Audited Annual Results

RNS Number : 0874T

Lookers PLC

29 May 2009

 



29 May 2009

LOOKERS plc

Dissemination Announcement

RESULTS FOR THE YEAR ENDED 31 DECEMBER 2008

Following the announcement of the Company's unaudited results on 30 April 2009, new banking facilities have been secured and therefore the Board of Lookers today publishes its audited results for the year ended 31 December 2008. 

Commenting on the results, Lookers' Chief Executive Ken Surgenor said:

'We continue to believe that 2009 will be challenging for the new car market. However, our diversified business model and market-leading aftersales offering, coupled with the actions we have taken across our franchise operations and the anticipated realisation of £12.0 million of cost savings in the current financial year mean that we are well placed to weather the uncertain economic environment, take advantage of any opportunities which may arise and emerge from this downturn as a stronger and more efficient business.

As a result of our resilient performance against a difficult market backdrop I am pleased to announce today that we now have a sound financing structure in place for the medium term.'

Financial Highlights

• New banking facilities announced today of £210 million agreed with existing lenders, maturing in 2012

• Revenue £1.78 billion (2007: £1.68 billion)

• *Adjusted profit from operations £33.9 million (2007: £40.0 million)

• Profit from operations £10.2 million (2007: £38.3 million)

• *Adjusted profit before tax £14.0 million (2007: £24.5 million)

• Loss before tax £14.9 million (2007: profit £23.0 million) 

• *Adjusted earnings per share 5.34p (2007: 9.81p)

• Loss per share 8.82p (2007: earnings 9.09p)

Operational Highlights

• Resilient performance against difficult market backdrop

• Strong performance from independent aftermarket parts division

  • Product ranges expanded

  • National infrastructure strengthened

• Strategic review of franchise network completed

  • Exited 21 satellite and main market operations

  • Dual franchised a further 7 businesses

• Successful cost reduction programme generating annualised savings of approximately £12.0 million

• Group well positioned to trade through downturn

• Strong first quarter performance in 2009

*Adjusted before amortisation of intangible assets, impairment of goodwill, exceptional items and debt issue costs

  Enquiries:

Lookers	Telephone:  [phone]
Ken Surgenor, Chief Executive
Robin Gregson , Finance Director
Hudson Sandler	Telephone:  [phone]
Andrew Hayes/Nick Lyon/Kate Hough

CHAIRMAN'S REVIEW 

I am pleased to report that Lookers delivered a resilient performance given the unprecedented decline in new car sales volumes and used car values which impacted particularly strongly in the second half of 2008.  We took decisive action to reduce costs across the franchise network whilst ensuring that the Group's aftersales and aftermarket parts distribution businesses continued to perform strongly.  As a result, the business is now well placed to trade through the current downturn in the new car market.  

In a very challenging trading environment, the UK market for new cars fell by over 11 per cent. In Northern Ireland, where we are the clear market leader, the market was down 18 per cent.  As a result, our own new car sales fell by 12 per cent across the UK and Northern Ireland on a like for like basis.  Our franchise aftersales revenue showed good growth, up 5 per cent reflecting increased consumer focus on car maintenance and repair. 

Our parts distribution business had an excellent year delivering 8 per cent growth in gross profit.  The business has a strong trading momentum as, similar to dealership aftersales, a slower market for new cars boosts demand for aftermarket parts.  As the national market leader in this attractive market, we are in a strong position to exploit multiple growth opportunities through the introduction of new products and services.

Overall, despite the turmoil in the new car market and following the recent restructuring, Lookers is well placed to outperform the new car market and maximise the opportunities from its other revenue streams.

FINANCIAL HIGHLIGHTS AND DIVIDEND

Turnover increased by 5.7 per cent to £1.78 billion.  Operating profit before amortisation, impairment and exceptional items decreased to £33.9 million from £40.0 million last year.  Total exceptional items (including impairment of goodwill) amounted to £23.1 million, primarily in relation to restructuring and integration costs. Despite tight control of working capital, interest costs rose 33 per cent to £19.9 million following the impact of a full year of funding costs for the Dutton Forshaw acquisition and the significant differential between base and LIBOR. The *adjusted profit before tax was £14.0 million compared with an *adjusted profit of £24.5 million last year.  The *adjusted earnings per share was 5.34p against 9.81p last year.

BANK FACILITIES

The Group has reached agreement with its existing banking syndicate on new facilities of £210 million which have been extended to April 2012.  The Board believes that these arrangements provide a sound financing structure for the medium term.  The principal terms of the new facilities are summarised in the Finance Director's review. As expected in the current environment, these arrangements are more expensive than the previous facilities and the Board therefore continues to consider alternative sources of capital in order to minimise the additional cost of bank borrowings.  The Board wishes to reduce debt in the near term and is therefore not proposing a final dividend. The total dividend for the year is 1.60p which was the interim dividend paid in November. As part of the new banking facilities, it has been agreed that the Group will pay no dividends before 30 June 2010. Following this period, the Board plans to review the Group's dividend policy as appropriate and within the restrictions placed upon it by the terms of the banking facilities and return to a progressive dividend policy when debt has been reduced to a more satisfactory level in the current economic climate. 

In the event that alternative capital is secured which results in a significant reduction in the Group's leverage, the Board has agreed in principle with the lenders that the terms of the new facilities would be modified in certain areas, including margin, fees and dividend policy. It is anticipated that any alternative capital secured would be used to repay the loans with the highest margins first.

BOARD CHANGES 

Following the AGM in May 2008, David Mace retired as senior Non-Executive Director, having completed two terms. Bill Holmes joined the Board as a Non-Executive Director in June 2008 and brings with him many years experience operating at a senior level in a professional accounting practice.  Peter Jones joined the Board in May 2008 and has recently been appointed Managing Director of the Motor Division.  Peter was formerly Chief Executive of CD Bramall and has already proved to be an important asset to the Group.

On 19 May 2009, David Dyson resigned as Finance Director for personal reasons. I would like to thank David for his contribution to the Company's development over the last 17 years. On 19 May 2009 Robin Gregson was appointed Finance Director and is well qualified to lead our finance functions given his previous experience of the motor sector. 

THE FUTURE

Our diversified business model gives the Group flexibility to adapt to changing market conditions to help protect profitability. During the year, new car sales were only 26 per cent of gross profit with aftersales and parts distribution representing 61 per cent, the balance from used car sales and other businesses.

In response to the unprecedented fall in new car sales in the second half of the year, we implemented the following initiatives to protect profitability and accelerate development of the Group's aftersales and parts distribution business:

• Rationalising the franchise network by removing satellite operations and re-directing new car volumes back into main hubs to reduce costs and improve productivity;

• Closure of loss making businesses;

• Targeted head count reductions; and

• Increased investment in aftersales and aftermarket parts distribution business to take full advantage of market opportunities.

As a result of the actions we have taken £12.0 million of annualised recurring cost savings will be realised in the current financial year. In addition, market area conditions have transformed performance within our adjacent businesses as a result of higher volume throughput on a lower fixed cost base.  We are also seeing excellent momentum in our aftersales and aftermarket parts distribution business.  

Our ability to respond to the downturn in new car sales reflects the flexibility of our model and diversification of our revenue streams.  We have a strong management team in place across all our businesses.  As a result, the Group has established a solid platform to protect profitability in the current year whilst being strongly positioned to exploit any improvement in new car sales over the medium term.

Phil White

Chairman

29 May 2009

  CHIEF EXECUTIVE'S REVIEW

The year was the most challenging for the motor retail sector in recent history with the overall new car market declining by over 11 per cent to 2.1 million unit sales.  The market in Northern Ireland was hit significantly harder than the rest of the UK and overall Group new car sales fell by 12 per cent on a like for like basis.  In addition, used car values began to decline significantly from May 2008 as consumer confidence declined and fuel prices rose by 30 per cent and there were serious doubts about the cost of Road Fund Licences on less fuel efficient, higher emission vehicles. There was a strong performance in aftersales and from our parts distribution business, which partially offset the reduction in operating profit contribution from new and used car sales.  

Following the restructuring of our franchise network the Group is now better placed to outperform the current market downturn given our diversified business model. During the year 61 per cent of gross profit was generated by our aftersales and parts distribution businesses, with only 26 per cent generated from new car sales.  

The aftermarket parts distribution business delivered another record year with strong growth in sales, profits and cash generation.  The market outlook is positive, with estimates that the number of vehicles between 5 and 10 years old will increase by 4 per cent per annum over the next 5 years and more complex modern vehicles will increase demand for a greater variety of parts.  As the market leader with a national footprint we are strongly placed to exploit this attractive market opportunity.

Prior to interest and tax, the Group remains highly cash generative and is backed by a freehold and long leasehold property portfolio with a net book value of £186.2 million. 

OPERATING REVIEW

Franchised Business

The new car market started to decline from April 2008 as fuel prices increased and consumer confidence was hit by the economic uncertainty and worsened further due to the turmoil in the financial markets in the second half of the year.  We experienced a significant impact on the volumes of our premium and volume brands from July 2008. The new car market fell by 22 per cent in the second half after a marginal decline in the first half, resulting in a decline of more than 11 per cent for the year as a whole. Lookers outperformed the new car market across the UK mainland, although the Northern Ireland market suffered a greater decline which impacted overall performance.

Currently the Group operates 121 retail outlets across 31 franchises operating from 79 locations. In order to achieve an in-depth focus on and understanding of each of the brands, we continue to operate our efficient, decentralised management structure, with key management directors taking responsibility for their respective franchises across the UK.

In July we commenced a full strategic review of our franchise network to identify opportunities to rationalise through the removal of underperforming and loss making outlets and consolidating satellite operations, re-directing new and used car volumes and aftersales back into main hubs to reduce costs and improve productivity. From April 2008 to the end of March 2009 the Group has exited 21 satellite and main market area operations, and dual franchised a further 7 businesses. It has been pleasing to note that the revenues retained by the outlets adjacent to the closed sites have exceeded our expectations. As a result of the above initiatives, we have closed businesses that lost £2.0 million in 2008, reduced total headcount by circa 9.3 per cent and generated annualised savings of approximately £12.0 million. 

We have also implemented measures to reduce stock holding across the network which continued into 2009.  Targeted stock reductions of used cars, and demonstrators, in order to match sales rates and improve stock turn, has resulted in a reduction in demonstration/used car stock of approximately £31 million. This has had a significant impact on working capital.  During the second half of the year used car values came under pressure, the combination of a general oversupply of nearly new cars, customers downsizing, and the fall in consumer confidence reducing demand. This did have a significant impact on gross margin although valuations stabilised at the end of the year and have recovered strongly in 2009, which is expected to continue as used vehicles become increasingly difficult to source. 

We experienced good organic growth in aftersales during the year.  This reflected further improvements to our customer relationship marketing initiatives including a strengthened health check process, expansion of our customer support centres and further strengthening of customer loyalty. We continue to monitor 'customer satisfaction' levels to ensure that our service offering is second to none. As a result, the Group increased its market share of the retail and fleet aftersales market during 2008. Whilst aftersales has traded in line with our expectations, despite the significant decline in internal work, we are confident that this can be developed still further. 

Independent Aftermarket Parts Distribution

Our independent aftermarket parts division delivered a very strong performance, highlighting the strength of our diversified business model, as the slower market for new cars continued to boost demand for aftermarket parts. During the year we continued to build our market leading offer, expanding our product ranges and strengthening our national infrastructure. 

FPS, the only national distributor of quality branded automotive hard parts delivered strong results contributing £6 million of operating profit. The business now operates from 19 regional depots supported by our National Distribution Centre in Sheffield. The relocation of three sites to new, expanded premises was completed during the year, allowing substantially wider ranges to be carried at all three sites and for exhausts to be added to the product portfolio. Particular growth was achieved during the year with the distribution of power transmission products and the growth in sales of parts for Japanese and Korean vehicles.

Apec Limited, our braking parts specialist also performed well. The business is the market leader in the UK and Irish markets for aftermarket 'dry' braking components and during 2008 expanded its product range into the hydraulic braking market. Following this, a significant customer contract was renewed at the end of the year for a further three years, including approval for hydraulic braking. Investment also took place in the IT infrastructure during the year, with the server platform being upgraded and a new website being constructed ready for a spring launch. 

BTN Turbocharger Service Limited also delivered a robust performance in 2008, with good sales growth on the back of increased penetration of the motor factor market and the introduction of online ordering towards the end of the year. 

OUTLOOK

The decisive action taken in 2008 to reduce costs across the franchise network has positioned the Group well to outperform the new car market, and indeed our own like for like car sales for the first three months are 7.5 per cent ahead of the market.

We remain focussed on managing costs and will continue to take measures where appropriate which will see our annualised cost base fall further.

Our used car performance is significantly ahead on a like for like basis, and our aftersales business continues to perform well.

As a result, the Group is highly cash generative and our first quarter performance is ahead of expectations, and the first quarter of last year, despite the new car market pressures.

Our independent aftermarket parts business has made a strong start to the year and this area of our business continues to benefit as the slower demand for new cars continues to boost car repairs. The scheduled opening of our new distribution facility in Glasgow is on track and will become available in the second half of the year. This purpose built, freehold property is substantially larger than the old site, allowing the distribution of the complete product range of components, including the exhaust programme. Further investment is also underway at the NDC in Sheffield to come on stream during the third quarter to support continued growth in the core business and new product segments.

We believe that continuing consumer confidence fragility dictates that 2009 will be challenging for the new car market.  However, the impact of the recently announced scrappage scheme which has proved to be highly successful in other European countries, should ultimately benefit new car registrations, and we will evaluate and maximise the opportunities that this presents to the full. 

Our diversified business model and market-leading aftersales offering, coupled with the actions we have taken across our franchise operations and the realisation of £12.0 million of cost savings in the current financial year mean that we are well placed to take advantage of opportunities which may arise and to emerge from this downturn as a stronger and more efficient business.  

Ken Surgenor

Chief Executive

29 May 2009

  FINANCE DIRECTOR'S REVIEW

Despite the challenging trading environment, turnover increased by 5.7 per cent to £1.78 billion from £1.68 billion following the inclusion of a full year of Dutton Forshaw.

Profit before tax, amortisation, exceptional items and debt issue costs for the year was £14.0 million compared to £24.5 million in the prior year, with a loss on ordinary activities before taxation falling to £14.9 million compared to a profit of £23.0 million in the prior year. This resulted in a basic loss in earnings per ordinary share of 8.82p compared to earnings per share of 9.09p in the prior year and adjusted earnings per ordinary share of 5.34p compared to 9.81p in the prior year.

Net exceptional items (including impairment of goodwill) amounted to £23.1 million compared to £0.4 million in 2007, £14.1 million of which related to the actions taken to restructure the franchise division. However, following the actions taken, it is anticipated that the payback will be within one year.

Interest costs were significantly higher than the previous year because of the impact of a full year of the Dutton Forshaw acquisition and the relatively high cost of LIBOR against base rate.

The Company has a significant portion of its debt hedged, but at rates prevalent up to as late as October 2008. Unfortunately since that time, base rates have been cut several times resulting in these hedged positions being expensive in the short term. However, £48.0 million of hedged facilities return to floating rates in October 2009.

CASH FLOW AND CAPITAL EXPENDITURE

Cash generated from operations was £23.7 million compared to £60.1 million in the prior year as working capital reductions were used to pay down stock facilities.

As set out in the Chairman's Review, the Group has reached agreement with its banking syndicate to extend its existing banking facilities to 30 April 2012. Whilst this will involve higher financing costs the Board believes that the additional flexibility that these arrangements deliver are in the interests of the Group and provide a sound financing structure for the medium term.

Following this amendment to the Group's banking facilities, the Group will have available a revolving credit facility of £53 million and two term loans totalling £157 million. Details of the three principal bank loans are as follows:

• A term loan of £107 million with a margin of 4.0% above LIBOR;

• a revolving credit facility of £53 million with a margin of 4.0% over LIBOR;

• a loan of £50 million which can be repaid in whole or part at any time with a margin of up to 10% over LIBOR, of which, 6% can be rolled into the principal;

• a one-off arrangement fee of 1.5% on the total facilities plus an anniversary fee of 0.75% on the total facilities is payable on each anniversary of the facility agreement date;

• the Board will recruit the services of an adviser in agreement with the banks to assist in certain planned initiatives regarding financial reporting, accounting systems, management information and capital structure;

• covenants (interest cover, debt to EBITDA, debt service cash cover, and capex) are at levels that provide sufficient headroom and flexibility for the Group until maturity of the facilities in April 2012.

GOING CONCERN

After making enquiries, the directors have formed a judgement, at the time of approving the financial statements, that there is a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. In forming this view, the directors have reviewed trading and cashflow forecasts and have also taken into consideration that on 29 May 2009, the Group concluded its discussions with its Lenders regarding an amendment to its current banking facilities to ensure that the terms of the Group's banking facilities remain available to them and are appropriate in light of uncertainties in the operating environment. Further details surrounding the directors' rationale regarding the going concern assumption are included in note 1 to this announcement. For this reason the directors continue to adopt the going concern basis in preparing the financial statements. 

PROPERTY PORTFOLIO

The net book value of our portfolio of freehold and long leaseholds at 31 December 2008 amounted to £186.2 million against £185.2 million last year. Of this amount £5.4 million has been disclosed within current assets held for sale.

DIVIDENDS

The Board's priority is to focus on debt reduction, following which it will return to a progressive dividend policy.

PENSION DEFICIT

The market value of pension assets has fallen significantly since the half year and as a result, the pension deficit for both defined benefit schemes has increased to £27.7 million compared to £23.8 million in the prior year.  

The Board continues to look at its options with respect to those schemes to reduce both its costs and exposure to volatility.

Robin Gregson

Finance Director

29 May 2009

  Responsibility statement 

We confirm that to the best of our knowledge:

• the financial statements, prepared in accordance with International Financial Reporting Standards, 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
H K Surgenor	R A Gregson
Chief Executive Officer	Finance Director
29 May 2009	29 May 2009

  The Directors announce the following audited results of the Group for the year ended 31 December 2008

Consolidated Income Statement 

For the year ended 31 December 2008 

	Note	2008	2007
		£m	£m
Revenue		1,775.9	1,680.0
Cost of Sales		(1,533.8)	(1,473.0)
Gross Profit		242.1	207.0
Distribution costs		(160.1)	(125.8)
Administrative expenses		(72.1)	(43.2)
Other operating income		0.3	0.3
		_____	_____
Profit from operations		10.2	38.3
Operating profit before amortisation and exceptional items		33.9	40.0
Amortisation of intangible assets		(1.4)	(0.8)
Impairment of goodwill		(3.1)	-
Exceptional items from operations	3	(19.2)	(0.9)
Profit from operations		10.2	38.3
Interest payable	4	(21.2)	(16.9)
Interest receivable	4	1.3	1.9
Net interest		(19.9)	(15.0)
Exceptional interest payable on closed businesses	3	(0.8)	-
Fair value on derivative instruments		(4.0)	-
Debt issue costs		(0.4)	(0.3)
Profit before tax, amortisation, exceptional items and debt issue costs		14.0	24.5
Amortisation of intangible assets		(1.4)	(0.8)
Impairment of goodwill		(3.1)	-
Total exceptional items	3	(20.0)	(0.4)
Fair value on derivative instruments		(4.0)	-
Debt issue costs		(0.4)	(0.3)
		______	______
(Loss)/profit on ordinary activities before taxation		(14.9)	23.0
Exceptional tax charge	5	(7.2)	-
Taxation credit/(charge) excluding exceptional tax charge		6.1	(6.6)
		______	______
(Loss)/profit for the year		(16.0) ======	16.4 =====
Basic (loss)/earnings per ordinary share		(8.82)p	9.09p
		======	=====
Diluted (loss)/earnings per ordinary share		(8.82)p ======	9.05p =====
Adjusted earnings per ordinary share		5.34p ======	9.81p =====
Dividend per ordinary share     - interim		1.60p	1.60p
- final		-	2.42p
		______	_____
		1.60p =====	4.02p =====

Consolidated Balance Sheet 

As at 31 December 2008	2008	2007
	£m	£m
NON-CURRENT ASSETS
Goodwill	44.8	43.0
Intangible assets	18.4	15.6
Property, plant and equipment	205.8	214.0
	_______	_______
	269.0	272.6
CURRENT ASSETS
Inventories	303.7	317.5
Trade and other receivables	84.3	107.4
Cash and cash equivalents	2.1	14.8
Derivative financial instruments	0.3	-
Assets held for sale	5.4 _____	- _____
	395.8	439.7
TOTAL ASSETS	664.8 ======	712.3 =======
CURRENT LIABILITIES
Financial liabilities - Bank loans and overdrafts - Hire purchase obligations	10.0 -	10.0 0.1
Trade and other payables	371.7	413.9
Current tax liabilities Short term provisions Derivative financial instruments	4.5 1.6 5.4 ______	8.6 0.4 - ______
	393.2 ====	433.0 ====
NET CURRENT ASSETS	2.6 ______	6.7 _______
NON-CURRENT LIABILITIES
Financial liabilities - Bank loans - Trade and other payables	141.6 5.4	130.2 -
Retirement benefit obligations	27.7	23.8
Deferred tax liabilities Long term provisions	13.3 0.7	12.8 1.0
	_______	_______
	188.7 =====	167.8 ======
TOTAL LIABILITIES	581.9	600.8
	======	=======
NET ASSETS	82.9 ======	111.5 =======
SHAREHOLDERS' EQUITY Ordinary share capital Share premium Capital redemption reserve Other reserve Retained earnings	9.1 6.2 14.6 (1.1) 54.1 ______	9.1 5.6 14.6 0.4 81.8 ________
TOTAL EQUITY	82.9 ======	111.5 =======
Net Borrowings	149.5	125.5
	======	=======

  Consolidated Cash Flow Statement 

For the year ended 31 December 2008 

	2008	2007
	£m	£m
Cash flows from operating activities
(Loss)/profit for the year	(16.0)	16.4
Adjustments for: Tax Depreciation	1.1 9.0	6.6 7.7
Impairment of fixed assets on dealership closures	2.5	-
Loss on disposal of plant and equipment	0.2	0.1
Profit on disposal of properties	-	(1.9)
Curtailment gain	-	(0.4)
Amortisation of intangible assets	1.4	0.8
Impairment of goodwill	3.1	-
Interest income	(1.6)	(1.4)
Interest receivable on VAT refund	-	(0.5)
Interest payable	26.3	16.9
Debt issue costs	0.4	0.3
Share based payment (credit)/charge	(0.4)	0.2
Changes in working capital (excluding effects of acquisitions and disposal of subsidiaries)
Decrease in inventories	17.1	14.7
Decrease in trade and other receivables	24.2	1.6
(Decrease)/increase in payables	(42.8)	1.8
Difference between pension charge and cash contributions	(2.2)	(2.8)
Movement in provisions	1.4	-
	_____	______
Cash generated from operations	23.7	60.1
Interest paid	(20.3)	(17.4)
Interest received	1.2	1.6
Tax paid	(3.0) _______	(0.7) _______
Net cash inflow from operating activities	1.6 ______	43.6 ______
Cash flows from investing activities
Acquisition of subsidiaries (net of (overdraft)/cash acquired)	(4.4)	(72.5)
Purchase of property, plant and equipment	(8.6)	(12.0)
Purchase of intangible assets	(3.8)	-
Proceeds from sale of property, plant and equipment	0.5	2.8
	_____	_____
Net cash used by investing activities	(16.3)	(81.7)
Cash flows from financing activities
Repayment of loans	(10.0)	(2.6)
Net proceeds from issue of new bank loans	18.9	60.0
Debt issue costs	-	(1.0)
Principal payments under hire purchase agreements	(0.1)	(0.1)
Dividends paid to Group shareholders	(6.8)	(5.5)
Net cash from financing activities	2.0	50.8
	====	====
(Decrease)/Increase in cash and cash equivalents	(12.7)	12.7
Cash and cash equivalents at 1 January	14.8	2.1
	_____	_____
Cash and cash equivalents at 31 December	2.1 =====	14.8 ====

  Consolidated Statement of Recognised Income and Expense

For the year ended 31 December 2008 

	2008	2007
	£m	£m
Actuarial losses recognised in post retirement benefit schemes	(6.1)	(5.4)
Movement in deferred taxation on pension liability	1.7	1.5
Fair value on interest rate hedge	(1.1) _______	- _______
Net losses recognised directly in equity	(5.5)	(3.9)
(Loss)/profit for the financial year	(16.0) _______	16.4 ______
Total recognised income and expenses for the period	(21.5) ======	12.5 ======

Notes

1.    Basis of Preparation

The financial information has been prepared under International Financial Reporting Standards (IFRS) issued by the IASB and as adopted by the European Commission (EC) and on the same basis as in 2007. Further information in relation to the Standards adopted by the Group is available on the Group's website www.lookers.co.uk.

        
Whilst the financial information included in this announcement has been computed in accordance with International Financial Reporting Standards (IFRS's), this announcement does not itself contain sufficient information to comply with IFRS's. 

The financial information presented for the years ended 31 December 2008 and 2007 does not constitute the Company's statutory accounts as defined in section 240 of the Companies Act 1985, but is derived from those accounts. The 2008 accounts have been signed. The auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 237(2) or (3) of the Companies Act 1985.  A copy of the statutory accounts for 2007 have been delivered to the Register of Companies.  The auditors' report on those accounts was also unqualified. Those for 2008 will be delivered in due course. A copy of the accounts is available on the Group's website www.lookers.co.uk.

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 meet their day to day working capital requirements through short term stocking loans and the revolving credit facility and medium term funding requirements through two term loans. The facilities in place at the year end were established by renegotiating the prior facilities in October 2007. 

At the year end the medium term banking facilities included a revolving credit facility of up to £125.0 million and two term loans totalling £117.5 million, providing total facilities of £242.5 million. 

On 29 May 2009, the Group concluded its discussions with its Lenders regarding an amendment to its current banking facilities to ensure that the terms of the Group's banking facilities remain available to them and are appropriate in light of uncertainties in the operating environment. Following this amendment, the Group now has a revolving credit facility of £53 million and two term loans totalling £157 million.  

In addition to the total facility limit, the revised facilities include certain covenant tests. The failure of a covenant test would render the entire facilities repayable on demand at the option of the lenders.

The Directors have assessed the future funding requirements of the Group and the Company and compared them to the level of committed available borrowing facilities. This assessment included a detailed review of trading and cash flow forecasts for a period in excess of one year from the date of this annual report which project that the total revised facility limit is not exceeded over the duration of the forecasts. Whilst acknowledging the uncertainties in the operating environment, the Directors have prepared forecasts that make assumptions in respect of future trading conditions and in particular to volumes and margins of new and used car sales, aftersales and parts, achieving operational improvements and cost reductions. In addition to this the nature of the Group's business is such that there can be variation in the timing of cash inflows as trading patterns develop, in particular the March and September registration periods. The forecasts have been prepared on the assumption that short term stocking facilities with stocking finance providers of £88 million and normal manufacturer consignment stock facilities will remain available to the Group throughout the next 12 months. The forecasts take into account the aforementioned factors to an extent which the Directors consider to be reasonable, based on the information that is available to them at the time of approval of this financial information.  

In the event that additional funds are required in excess of the proposed facilities as a result of the Group not substantially achieving its forecasts, the Directors would have to supplement, renew or replace those facilities with facilities that are appropriate to the Group's ongoing requirements. 

The Directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. For those reasons, they continue to adopt the going concern basis in preparing this Annual Report. 

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 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, though this would likely be mitigated by potential increases in both the used car market and the aftersales market as customers substitute nearly new for new, or spend more keeping their old vehicles roadworthy. Currently, the UK is experiencing problems caused by the Global downturn. Despite lower interest rates, the lack of available credit, together with a general feeling of uncertainty in the economy has resulted in a significant fall in new car registrations. However, we have seen an increase in activity in both used car sales and within the parts distribution businesses.

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 lessened. Due to global economic events, several manufacturers have come under severe financial pressure. However, it appears that there has been significant political will to support these manufacturers to prevent their demise because of the effect this would have on their local economies.

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 £210 million agreed with existing lenders, maturing 2012); 

(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.

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. Currently, the appreciation of the Euro against Sterling has meant that most manufacturers have had to increase prices despite the current market conditions. In recent years, Sterling had appreciated against most currencies, allowing imported vehicles to be priced more competitively. The Board is aware of the uncertainties this causes and the only protection that can be taken is to ensure the Group retains a broad mix of the major manufacturers, both UK and overseas, to limit the effect.

Block Exemption

Block Exemption is a complex set of rules that defines how new vehicles are supplied, distributed and dealt with after they are sold. These rules were changed in 2003 and certain parts became effective in 2005 scrapping the restrictions on the number of dealers operating within a territory, and allowing the provision of aftersales support to be separate from the sale of new vehicles. The Group has yet to see any impact of these changes, though the Board is aware of the possible competition that these changes could bring to our established businesses. By ensuring that our franchise businesses continue concentrating on customer service, the Board believes that the Group will minimise the impact of these, and any future changes to Block Exemption rules.

  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 dependent 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 larger 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 Block Exemption 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. Changes to the road fund licence and fuel duty during 2008 had an adverse effect on sales of new and used 4 wheel drive vehicles and values of used vehicles. These changes did adversely affect the Group's profitability and caused a change in strategy, leading to several dealerships being closed.

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.

2.    Dividends

An interim dividend of 1.6p per share was paid on 28 November 2008 (2007: 1.6p per share). No final dividend is recommended for the year (2007: 2.42p per share).

  3.    Exceptional items

	2008	2007
	£m	£m
Loss on termination businesses	(13.3)	(1.3)
Integration costs	(3.3)	-
Aborted acquisition costs	(1.6)	(1.2)
Other	(0.7)	(0.7)
VAT	(0.3)	0.4
Profit on disposal of properties	-	1.9
	______	______
Exceptional items included within operating profit	(19.2)	(0.9)
Interest on closed business	(0.8)	-
Interest on VAT	- _____	0.5 _____
Total exceptional items	(20.0) ====	(0.4) =====

4.    Finance costs - net

Interest payable	£m	£m
Bank interest payable	(12.2)	(11.5)
Hire purchase contracts	-	(0.1)
Interest on consignment vehicle liabilities	(8.7)	(5.3)
Other interest	(0.2)	-
Net interest payable on pension schemes	(0.1) ____	- _____
	(21.2)	(16.9)
Interest receivable
Bank interest receivable	1.3	1.1
Net interest receivable on pension schemes	-	0.3
Interest received on VAT refund	-	0.5
	___	___
	1.3	1.9

5.    (Loss)/earnings per share

The calculation of (loss)/earnings per ordinary share is based on the loss on ordinary activities after taxation amounting to £16.0 million (2007: profit £16.4 million) and a weighted average of ordinary shares in issue during the year of 181,430,297 (2007: 180,371,502).

The diluted (loss)/earnings per share is based on the weighted average number of shares, after taking account of the dilutive impact of shares under option of nil (2007: 785,360).

Adjusted (loss)/earnings per share is stated before amortisation of intangible assets, impairment of goodwill, loss on termination of businesses, bid defence/strategic reviews, profit on disposal of properties, aborted acquisition costs, integration costs, tax due to withdrawal of industrial buildings allowance, exceptional VAT refund and related interest, and is calculated on profits of £9.7 million (2007: £17.7 million) for the year.

5.    (Loss)/earnings per share (contd)

		2008				2007
		(Loss)/ earnings £m		(Loss)/ earnings per share p		Earnings £m		Earnings  per share p
(Loss)/earnings attributable to ordinary shareholders		(16.0)		(8.82)		16.4		9.09
Amortisation of intangible assets		1.4		0.77		0.8		0.44
Exceptional items (net)		23.1		12.73		0.4		0.22
Tax on exceptional items (net)		(6.0)		(3.31)		0.1		0.06
Exceptional tax due to withdrawal of Industrial Buildings Allowance		7.2		3.97		-		-
		9.7		5.34		17.7		9.81

6.    Property, plant and equipment

	2008	2007
	£m	£m
Freehold property	132.7	135.5
Long leasehold property	48.1	49.7
Short leasehold property	8.8	9.8
Plant and machinery	6.4	7.2
Fixtures, fittings, tools and equipment	9.8	11.8
	_____	______
	205.8 =====	214.0 ======
Properties held for sale	5.4 =====	- =====

 

END

 

 

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