Annual Results

RNS Number : 4725R

Lookers PLC

09 March 2016

 



9 March 2016

LOOKERS plc

Annual Results for the year ended 31 December 2015

RECORD RESULTS AND STRONGLY POSITIONED FOR FURTHER GROWTH

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 2015.

Seventh successive year of profit growth:

·     Revenue increased 20% to £3.65 billion (2014: £3.04 billion)

·     *Operating profit increased 12% to £85.9 million (2014: £76.6 million)

·     *Adjusted profit before tax increased 11% to £72.1 million (2014: £65.0 million)

·     Profit before tax increased by 6% to £62.8 million (2014: £59.2 million)

·     Earnings per share up 7.1% at 12.88p (2014: 12.03p)

·     *Adjusted earnings per share up 12.7% at 15.24p (2014: 13.52p)

·     Proposed final dividend of 2.05p per share - total dividend per share up 10% at 3.12p (2014: 2.84p)

·     Banking facilities renewed and extended, providing committed and secured funding until 2020

·     Major acquisition of Benfield Motor Group

(*Adjusted operating profit is operating profit before amortisation and impairment of intangibles, exceptional items and share based payments. Adjusted profit is profit before amortisation and impairment of intangible assets, debt issue costs, pension costs, exceptional items and share based payments)

Resilient and expansive business model:

·     Record performance from the motor and parts divisions

-     *Adjusted profit before tax up 11% to £72.1 million (2014: £65.0 million). Further growth in new and used car volumes and margins Revenue and margin improved in aftersales

·     Good progress from our market leading independent aftermarket parts division

-     Profit before tax up 3.1% to £12.6 million (2014:12.2 million)

·     Good contribution from acquisitions and successful integration of the Benfield business

·     Investment in our website delivers further increases in enquiries

Andy Bruce, Chief Executive of Lookers, said: 

"We have delivered another strong trading performance in 2015, our seventh consecutive year of increased profits, which provides further evidence that our business model is both resilient and expansive through the cycle. Our motor division and our parts divisions also produced excellent results, showing the diversity and strength of our operations.

Our strategy is to: have the right brands, the right locations and excellent execution. By implementing this, we are ideally placed to take advantage of growth prospects across all areas of the business as well as consolidation opportunities in the sector, not least because businesses of scale will be the winners in our sector. This gives us confidence that we will deliver another improved performance in 2016."

If you would like to attend the analyst briefing today at 9.30am please contact [e-mail]

Enquiries:

Lookers	Today: 020 3772 2500
Andy Bruce, Chief Executive	Thereafter: 0161 291 0043
Robin Gregson, Finance Director
Bell Pottinger	Tel:  [phone]
Victoria Geoghegan Nick Lambert Lucy Stewart

CHAIRMAN'S REVIEW

I am delighted to report another excellent year for the company with our seventh successive year of profit growth where we have achieved an *adjusted profit before tax of £72.1million (2014: £65.0 million). This result has been achieved during a period in which volumes in the UK new car market continued to improve and reached their highest level ever.

Total registrations for the UK new car market in the year were 2.63 million, an increase of 6.3%. Once again, our motor division delivered an excellent performance producing strong growth in both turnover and profit before tax. I am also very pleased to report that our independent parts distribution business also made good progress in the year in what continues to be an improving but competitive market place with year-on-year increases in turnover and profits. One of the highlights of the year was the acquisition of Benfield Motor Group in September and I am pleased to report that the integration of Benfield within the group is making very good progress and I am delighted to welcome our new colleagues from Benfield to Lookers.

Our continued growth in 2015 demonstrates the strength of the group which is underpinned by strong operational cash flow and the group continues to have a strong balance sheet. We also renewed and extended our banking facilities in September 2015 which provides committed and secure funding until 2020. Further details of our progress in both the motor division and the parts division are provided in the Strategic and Operational Review. A more detailed consideration of the improvement in financial performance during the year, together with the cash flow and financial position of the group, are given in the Financial Review.

(*Adjusted profit is profit before amortisation and impairment of intangible assets, debt issue costs, pension costs, exceptional items and share based payments)

DIVIDEND

I am pleased to announce that with another positive result for the year and the strong financial position of the company, the Board is again intending to increase the dividend. We are proposing to pay a final dividend for the year ended 31 December 2015 of 2.05p per share, giving a total dividend for the year ended 31 December 2015 of 3.12p per share (2014: 2.84p). This represents an increase in the total dividend for the year of 10%. Payment of the final dividend is subject to approval by shareholders at the Annual General Meeting and will be payable on 3 June 2016.

BOARD CHANGES

I am very pleased to report that Sally Cabrini joined the board on 1 January 2016 and together with my colleagues on the board I would like to welcome Sally to Lookers. Sally is currently Business Services Director for United Utilities with responsibility for information technology and human resources. She has had a career in HR with Rowntree Mackintosh before having senior roles at Northern Foods Plc and then as a consultant to a number of companies. Her significant operational expertise and knowledge of business systems and the development of people will be of great benefit to Lookers and I believe she will make a valuable contribution to the continued development of the company. Sally has also been appointed to the Audit and Risk Committee and the Remuneration Committee.

OUTLOOK

Our motor division produced excellent results during 2015 and we believe there are still further opportunities to develop our existing business in addition to benefiting from acquisitions made in 2015, particularly the major acquisition of Benfield Motor Group. The parts division made very good progress in the year with healthy improvements in turnover and profit before tax, which together with continued investment in new product lines, improved facilities and systems, leaves the business in a good position for further growth and development. We are therefore confident of the group delivering further growth in 2016.

I would like to conclude by thanking all our people at Lookers for their hard work and dedication and without whom we would not have been able to yet again deliver another excellent result for the seventh successive year.

Phil White

Chairman

9 March 2016

CHIEF EXECUTIVE'S STRATEGIC AND OPERATIONAL REVIEW

BUSINESS MODEL AND STRATEGY

Business model

With a group turnover of £3.6 billion in 2015, Lookers is one of the leading motor retail and aftersales groups in the UK. Our operations are carried out across all four UK countries and Ireland, with a presence in most of the major population centres. We sell approximately 180,000 new and used cars and vans per year and in addition, we have a very significant independent parts distribution business, which is the leader in its sector of the market.

As noted above, the group operates through two distinct divisions, the motor division and the parts division; details of each division are explained in further detail below.  Operating in two distinctly separate sectors within the UK motor retail market gives us a unique and diverse business structure.  This differentiates Lookers in the motor retail sector with the parts business providing a high quality, higher margin earnings stream that has greater stability than the new and used car markets, which can sometimes be subject to changes in market forces. The group's business activities, financial condition, results of operations or the company's share price could be affected by certain principal risks or uncertainties which are included in the directors' report section of the 2015 annual report and accounts.

Motor division

The motor division consists of 153 franchised dealerships representing 31 marques from 101 locations.  The business generates revenue from the sale of new and used cars and aftersales activities: 

-     The new car market in the UK has varied between 1.9 million and 2.63 million new cars sold per annum during the past six years and our share of the retail sector of this market is just below 5%. 

-     The used car market in the UK has annual transactions of approximately 7 million vehicles and there continues to be a major opportunity for us to increase volumes in this part of the market. 

-     Aftersales represents the servicing, repair and sale of franchised parts to customers' vehicles.  The aftersales market applies to the overall number of cars in use on UK roads, which is referred to as the UK car parc.  This consists of approximately 33 million vehicles where approximately 22% or 7.4 million vehicles are under three years old and these vehicles are primarily the market which is catered for by the franchised motor dealers, including our motor division.

The importance of the internet continues to increase and is the primary means for our customers to research and determine which new or used car they are interested in buying. Our website and associated digital marketing channels are therefore a very important part of the business.

Parts division

Our parts division operates in the independent aftermarket sector of the UK motor retail market, where we operate through three distinct operating companies:

-     FPS is a national warehouse distributor of quality branded automotive parts and is the largest company in the parts division, representing 75% of divisional turnover.

-     Apec Braking is the aftermarket leader in the UK for 'dry' braking products (pads and discs).

-     BTN Turbo is the UK's leading distributor of turbochargers and supplier of related value added services.

These businesses supply automotive parts to the independent automotive aftermarket, where we operate from 22 locations serving the whole of the UK.  This means that our customers are predominantly motor factors who are the final part of the distribution chain and who distribute parts to the independent non franchised repairers.  The parts division typically supplies parts to 75% of the UK vehicle parc where the vehicles are over three years old, although the primary focus is on the four to nine year old aftermarket and therefore operates in a different part of the market to the franchised dealerships.  This represents a market of approximately 25 million cars in the UK and each of the three companies in our parts division are market leaders in their segment of the market.

Business strategy

Our strategy can be described very simply:

•           To have the best brands;

•           To have the best locations; and

•           To have excellent execution

We operate a diverse business in the UK motor sector. This includes operating with a broad range of manufacturer partners across a wide geographical area. This helps to reduce exposure to anomalies or fluctuations in demand, which may affect specific manufacturers or locations.  The independent parts distribution business also provides further diversity as the revenue and profitability of this business are less subject to changes in market forces that can affect the demand for new and used cars.

We aim to grow the business by a combination of organic growth in the existing business, where there are many opportunities for increasing revenue, as well as from targeted and selective acquisitions in both the motor and parts divisions. We aim to be recognised as the UK's most professional and successful motor retail and aftersales service group by our customers, employees, business partners and shareholders. We strive to deliver sector leading value whilst providing our customers with market leading customer service, optimising customer retention and being an outstanding company that achieves our mission of customers for life.

Business review

Summary of financial and non financial KPIs:

Financial	2015	2014
Turnover	£3,649m	£3,043m
Gross Profit	£452.2m	£396.1m
Gross margin	12.4%	13.0%
Operating profit	£85.9m	£76.6m
Operating margin	2.4%	2.5%
*Adjusted profit before tax	£72.1m	£65.0m
* Adjusted net margin	2.0%	2.1%
* Adjusted earnings per share	15.24p	13.52p
Net debt	£161.7m	£51.9m
Gearing	54%	20%
Net debt to EBITDA	1.61	0.59
Return on capital employed	24.2%	25.3%
Non financial
UK new car market	2.63m	2.47m
Group new car sales	90,009	74,488
Share of UK market	3.4%	3.0%
Group used car sales	70,492	60,852
Group employees	7,287	6,226

Performance

I am very pleased to report that the group delivered record results for a seventh consecutive year with *adjusted profit before tax of £72.1 million (2014: £65.0 million), an increase of 11%. I am delighted with this result which I believe demonstrates a significant achievement even against the background of the increased new car market in the UK. It also provides further evidence that our business model is both resilient and expansive through the cycle. The motor division delivered another excellent trading performance during the year with an increase in profit before tax of 11% to a record figure of £64.5 million, compared to £58.3 million last year. The parts division made good progress and produced a strong result for the year with an increase in profit before tax to £12.6 million compared to £12.2 million last year, which represents the best result in the history of our parts division.

The key elements of this creditable achievement were:

·           a significant increase in new car turnover and gross profit;

·           further growth in used car turnover and gross profit;

·           improvement in both aftersales turnover and margin;

·           growth in both turnover and profit in the parts division.

We have now achieved seven successive years of increased profits, some of which were delivered in restrained market circumstances as it was only during 2014 that the UK new car market returned to what can be considered to be a normal level of activity. It was therefore very pleasing that the new car market improved further in 2015 to the highest volume ever seen in the UK. This growth has been encouraging and gives us further confidence in our ability to grow the business again in 2016. We are well placed to take advantage of the recent growth opportunities in the new and used car markets, which will in turn increase demand for aftersales and parts, as the number of cars under three years old continues to rise.

(*Adjusted profit is profit before amortisation and impairment of intangible assets, debt issue costs, pension costs, exceptional items and share based payments)

OPERATING REVIEW

MOTOR DIVISION

I am pleased to report that the motor division increased turnover by £593 million to £3.43 billion and profit before tax by 11% to £64.5 million, a record for the business and a significant increase over the prior year's result of £58.3 million. The acquisition of Benfield made a good contribution to the increase in turnover but it was also pleasing to see organic growth in turnover of £330 million, with acquisitions contributing £263 million of the total increase.

Acquisitions and portfolio management

We have continued to improve the balance of our portfolio of franchise representation and the major development in the year was the acquisition of Benfield Motor Group, which we acquired on 2 September 2015 for a consideration of £87.5 million, which was paid in cash and funded from new bank facilities. Benfield consists of 30 dealerships including Audi, Dacia, Ford, Honda, Hyundai, Kia, Lexus, Nissan, Renault, Skoda, Toyota and Volkswagen, both cars and commercial vehicles. Subsequently, we sold the Toyota, Lexus and Honda dealerships as these did not complement the range of franchises and geographical locations of the rest of the group and this realised gross consideration of £12 million, which reduced the net cost of acquisition of Benfield by this amount. The Benfield businesses have been successfully integrated during the year and will make a further positive contribution in 2016.

During the year we also acquired a Mercedes-Benz dealership in Canterbury which complements our existing Mercedes-Benz businesses in Kent and Sussex. We have also added an Audi service and used car centre in South Glasgow as well as a used car operation in Dublin, a Jaguar dealership in Amersham and a Skoda dealership in Manchester. The following selective changes were also made to our portfolio; we sold three Honda dealerships in Derby, Nottingham and the Benfield business in Stockton, where the profitability was marginal. We also sold our dedicated used car centres in Bristol and Burton-on-Trent which have made significant losses since they were acquired by the group in 2005 and we did not believe there was any likelihood of generating meaningful profits from these locations in the future. 

New Cars

The UK new car market increased by 6.3% to 2.63 million cars in the year, with the new car retail market increasing by 2.5% and the fleet market increasing by 9.9%. Our total new car turnover increased by 11% compared to 2014, on a like for like basis. We have put more focus and investment into the fleet sector and our turnover, including commercial vehicles, increased by 24%.. Despite this increase in volumes, we have continued to target quality fleet sales and avoid very low margin business. We will continue to invest in the fleet sector which is a significant and growing part of the market and which is expected to provide scope for organic growth given our current share of the market and represents a major opportunity for additional profit generation. To facilitate this we continue to make the necessary investment in people with the specialist skills, relationships and reputation in the sector, as well as investing in systems and facilities to process higher volumes.

Gross profit from new cars increased by 12% on a like for like basis, compared to the prior year.  The new retail market continues to be healthy and our order take for the important month of March is tracking in line with our plan. Industry forecasts suggest that the new car market will continue to benefit from these conditions with the 2016 new car market forecast to benefit from further growth.

Used Cars

Group sales turnover of used cars increased by 7%, when compared on a like for like basis to 2014 and have increased by over 55% in the last four years. Gross profit increased by 7% on a like for like basis. We continue to focus on stock management and sourcing good quality used cars, both of which help to improve profitability. The used car market still represents a significant opportunity for the group and this will benefit from the increasing number of leads generated by the group's website, which have increased by 67% compared to last year. The website has recently been significantly upgraded and will benefit from further major developments to continually develop our online presence.

Aftersales

As well as improving the margin, our higher margin aftersales business increased gross profit by 6% on a like for like basis compared to 2014. The increased profitability has benefitted from the growth in the vehicle parc of cars under three years old and further positive momentum is demonstrated by the increase in the margin from 42.2% to 44.2%. The increase in volumes and margins is also due to the initiatives we have made in recent years to develop the aftersales business, with an increased emphasis on performance and specific targets being introduced to improve overhead absorption and therefore overall profitability. We continue to have great success in improving penetration of an increasing proportion of customers who choose to enter into service contracts, which improves customer loyalty and retention. We have also developed further initiatives to improve the aftersales business, particularly in relation to technology and systems, where we have introduced online service booking and improved the accuracy of our customer database resulting in greater effectiveness of our marketing capabilities. We will continue to invest in systems to improve customer experience with the objective of improving retention and delivering our "customers for life" strategy, which strengthens the business and will result in further increases in profitability.

Developing our retail environment

As we reported last year, the group is committed to continuing with a significant programme of further capital investment over the next three years. When this is complete it will ensure that our entire dealership estate represents the best in class in modern motor retailing. We also reported that we were making a significant investment in our multi channel customer experience concept and in particular, how to optimise the digital and physical customer journey. Good progress has been made during the year and we are introducing new systems which will improve customer experience but also result in greater operational efficiencies. We believe this will enable us to provide our customers with an industry leading customer experience which will give us a significant competitive advantage in the sector and also result in improved profitability.

The internet and our website is a critical and important part of the customer journey and now dominates consumers' research. Our in-house digital marketing team now covers all digital marketing activities and a new, much improved and fully responsive website was launched during the year which has resulted in significant increases in our visitor and enquiry levels. Today's consumers are more informed, more discerning and fully aware of the choices that are available to them before entering the showroom as they carry out thorough research online. We will therefore be making further major developments to our website during the year which will result in exciting improvements in functionality and interaction with our customers. Our aim is to produce an industry leading website to improve customer experience which should ultimately increase sales and enhance our customers' experience.

Customer satisfaction

We continue to develop our Customers for Life strategy to improve our level of customer experience, retention and referral where our goal is to be recognised as providing the best customer experience in the UK motor retail sector. We conduct extensive customer research to monitor and improve our performance as we appreciate that customers now have increased expectations as well as access to higher levels of product information. Our investment in systems and technology will help us to develop and realise our ambitions and achieve success as a market leader in this area.

Our people

Our people are our most important asset who enable us to deliver our strategy and play a critical role in providing a first class customer experience.  They are therefore a key factor in the success of our business who will enable us to achieve our future growth. We will continue to invest in our people with an enhanced training and development programme, including induction training for all new recruits as well as further improvements to our structured and formal management development programme. We will also be appointing a highly experienced and well respected HR professional to become our director of people and culture. This is a new and important role in the company which will deliver further improvements in the training, motivation and development of our people to achieve enhanced levels of customer satisfaction and help us become the best in the UK motor retail sector.

PARTS DIVISION

Our independent parts division has continued to make good progress in the period with increases in both turnover and profit compared to the prior year, against a background of an improving but competitive market. Operating margins were maintained at a similar level to the prior year and careful control of overheads resulted in a satisfactory increase in profit before tax, to produce the best result in the parts division's history.

Turnover for the division increased by £13.3m, up 6% on the prior year, as we continue to expand the business by investing in existing and new product lines. The increased turnover at FPS was the result of investment in the core range of products as well as in new product development and range extensions. Demand for core products at Apec braking improved and our second tier braking product has successfully established itself in the market.  BTN Turbo experienced steady demand in core aftermarket turbo sales whilst having some encouraging wins in developing its higher value added specialist segment.

Pricing management was used to optimise gross margin in a competitive market with a focus on efficiency improvements and overhead control resulting in profit before tax increasing by 3.1% to £12.6 million compared to £12.2 million last year. This is a good result from our parts division which continues to make a significant contribution to group earnings where it represents 17% of group profit before tax with a consistent and relatively high net margin of just under 6%.

GROUP OUTLOOK

Our strategy of having the right brands in the right locations with excellent execution leaves us ideally placed to continue our growth of the last seven years. This proven strategy should also correct any lingering misperceptions that our sub-sector and Lookers' business model specifically, leaves us overly exposed to the economic cycle any more than general retailers.

The group has made a good start to the current financial year, we have a healthy order book for the delivery of new cars in the important month of March and aftersales continues to perform well. We therefore expect the result for the first quarter to be in line with management's expectations.

Whilst the new car market achieved a record level in 2015, it is expected to show modest growth in 2016. The used car market is expected to benefit from further growth and the continuing increase in the vehicle parc of cars less than three years old provides further opportunities for increasing revenue in the high margin aftersales sector.

The company has achieved outstanding growth in recent years and we believe the significant investment we are making in upgrading our facilities to reflect the latest manufacturer retail standards and multi-channel customer experience will give us a competitive advantage and further improve our position of leadership in the motor retail sector.

The major acquisition of Benfield should also make a greater contribution this year and as in previous years, we are continuing to look to acquire high quality businesses which will complement our existing franchise representation. Our track record of successfully integrating acquisitions and turning around performance is a significant differentiator for Lookers and these factors, together with the broad base of our franchise representation, leave us very well positioned for future growth.

The parts division made good progress in the period with healthy improvements in turnover and profit before tax, which together with continued investment in new product lines, improved facilities and systems, leaves the business in a good position for further growth and development.

The group balance sheet has been strengthened by strong operational cashflow and we have substantial headroom in our new bank facilities. This provides secure funding capacity and financial security to grow the business through further strategic acquisitions at a time when there are significant consolidation opportunities within the sector.

I will finish my review by thanking all my colleagues at Lookers for their hard work, commitment and dedication to the company which has produced this record result for the seventh successive year.

Andy Bruce

Chief Executive

9 March 2016

FINANCIAL REVIEW

GROUP RESULTS

Turnover increased by 20% to £3.65 billion (2014: £3.04 billion), with strong growth from new and used cars and Benfield contributed £263 million of turnover following its acquisition in September. Gross profit of £452 million increased by £56 million compared to the previous year, with the growth coming from new and used cars as well as £32 million from Benfield. The gross margin of 12.4% was slightly lower compared to the prior year of 13.0%, due to a greater proportion of gross profit coming from the increased volume of car sales, which have a lower margin than parts and aftersales, as well as some dilution from Benfield. The operating margin was similar to last year at 2.4% (2014: 2.5%) and overheads increased by £48.0 million in the year, primarily due to the higher turnover and acquisitions. *Adjusted profit from operations increased by 12% to £85.9 million (2014: £76.6 million). 

Net interest costs increased by 18.9%, to £13.8 million (2014: £11.6 million), due to the acquisition of Benfield and higher levels of working capital, a large proportion of which was due to the acquisition. Interest on group borrowings is based on floating interest rates together with interest rate hedges, where we have £30 million of hedges which were established in 2007, when interest rates were significantly higher than current levels. These increase the total interest charge so that we do not get the full benefit of the low UK base rate which has now been applicable for eight years.

Key financial highlights are summarised below:

·        *adjusted profit before tax for the year increased by 11% to £72.1 million, from £65.0 million last year, which is the highest trading result to date for the company;

·        profit before tax was £62.8 million compared to a profit before tax in the previous year of £59.2 million, an increase of 6%;

·        profit after tax was £50.8 million, an increase of 8.5% compared to £46.8 million in 2014;

·        earnings per share increased by 7.1% to 12.88p compared to 12.03p in the prior year and *adjusted earnings per share of 15.24p compares to 13.52p in the prior year, an increase of 12.7%.

(*Adjusted profit is profit before amortisation and impairment of intangible assets, debt issue costs, pension costs, exceptional items and share based payments)

TAXATION

The tax charge for the year of £12.0 million is £0.4 million less than the previous year and reflects a charge of 19.1% of profit before tax. This is slightly lower than the standard rate of Corporation Tax for the year of 20.3% and is likely to be slightly lower next year as we benefit from a full year with the reduced rate of UK Corporation Tax, which was effective from April 2015.

EXCEPTIONAL ITEMS

Exceptional items in the year consist of the following and there were no exceptional items in 2014:

	2015
	£'million
Profit on the sale of property	18.1m
Property writedowns	(11.4)
Loss on businesses terminated in 2015	(1.7)
Transaction costs	(0.6)
Reorganisation costs	(2.7)
Total exceptional income	1.7

The profit on the sale of property relates to the sale of a 999 year lease of the Battersea VW dealership to a developer who will build a new VW dealership for us as part of this contract, as well as building a multi storey block of apartments above the dealership.

The largest element of the property writedowns relates to properties occupied by the used car centres where the business was sold in the year and the properties are expected to be sold for a loss during 2016. The balance of the writedowns are on properties currently for sale or certain properties where the book value is considered to be overstated due to a change in circumstances affecting those properties.

CASH FLOW

Cash generated from operations for the year was slightly ahead of the prior year at £67.9 million (2014: £66.1 million). Stock and debtors increased by £340.4 million which was mainly offset by an increase in creditors of £289.9 million. Capital expenditure was £35.2 million (2014: £16.5 million) and proceeds from the sale of properties and dealership businesses was £9.8 million (2014: £7.2 million), so net capital expenditure was £25.4 million (2014: £9.3 million). The majority of capital expenditure was on new or improved premises for dealerships and the increase compared to the previous year reflects our ongoing commitment to improve our retail premises so they reflect modern and state of the art facilities, as we signalled in our annual report last year. As referred to in the Strategic and Operational Review, expenditure on acquisitions during the year relates to the major acquisition of Benfield on 2 September 2015 for a total cash consideration of £102.1 million, including Benfield's net debt at the date of acquisition, together with the acquisition of Mercedes in Canterbury for £2.3 million.

The strong operational cash flow allowed us to make further reductions in bank loans up to the date of the acquisition of Benfield at which point our term loan was increased to £100 million. Loan repayments of £10.8 million were made during the year compared to £7.5 million last year. Net debt increased by £109.8 million in the year, primarily as a result of the acquisition of Benfield, compared to an increase of £8.8 million in the previous year. Other factors which contributed to the increase in net debt were higher net capital expenditure and higher working capital compared to the prior year. This increase in net debt resulted in net borrowings of £161.7 million at 31 December 2015 compared to £51.9 million at the start of the year, net debt being calculated as gross bank borrowings less cash balances. Whilst net debt increased significantly, our level of gearing is still relatively low as noted in the next paragraph.

BANK FUNDING

Our bank facilities were renewed and increased on 2 September 2015, at the time of and to fund the acquisition of Benfield. The facilities were also extended for two years to March 2020 and were agreed with a group of six banks: Bank of Ireland, Barclays, HSBC, Lloyds, RBS and Yorkshire Bank. The facilities consisted initially of a term loan of £100 million, which has since reduced to £95.0 million and a revolving credit facility of £150 million. There is also 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 1.2% and 2.15% 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 2020.

At 31 December 2015, total facilities were £245.0 million (2014: £132.5 million) of which £161.7 million, net of cash balances, was being utilised, leaving unutilised facilities of £83.3 million. These bank 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 2015, gearing was 52% compared to 20% at 31 December 2014 and net debt to EBITDA was 1.61 compared to 0.59 last year, due to the acquisition of Benfield. 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.

PROPERTY PORTFOLIO

The group has a policy of investing in freehold and long leasehold property as the preferred means of providing premises for our 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 2015 was £252.0 million compared to £193.1 million last year. Short leasehold properties had a value of £5.9 million (2014: £6.0 million).

DIVIDENDS

In our interim report, we indicated that due to the encouraging results and strong financial position of the group, the interim dividend would be increased by 10% to 1.07p per ordinary share and this was paid on 27 November 2015. We are now proposing a 10% increase in the final dividend to 2.05p per share, giving a total dividend for the year ended 31 December 2015 of 3.12p per share (2014: 2.84p). The dividend has now increased by 73% compared to the dividend payable for the year ended 31 December 2010 and continues our policy of increasing the dividend provided there is satisfactory growth in profitability. The final dividend is subject to shareholder approval at the Annual General Meeting and will be payable on 3 June 2016. This will represent a cash outflow of £8.1 million, which gives a total dividend for the year of £12.3 million. Dividends paid in cash during the year were £11.6 million, an increase of 11.5% compared to the previous year.

PENSION SCHEMES

The group has operated two defined benefit pension schemes for a number of years, The Lookers Pension Plan and The Dutton Forshaw Pension Plan. We also acquired another defined benefit pension scheme with the acquisition of Benfield. However, the Benfield scheme is reasonably well funded and there is no deficit or surplus in the 2015 accounts in relation to the Benfield pension scheme. All three schemes are closed to entry for new members and also closed to future accrual. Whilst the asset values of the Lookers and Dutton Forshaw schemes have increased during the year, the valuation of the liabilities reduced slightly, so the net deficit included in the balance sheet reduced by £2.3 million, which is the first time we have seen a reduction in the deficit for several years. However it is important to appreciate that the assessment of valuation of the pension schemes is based on several key assumptions prescribed by accounting standards and over which the directors have no control. As a result, the calculation which estimates the potential liabilities of the schemes can increase or decrease the liabilities due to factors that have no relation or relevance to the trading results of the group.

The impact of these factors is that the combined value of the deficits of both schemes reduced in the year and the total deficit after deferred tax is now £44.2 million (2014: £46.1 million).  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.

Robin Gregson

Finance Director

9 March 2016

Consolidated Income Statement
For the year ended 31 December 2015

		2015	2014
	Note	£m	£m
Continuing operations
Revenue		3,649.1	3,042.9
Cost of sales		(3,196.9)	(2,646.8)
Gross profit		452.2	396.1
Distribution costs		(250.6)	(212.6)
Administrative expenses		(121.0)	(109.3)
Other operating income		0.3	0.1
Profit from operations		80.9	74.3
Profit from operations before amortisation, share based payments and exceptional items		85.9	76.6
Amortisation of intangible assets		(1.6)	(1.2)
Impairment of goodwill		(3.6)	-
Share based payments		(1.5)	(1.1)
Exceptional items		1.7	-
Profit from operations		80.9	74.3
Interest payable	3	(14.1)	(11.9)
Interest receivable	3	0.3	0.3
Net interest		(13.8)	(11.6)
Net interest on pension scheme obligation		(3.9)	(3.1)
Debt issue costs		(0.4)	(0.4)
Profit on ordinary activities before taxation		62.8	59.2
Profit before tax, amortisation, debt issue costs, pension costs,
share based payments and exceptional items		72.1	65.0
Amortisation of intangible assets		(1.6)	(1.2)
Share based payments		(1.5)	(1.1)
Net interest and costs on pension scheme obligation		(3.9)	(3.1)
Exceptional items		1.7	-
Impairment of goodwill		(3.6)	-
Debt issue costs		(0.4)	(0.4)
Profit on ordinary activities before taxation		62.8	59.2
Tax charge		(12.0)	(12.4)
Profit for the year		50.8	46.8
Attributable to:
Shareholders of the company		50.8	46.8
Continuing operations
Earnings per share
Basic earnings per share	4	12.88	12.03p
Diluted earnings per share	4	12.58	11.75p

Consolidated Statement of Comprehensive Income

		2015 £m	2014 £m
Profit for the financial year		50.8	46.8
Items that will never be reclassified to profit and loss:
Actuarial losses recognised in post-
retirement benefit schemes		(2.1)	(16.1)
Movement in deferred taxation on pension liability		0.6	3.3
Tax rate adjustment		(0.4)	-
Items that are or may be reclassified to profit and loss:
Fair value on derivative instruments		-	2.2
Movement in deferred taxation on share based payments		1.1	(0.5)
Other comprehensive expense for the year		0.8	(11.1)
Total comprehensive income for the year		50.0	35.7
Attributable to:
Shareholders of the company		50.0	35.7

Consolidated Statement of Financial Position

As at 31 December 2015

		2015	2014
		£m	£m
Non-current assets
Goodwill		96.4	80.6
Intangible assets		61.9	33.6
Property, plant and equipment		282.9	215.6
		441.2	329.8
Current assets
Inventories		816.0	548.8
Trade and other receivables		252.6	179.4
Rental fleet vehicles		67.0	57.1
Cash and cash equivalents		8.3	5.9
		1,143.9	791.2
Total assets		1,585.1	1,121.0
Current liabilities
Bank loans and overdrafts		83.4	20.2
Trade and other payables		982.8	688.2
Current tax liabilities		13.8	11.3
Short-term provisions		0.6	0.6
Derivative financial instruments		4.8	4.9
		1,085.4	725.2
NET CURRENT ASSETS		58.5	66.0
NON-CURRENT LIABILITIES
Bank loans		86.6	37.6
Trade and other payables		34.1	30.8
Retirement benefit obligations		55.3	57.6
Deferred tax liabilities		25.2	12.3
Long-term provisions		0.7	0.6
		201.9	138.9
Total liabilities		1,287.3	864.1
Net assets		297.8	256.9
Shareholders' equity
Ordinary share capital		19.8	19.7
Share premium		77.7	76.9
Capital redemption reserve		14.6	14.6
Retained earnings		185.7	145.7
TOTAL EQUITY		297.8	256.9

Consolidated Cash Flow Statement

For the year ended 31 December 2015

	2015	2014
	£m	£m
Cash flows from operating activities
Profit for the year	50.8	46.8
Adjustments for:
Tax	12.0	12.4
Depreciation	16.7	13.5
Loss / (profit) on disposal of plant and equipment	0.6	(0.1)
Profit on disposal of rental fleet vehicles	(0.4)	(0.7)
Amortisation of intangible assets	1.6	1.2
Share based payments	1.5	1.1
Interest income	(0.3)	(0.3)
Interest payable	14.1	11.9
Debt issue costs	0.4	0.4
Impairment of goodwill	3.6	-
Changes in working capital
Increase in inventories	(267.2)	(102.2)
Increase in receivables	(73.2)	(25.5)
Increase in payables	289.9	115.2
Impact of net working capital of acquisitions	17.8	(7.6)
Cash generated from operations	67.9	66.1
Difference between pension charge and cash contributions	(6.8)	(5.8)
Net interest and costs on pension scheme obligation	3.9	3.1
Purchase of rental fleet vehicles	(83.2)	(80.5)
Proceeds from sale of rental fleet vehicles	76.2	72.2
Interest paid	(14.1)	(11.9)
Interest received	0.3	0.3
Tax paid	(11.3)	(8.9)
Net cash inflow from operating activities	32.9	34.6
Cash flows from investing activities
Acquisition of subsidiary companies (net cash outflow)	(104.4)	(24.3)
Purchase of property, plant and equipment	(35.2)	(16.5)
Purchase of intangibles	(0.8)	(0.7)
Purchase of goodwill	(1.8)	(0.2)
Proceeds from sale of property, plant and equipment	9.8	7.2
Net cash used by investing activities	(132.4)	(34.5)
Cash flows from financing activities
Proceeds from issue of ordinary shares	0.9	1.6
Repayment of loans	(11.8)	(7.8)
New loans	62.2	14.6
Dividends paid to group shareholders	(11.6)	(10.4)
Net cash inflow / (outflow) from financing activities	39.7	(2.0)
(Decrease)/increase in cash and cash equivalents	(59.8)	(1.9)
Cash and cash equivalents at 1 January	(3.7)	(1.8)
Cash and cash equivalents at 31 December	(63.5)	(3.7)

Consolidated Statement of Changes in Equity

	Share capital £m	Share premium £m	Capital redemption reserve £m	Other reserve £m	Retained earnings £m	Equity distributable to shareholders of company £m	Non controlling interest £m	Total equity £m
As at 1 January 2015	19.7	76.9	14.6	-	145.7	256.9	-	256.9
New shares issued	0.1	0.8	-	-	-	0.9	-	0.9
Profit for the year	-	-	-	-	50.8	50.8	-	50.8
Actuarial losses on defined benefit pension schemes	-	-	-	-	(2.1)	(2.1)	-	(2.1)
Deferred taxation on pension liability	-	-	-	-	0.6	0.6	-	0.6
Share based payments	-	-	-	-	1.5	1.5	-	1.5
Rate adjustment	-	-	-	-	(0.4)	(0.4)	-	(0.4)
Foreign exchange gain	-	-	-	-	0.1	0.1	-	0.1
Deferred taxation on share based payments	-	-	-	-	1.1	1.1	-	1.1
Dividends to shareholders	-	-	-	-	(11.6)	(11.6)	-	(11.6)
As at 31 December 2015	19.8	77.7	14.6	-	185.7	297.8	-	297.8
As at 1 January 2014	19.4	75.6	14.6	(1.1)	118.8	227.3	0.7	228.0
New shares issued	0.3	1.3	-	-	-	1.6	-	1.6
Profit for the year	-	-	-	-	46.8	46.8	-	46.8
Actuarial losses on defined benefit pension schemes	-	-	-	-	(16.2)	(16.2)	-	(16.2)
Deferred taxation on pension liability	-	-	-	-	3.3	3.3	-	3.3
Share based payments	-	-	-	-	1.1	1.1	-	1.1
Deferred taxation on share based payments	-	-	-	-	1.1	1.1	-	1.1
Transfer to retained earnings	-	-	-	1.1	(1.1)	-	-	-
Fair value on derivative instruments	-	-	-	-	2.1	2.1	-	2.1
Transfer of share in minority interest	-	-	-	-	0.7	0.7	(0.7)	-
Deferred taxation on derivative instruments	-	-	-	-	(0.5)	(0.5)	-	(0.5)
Dividends to shareholders	-	-	-	-	(10.4)	(10.4)	-	(10.4)
As at 31 December 2014	19.7	76.9	14.6	-	145.7	256.9	-	256.9

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 2014. 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 2015 or 2014, but is derived from those accounts. Statutory accounts for 2014 have been delivered to the Registrar of Companies and those for 2015 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 2015 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, 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 £150.0 million and a term loan of £95.0 million, providing total facilities of £245.0 million until March 2020.

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. SEGMENTAL REPORTING

At 31 December 2015 the group is organised into two main business segments (2014: same), motor distribution and parts distribution. All revenue and profits originate in the United Kingdom and the Republic of Ireland

Year ended ended 31 December 2015	Motor Division £m	Parts Distribution £m	Unallocated £m	Group £m
Continuing operations
New Cars	1,835.3	-	-	1,835.3
Used Cars	1,212.1	-	-	1,212.1
Aftersales	382.9	218.8	-	601.7
Revenue	3,430.3	218.8	-	3,649.1
Segmental result before amortisation
of intangible assets	74.9	12.6	(1.6)	85.9
Amortisation of intangible assets	-	-	(1.6)	(1.6)
Interest expense	(10.4)	-	(3.7)	(14.1)
Interest income	-	-	0.3	0.3
Share based payments	-	-	(1.5)	(1.5)
Impairment of goodwill	-	-	(3.6)	(3.6)
Exceptional items	-	-	1.7	1.7
Net interest and costs on pension scheme obligation	-	-	(3.9)	(3.9)
Debt issue costs	-	-	(0.4)	(0.4)
Profit before taxation	64.5	12.6	(14.3)	62.8
Taxation	-	-	(12.0)	(12.0)

		Motor Division £M	Parts Distribution £m	Unallocated £m	Group £m
Profit for the financial year from continuing operations attributable to shareholders					50.8
Segmental assets		1,429.4	155.7	-	1,585.1
Total assets		1,429.4	155.7	-	1,585.1
Segmental liabilities		1,037.2	80.1	-	1,117.3
Unallocated liabilities -       Corporate borrowings		-	-	170.0	170.0
Total liabilities		1,037.2	80.1	170.0	1,287.3

Year ended ended 31 December 2014	Motor Division £m		Parts Distribution £m	Unallocated £m	Group £m
Continuing operations
New Cars	1,476.5		-	-	1,476.5
Used Cars	1,008.5		-	-	1,008.5
Aftersales	352.4		205.5	-	557.9
Revenue	2,837.4		205.5	-	3,042.9
Segmental result before amortisation
of intangible assets		67.0	12.2	(2.6)	76.6
Amortisation of intangible assets		-	-	(1.2)	(1.2)
Interest expense		(8.7)	-	(3.2)	(11.9)
Interest income		-	-	0.3	0.3
Share based payments		-	-	(1.1)	(1.1)
Net interest and costs on pension scheme obligation		-	-	(3.1)	(3.1)
Debt issue costs		-	-	(0.4)	(0.4)
Profit before taxation		58.3	12.2	(11.3)	59.2
Taxation		-	-	(12.4)	(12.4)
Profit for the financial period from continuing
operations attributable to shareholders					46.8
Segmental assets		984.3	136.7	-	1,121.0
Total assets		984.3	136.7	-	1,121.0
Segmental liabilities		739.8	66.5	-	806.3
Unallocated liabilities - Corporate borrowings		-	-	57.8	57.8
Total liabilities		739.8	66.5	57.8	864.1

3. Finance costs - net

	2015	2014
	£m	£m
Interest expense
On amounts wholly repayable within 5 years:
Interest payable on bank borrowings	(5.9)	(5.0)
Interest on consignment vehicle liabilities	(8.2)	(6.9)
Interest and similar charges payable	(14.1)	(11.9)
Interest income
Bank interest	0.3	0.3
Total interest receivable	0.3	0.3
Finance costs - net	(13.8)	(11.6)

4. 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 £50.8 million (2014: £46.8 million) and a weighted average number of ordinary shares in issue during the year of 394,384,284 (2014: 389,158,672)

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 9,510,213 (2014: 9,062,088).

Adjusted earnings per share is stated before amortisation of intangible assets, impairment of goodwill, debt issue costs, pension costs, share based payments and exceptional items and is calculated on profits of £60.1 million (2014: £52.6 million) for the year.

Continuing operations	2015 Earnings £m	2015 Earnings per share p	2014 Earnings £m	2014 Earnings per share p
Basic EPS
Earnings attributable to ordinary shareholders	50.8	12.88	46.8	12.03
Effect of dilutive securities	-	(0.30)	-	(0.28)
Diluted EPS	50.8	12.58	46.8	11.75
Adjusted EPS
Earnings attributable to ordinary shareholders	50.8	12.88	46.8	12.03
Amortisation of intangible assets	1.6	0.41	1.2	0.30
Net interest and costs on pension scheme obligation	3.9	0.99	3.1	0.79
Share based payments	1.5	0.38	1.1	0.30
Exceptional items	(1.7)	(0.43)	-	-
Impairment of goodwill	3.6	0.91	-	-
Debt issue costs	0.4	0.10	0.4	0.10
Adjusted EPS	60.1	15.24	52.6	13.52

5. Dividends 

	2015	2014
Group and company	£m	£m
Interim dividend of 1.07p per ordinary share (2014: 0.97p)	4.2	3.8
Final dividend paid during the year relating to the financial year ended 31 December 2014 of 1.87p per ordinary share (2014: 1.70p)	7.4	6.6
Total dividends paid in the year of 2.94p per ordinary share (2014: 2.67p)	11.6	10.4

The directors propose a final dividend of 2.05p per ordinary share in respect of the financial year ended 31 December 2015 (2014: 1.87p). 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 these financial statements.

6. Principal risks and uncertainties

There are a number of potential risks and uncertainties which could have a material impact on the group's performance, business activities, financial condition, results of operations or the company's share price and could cause actual results to differ materially from expected and historical results. The Board maintains a policy of continuous identification and review of risks and uncertainty and the principal risks identified are the adverse impact of the global economy, manufacturers' financial stability, adverse movements in exchange rates, changes in the Block Exemption regulations which govern franchise agreements in the UK retail motor industry, liquidity and financing issues for the company, legislative changes in relation to vehicle taxation and transport policy, failure of group information systems and the relative strength and influence of the vehicle manufacturers on the UK market.  The Board has recently reviewed the risk factors and confirms that they should remain valid for the rest of this year.

 

END

 

 

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