Lookers drives forward with current strategy

CAR dealership network Lookers, which has a parts and distribution business in Sheffield, has said that it will continue with its strategy of building a combined motor retail and parts business following the recent unsuccessful takeover approach by a consortium led by property entrepreneur Jack Petchey.

The takeover group was rumoured to be looking at selling off its independent parts division to a trade or private equity buyer and then parcelling up its property portfolio to sell off in various chunks.

A bid at a price which the board deemed to be suitable never materialised, but chairman Phil White said the they had “considered whether the current business form with both a motor and a parts division was the optimum structure, or whether one or both the divisions should be sold, demerged or retained”.

“We have concluded that the best strategy for the company at this stage is for it to continue to expand organically and to enhance this with meaningful and complementary acquisitions, in both the motor and parts divisions.”

White said that the company is in the midst of a refinancing, and had “incorporated an element of additional headroom”in its negotiations which would allow it to make acquisitions.

“Additional but significant funding could also be potentially obtained from the selective sale and leaseback of key properties, whilst still retaining a majority of freehold properties in our portfolio.”

In the six months to June 30, Manchester-based Lookers managed to increase revenues despite the weak market for new cars and retained most of its profits.

Pre-tax profits dropped by just £100,000 to £21.3m in the six months to June 30, while revenues climbed by 1.4% to £1bn.

White said that its profits were “very close” to the record levels achieved during the first half of last year, which he said gave the board confidence that it can deliver a successful full-year performance.

Group sales of new cards were 5.4% ahead of the market, the firm said, although the market was 7.1% lower this year than last, when the government’s scrappage scheme was still in place.

Used car volumes increased by 5%, and White added that Lookers is still winning a greater share of the aftersales market.

The firm has also continued the shake-up of its existing franchise balance, closing or selling off five brands but opening three new franchises.

“Our market-leading independent parts division continues to perform well and has made further improvements in profitability, which is ahead of both budget and the prior year,” he said.

“The parts division is of particular importance to the group as it is not subject to the fluctuations that can occur in the new car market and therefore generates earnings which are more resilient.”

In terms of revenues, the new cars division still makes up for around 45% of sales, though, with used car sales responsible for just over 30% and aftersales around 15%.

Cash generation also improved during the first half, up to £40m from £32.1m last year. This has allowed it to pay down a further £25.6m of debt, meaning that its net debt currently stands at £31m. It has facilities worth £115m, which are due to expire next April.

“We are currently finalising the refinancing of the group with our banks and expect this to be successfully concluded in the second half of this year,” he said.