# LOOKERS plc Record underlying profits, strengthened balance sheet and multiple future growth opportunities

- Link: https://www.directorstalkinterviews.com/lookers-plc-record-underlying-profits-strengthened-balance-sheet-and-multiple-future-growth-opportunities/4121060043
- Published: 2022-04-06T07:23:15+01:00
- Author: Giles

**Lookers plc** (LON:LOOK), one of the leading UK integrated automotive retail and
service groups, has announced its preliminary results for the year ended 31 December
2021.

> **Mark Raban, Lookers Chief Executive Officer, said:**
> “2021 was a record year for Lookers. We navigated another year of limited new 
> vehicle supply and COVID-19 disruption. We have reported excellent profits and
> cash generation, through strong used car margins, continued focus on costs and
> the unstinting efforts of our people. We have successfully moved back to a net
> funds position in the business and have a strong balance sheet, underpinned by
> our property assets, supporting our investment capacity to grow the business.
> The business and our customers face some uncertainties in 2022. Trading in Q1 
> has been strong despite new vehicle supply remaining tight. The current crisis
> in Ukraine and significant cost of living increases will put pressure on consumer
> sentiment and disposable incomes. However, the Group is looking forward to the
> future with confidence. It has emerged from the challenges of the past couple 
> of years stronger and with a clear strategy to navigate future challenges and 
> drive value for all our stakeholders.”

inancial summary

|  Year ending 31 December | 2021  | 2020 (restated)* | 
| Revenue |        £4,050.7m |        £3,699.9m | 
| Underlying profit before tax** | £90.1m | £13.7m | 
| Underlying basic earnings per share** | 20.07p | 2.97p | 
|   |   |   | 
|   |   |   | 
| Statutory profit before tax | £90.0m | £1.5m | 
| Basic earnings / (loss) per share | 15.65p | (1.18p) | 
|   |   |   | 
| Dividend per share | 2.5p | – | 
| Net funds / (debt)*** | £3.0m | (£40.7m) |

* Prior year restatement reduced underlying profit before tax from £14.1m to £13.7m
and reduced statutory profit before tax from £2.0m to £1.5m (see Note 1).

** Underlying profit before tax is profit before tax and non-underlying items. Underlying
basic earnings per share is earnings per share before the impact of non-underlying
items and the impact of tax rate changes.

*** Bank loans and overdrafts less cash and cash equivalents, excluding stocking
loans, vehicle rental finance liabilities and lease liabilities under IFRS 16.

**Financial highlights**

·      Group revenue up 9% to £4,050.7m (2020: £3,699.9m)

·      Gross profit margin increased to 12.8% (2020: 11.1%)

·      Underlying profit before tax of £90.1m (2020 restated: £13.7m), primarily
driven by used vehicle margins

·      Exceptional operational performance and working capital management has resulted
in net funds of £3.0m (2020: net debt £40.7m)

·      The Board’s capital allocation policy focuses on investment to grow revenue
and profits, and maximise shareholder returns through the disciplined deployment
of cash

·      Reinstatement of a dividend with a proposed full year dividend of 2.5 pence
per share, which the Group intends to grow progressively

Strategic priorities

In this announcement, we update on our six strategic priorities:

·     **Operational optimisation** – the Group will drive earnings growth and reduce
costs through increasing the penetration of finance product sales, raising levels
of aftersales income from older vehicles, improving enquiry management to sales 
conversion rates and working capital benefits from improving new / used vehicle 
inventory control.

·     **Leveraging technology and digitisation – **replacement of current customer
facing showroom system with Salesforce to materially improve the Group’s data analytics
capability and optimise the customer journey in all channels.

·     **Expansion of Original Equipment Manufacturer (OEM) Brand Partner relationships–**
the Group is well positioned to expand both new and existing OEM Brand Partner relationships.
The Group will introduce further new pure EV brands into the UK market in 2022 and
2023, and is in advanced discussion with a number of OEM Brand Partners.

·     **Increased used vehicle penetration **– with 83,000 sales in 2021, our market
share is just over 1%. We expect to grow our omni-channel proposition and will add
to our 11 multi-franchise standalone used car centres. Two c.5 acre ‘Lookers Cube
Concept’ multi-franchise used car centre anchor sites will be added to our portfolio
in 2022 and 2023.

·     **Development of aftersales revenue streams – **the Group will drive significant
incremental earnings opportunities in the growing cosmetic repair market. The Group
intends to roll out new static and mobile cosmetic repair infrastructure and equipment
to approximately 50 of the Group’s existing sites, starting in 2022 and which will
be complete by the middle of 2023.

·      **Leveraging corporate leasing and fleet capabilities **– the Group will 
integrate its three leasing businesses as one operating unit and create a single,
multi-product offering to the Group’s corporate customers. These entities have a
combined current fleet size of approximately 12,000 units which the Group aims to
grow substantially by 2024.

**Current trading and outlook**

On 25 March 2022 the Group completed a sale and leaseback of its property at York
Road, Battersea. The sale generated cash proceeds of £28m before costs, resulting
in a gain on sale of c.£6m. The Group has signed a 20-year lease on the property
which is occupied by its Volkswagen Battersea franchise. The Group now holds property
assets with a net book value of c.£290m (74p per share).

The momentum of last year has continued into trading in the first quarter of 2022.
Robust consumer demand and supply constraints on both new and used vehicles have
seen gross margins being maintained at 2021 levels. This, combined with a tight 
control on costs sees the business ahead of 2021 on an underlying profit basis.

The ongoing semiconductor shortage is likely to see new car supplies constrained
for the remainder of 2022. Headwinds caused by high levels of inflation in areas
such as utilities, mean the Group will experience material cost increases. Wider
inflationary pressures and the macro-economic impacts of the crisis in the Ukraine
add significant uncertainty to the trading conditions faced by the Group. Notwithstanding
these uncertainties, the Board remains confident about the outlook, and that the
Group is well placed for the remainder of 2022.

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