Interim Results

Lookers PLC 16 August 2004 16 August 2004 LOOKERS PLC UNAUDITED INTERIM RESULTS FOR THE HALF YEAR ENDED JUNE 30 2004 Lookers plc, one of the leading multi-franchise motor retail groups in the UK, announces record results for the half-year ended June 30 2004. HIGHLIGHTS • Turnover up 12% to £576.4million (2003 : £516.1million) • Operating profit pre goodwill and exceptional items up 8% to £12.5million (2003 : £11.6million) • Profit on ordinary activities before tax £26.1million (2003 : £10.3million) • Basic earnings per share 52.8p (2003 : 21.6p) • Adjusted earnings per share excluding goodwill and exceptional items up 16% to 20.7p (2003 : 17.9p) • Interim dividend up 21% to 4.0p (2003 : 3.3p) • VAT exceptional net credit of £16.8million received from HM Customs & Excise after the half-year end • Gearing reduced from 84% to 61% (42% had the VAT credits been received prior to the half-year end) OPERATIONAL HIGHLIGHTS • New car sales up 13% • Used car sales up 16% • Rationalisation of underperforming outlets continues • Acquisition of FPS Distribution Limited - will be earnings enhancing in its first full year of ownership Ken Surgenor, Chief Executive of Lookers plc, commented: 'These excellent results demonstrate the progress that Lookers has made over the last year to improve operating efficiencies and the quality of our earnings. We have a well balanced portfolio of franchise outlets, vehicle servicing and parts sales facilities. Looking forward, we are delighted with the acquisition of FPS Distribution. It is a high quality business with a leading market position, established track record over many years and an extremely experienced management team. This strategic acquisition will not only enhance the Group's earnings, but will also broaden our revenue base from the automotive industry and enable the Enlarged Group to benefit from FPS' proven expertise in significant areas of parts handling and distribution. Over the course of the next six months we will continue to invest in the future of the business, by developing and improving our network of outlets and through selective acquisitions. The initiatives we plan to implement over the next few months give us confidence that 2004 will be another excellent year for Lookers.' An analyst meeting will be held at 9.30am on 16 August, followed by a press briefing at 11.30am, at the offices of gcg hudson sandler, 29 Cloth Fair, London, EC1A 7NN. Please contact Rebecca Ghent on 020 7796 4133 for further details or to confirm attendance. Enquiries: Ken Surgenor, Chief Executive Telephone: 020 7796 4133 David Dyson, Finance Director (on Monday 16 August only) and on 0161 291 0043 (thereafter) James Hill / Nick Lyon Telephone: 020 7796 4133 gcg hudson sandler High resolution photographs will be available to media at www.vismedia.co.uk from 7.00am. CHAIRMAN'S REVIEW Lookers has achieved another strong financial and operational performance in the first half of 2004. Over the period, we continued to invest in and develop our existing franchise portfolio, as well as further rationalising underperforming outlets in order to improve the quality of our earnings. Our continued profit and turnover growth reflects the Group's ongoing strategic focus on providing outstanding customer care through our 'Customers for Life' programmes, improved operating efficiencies across all parts of the business and a commitment to growing the business by maintaining strong relationships with our preferred manufacturers. OVERVIEW Lookers once again exceeded the record profit and turnover growth of the same period last year, with turnover up 12% to £576.4 million (2003: £516.1 million) and profit before goodwill, exceptionals and tax up 7% to £9.8 million (2003: £9.2 million). During the last quarter of 2003 we acquired the Vauxhall Savilles Auto village business in Northern Ireland, Lexus in Essex and established an additional Peugeot outlet on a greenfield site in East Belfast and a used car operation in Londonderry. These businesses are now fully integrated and have made a positive contribution to the first half performance in 2004. We have one of the broadest spreads of franchises in the sector being equally committed to the volume and premium end of the market. Premium brands generally enjoy higher margins but are more susceptible to swings in the economy. Volume brands on the other hand, achieve lower margins but are more stable as well as providing a strong aftersales opportunity due to the much larger vehicle parc. We also have a balanced geographical coverage which provides us with a degree of protection from regional economic fluctuations. Following an announcement made on 22 July 2004 of the Board's Proposed Acquisition of FPS Distribution for a total consideration of £31 million and the Circular to shareholders dated 27 July 2004, I am pleased to report that shareholders approved the acquisition at an extraordinary general meeting held on 12 August. This strategic acquisition will enable the Enlarged Group to enhance its earnings potential in the fast growing aftersales market. On 22 July 2004 the Company also announced that it now expects that the net amount receivable from HM Customs and Excise regarding VAT overpaid in the period 1973 to 1996 will be at least £17.5 million. £16.75 million net of expenses was received shortly after the half-year end. The Board intends to re-invest this money in growing the business organically and through acquisitions. Trading conditions Despite new car volume originally expected to be slightly down on last year, to the end of June the market was actually ahead by 2.2%. New car sales at Lookers against the same period last year were up by 13%, with used car sales reporting a significant increase of 16%. Current economic conditions still remain favourable with the relatively low cost of car ownership fostering a strong demand for both new and used cars. Once again, industry forecasts from the SMMT suggest that 2004 will be yet another strong new vehicle market. FINANCIALS Despite very strong prior year comparatives, turnover for the six months to 30 June 2004 rose by 12% to £576.4 million (2003: £516.1 million) with operating profit before goodwill and exceptional items up 8% to £12.5 million (2003: £11.6 million). Profit before tax including exceptional VAT credits was £26.1 million (2003: £10.3 million), and basic earnings per share of 52.8p against 21.6p last year. Adjusted earnings per share excluding goodwill and exceptional items was 20.7p (2003: 17.9p) representing a 16% increase. During the period management continued to drive operating efficiencies and cost savings across the business. Working capital has been tightly controlled and we have seen a healthy increase in our operating cash flow for the first six months of the year to £18.6 million (2003: £13.2 million). VAT As stated above, Lookers confirmed on 22 July 2004 that it expects that the net amount receivable from HM Customs and Excise regarding VAT overpaid in the period 1973 to 1996 will be at least £17.5 million. The actual amount of VAT and related interest received shortly after the half-year end net of expenses was £16.75 million, which has been recognised in the profit and loss account. Had this been received prior to 30 June, gearing would have reduced to below 42%. Further much smaller amounts are expected to be received prior to the year- end. Whilst we have provided corporation tax at 30% on the total net receipts to date, we are actively pursuing the matter with our advisors to significantly reduce the final liability. Dividend In view of the fact that a disproportionate level of profit is earned in the first half of the year, the Board has decided to increase the level of dividend paid at the interim stage. Over a period of time, it is envisaged that the previous split of 30% at the interim stage and 70% at the final stage will move nearer to 45% and 55% respectively. The interim dividend of 4.0p (2003 : 3.3p), representing an increase of 21%, will be paid on 30 November 2004 to shareholders on the register at 1 October 2004. After providing for the increased interim dividend, equity shareholders' funds have increased by 24% since 31 December 2003. A resolution was passed at the Annual General Meeting held on 13 May 2004 enabling shareholders to elect to have shares issued in lieu of dividends. This is the first occasion where this will occur and details will be sent to shareholders shortly. ACQUISITION OF FPS DISTRIBUTION As mentioned previously, shareholders approved the Board's proposed acquisition of FPS Distribution at an extraordinary general meeting held on 12 August 2004, at which time the acquisition became unconditional, for a total consideration of £31 million. Originally established in 1934, FPS Distribution is the leading UK wholesale distributor of vehicle parts to the automotive market, with 19 distribution centres nationwide and over 2,400 independent motor factor relationships. FPS Distribution has an established track record and market position with excellent prospects for continued growth and high quality earnings potential. This acquisition represents an important step in Lookers' strategy of broadening the base of its revenue stream from the automotive industry. The Enlarged Group will benefit from FPS Distribution's proven expertise in parts handling, stock control and distribution which can be applied to Lookers existing parts operations. The acquisition will positively impact our operating margins for the remainder of 2004 and more so in 2005 and beyond. OPERATING REVIEW In line with our stated strategy, we have continued to exercise tight financial management of our market areas, driving operating efficiencies and cost savings through economies of scale in advertising, marketing, parts purchasing, stock handling and administration. We now operate a network of 93 vehicle, servicing and parts facilities across the UK. Following the acquisition of FPS, a further 19 parts distribution centres have been added. Underpinning all of our operations is our unstinting focus on delivering excellent aftersales services to our customers. Aftersales is an increasingly important component of motor retailing, and through our Customers for Life strategy, we have invested time in making sure that the culture of our business is geared towards gaining business and keeping customers at all stages of a vehicle's life cycle. Gross profits achieved from our aftersales business in the six months to 30 June 2004 represented 46% of the total, remaining at similar levels to last year. Looking forward, and particularly with the benefits that FPS Distribution will bring to the Group, we are confident that aftersales profitability will continue to grow. Group Developments and Disposals Vauxhall In 2002, we acquired four Vauxhall dealerships in the Birmingham area from three separate owners. Since then we have completely rationalised the entire business, centralising fleet, wholesale parts, rental operations, advertising and marketing and also administrative functions. This rationalisation programme was finally completed in the first half this year, as we moved from two sites in Castle Bromwich and Aston to a Brand Centre facility on Star Park, Star City, adjacent to the M6. This is the largest Vauxhall Brand Centre in the country and it celebrated its official opening on Thursday 22 July 2004. This rationalisation of outlets and central functions will lead to improved productivity and profitability in the Birmingham market area. The Brand Centre is a major retail operation in the Birmingham market area with significant aftersales and used car capacity. In addition, it will retail all the major Vauxhall models including Monaro and VX220 and all of the high-performance VXR derivatives of these models. We would expect to see the real benefits of operating this market area flow through in 2005. Volkswagen As we indicated at the time of the preliminary results, in July 2004 we moved our Volkswagen franchise from the previously rented facilities in Blackburn to a brand new purpose built facility on the outskirts of the town. We now operate the Volkswagen franchise for the Blackburn and Burnley market area. In addition to this, we also acquired the land adjacent to the new Blackburn site, and we intend to shortly commence construction of a purpose-built bodyshop to serve the market area. We envisage seeing the benefits of this re-organisation flow through in the second half of the year. Renault In June we opened a brand new Renault dealership on a strategic site on the outskirts of Newtownards, Co Down. This showcase development has a 10 car showroom, parking for a further 150 cars on display and extensive workshop and aftersales facilities. Along with our recently redeveloped Renault showroom in Boucher Road, Belfast, it offers our Renault customers the very best facilities and service in a market where we have a dominant share. Audi At the end of January 2004, in line with Audi's requirements under their market area strategy, we disposed of our remaining Audi dealership in Thornaby, Teesside. This was a very profitable operation with an extremely good management team and workforce and we were particularly disappointed to have to sell this business. We are, however, confident that we will represent Audi again in the not too distant future. Platts Harris At the end of January 2004, we rationalised our agricultural business, Platts Harris. This involved disposing of three of our sites enabling us to reduce our investment by approximately £2.5 million; restructuring the management team; and reducing working capital whilst improving returns. I am pleased to report that this business is on track to meet its working capital and profit targets, and at the end of June it made a small profit of £60,000 against a loss of £140,000 in the same period last year - a turnaround of some £200,000. Rationalisation At the end of July we relocated our SEAT business in Manchester to Stockport to sit alongside the existing MG Rover facility. This should enable us to make a more acceptable level of return from that site going forward. At the same time we closed our Nissan operations in Manchester and Macclesfield. During the six months under review, these businesses lost just under £400,000. In consequence of this relocation/closure, we have agreed to sell the premises at Chester Road, Manchester to Honda UK for £4.3 million. CURRENT TRADING AND OUTLOOK Trading since the period end has been good, with new and used car sales ahead of the same period last year. We have been particularly encouraged by the order take for September. The new models coming out in the remainder of 2004 including the Ferrari 612, the Honda FRV, the Land Rover Discovery, the Peugeot 407, the Renault Modus, the Vauxhall Tigra and Astra Estate, together with continued strong demand for the Aston Martin DB9, the Bentley Continental GT and the Maserati Quattroporte suggest that 2004 will be another excellent year for both Lookers and the motor retail industry. We have focused on our finance and insurance income and have invested in the additional resources we consider necessary to improve this important area of our business. We expect the benefits of this to start to impact the second half of this year and more so thereafter. The new block exemption rules have now been in place for over ten months and we have already seen the benefits of these fundamental changes to the structure of the industry. We have strong relationships with our preferred manufacturing partners and are constantly examining further opportunities to expand our business, improve the balance of our franchise portfolio and enhance the quality of our earnings. Looking ahead, FPS Distribution offers us an excellent platform to develop a leading presence in the aftersales market, an increasingly important revenue stream in motor retailing. We are confident that our ongoing investment in improving the existing operations, our strengthened position in the aftesales market and our emphasis on growing the business organically and through selective and strategic acquisitions will lead to further success in the second half of this year and beyond. Fred Maguire Chairman 16 August 2004 The Directors announce the following unaudited results of the Group for the half-year ended 30 June 2004 Consolidated Profit and Loss Account (Summarised) Year Half-year Half-year ended ended ended 31 December 30 June 2004 30 June 2003 2003 (Unaudited) (Unaudited) (Audited) £000 £000 £000 Turnover 576,430 516,143 961,445 _______ ______ ______ Operating profit before goodwill amortisation and exceptional items 12,486 11,566 17,933 Exceptional item - VAT 7,750 - - Goodwill amortisation (475) (433) (871) Operating profit 19,761 11,133 17,062 Loss on disposal/termination of businesses - (619) (1,307) Profit on disposal of properties - 2,147 3,143 _______ ______ ______ Profit before interest and taxation 19,761 12,661 18,898 Interest Interest payable (2,672) (2,365) (4,873) Exceptional item - VAT interest receivable 9,000 - - _______ ______ ______ Profit on ordinary activities before taxation 26,089 10,296 14,025 Taxation (7,588) (2,831) (3,562) _______ _______ _______ Profit after taxation attributable 18,501 7,465 10,463 to shareholders Dividends - paid and proposed (1,408) (1,193) (3,893) _______ ______ ______ Retained profit 17,093 6,272 6,570 ====== ====== ====== Basic earnings per ordinary share 52.8p 21.6p 30.1p ====== ====== ====== Diluted earnings per ordinary share 52.6p 21.4p 29.8p ====== ====== ====== Adjusted earnings per ordinary share 20.7p 17.9p 26.2p Consolidated Balance Sheet (Summarised) 30 June 2004 30 June 2003 31 December 2003 (Unaudited) (Unaudited) (Audited) £000 £000 £000 FIXED ASSETS Intangible fixed assets 10,137 10,643 10,605 Tangible fixed assets 92,124 86,992 92,763 _______ _______ _______ 102,261 97,635 103,368 _______ _______ _______ CURRENT ASSETS Properties held for resale 7,191 5,356 3,511 Stocks 97,168 82,997 97,463 Debtors 79,932 65,228 41,229 Cash at bank and in hand 28 37 33 _______ _______ _______ 184,319 153,618 142,236 _______ _______ _______ CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR (170,142) (153,045) (140,490) ________ _______ _______ NET CURRENT ASSETS 14,177 573 1,746 ________ _______ _______ TOTAL ASSETS LESS CURRENT 116,438 98,208 105,114 LIABILITIES CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR (27,139) (27,478) (33,103) PROVISIONS FOR LIABILITIES AND CHARGES (1,424) (535) (1,424) ________ _______ _______ EQUITY SHAREHOLDERS' FUNDS 87,875 70,195 70,587 ======== ======= ======= Total Borrowings 53,461 47,600 59,284 ======== ====== ======= Gearing 61% 68% 84% ======== ====== ====== Gearing adjusted for VAT 42% ======== Consolidated Cashflow Statement (Summarised) Half-year Half-year Year ended ended ended 30 June 2004 30 June 2003 31 December 2003 (Unaudited) (Unaudited) (Audited) £000 £000 £000 Net cash inflow from operating activities before exceptional items 18,562 13,201 16,617 Outflow relating to exceptional items - - (2,469) ______ _____ ______ Net cash inflow from operating activities 18,562 13,201 14,148 Returns on investments and servicing of finance Interest paid (2,693) (1,870) (4,489) Non-equity dividends paid - - (286) Taxation paid (635) (1,048) (3,569) Net cash outflow from capital expenditure and financial investments (4,909) (1,346) (1,390) Net cash outflow from acquisitions and disposals - (7,289) (13,429) Equity dividends paid (2,697) (2,443) (3,600) Net cash (outflow)/inflow from financing (4,373) 3,048 4,216 _______ _______ _______ INCREASE/(DECREASE) IN CASH 3,255 2,253 (8,399) ====== ====== ====== Reconciliation of operating profit to net cash inflow from operating activities Operating profit before exceptional items 12,011 11,133 17,062 Depreciation charges 1,872 1,934 3,686 Goodwill amortisation 475 433 871 (Profit)/loss on sale of fixed assets (4) 2 (21) Decrease/(increase) in stock 295 (2,652) (14,077) Increase in debtors (21,954) (25,832) (1,832) Increase in creditors 25,867 28,183 10,928 _______ _______ _______ Net cash inflow from operating activities 18,562 13,201 16,617 ====== ====== ====== Reconciliation of net cashflow to movement in net debt Increase/(decrease) in cash in the period 3,255 2,253 (8,399) Cash inflow/(outflow) from decrease/increase in debt and hire purchase financing 2,568 (20,260) (17,832) Movement in net debt in the period 5,823 (18,007) (26,231) Loans acquired - - (3,460) Net debt at 1 January (59,284) (29,593) (29,593) Net debt at 30 June (53,461) (47,600) (59,284) ======= ======= ======= Notes 1. Dividends Ordinary shares of 25p The interim dividend proposed at the rate of 4.0p per share (2003 - 3.3p per share) is payable on 30 November 2004 to shareholders on the register at the close of business on 1 October 2004. 2. Earnings per share The calculation of earnings per ordinary share is based on profits on ordinary activities after taxation amounting to £18,501,000 (2003 : £7,465,000) and a weighted average of 35,038,900 ordinary shares in issue during the period (2003 : 34,557,836) 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 277,058 (2003 : 435,124). The diluted earnings per share is 52.6p (2003 : 21.4p). Adjusted earnings per share is stated before goodwill amortisation, loss on disposal/termination of businesses and the profit on disposal of properties and exceptional VAT credits and is calculated on profits of £7,251,000 (2003 : £6,184,000) for the period. 30 June 2004 30 June 2003 31 December 2003 Earnings Earnings Earnings per share per share per share Earnings Earnings Earnings p p p £000 £000 £000 Earnings attributable to ordinary shareholders 18,501 52.8 7,465 21.6 10,463 30.1 Goodwill amortisation 475 1.4 433 1.2 871 2.5 Loss on disposal/ termination of businesses - - 619 1.8 1,307 3.7 Tax credit on loss on disposal/termination of businesses - - (186) (0.5) (392) (1.1) Profit on disposal of - - (2,147) (6.2) (3,143) (9.0) properties Exceptional credit re VAT (16,750) (47.8) - - - - Tax charge on exceptional VAT credit 5,025 14.3 - - - - Adjusted 7,251 20.7 6,184 17.9 9,106 26.2 3. Taxation The tax charge for the period has been provided at the rate of 27.5%. Tax on the exceptional VAT credit has been provided at the rate of 30%. 4. Financial Information The interim financial information has been prepared on the bases of the accounting policies adopted at 31 December 2003 and is neither audited nor reviewed. The financial information set out in this interim report for the financial year ended 31 December 2003 are not the company's statutory accounts for that financial year. Those accounts have been reported on by the company's auditors and delivered to the registrar of companies. The report of the auditors was unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. 5. Interim Statement The interim announcement was approved by the Board and posted to shareholders on 16 August 2004. Copies are also available to the public at the registered office of the company at 776 Chester Road, Stretford, Manchester M32 OQH. A copy of the presentation to Analysts and Institutional Shareholders following the release of the interim results can be found at www.lookers.co.uk in the ' About us' section of our website. This information is provided by RNS The company news service from the London Stock Exchange

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