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Lookers the 'toast of investors' as forecasts £60m profit for the year

Lookers has today reported record first half results with adjusted pre-tax profits up 36% at £40.2 million.

Revenue for the six months to the end of June increased to £1.6 billion - up 29% - and earnings per share rose to 7.59p (2013: 5.36p) - up 42%.

Operational cash flow improved to £55.9m (2013: £42.4m) and the interim dividend is up 10% at 0.97p per share.

The motors division increased profit before by 43%, to £37.5m, compared to £26.3m last year. New car sales increased by 12% compared to 2013, on a like-for-like basis, 3% ahead of the UK market. And in fleet volumes were up 19%, double the market growth.

Gross profit per unit on new retail cars increased by 5%. On fleet it was "slightly ahead".

Its sales of used cars was up 5% on 2013 and gross profit per unit increased by 7%.

On aftersales turnover increased by 6% due to an increase in the vehicle parc of cars under three years old. Margin has increased by 1% to 42.8%.

Lookers said it expected to post a full-year pretax profit more than £60ms, above market expectations, after it saw a surge in first-half profits spurred on by record sales.

Chief executive Andy Bruce said: "We have delivered a strong trading performance in the first half of the year which is another record result and represents six successive years of profit improvement.

"Both the motor and parts divisions have produced excellent results. Operational cash flow for the period was particularly positive, strengthening the balance sheet further.

"Lookers is well placed to take advantage of further growth opportunities in the new and used car markets and increased demand for aftersales and parts. This gives us confidence that we can continue to grow the business and deliver improved results for the full year."

And he is quoted by Reuters as saying: ""We'll now be expected to nudge over 60 (million pounds) for the year which is OK with us." He said the market is being driven by finance packages, "just unprecedented in terms of value for money".

Joshua Raymond, chief market strategist of broker City Index, said of the results: "Investors toasted Lookers earnings this morning after the UK’s fourth largest car dealer upgraded its full-year forecasts to more than £60m pretax profit after a strong first-half of the year.

"This is higher than shareholders were expecting as sales jumped for the first six months, helping the firm to report a 36% rise H1 profits of £40.2m.

"Earlier estimates were for a full year profit (before tax) of closer to £57m.

"The market was expecting a strong half-year from Lookers, particularly after rival Pendragon released forecast beating earnings just last week, and that is what they got. Shares rose more than 2% in early trading on Wednesday as a result.”

The interim dividend, to be paid on November 28, was lifted 10% to 0.97p a share (2013: 0.88p).

AM spoke to Lookers' managing director Nigel McMinn:

While Lookers is not unusual in benefitting from a strong market, the group is particularly pleased that its margins are growing. This is put down to its rich mix of premium brands in its portfolio by managing director Nigel McMinn.

"Margins have been steadily improving for two-three years, by about £1,500. Margin percentages are under pressure and part of that is, if you sell a higher value vehicle the percentage margin comes down, but in pounds profit per unit terms - which is what we care about - it goes up," he said.

Other factors playing into Lookers' favour are "less tangible".

"We have stable teams, strong management, we're improving investment in digital marketing and putting huge emphasis on hitting new car targets without having to pre-register at all."

On the issue of increasing manufacturer targets he said, it as too easy to adopt a negative view: "In a buoyant market, manufacturers are justified in setting ever higher targets.

"The market grows and all manufacturers want a share. We react to targets by aggressively marketing vehicles to ensure we meet them rather than just trying to protect the margins."

On the size of the new car market, he said it had got to slow down, but at the moment dealers were serving five years' of pent up demand, which would continue, leading to a market of about 2.5m units.

"We're happy to see a growth in the up-to-three year old vehicle parc feeding our aftersales business and access to used cars. But we see the natural market at 2.4m."

Low interest rates, access to cheap finance and attractive PCP deals are key drivers for the current market.

McMinn stressed the importance of exchange rates. "Over the last 10 years there's been quite an obvious correlation between a strong pound and a strong new car market.

"A one percentage point increase in the exchange rate is worth about £120 per car for manufacturers bringing vehicles from Europe to the UK. It's moved about eight points in the last year, so about £1,000. This is giving manufacturers the freedom to improve their price offers." 

> Lookers' interim statement (pdf)

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