Final Results
Lookers PLC
09 March 2004
9th March 2004
LOOKERS PLC
AUDITED PRELIMINARY RESULTS FOR THE YEAR ENDED 31st DECEMBER 2003
Lookers plc, a leading UK retail motor group, announces another record set of
results for the 12 months to 31 December 2003.
An analyst presentation will be held at the offices of Hudson Sandler at 29
Cloth Fair, London EC1A 7NN at 9.30am today. A press briefing will follow at
the same address at 11.30am.
HIGHLIGHTS
• Turnover up 22% to £961 million (2002: £790 million)
• Operating profit pre goodwill up 29% to £17.9 million (2002: £13.9
million)
• Profit before interest and tax up 25% to £18.9 million (2002: £15.1
million)
• Profit before tax, goodwill and exceptional items up 24% to 13.1 million
(2002:£10.6 million)
• Profit before tax up 19% to a record level of £14.0 million (2002: £11.8
million)
• Basic earnings per share up 33% to 30.1 pence (2002 : 22.6 pence)
• Total dividend up 10% to 11 pence (2002: 10.0 pence)
• New car sales (like-for-like) up 4%, ahead of record market
• Market area strategy delivering cost savings and improved operating
efficiencies
• Significant extension of partnerships with Lexus, Premier Automotive
Group, Renault, Vauxhall and Volkswagen
Commenting on the performance of the Group, Ken Surgenor, Chief Executive, said:
'Whilst growing and rationalising your Group considerably during 2003, Lookers
has again posted record financial results.
The results are particularly pleasing despite the negative impact that the
acquisitions completed in October 2003, in a difficult trading period for the UK
motor distribution industry as a whole, had on the Group performance for the
year. All of these acquisitions have now been fully integrated allowing us to
take full advantage of the current buoyant market.
The initiatives in place to increase revenue through improved operating
efficiencies whilst continuing to take advantage of growth opportunities
underpinned by a dynamic franchise-focussed management team leaves me confident
that 2004 will be another year of growth for Lookers.'
Enquiries:
Fred Maguire, Chairman
Ken Surgenor, Chief Executive
David Dyson, Finance Director
Telephone: 020 7796 4133 (on Tuesday 9 March 2004 only) 0161 291 0043(thereafter)
Andrew Hayes/James Hill, Hudson Sandler: 020 7796 4133
High resolution photographs will be available to media at www.vismedia.co.uk
CHAIRMAN'S REVIEW
INTRODUCTION
This has been an important year of progress for the Group with record levels of
turnover and profit achieved once again. We have continued our strategic
development of the business through 2003, building on our success in previous
years, and consolidating our position as one of the leading multi-franchise
retail motor groups in the country.
The performance reflects our ongoing focus on providing quality customer care
through our 'Customers for Life' policy, a strong well balanced portfolio of
franchises, a commitment to driving further operating efficiencies and continued
expansion with our preferred manufacturer partners.
Market area strategy
As we have demonstrated throughout the Group, our tight financial management of
market areas means we are able to drive operating efficiencies and make
significant cost savings through economies of scale in advertising, marketing,
parts purchasing, stock handling and administration. We intend to continue to
apply this strategy to all our existing businesses and any subsequent
acquisitions that the Group makes.
Financial Highlights
Turnover for the year increased by 22% on the prior year, at just short of the
£1 billion mark, with profit before tax up 19% to £14 million. I am delighted
to announce a total dividend of 11 pence, an increase of 10% on 2002,
representing a strong financial return for our shareholders.
Acquisitions
During 2003 we made a number of acquisitions in line with our stated market area
strategy. This included the acquisition of the Jackson and Edwards Ltd Renault
business in the North West of England, JN Holdings Ltd ('Taggarts') in Scotland,
which strengthens our existing close links with Ford's Premier Automotive Group
and represents our entrance into the Scottish market. These were followed by
the Savoy Honda Centre in Warrington, and more recently Lexus Hadleigh, Peugeot
in East Belfast and Savilles Auto village ('Savilles') in Northern Ireland,
consisting of two Vauxhall dealerships in Lisburn and Portadown.
Going forward, our objective is to target further opportunities with our
preferred manufacturer partners to enable us to improve our franchise portfolio
as well as the quality of our earnings.
OUTLOOK
Contrary to earlier expectations, 2003 proved to be yet another record year for
the new car sales market, up 0.5% on a like for like basis on 2002. New car
sales at Lookers were ahead of the market, up by more than 4% on a like for like
basis, with used cars posting a 3% increase.
This robust performance was due to a combination of factors, in particular the
ongoing reduced cost of car finance, low interest rates and the introduction of
exciting new models across several franchises. We believe 2004 will be another
good year and this is reflected in The Society of Motor Manufacturers and
Traders ('SMMT') market forecast of 2.5 million units for 2004, which would
constitute the third best year on record.
I am very encouraged by the outlook for the current year following a strong
January and February and a good order bank for the important registration month
of March. I am confident that Lookers' ongoing commitment to providing quality
customer service, our organic initiatives in reducing costs and driving
operating efficiencies, as well as our stated strategy to build up market areas
through earnings enhancing acquisitions, ideally positions us for another year
of good progress.
On a final note, I would like to thank all our employees and my fellow directors
for their hard work and support during the past year.
Fred Maguire
Chairman
CHIEF EXECUTIVE'S REVIEW
FINANCIAL RESULTS
During the year under review we have added to the quality of our current, but
more importantly our future earnings. We have added 14 new outlets, which have
complemented our existing businesses and performed at or above our expectations.
We have also rationalized our existing portfolio by disposing of 7 motor depots
and in January 2004, 3 agricultural depots.
Whilst growing and rationalizing your Group considerably during 2003, Lookers
has again posted record financial results.
The results are particularly pleasing despite the negative impact that the
acquisitions completed in October 2003, in a difficult trading period for the UK
motor distribution industry as a whole, had on the Group performance for the
year. All of these acquisitions have now been fully integrated allowing us to
take full advantage of the current buoyant market.
The initiatives in place to increase revenue through improved operating
efficiencies whilst continuing to take advantage of growth opportunities
underpinned by a dynamic franchise-focussed management team leaves me confident
that 2004 will be another year of growth for Lookers.'
Turnover was up 22% to £961 million (2002: £790 million) with operating profit
pre-goodwill at £17.9 million - an increase of 29%. Profit before tax rose 19%
to £14.0 million (2002: £11.8 million), generating reported earnings per share
of 30.1 pence - an increase of 33%.
During the year, and in line with previous years, we generated significant
profits on the disposal of properties.
The Group realised property profits on the sale of surplus land in Birmingham,
as well as from relocating our Vauxhall Chester business from Hoole Lane to a
more prime retail site on Sealand Road, within the city of Chester.
We have also taken the opportunity to rationalise our franchise dealer
portfolio. During 2003 we closed our marginal parts and bodyshop operation at
Crossley Park, Stockport and took the opportunity to close our stand-alone Jeep
and Seat operation in Middlesbrough. We have rationalised our Nissan business in
England and taken the opportunity to dispose of three outlets in the north-west.
These closures have released approximately £3.0 million for reinvestment and
will have a positive effect on future operating profits.
The net effect of the exceptional items is a credit of £1.8 million against £1.9
million last year.
Dividend
Following another successful year for the Group and the positive outlook for
2004, the board is pleased to declare a 10% increase in the final dividend to
7.7 pence. This will be paid on 28 May 2004 to shareholders on the register on
14 May 2004. With the interim dividend of 3.3 pence, paid on 28 November 2003,
this brings the total dividend for the year to 11 pence (2002: 10 pence).
OPERATING REVIEW
Our operating priorities continues to be investment in our 'Customers for Life'
programmes, strategic franchise extension with our preferred manufacturer
partners and continued investment in improving the quality of our existing
franchise portfolio. It was particularly pleasing that the Group's new car
sales, on a like for like basis, once again outperformed the market by 3.5%.
Consistently high new car sales over the past three years will result in both
short term and long term benefits for Lookers. Our strong focus on aftersales
service, through our 'Customers for Life' programme, ensures that we gain
business at all stages of a vehicle's life cycle and our customer retention and
conversion ratios remain high. During the first half of 2003 we refocused our
internet business and introduced a new e-mail management system. These
initiatives have allowed us to increase volume and improve customer conversion
ratios. In conjunction with our Customer Management Centre in Liverpool, we have
been able to improve our communication with existing customers and offer them
further opportunities to purchase aftersales services. Aftersales remain an
important contributor to Group profits and are now generating 47% of the total
Gross Profit of the Group.
FRANCHISE DEVELOPMENT
This has been an important year of progress for the Group. The revised Block
Exemption regulations have been in effect since 1 October 2003 and larger dealer
groups such as ourselves have benefited from these significant changes in the
structure of the industry. We have taken the opportunity to strengthen our
relationships with selected manufacturer partners and rationalised our portfolio
by disposing of underperforming dealerships - leaving the current number of
franchised outlets for the Group relatively stable but able to deliver a higher
quality of profits for the future.
Renault
During 2003 we added two more Renault dealerships in Cheshire/South Manchester
by acquiring Jackson and Edwards. This has created a large market area that now
includes Stockport, Macclesfield, Altrincham, Northwich and Chester. This
continues to bring with it further economies of scale, in particular the
rationalisation of our marketing approach and marketing messages to our
customers. These businesses have been readily integrated into the Group.
Vauxhall
Lookers are one of the leading Vauxhall distributors in the UK and Northern
Ireland. We strengthened this position in November 2003 by acquiring Savilles
for a cash consideration of approximately £3.3 million. This provided the Group
with two Vauxhall outlets in Lisburn and Portadown, strengthening our dominant
position in Northern Ireland and offering us greater economies of scale with
Vauxhall. We aim to provide a third facility in Boucher Road, Belfast. We
expect operational benefits to flow through in 2004 as we have rationalised the
business and relocated the bodyshop within the Lisburn facility to our purpose
built Dunmurry bodyshop.
On the UK mainland, we successfully completed the relocation of our Vauxhall
Chester business from Hoole Lane to a prime retail site on Sealand Road. This
was completed in April 2003. On the adjacent Renault site, a significant
refurbishment was completed in the third quarter. Since then we have acquired
the forecourt on the front of part of the property and this has provided us with
more main road frontage and a much more prominent display.
In Birmingham, where we are the sole distributor for Vauxhall, we currently
operate four sites. We intend to relocate two of these outlets, Aston and
Castle Bromwich, to a more strategic location in Star City, Europe's largest
non-themed leisure park. Work has already begun on this £4.5 million site and we
are excited by the opportunities this 'brand centre' will afford the Group. We
expect this site to be completed by June 2004.
In line with our market area strategy, we have been able to improve productivity
and profitability by exercising economies of scale through the rationalisation
of costs in parts, fleet, administration, advertising and marketing. This
strategy has also been applied to good effect in the Group's other market areas.
Premier Automotive Group ('PAG')
We have greatly strengthened our relationship with Ford's Premier Automotive
Group through the acquisition in February 2003 of Taggarts. This acquisition
consists of seven dealerships in total (three Jaguar, one Land Rover, one Mazda,
one MG Rover, one LDV together with a Unipart and Bodyshop operation). We
retained the existing senior management of this business in order to ensure an
effective handover and the results from this business have been encouraging.
Crucially, this acquisition has provided the Group with a firm foundation for
further expansion in Scotland.
Volkswagen
The returns from our Volkswagen dealerships have been particularly pleasing this
year. We were awarded the combined market territory for Blackburn and Burnley
with Volkswagen in April 2003. Although we already operated the Burnley
territory, the addition of Volkswagen in Blackburn expanded the territory
threefold in an area where Lookers has been operating for many years.
We are currently building a brand new facility to relocate our business onto a
very prominent motor retail park on the outskirts of Blackburn. In conjunction
with this, we have also been able to acquire land adjacent to this site on which
we will build a purpose built bodyshop for the Volkswagen market area. We do not
expect to achieve full economies of scale until this site is completed in the
second half of the year.
Honda
Our existing Honda market area in Liverpool and Southport was strengthened by
our acquisition in July 2003 of Savoy Honda Centre in Warrington from Mainland
Investments Limited. I am pleased to say that this has operated profitability
during our short period of ownership.
Lexus
In October 2003 we acquired Lexus Hadleigh for a cash consideration of
approximately £2 million. This acquisition gives us our second franchise for
Lexus and creates a new market area in Essex, a location where we already
operate Toyota.
Northern Ireland
Our Charles Hurst business in Northern Ireland once again achieved a solid
performance. This has been enhanced by the completion of the refurbishment of
the Boucher Road site in Belfast for a total cost of £6 million of which the
final £2 million was spent during the year under review. Extensive work has
been carried out to improve the site, including combined Renault and Nissan
facilities on a more visible location, new facilities for our Bentley, Ferrari
and Maserati and the creation of a UseDirect showroom in a prominent position on
the site. Our used car marketing brand UseDirect has been extremely successful
and we have subsequently opened another UseDirect site in Londonderry. In
October 2003, we opened a new facility for Peugeot in East Belfast to extend the
market area of our Peugeot dealership on Boucher Road.
During the year we opened a new stand-alone facility for BMW motorcycles in
Northern Ireland. This has provided the opportunity to display the full product
range, including accessories, enabling us to increase our new unit sales by 97%
as well as improve our service to our BMW customers.
Agriculture
In the Interim Statement we disclosed that we had agreed Heads of Terms to
dispose of Platts Harris, our agricultural business, to management. This
disposal did not complete according to plan and, instead, we sold our main site
at Epworth for redevelopment and transferred two depots in the northern part of
our territory to two adjacent franchised dealers. This has enabled us to
recognise £0.7 million as an exceptional profit in the year and will generate
approximately £2.5 million cash just after the year-end. The Group expects the
remaining businesses to contribute positively from now on.
OUTLOOK
The management structure put in place during the latter half of 2002, whereby
young and dynamic Franchise Directors are responsible for a franchise brand on a
national level, not only continues to ensure that newly acquired businesses are
swiftly integrated into the Group structure, but also affords us a better
understanding of our franchise brands, facilitating a higher level of quality
customer service.
Our broad strategy remains to acquire good quality businesses that offer us the
best prospective returns on our investment.
2004 has got off to a very positive start with new car registrations in the
first two months up 5% and an encouraging intake of orders for the important
registration month of March. The initiatives in place to increase revenue
through improved operating efficiencies whilst continuing to take advantage of
growth opportunities underpinned by a dynamic franchise-focussed management team
leaves me confident that 2004 will be another year of growth for Lookers.'
Ken Surgenor
Chief Executive
FINANCIAL REVIEW
Group Results
Turnover of £961 million represents a 22% increase on the previous year. £94
million is accounted for by acquisitions made during 2003, from which a
contribution of £1.5 million to operating profit was made.
Gross margins have remained fairly constant at just under 12.5%. This combined
with the tight control of operating costs has resulted in a 30% increase in
operating profit.
Interest Charges
The interest cost has increased from £3.3 million in 2002 to £4.9 million in
2003 of which £0.7 million relates to the funding cost to redeem the preference
shares in January 2003. The remainder is due to our continued investment and
acquisition programme. Measures have been put in place to reduce further our
investment in working capital.
Tax
The effective tax rate at 25.4% has benefited considerably from the use of
rollover relief in relation to the property profits this year. The underlying
trading profits continue to incur tax at around the standard rate of corporation
tax.
Dividends
Ordinary dividends paid and proposed for the year amounted to £3.6 million
compared to £3.4 million for the previous year. The dividend cover has increased
from 2.2 to 2.9 times. Following the payment of the ordinary dividend, the
retained profit for the year is £6.8 million and this anticipated continued
level of profit retention will ensure a continued strong financial position of
your Company.
During 2003 we redeemed the remainder of the preference shares at par, totalling
£13.9 million. This has had the effect of adding circa £700,000 to interest
costs but has positively impacted earnings per share. The hedging facility put
in place for the loan to repay the preference share capital is such that
regardless of interest rate movements this financial restructuring will always
be earnings enhancing.
Cash Flow and Capital Expenditure
Operating cash flow has reduced from £21.2 million in 2002 to £16.6 million in
2003 as the Group geared up new and used vehicle stock levels for what turned
out to be a very strong January market. On a like for like basis our January new
and used car sales increased by nearly 5%.
Despite the significant property disposals giving rise to the £3.0 million
profit on disposal, the Group invested a net £1.4 million in new properties,
refurbishments and other fixed assets. At the year-end there was £3.5 million
of surplus properties held for re-sale. These, however, are not anticipated to
generate significant profits on sale in 2004.
Several acquisitions have taken place during the year and given rise to net
additional investment of £13.4 million. Following the rationalisation of the
agricultural business, £2.0 million was received at the end of February 2004 for
the site at Epworth, and a further £0.5 million of working capital will be
released between now and the end of June as stocks are reduced to a more
appropriate level for this significantly down-sized business.
As a result, at the year end borrowings had increased by £16.1 million compared
with the pro-forma borrowings as set out in last year's Financial Statements.
New Regulations
In the current year, the industry is facing more regulatory challenges in the
form of money-laundering and Financial Services Act (F.S.A.) regulations
covering our insurance income. Despite the fact that these are very stringent,
onerous tasks, your Group has taken the appropriate measures to ensure it is
fully compliant.
The Group has, in conjunction with its auditors reviewed its position and is
well underway in assessing the impact of reporting under International Financial
Reporting Standards. The first time that this will impact the Group is for the
half-year ending 30 June 2005 and the year ending 31 December 2005, which may
necessitate a restatement of the comparative figures at that time.
Outlook
During the year we took the decision to close or sell 7 motor and 3 agricultural
depots which had operating losses of £0.7 million. The quality of the Group's
earnings going forward, therefore, has been much improved as a result of this
rationalisation.
VAT Claims
Lookers, in line with other similar groups in the industry, has submitted
retrospective VAT claims regarding demonstrator vehicles. Customs & Excise have
stated that they wish all claims to be resolved by 31 March 2004 and we are
working closely with them to achieve that objective. The cash received will be
used to reduce debt and assist in the funding of the Group's continuing
acquisition programme.
David Dyson
Finance Director
The Directors announce the following audited results of the Group for the year
ended 31st December 2003
Consolidated Profit and Loss Account (Summarised)
Year ended Year ended
31 December 2003 31 December 2002
(Audited) (Audited)
(As restated -
note 3)
£000 £000
Turnover
- Existing businesses 867,060 790,352
- Acquisitions 94,385 -
______ ______
Total continuing operations 961,445 790,352
______ ______
Operating profit before goodwill amortisation 17,933 13,899
Goodwill amortisation (871) (728)
Operating profit
- Existing businesses 15,545 13,171
- Acquisitions 1,517 -
_____ ______
17,062 13,171
(Loss)/profit on disposal/termination of businesses (1,307) 340
Profit on disposal of properties 3,143 1,609
_____ _____
Profit before interest and taxation 18,898 15,120
Interest payable (4,873) (3,291)
______ _______
Profit on ordinary activities before taxation 14,025 11,829
Taxation (3,562) (3,007)
______ _______
Profit after taxation attributable
to shareholders 10,463 8,822
Dividends - non-equity preference shares - (1,126)
- ordinary shares (3,648) (3,428)
_______ _______
Retained profit 6,815 4,268
====== ======
Basic earnings per ordinary share (note 2) 30.1p 22.6p
====== ======
Diluted earnings per ordinary share (note 2) 29.8p 22.5p
====== ======
Adjusted earnings per ordinary share (note 2) 26.2p 19.3p
There are no material gains and losses other than those disclosed in the profit
and loss account.
Consolidated Balance Sheet (Summarised)
31 December 2003 31 December 2002
(Audited) (Audited)
£000 £000
FIXED ASSETS
Intangible assets 10,605 9,165
Tangible fixed assets 92,763 82,789
_______ ______
103,368 91,954
_______ ______
CURRENT ASSETS
Properties held for resale 3,511 -
Stocks 97,463 72,963
Debtors 41,229 36,979
Cash at bank and in hand 33 32
______ ______
142,236 109,974
______ ______
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR (140,245) (109,341)
NET CURRENT ASSETS 1,991 633
______ _______
TOTAL ASSETS LESS CURRENT 105,359 92,587
LIABILITIES
CREDITORS: AMOUNTS FALLING
DUE AFTER MORE THAN ONE YEAR (33,103) (15,347)
PROVISIONS FOR LIABILITIES AND CHARGES (1,424) (316)
______ ______
SHAREHOLDERS' FUNDS 70,832 76,924
===== ======
Shareholders' funds are attributable to
Non-equity shareholders' funds - 13,889
Equity shareholders' funds 70,832 63,035
_______ _______
70,832 76,924
====== ======
Consolidated Cashflow Statement (Summarised)
Year ended Year ended
31 December 2003 31 December 2002
(Audited) (Audited)
(As restated -
note 3)
£000 £000
Net cash inflow before exceptional items 16,617 21,233
Outflow relating to exceptional items (2,469) (481)
________ _______
Net cash inflow from operating activities 14,148 20,752
Returns on investments and servicing of finance
Interest paid (4,489) (3,378)
Non-equity dividends paid (286) (1,126)
Taxation paid (3,569) (3,319)
Net cash (outflow)/inflow from capital
expenditure and financial investments (1,390) 4,226
Net cash outflow from acquisitions and disposals (13,429) (1,719)
Equity dividends paid (3,600) (3,227)
Net cash inflow/(outflow) from financing 4,216 (10,627)
______ _______
(DECREASE)/INCREASE IN CASH (8,399) 1,582
====== ======
Reconciliation of operating profit to net cash inflow from
operating activities before exceptional items
Operating profit before exceptional items 17,062 13,171
Depreciation charges 3,686 3,104
Goodwill amortisation 871 728
Profit on sale of fixed assets (21) (37)
Increase in stock (14,077) (7,728)
Increase in debtors (1,832) (5,923)
Increase in creditors 10,928 17,918
_______ _______
Net cash inflow from operating activities
before exceptional items 16,617 21,233
====== ======
Notes
1. Dividends
Ordinary shares of 25p
An interim dividend of 3.3p per share (2002 - 3.0p per share) was paid on 28 November 2003. The final dividend
proposed at the rate of 7.7p per share (2002 - 7.0p per share) is payable on 28 May 2004 to shareholders on the
register at close of business on 14 May 2004.
2. Earnings per share
The earnings per share is based on profit on ordinary activities after taxation (and in 2002, after preference
dividends) calculated on a weighted average of 34,777,983 ordinary shares in issue during the year (2002 -
34,036,200)
The diluted earnings per share is based on the weighted average number of shares after taking account of the
dilative impact of shares under option of 435,124 (2002 - 724,866). The diluted earnings per share is 29.8p
(2002 : 22.5p).
Adjusted earnings per share is stated before goodwill amortisation and the profit on disposal of properties and
(loss)/profit on disposal of businesses and is calculated on profits of £9,106,000 for the year (£6,577,000 year
ended 31 December 2002) as detailed below:-
31 December 2003 31 December 2002
£000 £000
Profit after taxation 10,463 8,822
Goodwill amortisation 871 728
Profit on disposal of properties (3,143) (1,609)
Loss/(profit) on disposal of businesses 1,307 (340)
Tax (credit)/charge on loss/(profit) on disposal of
businesses @ 30% (392) 102
Preference dividends - (1,126)
______ ______
9,106 6,577
===== =====
3. Financial Information
The financial information has been prepared on the bases of the accounting policies adopted at 31 December 2002. A
presentational change has been made within the Profit and Loss Account in relation to profits/losses on disposal of
businesses and disposals of properties which have now been shown separately after operating profit. Given the
relative size of such profits in the year ended 31 December 2003 the Directors feel this treatment is more
appropriate and consistent with the sector. Comparative figures have been restated so as to ensure consistency of
presentation. This change has had no impact on the profit on ordinary activities before taxation.
The financial information set out in the preliminary announcement does not constitute the Company's statutory
accounts for the year ended 31 December 2003 or the year ended 31 December 2002. The financial information for the
year ended 31 December 2002 is derived from the statutory accounts for that year, which have been delivered to the
Registrar of Companies.
The auditors have reported on the accounts for the year ended 31 December 2003 and 31 December 2002; their reports
were unqualified and did not contain a statement under S237(2) or (3) Companies Act 1985. The statutory accounts
for the year ended 31 December 2003 will be delivered to the Registrar of Companies following the Company's Annual
General Meeting.
This preliminary announcement was approved by the Board on 8 March 2004.
This information is provided by RNS
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