Interim Management Statement

RNS Number : 9256J

Lookers PLC

07 July 2011

 



7 July 2011

Lookers plc

Half Year Update

Lookers plc, ("Lookers" or "the Company"), one of the leading UK motor retail and aftersales service groups, is issuing a half year trading update for the period ending 6 July 2011, following the end of the Company's interim period on 30 June. The Company is also providing further information following the termination of discussions with Trefick Limited, Moor Park Capital Partners LLP and Brett Palos Capital No 2 Limited ("the Consortium").

Trading update

The Company's previous interim management statement issued on 12 May 2011 reported that the trading performance for the first quarter was ahead of budget and prior year. For quarter two, we are pleased to report that the independent parts division continues to deliver record results, further strengthening its unique position in the buoyant independent aftersales sector. Trading conditions for the motor division in the second quarter have been more difficult, as conditions in the UK economy continue to be affected by weak consumer confidence. Overall, the group continues to trade satisfactorily, and we expect group results for the first half year to 30 June 2011 to be very close to the record first half trading performance of 2010, despite pressure on volumes in the new and used car markets.  

The UK new car retail market reduced by 18.1% in the first half of the year, although volumes in 2010 were inflated by the scrappage scheme.  Group sales of new retail cars reduced by 12.7%, 5.4% ahead of the market and indicating a continuation of our increase in market share. Total industry sales in the corporate sector increased by 3.1% in the period. Group volumes in this sector have reduced slightly compared to the prior year. New retail car margins are in line with last year and remain ahead of budget. Fleet margins have improved compared to last year, more than offsetting the small reduction in fleet volume. We continue to improve the balance of our portfolio of franchise representation and in the first six months we have sold or closed five underperforming businesses and added an additional three businesses.

Used car volumes increased by 5% in the period, compared to last year and margins continue to be at satisfactory levels and consistent with last year. Aftersales revenue in the motor division was similar to budget and the gross profit margin has been maintained in line with budget but has increased compared to last year.

We are also pleased to report that Get Motoring UK Limited, which was acquired in March this year, has made a good start as part of the group and profitability for the period since acquisition is ahead of expectations. 

Overall, the motor division has had a satisfactory first half to the year which is a good performance in a difficult market against a background of challenging economic conditions. The broad base of our franchise representation and the restructuring of our portfolio over the last two years has provided the motor division with a structural resilience to adapt to market challenges.

Our market leading independent parts division continues to perform well and has made further improvements in profitability, which is ahead of both budget and last year. It continues to invest in new product lines and opportunities to expand the business as well as making an increased and significant contribution to group earnings.

We continue to focus on working capital management and cashflow is ahead of budget also benefiting from the sale of surplus assets which have realised £12m in the first half of the year. Net debt continues to be well managed and is at a lower level than both budget and the start of this year. We therefore have a significant amount of unutilised bank facilities which provide improved financial security for the group. Our current bank facilities expire in April 2012 and we have commenced refinancing discussions with our banks, the initial results of which are encouraging.

The financial results for the six months to 30 June 2011 are expected to be announced on 17 August 2011.

Further information on indicative offer from the Consortium

As was announced on 8 June, 2011, the Company confirmed that it had received an indicative proposal from the Consortium at a price of 80 pence per share. On 9 June, 2011 the Board of Lookers determined that it would allow the Consortium a period of three weeks to conduct initial due diligence. On 29 June 2011, the Company announced that it had received an indicative proposal, subject inter alia to financing and further due diligence, from the Consortium, at a level materially below that previously indicated of 80 pence per Lookers share. We are now able to confirm that this proposal was at a price of 70 pence per Lookers share.

In its announcement on 29 June 2011, the Consortium indicated that this proposal had been based on new information received from the Company during the due diligence process, although the nature of this new information was not disclosed by the Consortium in its announcement. The Company understands that this information related primarily to the valuation of the Company's freehold and long leasehold properties and the Company's pension schemes.

With regard to property, it appears that the Consortium's value of 80 pence per share had been based on its assumption that the value of the company's property portfolio was significantly in excess of the value included in the accounts of the Company. The due diligence exercise indicated that the value of the properties in total was above the value in the Company's accounts, but not to the extent required by the Consortium's business plan.

The Consortium's advisers had also carried out a preliminary review of the Company's pension schemes as part of the due diligence exercise. Their initial view suggested that the additional annual payments towards the pension deficit may have to be increased as a consequence of the change in ownership and this had a negative impact on the Consortium's valuation of the Company. Their view of the pension schemes has no impact on the annual payments currently payable by the Company, which have been agreed with the Trustees of the pension schemes, or the value of the pension schemes' assets and liabilities which are included in the accounts of the Company. Any future changes to these payments will be agreed between the Company and the Trustees in the normal manner and will continue to be fully disclosed in the accounts of the Company in accordance with accounting standards.

Whilst both of these factors may have influenced the Consortium's valuation of the Company and reduced the amount of debt finance that may have been available to the Consortium to finance their offer for the Company, neither of these factors change the value of the assets and liabilities which are included in the accounts of the Company and do not reduce the net assets of the Company.

Note 7 of Rule 2.4 of the City Code on Takeovers and Mergers requires the Company to clarify that this statement is being made by the Company without prior agreement with the Consortium.

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For further information:

Lookers plc	Telephone: [phone]
Peter Jones, Chief Executive
Robin Gregson, Finance Director
Hudson Sandler	Telephone [phone]
Nick Lyon / Kate Hough

 

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