.2	0.32
Adjusted EPS	27.5	7.17	25.4	6.63

4. Dividends                                      

	2011	2010
	£m	£m
Interim dividend of 0.8p per ordinary share (2010: 0.6p)	3.1	2.3
Final dividend paid during the year relating to the financial year ended 31 December 2010 of 1.2p per ordinary share (2010: £nil)	4.6	-
Total dividends paid In the year of 2.0p per ordinary share (2010: 0.6p)	7.7	2.3

The directors propose a final dividend of 1.38p per ordinary share in respect of the financial year ending 31 December 2011 (2010: 1.2p). The final dividend will be paid on 31 May 2012 to shareholders on the register on 27 April 2012.  The proposed final dividend is subject to approval by the shareholders at the Annual General Meeting and has not been included as a liability in this financial information.

5. Principal risks and uncertainties

The group's business activities, financial condition, results of operations or the company's share price could be affected by any or all of the following principal risks or uncertainties:

Global Economy

The new and used car markets are influenced by general economic conditions, including changes in interest rates, fuel prices, indirect taxation, the cost and availability of credit and other factors which affect levels of consumer confidence. The demand for new cars is cyclical, which in some years will lead to reduced margins caused by oversupply. This could have an adverse impact on the earnings of the group, although it is likely that this would be mitigated by potential increases in both the used car market and the aftersales market as customers substitute nearly new for new cars, or spend more keeping their old vehicles roadworthy. Despite the general uncertainty in the economy, the group's business has proved to be resilient against this background.

Manufacturers' Financial Stability

The group relies on its manufacturer partners for a significant proportion of its revenues and profits. The failure of a manufacturer could have a significant impact on the short-term profitability of a retailer partner. The group has attempted to mitigate this risk by having trading relationships with a large number of manufacturers, so that the impact of any one manufacturer failing would be reduced.

Liquidity and Financing

The group uses a number of methods to fund its day to day business.  These methods are (i) bank borrowings by way of committed borrowing facilities (Banking facilities of £111 million, maturing 2016); (ii) from manufacturer and third party finance houses through uncommitted stocking facilities to fund the purchase of stock; and (iii) from suppliers by way of trade credit. A withdrawal of any of these financing facilities or a failure to renew them as they expire could lead to a significant reduction in the trading ability of the group.

However the group's balance sheet has been strengthened significantly over the past three years and this together with the renewal of the group's banking facilities in 2011, provides sufficient liquidity and funding.

Exchange Rates

The group is affected by currency fluctuations to the extent that a large proportion of our manufacturer partners either source parts or manufacture vehicles overseas. The fluctuation of the Euro against Sterling has meant that most manufacturers have had to adjust prices despite the current market conditions. The board is aware of the uncertainties and seeks to mitigate this by ensuring the group retains a broad mix of the major manufacturers, both UK and overseas, to limit the effect.

Block Exemption Aftersales/General Exemption Sales

Franchise agreement legislation for the automotive sector changes in June 2013, aftersales agreements continue to be legislated by a block exemption, dictating that aftersales businesses meeting manufacturers qualitative standards criteria have an entitlement to represent the brands aftersales service and parts franchise.

Sales agreements are granted by car manufacturers based on standards, but agreements are restricted to territories granted by manufacturers, who also determine choice of partner, enabling them to restrict number of outlets any dealer can hold or entry into the sales franchise.

By continuing to focus on providing excellent customer facilities, excellent customer service and providing high level representation for the group's manufacturer partners current business relationships will be maintained, providing opportunity for selective growth

Competitive Nature of the Market

The motor vehicle distribution market is highly competitive and comprises a small number of large dealer networks, similar to Lookers, down to a large number of much smaller operators. In addition, the market includes internet-based dealers and private individuals. The franchised businesses also compete in the aftersales market which comprises similar franchised businesses, supply and fit chains, and a large number of small independent garages and bodyshops. The market therefore offers customers different options depending upon price and quality of service they wish to take, with owners of new and nearly new vehicles tending to use the franchised businesses and owners of older vehicles tending towards the small independent provider. The group's franchised businesses rely on the quality of their customer service and the ability to adjust pricing, enabling them to react to local competitive conditions.

The parts distribution business operates in a very competitive market place, dominated by a few large players. The differentiator in this market is the quality of customer service offered by the group's businesses, which continues to give the competitive edge where price differences would not be enough.

Government Legislation

In addition to the franchise regulation rules noted above, changes to the government's transport policy could adversely affect the group's profitability if, as a result, customers choose to use alternative forms of transport.

Information Systems

The group is dependent upon a number of business critical systems which, if interrupted for any length of time, could have a material effect on the efficient running of the group's businesses. The board has implemented a series of contingency plans which would enable the group to resume operations within a short space of time, thus mitigating the likelihood of material loss.

Manufacturers' Influence

The group's activities are also influenced by manufacturers in other ways. The timing, frequency and efficiency of new model roll-outs and changes in consumers' perception of these models and brands could materially affect the group's business. Similarly, manufacturers use a series of incentive schemes to support new car sales, warranty programmes etc. and changes or discontinuation of these schemes could also affect the group's business. By representing over thirty marques, the group believes that this diversity reduces the impact to the group that manufacturers' influence could cause.

 

END

 

 

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