Lookers plc (LON:LOOK), one of the leading UK motor retail and aftersales service groups, today announces its preliminary results for the year ended 31 December 2020 (the “year”)
Highlights
· Revenue of £3.7bn (2019: £4.8bn) impacted by lockdown and trading restrictions throughout the year.
· Underlying profit before tax of £14.1m (2019: £4.0m) with strong performance in the second half of the year, more than offsetting a challenging first half. Statutory profit before tax of £2.0m (2019: Loss before tax £45.7m).
· Outperformance against the UK retail new car market of 9.6 percentage points with resilient trading in used cars and aftersales.
· Significant restructuring activity completed, reducing headcount, strengthening the Group’s operating model and materially reducing the cost base. On track to deliver annualised savings of approximately £50m.
· Strong balance sheet with a valuable property portfolio of c.£300m (77p per share).
· Reduction in net debt benefitting from management actions. Net debt has reduced further in 2021, with a net cash position currently of approximately £18m.
· Revolving Credit Facility extension agreed with existing banking club for an initial £150m.
· FCA investigation into the Group’s historic sales processes closed without sanctions, resulting in the release of the prior year £10.4m provision.
Financial Summary
| FYR 2020 | FYR 2019 | Var % | |
| Underlying* | |||
| Underlying profit before tax £m | £14.1m | £4.0m | 253% |
| Underlying earnings per share (p) | 2.93p | 0.83p | 253% |
| Statutory | |||
| Revenue £m | £3,699.9m | £4,806.5m | (23%) |
| Profit/(loss) before tax £m | £2.0m | (£45.7m) | n/a |
| Loss per share (p) | (1.05p) | (10.74p) | 90% |
| Dividend per share (p) | – | 1.48p | – |
| Net debt £m** | £40.7m | £59.5m | 31.6% |
* Underlying profit before tax is profit before tax and non-underlying items. Underlying earnings per share is earnings per share after tax and before non-underlying items (see Note 3).
** Bank loans and overdrafts less cash and cash equivalents, excluding stocking loans, vehicle rental liabilities and lease liabilities under IFRS 16.
Strategic Priorities
· Investment and development of the Group’s omni-channel customer experience, enhancing choice through a hybrid combination of digital engagement and high-quality forecourt service.
· Harnessing growth from the transition to electric vehicles through infrastructure investment and connected car services, alongside the roll-out of new aftersales products and services.
· Continued focus on driving operational excellence through further productivity improvements, effective cash management and a robust approach to capital allocation.
· Focus and investment in people and systems to support the Group’s simplification, controls, engagement and transparency initiatives.
Current Trading and Outlook
· Trading in the first six months of the year has been exceptionally strong underpinned by robust consumer demand, ongoing outperformance of the UK retail new car market, improving used vehicle margins and the Group’s self-help restructuring programme.
· As we look forward into the second half of 2021 there remains some uncertainty driven by the ongoing impact of COVID-19 and notable supply restrictions in both new and used vehicles which have been tightening in recent weeks.
· Notwithstanding these uncertainties given the strength of performance during the first half of 2021 the Board remains confident about the outlook for the remainder of 2021.
Mark Raban, Lookers plc Chief Executive Officer, said:
“2020 was a challenging year for the Group dealing with both the impact of COVID-19 and the Group’s legacy issues.
We are emerging from this period operationally, financially and culturally as a better business, focused on putting the customer at the centre of everything we do.
We expect to build on the strong momentum within the business, underpinned by our excellent manufacturer relationships, omni-channel technology platform and fantastic Lookers colleagues. We are now in a great position to benefit from the many growth opportunities available for the business.”
Chairman’s statement
Introduction
I was appointed Chairman of the Board on 4 September 2006 and it is with some sadness that I present my final Chairman’s statement. The recruitment process for my successor is progressing as planned and I will step down when an appointment is confirmed later this year.
Like all businesses, over the years Lookers has experienced many challenges and none greater than those of 2020. The COVID-19 global pandemic resulted in the complete closure and severe disruption to our normal business operations and trading patterns throughout much of the year. This had a material impact on our financial performance. During this time, we made many changes and enhancements to our operating model which not only helped mitigate the impact of COVID-19 but also served to act as a catalyst for permanent change and improvement across the business.
In addition, in June 2020 we requested the FCA temporarily suspend our shares whilst we investigated potentially fraudulent transactions in one of our operating divisions, concluded a substantial independent investigation and delayed the publication of both the full year 2019 results and interim 2020 results. Following the successful conclusion of these matters, we requested and were granted restoration of our shares to the official list of the London Stock Exchange on 29 January 2021.
In June 2020 we also announced a material restructuring programme to prepare the business for a more sustainable future and to optimise the many opportunities we believe lie ahead.
The combination of these issues resulted in material uncertainty throughout much of the year.
“I am extremely grateful for the support and patience that we have received from our stakeholders, including the UK government, throughout what has been a very challenging period for both the business and our people.”
Strategy
Following this period of uncertainty and reflecting on our learnings throughout the COVID-19 pandemic, we refreshed our strategy. The customer remains front and centre of everything we do, underpinned by the right brands in the right locations. Our strategic building blocks are centred on delivering operational excellence, providing an engaging and safe environment for all our colleagues and customers, enabling technology both front and back of house and simplifying and strengthening our policy framework.
Our strategic initiatives are focused on continuing with increasing our efficiency and improved cash management, digital investment, preparing for electrification which we see as the biggest opportunity in a generation and our controls enhancement programme.
COVID-19
On 23 March 2020, in order to protect the safety and welfare of our people and customers and in response to the UK Government’s social distancing advice, we temporarily closed all our trading locations. Following the introduction of new operating measures, the Group partly reopened 31 locations to provide essential repairs and maintenance to key workers’ vehicles alongside 10 parts distribution centres.
From the middle of May 2020 we progressively opened all our locations in a manner consistent with appropriate local regulations. We implemented new operational processes to ensure the appropriate COVID-19 secure protocols were in place protecting both staff and customers. This included the complete redesign of our sales processes to offer a fully contactless experience.
In November 2020 further restrictions came into effect and as a result we were only able to provide our customers with pre-booked aftersales appointments and to provide both new and used vehicles sales using our Click & Drive contactless solution as the showrooms remained closed. In December 2020 various regional and tiered restrictions were implemented across England, Scotland and Ireland.
On 4 January 2021 a third national lockdown commenced which saw our vehicle showrooms closed. This situation continued until 12 April 2021 (Northern Ireland – 30 April 2021) when we were delighted to be able to re-open the entire business as normal.
We remain committed to providing the best possible service whilst ensuring the well-being of both our colleagues and customers.
Restructuring
In June 2020 the Board undertook a review of the Group to consider the future operating model in light of potential demand, a reduced dealership estate and structural changes taking place across the industry. As a result, the Board took the difficult decision to commence redundancy consultations across all areas of the business, which resulted in approximately 1,500 redundancies and the closure or consolidation of 12 sites. The Board carefully considered all options and regrettably considered this action as being necessary in the current environment to sustain, protect and enhance the business over the long term.
Performance in 2020
The financial performance of the Group during the year was significantly impacted by the disruption caused by the COVID-19 global pandemic together with a number of non-underlying one-off costs resulting from the Group’s restructuring programme, impairment of goodwill and costs in relation to the investigation and resolution of legacy accounting issues.
Statutory profit before tax for the year was £2.0m (2019: restated loss of £45.7m). Excluding the impact of non-underlying items, the Group recorded an underlying profit before tax* of £14.1m (2019: restated £4.0m).
The first six months of the year (H1) proved very challenging with the complete closure and lockdown of operations for over two months. As we emerged from lockdown, performance in the second six months of the year (H2) improved materially. This was driven by strong outperformance of the retail new car market, improved used car margins, the early benefits of the Group’s restructuring initiatives and several operational improvements implemented during lockdown. Underlying profit before tax* in H2 was £50.2m (2019: loss (£18.1m)). Our performance in H2 brings me confidence that we can deliver our 1.5% – 2.0% target return on sales over the long term.
Refinancing
Throughout the year the Board was focused on preserving cash and protecting the Group’s liquidity position. As at 31 December 2020 net debt* was £40.7m (2019: £59.5m). This reduction has been delivered through increased control and focus on all aspects of working capital management and a robust approach to capital allocation.
In May 2021 we agreed with our Banking Club a new credit facility providing an initial £150m expiring in September 2023. I would like to take the opportunity to thank our Banking Club for all their support over the last 18 months.
Regulatory relations
As previously reported, we have been working internally to review our governance, systems and controls including as they relate to our regulated activities. On 2 March 2021 we announced that the FCA had advised the Board of its decision to close the investigation against Lookers Motor Group Limited for the possible mis-selling of regulated products between January 2016 and June 2019. The FCA closed the investigation without applying any sanction but noted several concerns relating to the historic culture, systems and controls of the Group which the Board fully accepted.
The Group is satisfied that the FCA confirmation represents an adjusting event after the balance sheet date as this provides proof that there was not an obligating event and have therefore and have released the £10.4m provision made in the 2019 financial statements in 2020.
Management and Board changes
2020 was a year of significant change as we sought to refresh and reshape the Board to prepare for the significant opportunities and challenges ahead. Richard Walker, Sally Cabrini, Stuart Counsell and Tony Bramall all left the Board as planned during 2020.
We were delighted to appoint Mark Raban as Chief Executive Officer in February 2020 and Duncan McPhee as Chief Operating Officer in January 2021.
Anna Bielby was appointed as Interim Chief Financial Officer in January 2021 for a term of six months. Since then she has made a very valuable contribution to the Group. She has agreed to extend her assignment and will leave the Group at the end of July 2021 following completion of a number of big projects. A search for Anna’s replacement is underway.
* Alternative performance measure – see Note 15
Heather Jackson was appointed Senior Independent Director and Chair of the Remuneration Committee in July 2020 and November 2020 respectively. On 13 April 2021 Heather advised the Board of her decision to step down to focus on her increasing non-executive directorships and business interests.
Vicky Mitchell assumed the role of Chair of Lookers Motor Group, the FCA regulated entity, in July 2020.
We were also pleased to appoint Robin Churchouse as an independent Non-Executive Director and Chair of Audit and Risk Committee in December 2020 and January 2021 respectively, and Paul Van der Burgh as Non-Executive Director in April 2021 and then as Senior Independent Director from May 2021.
As the search for my successor continues the Board has asked me to remain as Chair in order to ensure an orderly handover, and I therefore stood for re-election at the 2021 AGM.
I would like to thank all my Board colleagues, past and present, for their continued support and contribution to the Group.
Dividends
The Board remains mindful of its relationships and commitments to all stakeholders. The dividend policy remains that subject to satisfactory trading prospects, dividends are covered around 3.0 to 3.5 times underlying earnings and paid in approximately one third (interim dividend) and two thirds (final dividend) split.
In the light of the financial performance during the period, continued uncertainty around COVID-19 and as part of its ongoing actions to protect the Group’s balance sheet the Board has decided not to recommend any dividends for the year.
Current trading and financial outlook
In line with COVID-19 restrictions, the Group’s showrooms remained closed until 12 April 2021 (Northern Ireland – 30 April 2021). Despite these restrictions, the Group continued to take orders and fulfil vehicle handovers through its dealership teams, call centres and website. These activities were underpinned by our Click & Drive and contact-less technology platform.
As we announced on 25 May 2021 and 28 June 2021, trading across the Group has been robust since the reopening of our dealerships. We continue to experience strong consumer demand and ongoing outperformance of the UK retail new car market. Used vehicle margins also remain strong, benefitting from improving residual values and greater operational focus. In addition to these market trends the Group continues to benefit from its enhanced hybrid omni-channel customer offer, and the decisive self-help restructuring initiatives implemented last year.
As we look forward into the second half of 2021 there remains some uncertainty driven by the ongoing impact of COVID-19 and notable supply restrictions in both new and used vehicles which have been tightening in recent weeks – the former in part due to the current worldwide semiconductor chip shortage.
Notwithstanding these uncertainties, given the strength of performance during the first half of 2021, the Board remains confident about the outlook for the remainder of 2021.
Conclusion
2020 was a very challenging year. I am extremely proud of how our people responded, showing real dedication and flexibility. I would like to personally thank the whole Lookers team for their understanding and dedication during such a challenging time for the Group.
We have always enjoyed strong relationships with our Original Equipment Manufacturer (OEM) Brand Partners and are grateful for their support across a range of financial and other measures during the year.
The investigation into our financial systems and accounting controls, the delay in the publication of our 2019 results and the subsequent temporary suspension of our shares were a great disappointment. With these matters now resolved we can look to the future with increased confidence.
Lookers is a great business with great brands and great people. It is difficult to look too far ahead at the moment, but I am reassured that we have the resilience to weather the current storm and the agility to emerge as a business which can build on its strong foundations. We can now move forward from here focussing on the many thousands of customers who rely on us for their mobility.
It has been a great privilege to chair Lookers, and I wish all my colleagues, our stakeholders, and my successor as Chair every future success.
Phil White
Chairman
30 June 2021
