Lookers posts record pre-tax profit of £90m

Lookers posted a record pre-tax profit of £90.1million after navigating tough new car supplies and trading high margins on used cars.

The group’s preliminary results for the year ended December 31, 2021 showed revenue of £4.05 billion, a 9% increase on 2020.

Profits jumped year-on-year from the £13.7million performance in 2020.

Mark Raban, Managing Director of Lookers, said: “We have been through another year of limited supply of new vehicles and disruptions related to COVID-19.

“We have had excellent earnings and cash generation, thanks to strong margins on used cars, a continued focus on costs and the tireless efforts of our people.

“We have successfully returned to a net equity position in the business and have a strong balance sheet, backed by our property assets, supporting our investment capacity to grow the business.”

Raban said the company and its customers still face some uncertainties in 2022, but trading was strong in the first quarter despite new car supply constraints.

He added: “The current crisis in Ukraine and significant increases in the cost of living will put pressure on consumer confidence and disposable incomes.

“However, the Group looks to the future with confidence. It emerged from the challenges of the past two years stronger and with a clear strategy to meet future challenges and create value for all our stakeholders.”

Raban recently spoke at length with AM as part of an in-depth profile where he explained how he was “tremendously proud of what the band has achieved” after leading the once-troubled revival of PLC during the most turbulent period in the sector outside of wartime.

During his two years at the helm, Raban guided Lookers through a cost-cutting restructuring that reduced a total of 27 retail sites and a large workforce at the AM100 car retail group.

He also guided the firm through a period that saw a fraud investigation identify a £19million black hole in the group’s accounts, a Financial Conduct Authority (FCA) investigation examine its compliance procedures and the company delisted from the London Stock Exchange due to the late filing of its accounts in 2019.

Save new car order bank

Duncan McPhee, COO of Lookers (pictured), told AM on an earnings call this morning that while there are challenges in the new car market when it comes to supply, he thinks that the negative performance of March in the industry erased the positive points observed in the first quarter.

He said: “We saw some elements of the new car supply improving and performance throughout the quarter was positive.

“We are particularly encouraged by our record new car order bank of 20,000 new vehicles in 2021 and which will begin to filter through this year.

“We are tracking cancellation rates for new car orders very closely and customers are happy to wait. We have not seen cancellation rates increase due to waiting for delivery.”

Lookers’ financial performance was bolstered by its used car business in 2021.

McPhee said used car margins peaked in January this year and he expects some price decline in the coming months, although he does not expect to a “cliff edge” scenario.

He said: “We will continue to focus on strong inventory controls, speed to market and chassis margin as part of our used car strategy.”

McPhee has confirmed plans to expand its omni-channel proposition in 2022 and will add to its 11 multi-franchise autonomous used-car centers.

Two five-acre “Lookers Cube Concept” multi-franchise used car experience centers will be added in 2022 and 2023.

McPhee said: “We are looking to create a destination that will offer multi-franchise used vehicles, as well as a 150KW super fast charging hub as part of these Experience Centers.

“We are also looking to complete the concept with a coffee franchise. We are at the stage where we are engaging with real estate agents to find locations. Things are progressing well. »

Constellation speculation

McPhee also addressed speculation that Lookers could become the latest target for a full takeover by Constellation Automotive following the £79.6m acquisition by the owner of BCA and Webuyanycar of a 19.9% ​​stake. in January.

Constellation bought most of the shares of industry veteran Tony Bramall, who in 2006 began to strengthen his position as Lookers’ largest shareholder to protect the group from rival Pendragon.

McPhee said: “We lost a big shareholder in Tony Bramall and we gained another.

“Constellation viewed the group as undervalued and Lookers represents an investment opportunity.

“They are happy with the board and the strategy and that is the message.”

New car performance

New Lookers retailer registrations increased 10% to 38,657 units in 2021, while new fleet and business registrations remained relatively flat, compared to a market that grew 2%.

The group recorded a 63% increase in electric vehicle (EV) sales in 2021, with equal growth in retail and fleet channels.

Previously, the fleet channel was dominant, driven by the tax treatment of electric vehicles.

Lookers will introduce other new pure electric vehicle brands to the UK market in 2022 and 2023 and has confirmed it is also in advanced discussions with a number of automakers to increase its representation.

Used vehicle sales

The group’s used car sales increased by 8% on a like-for-like basis.

The imbalance between supply and demand in the used vehicle market in 2021 has led to an unprecedented appreciation in used vehicle values ​​and therefore margins.

Lookers’ unit margin increased 54% in the first half and 45% in the second half, with an overall increase of 44% year-on-year.

The margin increase includes the impact of the used car market but also “several mutual aid actions and tight inventory control”.

Unprecedented unit margins along with increased volumes resulted in a 53% increase in used vehicle gross margin compared to 2020.

After-sales performance

Lookers said its aftermarket operations have faced challenges due to the ongoing global pandemic with a reduction in new vehicle registrations, labor shortages and market re-seasonalisation and distribution and limited parts availability.

However, the company still increased its aftermarket gross margin by 13% year-over-year on a like-for-like basis.

Aftersales accounted for 35.3% (2020: 40.0%) of the group’s total gross margin. At constant scope, after-sales revenue increased by 14.5% compared to 2020.

Labor sales in 2021 were up 10% from the prior year, with overall parts sales up 17% from 2020, resulting in a slight margin percentage dilution total aftermarket, but still resulted in a 10.7% increase in gross margin.

The workshops remained fully operational throughout 2021 despite periods of increased pressure due to COVID-19 infection rates and self-isolation.

Active service plan agreements declined in 2021 as expiring policies were not fully replaced by new service plans, a consequence of lower new car sales in 2020 and 2021 compared to previous years .

Lookers said the decline was partly offset by increased sales of extended warranty policies for used vehicles, achieved through a streamlining of the group’s warranty product offering as well as pricing. simplified.

The group has also focused on improving the customer experience by digitizing the after-sales journey with the introduction of integrated online service reservations, self-check-in at home, tracking updates vehicles in the workshop, video health checks and integrated online payment options.

Lookers plans to expand its business in the cosmetic repair market in 2022 with the deployment of new static and mobile cosmetic repair infrastructure and equipment at approximately 50 of the group’s existing sites, starting in 2022 and to be completed by mid 2023.