Lookers has said that it will maintain its relentless focus on operational optimisation and cash management as “significant inflationary pressures” impact car retail sector’s trading performance.

A H1 trading update published by the AM100 PLC this morning (June 29) revealed that pre-tax profits were expected to decline in the region of 10% - from £50.3 million to around £45m – on a first half of 2021 which saw car dealerships continue to be impacted by COVID-19 lockdown closures.

However, it stated that its annual financial performance would be “substantially H1 weighted”.

Despite pressures on consumer spending and continued vehicle supply constraints Lookers said it will continue to perform ahead of expectations and leverage the strength of its OEM relationships, robust financial position and omnichannel model to navigate the challenges ahead.

Chief executive Mark Raban, the AM Awards 2022's Business Leader of the Year, said: “Following a record year in 2021 we have maintained strong trading momentum whilst continuing to make progress with our key strategic initiatives.

“I would like to thank all my Lookers colleagues, our customers and our brand partners for their patience and understanding during these uncertain trading conditions.

“There is no doubt that challenges lie ahead but with continued operational optimisation Lookers is extremely well positioned to continue to maximise its multiple growth opportunities.”

H1 business

During the first half of the year Lookers opened a newly-redevleoped headquarters, completed the sale and leaseback of its Volkswagen car dealership property in Battersea for £28m and disposed of its of Orpington Honda dealership to Brayleys Cars.

Work was also underway to upgrade its Volkswagen dealerships in Teeside and Preston.

The group – profiled by AM earlier this year – said it had performed broadly in line with a UK new car market down 8.7% year-to-date to the end May but outperformed the market in the brands it represents.

In the same five-month period Lookers' used vehicle volumes declined by 8.1%.

New and used vehicle margins remained strong, driven primarily by vehicle supply shortages, as aftersales revenues showed good growth in the same period, it said.

Lookers’ trading update said: “The trading performance reflects our relentless focus on operational optimisation. This has helped to offset some material increases in operating expenses, particularly within utility and staff costs where we have experienced significant inflationary pressures.”

Strong foundations

The group’s financial position appears strong. At the end of May it had net cash balances of £62.4m (May ’21: £3.0m) and it has agreed a new £100m revolving credit facility which expires on September 30, 2025.

Its balance sheet remains underpinned by its valuable and flexible property portfolio net book value circa £295m.

Reporting Lookers' market outlook, today's statement said: “We are pleased with our strong H1 performance and have a good order bank going into the second half, albeit uncertainties remain on the availability of these vehicles and we are yet to fully understand how inflationary pressures may impact both consumer demand and our operating costs.

“We anticipate that the new and used vehicle supply restrictions will continue for the remainder of 2022 and beyond.

“Despite these factors, the board believes the group’s scale, strength of OEM relationships, robust financial position and omnichannel model leave us well placed to navigate these challenges.

Given the unique trading conditions we are seeing across the market and in light of the performance to date, the board anticipates the year will be substantially H1 weighted and that underlying profit before tax will be ahead of its previous expectations.”