Lookers has difficult Q2 with new car sales and provides update on consortium interest

Lookers’ motor division has seen a difficult second quarter of trading this year which the group has put down to weak consumer confidence.

The company’s half year trading update does show, however, that its independent parts division continues to deliver “record results”.

In its interim statement, Lookers said: “Overall, the group continues to trade satisfactorily, and we expect group results for the first half year to June 30, 2011 to be very close to the record first half trading performance of 2010, despite pressure on volumes in the new and used car markets.”

Group sales of new retail cars reduced by 12.7%, but margins are in line with last year and remain ahead of budget.

Used car volumes increased by 5% in the period, compared to last year and margins continue to be at satisfactory levels and consistent with last year.

Aftersales revenue in the motor division was similar to budget and the gross profit margin has been maintained in line with budget but has increased compared to last year.

Fleet margins have improved compared to last year for Lookers, more than offsetting the small reduction in fleet volume the group saw in Q2.

Lookers has continued to balance its portfolio of franchise representation, closing five underperforming businesses and adding three new ones in the first half of 2011. The sale of surplus assets has generated £12m in the first six months of the year.

The dealer group acquired Get Motoring UK Limited in March this year and profitability for the vehicle leasing business is ahead of expectations.

The company is also providing further information following the termination of discussions with Trefick Limited, Moor Park Capital Partners LLP and Brett Palos Capital No 2 Limited (“the consortium”).

The financial results for the six months to 30 June 2011 are expected to be announced on 17 August 2011.

Takeover bid rejected

Lookers has also provided more information on the offer it rejected from the consortium which was a proposal of 70 pence per Lookers share.

In its announcement on June 29, the consortium indicated that this proposal had been based on new information received from the company during the due diligence process, although the nature of this new information was not disclosed by the consortium in its announcement.

Lookers understands this information related primarily to the valuation of the group’s freehold and long leasehold properties and the company’s pension schemes.

With regard to property, it appears the consortium’s original value of 80 pence per share had been based on its assumption that the value of the company’s property portfolio was significantly in excess of the value included in Lookers’ accounts.

The due diligence exercise indicated that the value of the properties in total was above the value in the Lookers’ accounts, but not to the extent required by the consortium’s business plan.

The consortium’s advisers had also carried out a preliminary review of the Lookers’ pension schemes as part of the due diligence exercise.

Their initial view suggested that the additional annual payments towards the pension deficit may have to be increased as a consequence of the change in ownership and this had a negative impact on the consortium’s valuation of the company.