20th Mar 2006 07:03
Lookers PLC20 March 2006 20 March 2006 LOOKERS PLC AUDITED PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2005 Further to the announcement made by the Board of Lookers on 9 March 2006 firmlyrejecting Pendragon's offer, today the Board of Lookers is delighted to announceits audited preliminary results for the year ended 31 December 2005. Commenting on the results, Ken Surgenor, Chief Executive said: "It is ironic that at a time when Lookers is the subject of a bid at a levelwhich represents significant under value for Lookers shareholders, the Board ofLookers announces another record year with its strongest ever set of results. These outstanding results demonstrate the effectiveness of management'scommitment to their stated strategy as we continue to create shareholder value,outperforming in each of our key markets. In the current year, we have made anexcellent start and trading is significantly ahead of the Board's expectationsacross all areas of our business. As stated in the announcement on 9 March 2006, the Board believes that the allpaper offer of 1.15 Pendragon shares for each Lookers share significantlyundervalues the company and represents a significant discount to its fundamentalvalue. The Board will write to shareholders in due course with its detailedviews on the offer after Pendragon has published its Offer Document. In themeantime, the Board strongly advises shareholders to take no action whatsoeverin respect of the offer." 2005 RESULTS HIGHLIGHTS • Strong growth across all areas of the business with turnover up 13 per cent. to £1.23 billion (2004: £1.09 billion) • Adjusted* operating profit up 31 per cent. to £27.1 million (2004: £20.7 million) • Adjusted* profit before tax up 28 per cent. to £18.0 million (2004: £14.1 million) • Profit before tax £16.4 million (2004: £26.4 million, after net exceptional gains of £12.5 million) • Adjusted earnings per share up 22 per cent. to 37.7p (2004: 30.8p) • Basic earnings per share 32.7p (2004: 55.0p) * After adding back exceptional items, goodwill impairment and amortisation ofintangible assets • Total dividend up 26 per cent. to 15.25p (2004:12.1p), reinforcing the Board's commitment to the creation and return of value to shareholders. Further explanation of the Board's proposal for returning value to shareholders will be set out in its detailed response to Pendragon's offer • In spite of disruption caused by franchise refurbishments, rebuilds and relocations we have continued to outperform the indices for the new car market • Looking forward the Board has established a trading platform that is perfectly suited to the current trading environment. The key aspects of which are as follows: - used car sales up 23 per cent. after acquisition of two used car supermarkets - aftersales volumes up 36 per cent. including the acquisition of APEC Limited and strong performance from FPS - 72 per cent. of gross profit from non-new car business • Excellent start to the current year with trading well ahead of Board's expectations • In 2006 we expect to see significant contribution from recent acquisitions Enquiries: Lookers Telephone: 020 7796 4133Ken Surgenor, Chief Executive (on Monday 20 March only, and on 0161 291 0043 David Dyson, Finance Director thereafter) Hudson Sandler Telephone: 020 7796 4133Andrew Hayes/Nick Lyon/James Hill RESULTS STATEMENT The Board is delighted to be able to report that the Group has continued toachieve excellent progress during 2005, generating strong growth in turnover,profit* and earnings* which have enabled the Board to increase the totaldividend payment by 26 per cent. The successes achieved reflect our developmentstrategy and the effectiveness of our de-centralised dealer enfranchisedoperating model that delivers superior performance from our network, both interms of customer satisfaction and profitability. The benefits of a wide geographical coverage, a strong presence in used cars,and the car parts and service aftermarkets have enabled us to deliver anoutstanding set of results. Our scale and market strategy in each of the regional areas in which we operatehas enabled us to reduce costs, bolt on additional businesses and furthersignificantly improve efficiencies and thereby returns. Our de-centraliseddealer enfranchised model is at the heart of our success in delivering superiorreturns from the franchises we operate. As further evidence of the success ofthis strategy and reflecting the existing strong relationships we enjoy with ourmanufacturer partners, we were recently awarded a new Land Rover dealership inGlasgow. Outlook The Board believes that through Lookers' focus on and commitment to broadeningrevenue streams, strengthening relationships with manufactures and stakeholdersalike, driving consolidation and generating further efficiencies across theGroup, 2006 will be yet another successful year of growth. Already, the Group is making good progress and I am pleased to report thattrading has been ahead of the Board's expectations across all areas of ourbusinesses for the first two months of the year. In particular, our new carsales performance is well ahead of the market. In Northern Ireland, January isa key month and we are pleased to report that these operations enjoyed a strongperformance with new car retail sales up by 18 per cent. on the same period in2005. Overall volumes across the UK for one of the most important tradingmonths, March, are also encouraging. Our used car supermarkets and aftersalesbusinesses have also had a strong start to the year. * Adjusted pre exceptional items, goodwill impairment and amortisation ofintangible assets Dividend and Future Dividend Policy Following last year's excellent performance and the strong start to the currentyear, the Board is proposing a final dividend of 10.5 pence, bringing the totaldividend for the year to 15.25 pence, an increase of 26 per cent. on 2004.Subject to final approval at the Annual General Meeting, the final dividend willbe paid on 31 May 2006 to shareholders on the register at 18 April 2006. In light of the Board's continued confidence in the future, it is intending toinitiate a more progressive dividend policy, increasing the total dividendpayable by 15 per cent. per annum subject to maintaining an appropriate dividendcover. In conjunction with this, and as indicated last year, given the higherlevel of profit earned in the first half of the year, it is the Board'sintention that a larger proportion of the dividend will be paid at the interimstage in successive years. This increase in the final dividend and enhancement of the dividend policyreinforces the Board's commitment to creating further value and returningcapital to shareholders. Further proposals regarding how we intend to createand return value to shareholders will be set out in the defence document whichwill be posted to shareholders after the Pendragon offer document has beenposted, the timing of which is presently unclear. Operating Review Franchised Businesses The success achieved in this business area is due to the combination of thescale which has been generated with its broad base of manufacturing partners andalso the wide geographic spread of the operations. In order to provide a firstclass service to our partners and customers, the Group operates a decentralisedmanagement structure with key management directors taking responsibility fortheir respective franchises, and certain franchise directors who are responsiblefor a number of dealerships in one or more regions also being the focal point ofcontact for the manufacturer. We believe that the success of this approach is borne out by the fact that wehave again outperformed the market and continue to gain market share. Inaddition, although the new car market was down 5 per cent. in 2005 and the moreprofitable retail content of new car sales fell by over 10 per cent., our newcar sales were down only 3 per cent. by comparison and the retail element wasdown 7.5 per cent. On the volume side of the business, Vauxhall has had another excellent year. Wenow have seventeen Vauxhall outlets operating in three significant market areas- the North West, the Midlands and Northern Ireland. Of the prestige brands, Premier Auto Group ("PAG") has also had a verysatisfactory year. In total we now represent PAG in 22 outlets in threesignificant market areas - the South East, West of Scotland and NorthernIreland. In addition, we have again improved our used car performance which, on alike-for-like basis, is 6 per cent. ahead of last year which had also shown ahealthy increase on the previous year. Through our Customer Care Centre in Liverpool we have also continued to improveour aftersales volumes and margins. We have made significant improvements in our performance on sales of finance andinsurance products within the franchised businesses as a result of thestrengthening of the management team responsible for finance and insurancerelated activities. This has contributed to these excellent results and willbenefit us in the future. Part of our acquisition strategy has always been to retain, motivate andincentivise the key people within the target businesses and exploit theirexperience to expand the Group in those specific markets or market areas. Forexample, when we first expanded into Scotland by acquiring Taggarts in 2003, weretained all the senior and middle management. Having reincentivised andremotivated them they are now prospering under the Lookers banner, as is thebusiness. Our record of people retention and motivation is second to none. Not withstanding the major disruption of refurbishments, new builds andrelocations on 20 sites (representing 22 per cent. of our franchised outlets),we managed to achieve such a strong performance from this part of our businessin 2005. The level of such activity is expected to be significantly lower in2006 and we expect to reap the rewards of our increased investment in thesesites through the improved facilities for customers and staff alike. Inaddition, the current year will benefit from the contribution from the 5additional outlets acquired in 2005 together with the 6 which were acquired in2006. Used Car Supermarkets Our entry into the Used Car Supermarket business was effected by the acquisitionof BTC at the end of January 2005. Having quickly appreciated the potential ofthis business we were able to add another strategic location by acquiring ISC inthe Midlands, in May. Many of the vehicles sold by these outlets are sourced from our existingfranchise network, vehicles which would otherwise have been sold at auction.Unlike the used car operations on franchised sites, the Used Car Supermarketsgive customers much wider choice as they can physically display more vehiclesand offer all makes of used cars. These businesses performed in line with our expectations during our period ofownership, and in 2006, we will see the benefits of a full year of tradingcombined with improved performance overall. A third site in the South East was opened in January 2006. We now have outletsin the South East, South West and Midlands which are tracking to retail inexcess of 12,000 cars a year providing significant scale to both enhance marginsand reduce costs. Parts Distribution We acquired FPS Distribution ("FPS") in August 2004 and have successfullyretained the senior and middle management of this business. The team is youngand ambitious and is keen to grow the product offering and profitability. FPShas had a very strong performance in the year under review, achieving anoperating profit of £4.6 million. Recognising that there are significant opportunities to expand the distributionside of the business, the Company has put in place some initiatives to growthis, at little incremental cost. One such initiative has been the developmentof a series of programmes to be delivered under the "WDS" brand - WarehouseDistribution Services on a next day delivery cycle. The results of this will beseen in 2006 and beyond. At present, the business is constrained by the capacity of its centralwarehouse, which is currently 55,000 square feet. A freehold site has beenobtained and a purpose built warehouse will be constructed which willimmediately more than double that capacity, with the ability to expand to up to200,000 square feet without increasing the footprint of the proposed building.This will be available for January 2007 and will enable the business tosignificantly expand its distribution activities. In October, FPS acquired APEC Limited - a business specialising in dry brakingparts. APEC is a highly respected and leading brand of braking parts in theUnited Kingdom and Irish aftermarkets. This business supplies the same customerbase as FPS and complements that operation. In our short period of ownership,it has made a positive contribution and is in good shape to deliver its fullyear budget in 2006. Acquisitions and Disposals The fragmented nature of the motor retail and parts distribution industry offerssignificant opportunities to make earnings enhancing acquisitions. An importantcomponent of our ability to successfully integrate acquisitions and to furtherdevelop them, is our track record of retaining local management. At the end of January 2005, we acquired our first Used Car Supermarket inBristol, taking us to the South West of England for the first time. BristolTrade Centre ("BTC") was a well established business in the area. Themanagement of this business was retained, enabling us to make our secondacquisition in May of Ian Shipton Cars ("ISC") - a Used Car Supermarket in theMidlands. These two businesses have traded well during our period of ownership. On 31 July we acquired PLP Motors, comprising of two Vauxhall outlets inWarrington and Widnes, a Saab service centre in Warrington and introducedChevrolet to the Group for the first time in Warrington. The following month we acquired the Volvo businesses from Murray Motors inGlasgow and Hamilton. During the course of 2006, these businesses will berelocated to existing under-utilised facilities in these market areas to sitalongside our other PAG brands - Jaguar and Land Rover. The full benefits ofthese acquisitions will be realised when these relocations have taken place. In mid-October we acquired APEC Limited, based in Bristol which supplies drybraking parts and complements our FPS Distribution business. In addition, during the year we have provided Vauxhall with a new facility inBelfast in our Northern Ireland market area. This will be the first time forfive years that Vauxhall has been represented in that city and we fullyanticipate it to contribute strongly in 2006 as it grows its customer base andvolumes. The total cost of these acquisitions was £35.0 million and they reflect ourstated strategy of ensuring we have strong contributions from used car sales andaftersales which complement the revenue for new car sales. The annualisedrevenues of these acquisitions was £155.0 million and historically, thesebusinesses generated an annualised operating profit of £3.4 million. We willenjoy the full year benefit of these acquisitions and their expected improvementin performance in 2006. In our franchise business, we acquired 6 PAG dealerships on 28 February 2006,and during the year, Lookers also exited from 3 under-performing dealershipswhich were loss making at the operating profit level (2005: £1.3m). Our expansion strategy in the future will be to continue to acquire franchisedbusinesses especially prestige, used car operations and aftersales businesses toimprove the quantity and quality of earnings. Reg Vardy Acquisition and Pendragon Offer On 17 January 2006 we announced a recommended cash offer of 875p per share forReg Vardy plc. We felt that this represented an attractive opportunity to buildshareholder value through consolidation in the sector. Pendragon PLCsubsequently announced a higher offer of 900p. The Board believed that it wasnot in our Shareholders' interests to continue to pursue this opportunity athigher offer levels. On 9 March 2006 Pendragon announced an all share offer for your company. TheBoard, as advised by Rothschild, had no hesitation in unanimously rejecting thisoffer on the basis of its inadequacy both in terms of the value it places onyour company and also the real value of the Pendragon shares that are beingoffered. The Board's view was clear and augmented by the fact that there wouldbe significant operational risks to Pendragon shareholders in a three waymerger, all of which seems particularly unattractive when compared to theexciting future growth prospects for Lookers as a stand alone company. Fred Maguire Ken Surgenor For and on behalf of the Board of Lookers plc 20 March 2006 FINANCIAL REVIEW Financials Turnover has increased to £1.23 billion from £1.09 billion last year,representing growth of 13 per cent. of which approximately half was organic. Wehave continued to focus on driving operating efficiencies and cost reductionsacross the business whilst managing the integration of acquisitions and growingorganically. As a result we have achieved an improvement in the adjustedoperating margin from 1.9 per cent. to 2.2 percent., an increase of 16 per cent. Gross margins have increased by 20 basis points from 12 per cent. to 12.2 percent. This, together with our tight control of operating costs, has resulted ina 31 per cent increase in operating profit before impairment, amortisation andexceptional items. Profit before tax for the year was £16.4 million, but before exceptionals,impairment of goodwill and amortisation of intangible assets was up 28 per cent.to £18.0 million. Adjusted earnings per share was 37.7 pence, an increase of 22per cent. Net exceptional items amount to a charge of £0.7 million compared with a creditof £12.5 million in 2004. Last year there was a net credit of £15.6 million inrespect of VAT compared with £2.0 million this year. Of the remainder, £1.2million charge relates to professional fees in connection with the abortedacquisition of Reg Vardy plc. The balance is made up of the costs to exitcertain underperforming franchises. Although new borrowings have been taken out to fund our expansion programme, ouroperating cashflow of £50.2 million (2004: £40.6 million) demonstrates ourability to quickly repay our borrowings. A large proportion of the Group's borrowings are hedged allowing rates tofluctuate between certain acceptable parameters. The fair value of the hedge atthe end of December resulted in a £0.4 million charge to be provided within theinterest cost. Over the last five years we have increased earnings and dividends at a compoundgrowth rate of 28 per cent. and 13 per cent. respectively. Dividends Total dividend cover is 2.5 times based on adjusted earnings. Cash Flow and Capital Expenditure Despite the significant investments made in acquisitions and capital expenditureour strong operating cash flow of £50.2 million has enabled us to maintaingearing levels at 82 per cent. compared with 72 per cent. the previous year. Pension Deficit The Group has taken action to reduce its pension fund deficit by agreeing withthe Trustees of the Pension Scheme to contribute an additional £2.1 million perannum for the three years up until the next formal valuation. The first ofthese contributions was made during 2005. New Regulations The investment made by the Group to ensure it received the necessaryauthorisations to sell insurance products from the Financial Services Authorityand the ongoing investment to ensure staff remain fully competent to sellinsurance products has positively impacted the customer experience and oursuccess in selling these complementary products. David Dyson Finance Director 20 March 2006 The Directors announce the following audited results of the Group for the yearended 31 December 2005 Consolidated Income Statement (Summarised) Year ended Year ended 31 December 2005 31 December 2004 £M £M Revenue 1,231.6 1,093.8 Operating profit before amortisation and exceptional items 27.1 20.7Amortisation of intangible assets and impairment of goodwill (0.9) (0.2)Exceptional items (2.5) 4.1 Profit from operations 23.7 24.6 Interest costs - net (9.1) (6.6)Interest income on VAT refund 1.8 8.4 Profit before tax, amortisation, impairment and exceptional itemsAmortisation of intangible assets and impairment of goodwill 18.0 14.1Exceptional items including interest income on VAT refund (0.9) (0.2) (0.7) 12.5 _____ _____Profit on ordinary activities before taxation 16.4 26.4Taxation 4.8 7.1 ______ _____Profit for the period 11.6 19.3 ===== ====Basic earnings per ordinary share 32.7p 55.0p ===== ===== Diluted earnings per ordinary share 32.6p 54.9p ===== =====Adjusted earnings per ordinary share 37.7p 30.8p ===== ===== Dividend per Ordinary share - interim 4.75p 4.00p - final 10.50p 8.10p _____ _____ 15.25p 12.10p ===== ===== Consolidated Balance Sheet (Summarised) 31 December 31 December 2005 2004 £M £MFIXED ASSETSGoodwill 20.3 15.2Other intangible fixed assets 16.8 13.4Property, plant & equipment 137.2 106.2 ______ _____ 174.3 134.8 ______ _____CURRENT ASSETSInventories 190.8 140.4Trade and other receivables 66.8 52.2Cash and cash equivalents 2.4 2.5 ______ _____ 260.0 195.1 ______ _____ Non current assets classified as held for resale - 1.8 ______ _____ TOTAL ASSETS 434.3 331.7 ===== ===== CURRENT LIABILITIESBank loans and overdrafts 21.3 16.6Trade and other payables 240.2 156.7Tax liabilities and short term provisions 8.5 9.5 ______ _____ 270.0 182.8 ===== ===== NET CURRENT (LIABILITIES)/ASSETS (10.0) 12.3 _______ _____ NON CURRENT LIABILITIESBank loans and overdrafts 52.7 43.7Retirement benefit obligations 19.2 18.0Deferred taxation and long term provisions 2.2 3.0 _____ _____ 74.1 64.7 ===== =====TOTAL LIABILITIES 344.1 247.5 ===== =====NET ASSETS 90.2 84.2 ===== ====Total Borrowings 74.0 60.3 ===== ====Gearing 82% 72% ===== ==== Consolidated Cashflow Statement (Summarised) Year ended Year ended 31 December 2005 31 December 2004 £M £MCash generated from operations Net profit 11.6 19.3Adjustments for tax 4.8 7.1Adjustments for depreciation 4.7 4.1Profit on disposal of property, plant & equipment (0.4) (0.4)Cost of aborted Vardy takeover 1.2 -Amortisation of intangibles 0.7 0.1Impairment of goodwill 0.2 -Interest on VAT (1.8) (8.4)Interest expense - net 9.1 6.6 Changes in working capital (excluding effects of acquisitions anddisposal of subsidiaries)Increase in inventories (40.1) (24.6)(Decrease) increase in trade and other receivables (8.5) 3.1Increase in payables 73.0 31.5Increase/(decrease) in pensions (2.5) (0.5)Movement in provisions (1.8) 2.7 _____ ___Cash generated from operations 50.2 40.6 Tax paid (4.0) (2.4)Interest paid (8.3) (5.9)Exceptional interest received on VAT refund 1.8 8.7 ____ ____Net cash from operating activities 39.7 41.0 ____ ___ Cashflows from investing activities Acquisition of subsidiaries (net of cash acquired) (34.6) (34.9)Purchase of property, plant and equipment (19.9) (11.9)Proceeds from sale of property, plant & equipment 2.6 10.5Proceeds from sale of business 1.9 0.5 _____ _____Net cash used by investing activities (50.0) (35.8) Cashflows from financing activities Proceeds from issue of ordinary shares 0.1 0.3Repayment of loans (13.5) (16.9)New loans 24.0 30.0Principal payments under HP agreements (0.2) (0.1)Dividends paid to group shareholders (3.5) (3.9)Net cash from financing activities 6.9 9.4 === === Increase in cash and cash equivalents (3.4) 14.6Cash and cash equivalents at the beginning of the period 2.5 (12.1) _____ ___Cash and cash equivalents at the end of the period (0.9) 2.5 ==== === Consolidated Statement of Recognised Income and Expense Year ended Year ended 31 December 2005 31 December 2004 £M £MActuarial losses recognised in post retirement benefit scheme (3.1) (4.6)Taxation thereon 0.9 1.4 _______ _____Net losses recognised directly in equity (2.2) (3.2)Profit for the financial period 11.6 19.3 _______ _____Total recognised income and expenses for the period 9.4 16.1 ====== ===== Notes 1. Basis of Preparation The financial information has been prepared under International FinancialReporting Standards (IFRS) issued by the IASB and as adopted by the EuropeanCommission (EC). As a result, the comparative figures to 31 December 2004 havebeen restated under IFRS. Further information in relation to the Standardsadopted by the Group is available on the Group's website www.lookers.co.uk. The information for the years ended 31 December 2005 and 2004 does notconstitute statutory accounts as defined in section 240 of the Companies Act1985. A copy of the UK GAAP statutory accounts for 2004 have been delivered tothe Register of Companies. The auditors' report on those accounts under UK GAAPwas unqualified. 2. Dividends The final dividend proposed at the rate of 10.5p per share (2004 - 8.1p pershare) is payable on 31 May 2006 to shareholders on the register at close ofbusiness on 18 April 2006. Together with the interim dividend paid 30 November2005, total dividend for 2005 is 15.25p (2004 - 12.10p) 3. Exceptional items Year ended Year ended 31 December 31 December 2005 2004 £M £M Exceptional item - VAT refund 0.2 7.3Loss on termination of businesses (1.9) (3.4)Profit on disposal of properties 0.4 0.2Aborted acquisition costs (1.2) - ___ ___Exceptional items included within Operating Profit (2.5) 4.1Exceptional interest on VAT refund 1.8 8.4 ____ ____Total exceptional items (0.7) 12.5 ==== ==== 4. Interest costs - net Year ended Year ended 31 December 31 December 2005 2004 £M £M Bank interest payable 5.6 4.4Fair value losses on interest rate hedges 0.4 -Bank interest receivable (0.1) (0.3)Hire purchase agreements 0.1 0.1Interest on consignment vehicles 2.5 2.0Net interest on pension scheme 0.6 0.4 ____ ____ 9.1 6.6 ==== ==== 5. Earnings per share The calculation of earnings per ordinary share is based on profits on ordinaryactivities after taxation amounting to £11.6million (2004: £19.3million) and aweighted average of 35,523,586 ordinary shares in issue during the year (2004:35,133,817). The diluted earnings per share is based on the weighted average number ofshares, after taking account of the dilutive impact of shares under option of56,573 (2004: 85,266). Adjusted earnings per share is stated before amortisation of intangible assets,impairment of goodwill, loss on disposal/termination of businesses, the profiton disposal of properties and the exceptional VAT credits and is calculated onprofits of £13.4 million for the year (2004: £10.8 million). 31 December 2005 31 December 2004 Earnings Earnings Earnings Earnings £M per share £M per share P PEarnings attributable toordinary shareholders 11.6 32.7 19.3 55.0 Amortisation of intangibleassets and impairment ofgoodwill 0.9 2.5 0.2 0.6 Exceptional items (net) 0.7 2.0 (12.5) (35.6) Tax on exceptional items(net) 0.2 0.5 3.8 10.8 _________________________ ____ ____ ____ ____ 13.4 37.7 10.8 30.8_________________________ ____ ____ ____ ____ 6. Property, Plant and Equipment 31 December 31 December 2005 2004 £M £M Freehold property 87.6 65.9Long leasehold property 35.1 29.9Short leasehold property 4.2 1.8Plant and machinery 4.4 3.4Fixtures, fittings, tools and equipment 5.9 5.2 ______ _____ 137.2 106.2 ===== ==== This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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