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Lookers heading for £18.5m profit this year

Lookers this week reported a strong half-year set of figures and expressed confidence that if the new car market stayed within expectations (2.45m), there would be an equally good result in the second half.

According to independent forecasts, Lookers is heading for £18.5m of profit this year with 39p of earnings per share and a dividend of 13p.

The City barely reacted to the news, prompting Ken Surgenor, Lookers' chief executive, to give a shrug of despair. The company has the highest yield and lowest rating of all the listed dealers yet the results keep on coming without mistakes.

Turnover is up 12% at £648m for the six months to June 30, and Lookers is making an operating margin of 2.3% - up from 2.0% and closing on the target of 2.5%, which has been a modest ambition for some time. Operating profits before amortization and exceptional items are up 27% at £15m.

Part of the reason for the gain was the contribution of the two big car supermarkets, Bristol Trade Centre and Ian Shipton Cars. Both are recent acquisitions and both have exceeded budget. They are repaying the faith in synergy benefit that Lookers believed existed. Lookers auctions 15,000 unwanted trade-ins a year while the supermarkets sell 10,000 cars a year from all sources. So far the two Lookers sites have been able to take 1,000 of the 15,000.

They have helped Lookers boost used car sales by 25% (like-for-like up 4.7%), offsetting the 3.5% dip in new car sales, albeit in a market for 5.8%.

Used cars now contribute 19% to gross profits, compared to 28% from new cars and 53% from aftersales.

Everything that Lookers has touched so far this year has turned out well. It has spent £21m on acquisitions and £8m on upgrades, which have raised gearing from 69% at the end of last year to 80%.

Despite looking for market area partnerships, the specialization with brands has not developed far. The only separation has been from Nissan – a counter-intuitive development given the close relationship that Lookers has with Renault – especially in Northern Ireland.

But Surgenor reckons that Nissan has far too many dealers for him to be able to scratch a living out of it. For the volume of cars sold, it has four times as many as Renault.

Results overview

2005 2004
Turnover £648m £576m
Operating profit* £15m £11.8m
Earnings per share 22.3p 203p

* before exceptionals

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