Lookers outperforms expectations with £47.2m profit in H1

Lookers has posted a better than expected first half (H1) of the year performance with underlying profit before tax reaching £47.2 million.

This was down by 5.6% year-on-year from £50m, although the group said the same period in 2021 benefited from £12.7m of Government support.

The performance also outperformed Lookers’ own H1 2022 expectations back in June, where it said it was expecting to post a profits of around £45m for H1 this year.

Revenues of £2.23 billion were driven by aftersales and used cars.

The group currently has a new car order bank of 22,000 units leading into the second half of 2022, compared with 9,000 a year ago.

The electric vehicle (EV) market continued to grow in the period, with EVs now representing 14.4% (H1 2021: 8.1%) of UK new car registrations. Lookers EV sales mix continues to be higher than the national average at 17.8%, increasing from 12.5% in H1 2021, due to our focus in this growth segment.

Chief executive Mark Raban, the AM Awards 2022's Business Leader of the Year, said: “Our first half financial performance was very strong, against an exceptional comparative period, despite ongoing inflationary pressure and vehicle supply disruption.

“We have also made excellent progress with our strategic priorities.”

This includes the further expansion with the premium electric Polestar brand and progress with a number of new brands and EV-only entrants.

Lookers is currently working on a used-car non-franchised concept at an eight-acre 'Full Cube' site in the North-East that could become a blueprint for other regions in the UK.

The group is looking to repurpose an existing site before launching in Q2 next year.

If succesful, a "handful" of other Full Cube used car sites would follow.

The business is also focussing on expanding its SMART and cosmetic vehicle repairs business with 50 fixed sites and 20 mobile solutions expected to be in place before the end of 2023. Half of the rollout is expected to be by the end of this year.

Lookers expects the SMART repair business to realise a potential profit uplift by as much as £30m over the medium term.

Cautious optimism for H2 2022

Duncan McPhee, Lookers chief operating officer, told AM: “We’re cautiously optimistic about the second half of the year.

“We have a healthy new car order bank and September will provide a good indicator for what’s to come.

“Some OEMs are less affected than others but my expectation is that a level of normality with new car supply is unlikely before the second half of 2023.”

While Lookers is heavily invested in facilitating the sale of EVs for its new car brands, it is also conscious of the long term knock-on impact to aftersales profitability.

EVs provide a smaller profit opportunity for aftersales and so Lookers is looking to offset this with its SMART repair plans.

McPhee said: “We previously used to sub-contract all our cosmetic repairs out of the business but we think there’s a huge opportunity.

“We’ll start with internal work, but from there we will prospect aftersales customers and further down the line we’ll look at business to business work too.”

McPhee added that there is also a “long-tail” to continue servicing internal combustion engines (ICE).

He also said the business is laser focused on retention to keep customers in the network through service plans and extended warranties.

McPhee does not forsee any "cliff edge" drops in used car prices on the horizon, but is expecting a further softening as new car supply issues start to right themselves next year.

He said: "Used car prices will continue to be dictated by new car supply.

"We have also increased our finance penetration from 27% in H1 last year to 48% this year. This has added an additional £7m of gross profit.

"So I think whatever happens with prices, there is still an opportunity to be had with increased F&I volumes to protect used car gross profits."

This is in addition to Lookers' focus on stock control across the group with a hard metric that no more than 10% of used car stock can be 60 days old.

McPhee said that while the cost of living crisis will likely affect its future order take, he is confident the business has a diverse enough portfolio of premium brands where consumers could be less affected.

He said: "We have a broad base of customers and brands ranging from Ferrari to BMW, Mercedes-Benz and Land Rover.

"We're inquiry rich and I think we can do a better job of converting these opportunities in H2.

"I think it can be easy to talk yourself into a recession and that's not something we want to do."