Lookers posts record pre-tax profit result of £90m

Lookers has posted a record pre-tax profit of £90.1 million after navigating challenging new car supplies and trading on strong used car margins.

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

Profits have taken a big leap year-on-year from the £13.7m performance in 2020.

Mark Raban, Lookers chief executive, said:  “We navigated another year of limited new vehicle supply and COVID-19 disruption.

“We  have reported excellent profits and cash generation, through strong used car margins, continued focus on costs and the unstinting efforts of our people.

“We have successfully moved back to a net funds position in the business and have a strong  balance sheet, underpinned by our property assets, supporting our investment capacity to grow the business.”

Raban said the business and its customers still face some uncertainties in 2022, but trading has been strong in Q1 despite new car supply constraints.

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

"However, the Group is looking forward to the future with confidence. It has emerged from the  challenges of the past couple of years stronger and with a clear strategy to navigate future challenges and drive value for all  our stakeholders."

Raban recently spoke to AM at length as part of an in-depth profile feature where he spoke of how he is “extremely proud of what the group has achieved” after leading the once troubled PLC’s revival through the sector’s most turbulent period outside war time.

In his two years at the helm, Raban has navigated Lookers through a cost-cutting restructure which cut a total of 27 retail sites and significant headcount from the one-time AM100-topping car retail group.

He has also guided the business through a period which saw a fraud probe identify a £19 million black hole in the group’s accounts, a Financial Conduct Authority (FCA) investigation scrutinise its compliance procedures and the business de-listed from the London Stock Exchange due to the late submission of its accounts in 2019.

Record order new car order bank

Duncan McPhee, Lookers chief operating officer (pictured), told AM on a results call this morning that while there are challenges in the new car market on supply, he thinks March’s negative performance across the industry has taken away from the positives seen in Q1.

He said: “We have seen some elements of new car supply improving and the performance across the quarter has been positive.

“We’re particularly encouraged by our record performance new car order bank of 20,000 new vehicles in 2021 and that will start filtering through this year.

“We track cancellation rates on new car orders very closely and customers are happy to wait. We haven’t seen cancellation rates rise as a result of having to wait for delivery.”

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

McPhee said the peak for used car margins was seen in January this year and he does expect some softening in prices in the coming months, although he doesn’t expect a “cliff edge” scenario.

He said: “We’ll continue to focus on strong stock controls, speed to web and chassis margin as part of our used car strategy.”

McPhee confirmed plans to grow its omni-channel proposition in 2022 and will add to its 11 multi-franchise standalone used car centres. 

Two five acre ‘Lookers Cube Concept’ multi-franchise used car experience centre anchor sites will be added in 2022 and 2023.

McPhee said: “We’re looking to create a destination that will feature multi-franchise used vehicles, as well as a 150KW ultra rapid charging hub as part of these experience centres.

“We’re also looking to complement the concept with a coffee franchise. We’re at the stage where we’re engaged with property agents to find some locations. Things are progressing well.”

Constellation speculation

McPhee also addressed speculation that Lookers could become the latest target for an all-out acquisition by Constellation Automotive after the cinch, BCA and Webuyanycar owner’s £79.6m acquisition of a 19.9% stake in January.

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

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

"Constellation saw the group as undervalued and Lookers represents an investment opportunity.

"They are happy with the board and the strategy and that's the been the message."

New car performance

Lookers’ new retail registrations grew by 10% to 38,657 units in 2021, while new fleet and business registrations remained relatively static, compared to a market which grew by 2%. 

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

Previously the fleet channel had been dominant, driven by the tax treatment of EVs.

Lookers will introduce further new pure EV brands into the UK market in 2022 and 2023 and confirmed it is also in advanced discussions with a number of car manufacturers to increase 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 resulted in unprecedented appreciation of used vehicle values and therefore margins.

Lookers’ margin per unit increased by 54% in H1 and 45% in H2, with an  overall increase across the year of 44%.

The increased margin includes the impact of the used car market but also “several self help actions and robust inventory control”. 

Unprecedented unit margins alongside increased volumes resulted in a 53% increase in used vehicle gross profit compared to 2020.

Aftersales performance

Lookers said its aftersales operations have faced challenges due to the continued global pandemic with a reduction in new vehicle registrations, labour shortages and re-seasonalisation of the market and restricted parts distribution and availability.

However, the business still grew its aftersales gross profit by 13% year-on-year on a like-for-like basis.

Aftersales represented 35.3% (2020: 40.0%) of the group’s total gross profit. On a like-for-like basis aftersales revenues increased by 14.5%  versus 2020.

Labour sales in 2021 were up 10% on the prior year, with overall parts sales up 17% against 2020, resulting in a small dilution of total aftersales margin percentage, but still leading to a 10.7% increase in gross profit. 

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

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

Lookers said the decline has been partly offset by  increased sales of extended used vehicle warranty policies, achieved through a rationalization of the group’s warranty product offering  together with simplified pricing.

The group has also focussed on enhancing the customer experience by digitalising the aftersales journey with the introduction  of integrated online service bookings, self-check in from home, workshop vehicle tracker updates, video health checks, and  integrated online payment options.

Lookers has plans to  grow its cosmetic repair market business in 2022 with the roll out of new static and mobile cosmetic repair infrastructure and equipment to approximately 50 of the group’s existing sites, starting in 2022 and which will be complete by the middle of 2023.