Final Results

RNS Number : 4566G

Lookers PLC

04 March 2015

 

4 March 2015

LOOKERS plc

ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014

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 2014.

Financial Highlights

·     Revenue increased 23% to £3.04 billion (2013: £2.46 billion)

·     *Operating profit increased 31% to £76.6 million (2013: £58.4 million)

·     *Adjusted profit before tax increased 35% to £65.0 million (2013: £48.1 million)

·     Profit before tax increased to £59.2 million (2013: £43.9 million)

·     Earnings per share up 30% at 12.03p (2013: 9.28p)

·     Proposed final dividend of 1.87p per share - total dividend per share up 10% at 2.84p (2013: 2.58p)

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

Operational Highlights

·     Record performance from the motor division

·     Strong growth in used car volumes and margins

·     Revenue and margin improved in aftersales

·     Good progress from our market leading independent aftermarket parts division

·     Good contribution from acquisitions

Andy Bruce, Chief Executive said: "We have delivered another strong trading performance in 2014, our sixth year of successive profit growth. The motor division has produced an excellent result and the parts division has made good progress, delivering a strong performance in improving but competitive market conditions. Lookers is well placed to take advantage of future growth in the new and used car markets as well as increased demand for aftersales and parts. This gives us further confidence that we can continue to grow the business in 2015."

Enquiries:

Lookers	Today: 020 7920 3150
Andy Bruce, Chief Executive	Thereafter: 0161 291 0043
Robin Gregson, Finance Director
Tavistock Communications	Tel:  [phone]
Keeley Clarke Emma Blinkhorn Matt Ridsdale

CHAIRMAN'S REVIEW

I am delighted to report that this is our sixth consecutive year of profit growth and that Lookers has achieved an *adjusted profit before tax of £65.0 million (2013: £48.1 million). This result has been achieved against the background of strong growth in the UK new car market which reached its highest level for ten years.

Total registrations for the UK new car market in the year were 2.47 million, an increase of 9.3%. Our motor division, once again delivered an excellent performance producing strong growth in volumes of both new and used cars, with an increase in new car volumes of 9.7%. 

I am very pleased to report that our independent parts distribution business also made good progress in the year in an improving but competitive market with increases in both turnover and profits compared to the previous year.

The group generates significant levels of operational cash flow and continues to have a strong balance sheet. We also renewed and extended our banking facilities in February 2014 which has provided the group with additional funding until 2018. 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 of intangible assets, debt issue costs, pension costs and share based payments)

DIVIDEND

I am pleased to announce that with another positive result for the year and improved 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 2014 of 1.87p per share, giving a total dividend for the year ended 31 December 2014 of 2.84p per share (2013: 2.58p). 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 5 June 2015.

BOARD CHANGES

John Brown retired from his position as a non-executive director of the company on 31 December 2014, having been in that position since May 2005 and serving as both a non-executive director and the senior independent director in this period. Together with all my colleagues on the board, I would like to thank him personally for his exceptional contribution to the group during the past ten years and wish him all the very best for the future.

As I mentioned in my previous report I am also pleased to report that Richard Walker joined the board on 4 February 2014 as a non-executive director. He brings significant operational expertise in the retail environment, which is already proving to be a great benefit. Richard has also been appointed as Chairman of the Remuneration Committee taking over this position from Bill Holmes, who was appointed Chairman of the Audit Committee.

OUTLOOK

The UK new car market has now benefitted from three years of strong growth which we now expect to stabilise. Our motor division has produced an excellent result during 2014 and we believe there are still further opportunities to develop our existing business in addition to benefiting from acquisitions made in 2014. The parts division has made good progress and has further potential for future growth and development.

The new financial year has started well with group results to date being in line with expectations. We are therefore confident of delivering further growth in 2015.

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 sixth successive year.

Phil White

Chairman

4 March 2015

STRATEGIC AND OPERATIONAL REVIEW

BUSINESS MODEL AND STRATEGY

Business model

With a group turnover of £3.0 billion in 2014, 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 135,000 new and used cars 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 and details of each division are explained in further detail below. However, 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 cyclical 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 2014 annual report and accounts.

Motor division

The motor division consists of 123 franchised dealerships representing 32 marques from 77 locations.  The business generates revenue from the sale of new and used cars and aftersales activities. Aftersales represents the servicing, repair and sale of franchised parts to customers' vehicles. The new car market in the UK has varied between 1.9 million and 2.47 million new cars sold per annum during the past five years and our share of the retail sector of this market is just over 3%. The used car market in the UK has annual transactions of approximately 7.0 million vehicles and continues to represent a major opportunity for us to increase volumes in this part of the market. 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 32 million vehicles where approximately 20% or 6.7 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 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 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 almost 75% of divisional turnover. Apec Braking is the aftermarket leader in the UK for 'dry' braking (pads and discs) and 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 80% 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

The company's strategy is to operate a diverse business in the UK motor sector. This includes operating with a broad range of manufacturer partners across a wide geographical area, both of which help 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 cyclical market forces that sometimes affects 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	2014	2013
Turnover	£3,043m	£2,464m
Gross Profit	£396.1m	£335.8m
Gross margin	13.0%	13.6%
Operating profit	£76.6m	£58.4m
Operating margin	2.5%	2.4%
*Adjusted profit before tax	£65.0m	£48.1m
* Adjusted net margin	2.14%	1.95%
Earnings per share	12.03p	9.28p
Net debt	£51.9m	£43.1m
Gearing	20%	19%
Net debt to EBITDA	0.59	0.61
Non financial
UK new car market	2.47m	2.26m
Group new car sales	74,488	63,608
Share of UK market	3.0%	2.8%
Group used car sales	60,852	53,713
Group employees	6,226	5,772

Performance

I am very pleased to report that the group delivered record results for a sixth year with *adjusted profit before tax of £65.0 million (2013: £48.1million). I am delighted with this result which I believe is a significant achievement even against the background of the increased new car market in the UK. The motor division delivered another excellent trading performance during the year with an increase in profit before tax of 37% to £58.3 million, compared to £42.6 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 £12.2 million compared to £11.8 million last year.

The key elements of this creditable achievement were:

·           a significant increase in new car retail sales at improved margins;

·           further growth in used car volumes and margins;

·           improvement in both aftersales turnover and margin;

·           growth in both turnover and profit in the parts division against improving but competitive market conditions.

We have now had six successive years of increased profits, the majority of which were delivered in restrained market circumstances and it is only during 2014 that the UK new car market returned to what can be considered to be a normal level of activity. This growth has been encouraging and gives us further confidence in our ability to grow the business again in 2015. 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 of intangible assets, debt issue costs, pension costs and share based payments)

OPERATING REVIEW

MOTOR DIVISION

I am pleased to report that the motor division increased its profit before tax by 37% to £58.3 million, a record for the business and a significant increase over the prior year's result of £42.6 million. It is particularly pleasing that the majority of this was organic growth from the existing business rather than from acquisitions, although the acquired businesses performed well in the year.

We have continued to improve the balance of our portfolio of franchise representation and on 10 March 2014 we acquired Colborne, which consists of three Audi, one Skoda, two Volkswagen passenger car and one Volkswagen commercial vehicle dealerships, all in the South East. This was acquired for a cash consideration of £27.4 million and has been successfully integrated during the year so that it will make a good contribution in 2015.

New Cars

The UK new car market increased by 9.3% to 2.47 million cars in the year, with the new car retail market increasing by 9.8% and the fleet market increasing by 8.9%. Lookers core retail new car sales increased by 9.2% compared to 2013 levels, on a like for like basis. In the fleet sector, our volumes increased by 14.1%, as we have put more focus and investment into this sector. It was therefore a creditable result for our volume growth to be so far ahead of the market, even though 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. This provides scope for organic growth given our current share of the market and represents a major opportunity for additional profit generation. To facilitate this we are making 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 per unit on new retail cars increased by 4.6% compared to the prior year, whilst gross profit per unit on fleet business was stable compared to the previous 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 2015 new car market estimated to increase to 2.51 million units.

Used Cars

Group sales volumes of used cars increased by 4.4%, when compared on a like for like basis to 2013 and have increased by over 36% in the last three years. Gross profit increased by 18.1% or 13.0%, on a like for like basis, with profit per unit increasing by 2.7%. We continue to follow a robust stocking policy which delivers increased stock turn as well as increasing our resource for sourcing good quality used cars and these policies help to improve volumes and margins. A further factor, which is helping to improve used car volumes, is the increasing number of leads being generated from the group's website, which were up 33% compared to last year. This is an area in which we shall continue to invest so that our website is one of the best in the industry. 

We believe that the used car market represents a significant opportunity for the group. By continuing to follow our policies which have resulted in this success, we expect to take advantage of the stable market conditions in the used car sector to continue to improve volumes and margins.

Aftersales

Turnover in the important area of aftersales increased by 5.3% on a like for like basis compared to the prior year benefiting from an increase in the vehicle parc of cars under three years old, a trend which will continue following the increase in the new car market in the last three years. Turnover has also increased due to the various initiatives that we have taken to develop this business in recent years, with an increased emphasis on performance and specific targets being introduced to improve overhead absorption and therefore overall profitability. It is therefore a creditable result to see that the aftersales margin has increased again from 42.5% to 42.7%, on a like for like basis. This is a positive result which demonstrates the success of our continued investment in technology and procedures to further improve customer retention and average sales value per customer visit. We continue to develop and have

significantly improved our electronic vehicle health check system across the motor division, where we now send a video link to the customer which shows the inspection of their vehicle taking place. We have also renewed our focus on the significant opportunity that tyre sales represent. Sales of service plans, where customers commit to longer term contracts for vehicle servicing, which improves customer loyalty and retention, have continued to increase. We have maintained our commitment to enhance customer experience with the objective of improving retention and delivering our "customers for life" strategy, to strengthen the business and further improve profitability.

Developing the retail environment

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. This will be complemented by further significant investment in our multi channel customer experience concept and in particular, how to optimise the digital and physical customer journey. 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.

The internet continues to play an ever increasing role in the customer journey and now dominates consumers' research. During the year we established an in house digital marketing team to cover all digital marketing activities which had previously been outsourced. This has resulted in more effective and efficient marketing. Our visitor and enquiry levels continue to show significant increases, not only as more consumers research their purchases online, but as a result of our ongoing investment in our website. The launch of a new, significantly improved and fully responsive website is due to take place in the first half of this year.

Customer satisfaction

We launched our Customers for Life strategy two years ago to improve our level of customer experience, retention and referral and we conduct extensive customer research to continually refine our offering. Much of our focus has been on ensuring our staff satisfaction is enhanced as well as conducting extensive customer research to continually refine our offering to them. We appreciate that customers now have increased expectations as well as access to higher levels of product information. To meet these changing needs we have introduced franchise specific business development centres as well as longer opening hours that are more convenient for our customers.

Employee development

We recognise that our people are a key asset that allows us to deliver our strategy and play a critical role in providing a first class customer experience. We have continued to invest in 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. This has been aligned with our customer experience strategy to ensure our staff develop the skills needed to deliver enhanced levels of customer satisfaction. We are also improving the range of benefits that are available to our staff and significantly enhancing awards for long service to recognise and reward staff loyalty. It was particularly pleasing to see 395 of our staff benefit from the success of our employee sharesave scheme where they shared an overall profit of £3.8 million, with the average profit being just under £10,000.

PARTS DIVISION

As referred to earlier in the Chairman's review, our parts division continued to make good progress with improvements in both turnover and profit before tax compared to the prior year. This result was achieved in an improving but competitive market.

Turnover for the division increased by £8.4m, up 4% on the prior year as we continued 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 proposition as well as in new product development and range extensions. Demand for core products at Apec braking improved and the second tier braking product introduced last year has successfully established itself in the market.  BTN Turbo made further progress in core aftermarket turbo sales and has also had some encouraging wins in developing its higher value added specialist segment.

Sales volumes increased, margins were maintained at the same level as the previous year, overheads were closely controlled and the business continued to benefit from efficiency improvements. Profit before tax increased by 3.4% to £12.2 million compared to £11.8 million in the prior year. This represents a good result from our parts division which continues to make a significant contribution to group earnings where it represents 19% of group profit before tax with a consistent and relatively high net margin of 6%.

GROUP OUTLOOK

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 expectations.

The new car market is expected to show modest growth in 2015 and the used car market is stable. This, together with the group's strong performance in 2014 and the previous five years, provide a firm foundation on which to deliver further growth in the current year. 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 of the motor division. These factors, together with the broad base of our franchise representation leave us very well positioned for future growth. The acquisition of Colborne should make a greater contribution this year and we continue to focus on the areas in which we can improve the performance of the group's franchised outlets, such as used car sales. As in previous years we continue to target selective acquisitions to further improve our franchise representation.

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

The parts division has made good progress with increased profits, which together with continued investment in new product lines, improved facilities and systems, leaves the business in a stronger position for further growth and development. We also continue to seek appropriate acquisition targets in the parts aftermarket.

The group balance sheet continues to be strengthened by strong operational cash flow. We have substantial headroom in our bank facilities with net debt continuing to be closely controlled and net debt to EBITDA being at a lower level than last year. This provides secure funding capacity for several years and financial security to grow the business through further strategic acquisitions in both the motor and parts divisions.

Andy Bruce

Chief Executive

4 March 2015

FINANCIAL REVIEW

GROUP RESULTS

Turnover increased by 23% to £3.04 billion (2013: £2.46 billion), with strong growth from new and used cars and £222m represented by the acquisition of Colborne. Gross profit of £396 million increased by £60.2 million compared to the previous year, with the growth coming from new and used cars as well as acquisitions. The gross margin of 13.0% was slightly lower compared to the prior year of 13.6%, this is due to a greater proportion of gross profit coming from cars, which have a lower margin than parts and aftersales. The operating margin improved to 2.5% from 2.4% last year and overheads increased by £43.1 million in the year, primarily due to the higher turnover and acquisitions.*Adjusted profit from operations increased by 31% to £76.6 million (2013: £58.4 million).

Net interest costs increased by 12.6% to £11.6 million (2013: £10.3 million) due to the acquisition of Colborne 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 interest charge so that we do not get the full benefit of the low UK base rate which has been applicable for several years.

The pension charge for the year of £3.1 million has been calculated in accordance with the accounting standard IAS 19 (Revised) and compares to a charge of £2.7 million in the prior year. Further comments in relation to the pension schemes are provided in a separate paragraph of this review.

Key financial highlights are summarised below:

·        *adjusted profit before tax for the year increased by 35% to £65.0 million, from £48.1 million last year, which is the highest trading result to date for the company;

·        profit before tax was £59.2 million compared to a profit before tax in the previous year of £43.9 million, an increase of 35%;

·        profit after tax was £46.8 million, an increase of 29% compared to £36.2 million in 2013;

·        earnings per share increased by 30% to 12.03p compared to 9.28p in the prior year and *adjusted earnings per share of 13.52p compared to 10.36p in the prior year, an increase of 30%.

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

TAXATION

The tax charge for the year of £12.4 million compares to a tax charge of £7.7 million in the prior year and reflects a charge of 21% of profit before tax. This is similar to the standard rate of Corporation Tax of 22% whereas the lower charge in 2013, of 17.5%, reflected a reduction in the rate at which deferred tax is calculated from 23% to 20% in line with the reduction in UK Corporation Tax to this rate by April 2015.

CASH FLOW

Cash generated from operations for the year was £66.1 million (2013: £76.5 million), slightly below last year due to increased working capital which increased by £12.5 million. Stock and debtors increased by £127.7 million which was mainly offset by an increase in creditors of £115.2 million. Capital expenditure was £16.5 million, the same as the previous year and proceeds from the sale of properties and dealership businesses was £7.2 million (2013: £12.7 million), so net capital expenditure was £9.3 million (2013: £3.8 million). The majority of capital expenditure was on new or improved premises for dealerships. As referred to in the Strategic and Operational Review, expenditure on acquisitions during the year relates to the acquisition of Colborne on 10 March 2015 for a total cash consideration of £27.4 million.

The strong operational cash flow allowed us to make further reductions in bank loans where repayments of £7.5 million were made during the year, the same amount as repaid in 2013. Net debt increased by £8.8 million in the year, compared to a decrease of £5.1 million in the previous year. The increase being a result of higher net capital expenditure and the higher cost of acquisitions compared to the prior year. This increase in net debt resulted in net borrowings of £51.9 million at 31 December 2014 compared to £43.1 million at the start of the year, net debt being calculated as gross bank borrowings less cash balances.

BANK FUNDING

Our bank facilities were renewed and increased on 7 February 2014 and remain in place until March 2018. The facilities are with a group of five banks being Barclays, HSBC, Lloyds, RBS and Yorkshire Bank and consisted initially of a term loan of £50 million, which has since reduced to £42.5 million and a revolving credit facility of £90 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 1.4% and 2.35% above LIBOR, depending on the ratio of net bank debt to EBITDA. These facilities are subject to half yearly covenant tests on interest cover and net bank debt to EBITDA. The covenant tests are set at levels that provide sufficient headroom and flexibility for the group until maturity of the facilities in March 2018.

At 31 December 2014, total facilities were £132.5 million (2013: £96.25 million) of which £51.9 million, net of cash balances, was being utilised. 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 2014, gearing was 20% compared to 19% at 31 December 2013 and net debt to EBITDA was 0.59 compared to 0.61 last year. The group's underlying profitability and strong cash flow should result in further reductions in borrowing in the future and help ensure that the level of borrowing remains under control and is at a reasonable level in relation to net assets.

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 2014 was £193.1 million compared to £185.4 million last year. Short leasehold properties had a value of £6.0 million (2013: £6.5 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 0.97p per ordinary share and this was paid on 28 November 2014. We are now proposing a 10% increase in the final dividend to 1.87p per share, giving a total dividend for the year ended 31 December 2014 of 2.84p per share (2013: 2.58p), representing an increase in the total dividend for the year of 10%. This follows the 43% increase in the dividend paid over the previous three years to December 2013 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 5 June 2015. This will represent a cash outflow of £7.3 million, which gives a total dividend for the year of £11.1 million.

PENSION SCHEMES

The group operates two defined benefit pension schemes both of which are closed to entry for new members and also closed to future accrual. Whilst the asset values of the schemes have increased during the year, the valuation of the liabilities increased by a higher amount so the net deficit included in the balance sheet increased by £10.8m, after deferred tax. The assessment of valuation of the pension schemes is based on several key assumptions prescribed by accounting standards and over which the directors have very little 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 increased in the year and the total deficit after deferred tax is now £46.0 million (2013: £35.3 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

4 March 2015

Consolidated Income Statement
For the year ended 31 December 2014

		2014	2013
	Note	£m	£m
Continuing operations
Revenue		3,042.9	2,464.5
Cost of sales		(2,646.8)	(2,128.7)
Gross profit		396.1	335.8
Distribution costs		(212.6)	(184.8)
Administrative expenses		(109.3)	(94.0)
Other operating income		0.1	0.3
Profit from operations
Profit from operations before amortisation and share based payments		76.6	58.4
Amortisation of intangible assets		(1.2)	(1.1)
Share based payments		(1.1)	-
Profit from operations		74.3	57.3
Interest payable	3	(11.9)	(10.5)
Interest receivable	3	0.3	0.2
Net interest		(11.6)	(10.3)
Net interest on pension scheme obligation		(3.1)	(2.7)
Debt issue costs		(0.4)	(0.4)
Profit on ordinary activities before taxation		59.2	43.9
Profit before tax, amortisation, debt issue costs, pension costs
and share based payments		65.0	48.1
Amortisation of intangible assets		(1.2)	(1.1)
Share based payments		(1.1)	-
Net interest and costs on pension scheme obligation		(3.1)	(2.7)
Debt issue costs		(0.4)	(0.4)
Profit on ordinary activities before taxation		59.2	43.9
Tax charge		(12.4)	(7.7)
Profit for the year		46.8	36.2
Attributable to:
Shareholders of the company		46.8	36.0
Non-controlling interests		-	0.2
Continuing operations
Earnings per share
Basic earnings per share	4	12.03p	9.28p
Diluted earnings per share	4	11.75p	9.10p

Consolidated Statement of Comprehensive Income

	Note	2014	2013
		£m	£m
Profit for the financial year		46.8	36.2
Items that will never be reclassified to profit and loss:
Actuarial losses recognised in post-
retirement benefit schemes		(16.1)	(3.3)
Movement in deferred taxation on pension liability		3.3	0.6
Tax rate adjustment		-	(1.3)
Items that are or may be reclassified to profit and loss:
Fair value on derivative instruments		2.2	1.5
Movement in deferred taxation on derivative instruments		(0.5)	(0.3)
Other comprehensive expense for the year		(11.1)	(2.8)
Total comprehensive income for the year		35.7	33.4
Attributable to:
Shareholders of the company		35.7	33.2
Non-controlling interests		-	0.2

Consolidated Statement of Financial Position

As at 31 December 2014

	2014	2013
	£m	£m
Non-current assets
Goodwill	80.6	73.7
Intangible assets	33.6	13.8
Property, plant and equipment	215.6	204.6
	329.8	292.1
Current assets
Inventories	548.8	446.7
Trade and other receivables	179.4	154.0
Rental fleet vehicles	57.1	52.9
Cash and cash equivalents	5.9	5.2
Assets held for sale	-	0.5
	791.2	659.3
Total assets	1,121.0	951.4
Current liabilities
Bank loans and overdrafts	20.2	14.5
Trade and other payables	688.2	578.9
Current tax liabilities	11.3	8.9
Short-term provisions	0.6	1.0
Derivative financial instruments	4.9	7.0
	725.2	610.3
NET CURRENT ASSETS	66.0	49.0
NON-CURRENT LIABILITIES
Bank loans	37.6	33.8
Trade and other payables	30.8	24.2
Retirement benefit obligations	57.6	44.1
Deferred tax liabilities	12.3	10.2
Long-term provisions	0.6	0.8
	138.9	113.1
Total liabilities	864.1	723.4
Net assets	256.9	228.0
Shareholders' equity
Ordinary share capital	19.7	19.4
Share premium	76.9	75.6
Capital redemption reserve	14.6	14.6
Other reserve	-	(1.1)
Retained earnings	145.7	118.8
Equity attributable to shareholders of the company	256.9	227.3
Non-controlling interests	-	0.7
TOTAL EQUITY	256.9	228.0

Consolidated Cash Flow Statement

For the year ended 31 December 2014

	2014	2013
	£m	£m
Cash flows from operating activities
Profit for the year	46.8	36.2
Adjustments for:
Tax	12.4	7.7
Depreciation	13.5	12.5
Profit on disposal of plant and equipment	(0.1)	(0.1)
Profit on disposal of rental fleet vehicles	(0.7)	(0.4)
Amortisation of intangible assets	1.2	1.1
Share based payments	1.1	-
Interest income	(0.3)	(0.2)
Interest payable	11.9	10.5
Debt issue costs	0.4	0.4
Changes in working capital
Increase in inventories	(102.2)	(62.6)
Increase in receivables	(25.5)	(30.2)
Increase in payables	115.2	102.6
Impact of net working capital of acquisitions	(7.6)	(1.0)
Cash generated from operations	66.1	76.5
Difference between pension charge and cash contributions	(5.8)	(5.4)
Net interest and costs on pension scheme obligation	3.1	2.7
Purchase of rental fleet vehicles	(80.5)	(67.4)
Proceeds from sale of rental fleet vehicles	72.2	49.5
Interest paid	(11.9)	(10.5)
Interest received	0.3	0.2
Tax paid	(8.9)	(8.1)
Net cash inflow from operating activities	34.6	37.5
Cash flows from investing activities
Acquisition of subsidiary companies (net cash outflow)	(24.3)	(19.4)
Purchase of property, plant and equipment	(16.5)	(16.5)
Purchase of intangibles	(0.7)	0.1
Purchase of goodwill	(0.2)	-
Proceeds from sale of property, plant and equipment	7.2	12.6
Proceeds from sale of business	-	0.1
Net cash used by investing activities	(34.5)	(23.1)
Cash flows from financing activities
Proceeds from issue of ordinary shares	1.6	0.3
Repayment of loans	(7.8)	(7.5)
New loans	14.6	-
Dividends paid to group shareholders	(10.4)	(9.5)
Net cash outflow from financing activities	(2.0)	(16.7)
Decrease in cash and cash equivalents	(1.9)	(2.3)
Cash and cash equivalents at 1 January	(1.8)	0.5
Cash and cash equivalents at 31 December	(3.7)	(1.8)

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 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 earnings	-	-	-	-	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
As at 1 January 2013	19.4	75.3	14.6	(1.4)	95.4	203.3	0.5	203.8
New shares issued	-	0.3	-	-	-	0.3	-	0.3
Profit for the year	-	-	-	-	36.0	36.0	0.2	36.2
Actuarial losses on defined benefit pension schemes	-	-	-	-	(3.3)	(3.3)	-	(3.3)
Deferred taxation on pension liability	-	-	-	-	0.6	0.6	-	0.6
Rate adjustment	-	-	-	-	(1.3)	(1.3)	-	(1.3)
Foreign exchange adjustment	-	-	-	0.3	(0.3)	-	-	-
Fair value on derivate instruments	-	-	-	-	1.5	1.5	-	1.5
Deferred taxation on derivative instruments	-	-	-	-	(0.3)	(0.3)	-	(0.3)
Dividends to shareholders	-	-	-	-	(9.5)	(9.5)	-	(9.5)
As at 31 December 2013	19.4	75.6	14.6	(1.1)	118.8	227.3	0.7	228.0

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 2013. 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 2014 or 2013, but is derived from those accounts. Statutory accounts for 2013 have been delivered to the Registrar of Companies and those for 2014 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 2014 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 £55.0 million and a term loan of £41.25 million, providing total facilities of £96.25 million until March 2016.

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

2. SEGMENTAL REPORTING

At 31 December 2014 the group is organised into two main business segments (2013: 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 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)
Profit for the financial period from continuing
operations attributable to shareholders					46.8
Year ended ended 31 December 2014 (Continued)		Motor Division £m	Parts Distribution £m	Unallocated £m	Group £m
Segmental assets		980.2	136.7	-	1,116.9
Total assets		980.2	136.7	-	1,116.9
Segmental liabilities		735.7	66.5	-	802.2
Unallocated liabilities - Corporate borrowings		-	-	57.8	57.8
Total liabilities		735.7	66.5	57.8	860.0

Year ended 31 December 2013	Motor Division £m	Parts Distribution £m	Unallocated £m	Group £m
Continuing operations
New Cars	1,130.2	-	-	1,130.2
Used Cars	794.4	-	-	794.4
Aftersales	342.8	197.1	-	539.9
Revenue	2,267.4	197.1	-	2,464.5
Segmental result before amortisation of intangible assets	49.6	11.8	(3.0)	58.4
Amortisation of intangible assets	-	-	(1.1)	(1.1)
Interest expense	(7.0)	-	(3.5)	(10.5)
Interest income	-	-	0.2	0.2
Net interest and costs on pension scheme obligations	-	-	(2.7)	(2.7)
Debt issue costs	-	-	(0.4)	(0.4)
Profit before taxation	42.6	11.8	(10.5)	43.9
Taxation	-	-	(7.7)	(7.7)
Profit for the financial year from continuing operations attributable to shareholders				36.2
Segmental assets	814.3	137.1	-	951.4
Total assets	814.3	137.1	-	951.4
Segmental liabilities	603.2	71.9	-	675.1
Unallocated liabilities - Corporate borrowings	-	-	48.3	48.3
Total liabilities	603.2	71.9	48.3	723.4

3. Finance costs - net

	2014	2013
	£m	£m
Interest expense
On amounts wholly repayable within 5 years:
Interest payable on bank borrowings	(5.0)	(4.7)
Interest on consignment vehicle liabilities	(6.9)	(5.8)
Interest and similar charges payable	(11.9)	(10.5)
Interest income
Bank interest	0.3	0.2
Total interest receivable	0.3	0.2
Finance costs - net	(11.6)	(10.3)

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 £46.8 million (2013: £36.0 million) and a weighted average number of ordinary shares in issue during the year of 389,158,672 (2013: 388,089,402)

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 9,062,088 (2013: 7,590,189).

Adjusted earnings per share is stated before amortisation of intangible assets, impairment of goodwill, debt issue costs, pension costs and share based payments and is calculated on profits of £52.6 million (2013: £40.2 million) for the year.

Continuing operations	2014 Earnings £m	2014 Earnings per share p	2013 Earnings £m	2013 Earnings per share p
Basic EPS
Earnings attributable to ordinary shareholders	46.8	12.03	36.0	9.28
Effect of dilutive securities	-	(0.28)	-	(0.18)
Diluted EPS	46.8	11.75	36.0	9.10
Adjusted EPS
Earnings attributable to ordinary shareholders	46.8	12.03	36.0	9.28
Amortisation of intangible assets	1.2	0.30	1.1	0.3
Net interest and costs on pension scheme obligation	3.1	0.79	2.7	0.69
Share based payments	1.1	0.30	-	-
Debt issue costs	0.4	0.10	0.4	0.09
Adjusted EPS	52.6	13.52	40.2	10.36

5. Dividends 

	2014	2013
	£m	£m
Interim dividend of 0.97p per ordinary share (2013: 0.88p)	3.8	3.5
Final dividend paid during the year relating to the financial year ended 31 December 2013 of 1.70p per ordinary share (2013: 1.55p)	6.6	6.0
Total dividends paid in the year of 2.67p per ordinary share (2013: 2.43p)	10.4	9.5

The directors propose a final dividend of 1.87p per ordinary share in respect of the financial year ended 31 December 2014 (2013: 1.70p). The final dividend will be paid on 5 June 2015 to shareholders on the register on 8 May 2015.  The proposed final dividend is subject to approval by the shareholders at the Annual General Meeting and has not been included as a liability in this financial information.

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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